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TAXATION 1

FULL TEXTS AND TAX DIGESTS FROM THE NET

FROM THE BOOK OF DIMAAMPAO .

WHAT CASES ARE INCLUDED?

1. CARLOS SUPERDRUG CORP VS DSWD (526 SCRA 130)


2. CIR VERSUS CA ( 261 SCRA 236)
3. EASTERN THEATRICAL CO. VS. ALFONSO ( 83 PHIL 852)
4. MANILA RACE HORSE CHURVALU VS DELA FUENTE 88 PHIL
60
5. CITY OF BAGUIO VS DE LEON 25 SCRA 938
6. SISON VS ANCHETA 130 VS 654
7. JUAN LUNA SUB INC VS SARMIENTO 91 PHIL 371
8. ASSN OF CUSTOMS BROKERS INC VS MUN BOARD CITY OF
MANILA 93 PHIL 107
9. ORMOC SUGAR CO VS TREASURER OF ORMOC 22 SCRA 603
10. MISAMIS ORIENTAL ASSN OF COCO TRADERS VS DOF
238 SCRA 63
11. TOLENTINO VS SEC OF FINANCE 235 SCRA 630
12. KAPATIRAN NG CHURVALU VS TAN 163 SCRA 371
13. CASANOVAS VS HORD 8 PHIL 125
14. CAGAYAN ELECTRIC VS COMMISSIONER GR 60126
15. PHIL POWER DEV CHURVALU CTA CASE NO 1152- NO
FULLTEXT
16. ABRA VALLEY COLLEGE VS AQUINO 162 SCRA 106
17. REV LLADOC VS CIR 14 PHIL 292
18. YMCA OF MANILA VS COLLECTOR 33 PHIL 217
19. BISHOP OF NEUVA SEGOVIA VS PROV BOARD OF
ILOCOS 51 PHIL 352
20. HERRERA VS QUEZON CITY CHURVALU 3 SCRA 186
21. COM OF INTERNAL REV VS BISHOP OF MISSIONARY
DIST. 14 SCRA 991
22. PROV OF ABRA VS HERNANDO 107 SCRA 104
23. VILLANUEVA VS CITY OF ILOILO 26 SCRA 578
24. CIR VS PASCOR 309 SCRA
UNGAB VS CUSI 97 SCRA 877- UNGAB DOCTRINE
25. CIR VS CA GR 104151
26. RP VS CA 149 SCRA 351
27. COLLECTOR VS FLORES CHURVA- NO FULLTEXT BUT
WITH DIGESTED CASES FROM THE NET
28. CABRERA VS PROV TREASURER OF TAYABAS 01-29-1946
29. VALENCIA VS JIMENEZ 10-23-1908
30. UNGAB VS CUSI 97 SCRA 877
31. MAMBULAO LUMBER VS REPUBLIC 132 SCRA 1
32. FERNANDEZ HERMANOS VS CIR 29 SCRA 552
33. REPUBLIC VS ARANETA 2 SCRA 144
34. MARCOS II VS CA 273 SCRA 47
35. REPUBLIC VS HIZON 320 SCRA 574
36. CIR VS VILLA 22 SCRA 3

-------------NOTHING FOLLOWS--------
TAX 1- 3RD BATCH ON CONSTITUTIONAL
LIMITATIONS UP TO THE LAST

FULLTEXTS

DUE PROCESS OF LAW

CASE NO. 1

CARLOS SUPERDRUG CORP., G.R. No. 166494


doing business under the name
and style Carlos Superdrug, Present:
ELSIE M. CANO, doing business
under the name and style Advance PUNO, C.J.,
Drug, Dr. SIMPLICIO L. YAP, JR., QUISUMBING,*
doing business under the name and YNARES-SANTIAGO,
style City Pharmacy, MELVIN S. SANDOVAL-GUTIERREZ,**
DELA SERNA, doing business under CARPIO,
the name and style Botica dela Serna, AUSTRIA-MARTINEZ,
and LEYTE SERV-WELL CORP., CORONA,
doing business under the name and CARPIO MORALES,
style Leyte Serv-Well Drugstore, AZCUNA,
Petitioners, TINGA,
CHICO-NAZARIO,
- versus - GARCIA,
VELASCO, JR., and
DEPARTMENT OF SOCIAL NACHURA, JJ.
WELFARE and DEVELOPMENT
(DSWD), DEPARTMENT OF Promulgated:
HEALTH (DOH), DEPARTMENT
OF FINANCE (DOF), DEPARTMENT June 29, 2007
OF JUSTICE (DOJ), and
DEPARTMENT OF INTERIOR and
LOCAL GOVERNMENT (DILG),
Respondents.
x ---------------------------------------------------------------------------------------- x
DECISION

AZCUNA, J.:

This is a petition[1] for Prohibition with Prayer for Preliminary Injunction


assailing the constitutionality of Section 4(a) of Republic Act (R.A.) No.
9257,[2] otherwise known as the Expanded Senior Citizens Act of 2003.

Petitioners are domestic corporations and proprietors operating drugstores in


the Philippines.

Public respondents, on the other hand, include the Department of Social


Welfare and Development (DSWD), the Department of Health (DOH), the
Department of Finance (DOF), the Department of Justice (DOJ), and the
Department of Interior and Local Government (DILG) which have been
specifically tasked to monitor the drugstores compliance with the law;
promulgate the implementing rules and regulations for the effective
implementation of the law; and prosecute and revoke the licenses of erring
drugstore establishments.

The antecedents are as follows:

On February 26, 2004, R.A. No. 9257, amending R.A. No. 7432,[3] was
signed into law by President Gloria Macapagal-Arroyo and it became effective
on March 21, 2004. Section 4(a) of the Act states:

SEC. 4. Privileges for the Senior Citizens. The senior


citizens shall be entitled to the following:

(a) the grant of twenty percent (20%) discount from all


establishments relative to the utilization of services in hotels and
similar lodging establishments, restaurants and recreation centers, and
purchase of medicines in all establishments for the exclusive use or
enjoyment of senior citizens, including funeral and burial services for
the death of senior citizens;

...
The establishment may claim the discounts granted under (a),
(f), (g) and (h) as tax deduction based on the net cost of the goods
sold or services rendered: Provided, That the cost of the discount shall
be allowed as deduction from gross income for the same taxable year
that the discount is granted. Provided, further, That the total amount
of the claimed tax deduction net of value added tax if applicable, shall
be included in their gross sales receipts for tax purposes and shall be
subject to proper documentation and to the provisions of the National
Internal Revenue Code, as amended.[4]

On May 28, 2004, the DSWD approved and adopted the Implementing
Rules and Regulations of R.A. No. 9257, Rule VI, Article 8 of which states:

Article 8. Tax Deduction of Establishments. The


establishment may claim the discounts granted under Rule V, Section
4 Discounts for Establishments;[5] Section 9, Medical and Dental
Services in Private Facilities[,][6] and Sections 10[7] and 11[8] Air,
Sea and Land Transportation as tax deduction based on the net cost of
the goods sold or services rendered. Provided, That the cost of the
discount shall be allowed as deduction from gross income for the
same taxable year that the discount is granted; Provided, further, That
the total amount of the claimed tax deduction net of value added tax if
applicable, shall be included in their gross sales receipts for tax
purposes and shall be subject to proper documentation and to the
provisions of the National Internal Revenue Code, as amended;
Provided, finally, that the implementation of the tax deduction shall be
subject to the Revenue Regulations to be issued by the Bureau of
Internal Revenue (BIR) and approved by the Department of Finance
(DOF).[9]
On July 10, 2004, in reference to the query of the Drug Stores Association of
the Philippines (DSAP) concerning the meaning of a tax deduction under the
Expanded Senior Citizens Act, the DOF, through Director IV Ma. Lourdes B.
Recente, clarified as follows:

1) The difference between the Tax Credit (under the Old


Senior Citizens Act) and Tax Deduction (under the Expanded Senior
Citizens Act).
1.1. The provision of Section 4 of R.A. No. 7432 (the
old Senior Citizens Act) grants twenty percent (20%) discount
from all establishments relative to the utilization of
transportation services, hotels and similar lodging
establishment, restaurants and recreation centers and purchase
of medicines anywhere in the country, the costs of which may
be claimed by the private establishments concerned as tax
credit.

Effectively, a tax credit is a peso-for-peso deduction


from a taxpayers tax liability due to the government of the
amount of discounts such establishment has granted to a senior
citizen. The establishment recovers the full amount of discount
given to a senior citizen and hence, the government shoulders
100% of the discounts granted.

It must be noted, however, that conceptually, a tax


credit scheme under the Philippine tax system, necessitates that
prior payments of taxes have been made and the taxpayer is
attempting to recover this tax payment from his/her income tax
due. The tax credit scheme under R.A. No. 7432 is, therefore,
inapplicable since no tax payments have previously occurred.

1.2. The provision under R.A. No. 9257, on the


other hand, provides that the establishment concerned may
claim the discounts under Section 4(a), (f), (g) and (h) as tax
deduction from gross income, based on the net cost of goods
sold or services rendered.

Under this scheme, the establishment concerned is


allowed to deduct from gross income, in computing for its tax
liability, the amount of discounts granted to senior citizens.
Effectively, the government loses in terms of foregone revenues
an amount equivalent to the marginal tax rate the said
establishment is liable to pay the government. This will be an
amount equivalent to 32% of the twenty percent (20%)
discounts so granted. The establishment shoulders the
remaining portion of the granted discounts.

It may be necessary to note that while the burden on [the]


government is slightly diminished in terms of its percentage
share on the discounts granted to senior citizens, the number of
potential establishments that may claim tax deductions, have
however, been broadened. Aside from the establishments that
may claim tax credits under the old law, more establishments
were added under the new law such as: establishments
providing medical and dental services, diagnostic and
laboratory services, including professional fees of attending
doctors in all private hospitals and medical facilities, operators
of domestic air and sea transport services, public railways and
skyways and bus transport services.

A simple illustration might help amplify the points


discussed above, as follows:

Tax Deduction Tax Credit

Gross Sales xxxxxx xxxxx


x
Less : Cost of goods sold xxxxx xxx
xx
Net Sales xxxxx x xxxxx
x
Less: Operating Expenses:
Tax Deduction on Discounts x x x x --
Other deductions: xxxx xxx
x
Net Taxable Income xxxxx xxxx
x
Tax Due xxx xx
x
Less: Tax Credit -- ______x
x
Net Tax Due -- x
x

As shown above, under a tax deduction scheme, the tax


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

Meanwhile, on October 1, 2004, Administrative Order (A.O.) No. 171 or


the Policies and Guidelines to Implement the Relevant Provisions of Republic Act
9257, otherwise known as the Expanded Senior Citizens Act of 2003 [11] was
issued by the DOH, providing the grant of twenty percent (20%) discount in the
purchase of unbranded generic medicines from all establishments dispensing
medicines for the exclusive use of the senior citizens.
On November 12, 2004, the DOH issued Administrative Order No
177[12] amending A.O. No. 171. Under A.O. No. 177, the twenty percent discount
shall not be limited to the purchase of unbranded generic medicines only, but shall
extend to both prescription and non-prescription medicines whether branded or
generic. Thus, it stated that [t]he grant of twenty percent (20%) discount shall be
provided in the purchase of medicines from all establishments dispensing
medicines for the exclusive use of the senior citizens.

Petitioners assail the constitutionality of Section 4(a) of the Expanded Senior


Citizens Act based on the following grounds:[13]

1) The law is confiscatory because it infringes Art. III, Sec.


9 of the Constitution which provides that private property shall
not be taken for public use without just compensation;

2) It violates the equal protection clause (Art. III, Sec. 1)


enshrined in our Constitution which states that no person shall
be deprived of life, liberty or property without due process of
law, nor shall any person be denied of the equal protection of
the laws; and

3) The 20% discount on medicines violates the


constitutional guarantee in Article XIII, Section 11 that makes
essential goods, health and other social services available to all
people at affordable cost.[14]
Petitioners assert that Section 4(a) of the law is unconstitutional because it
constitutes deprivation of private property. Compelling drugstore owners and
establishments to grant the discount will result in a loss of profit

and capital because 1) drugstores impose a mark-up of only 5% to 10% on branded


medicines; and 2) the law failed to provide a scheme whereby drugstores will be
justly compensated for the discount.

Examining petitioners arguments, it is apparent that what petitioners are


ultimately questioning is the validity of the tax deduction scheme as a
reimbursement mechanism for the twenty percent (20%) discount that they extend
to senior citizens.

Based on the afore-stated DOF Opinion, the tax deduction scheme does not
fully reimburse petitioners for the discount privilege accorded to senior citizens.
This is because the discount is treated as a deduction, a tax-deductible expense that
is subtracted from the gross income and results in a lower taxable income. Stated
otherwise, it is an amount that is allowed by law[15] to reduce the income prior to
the application of the tax rate to compute the amount of tax which is due.[16] Being
a tax deduction, the discount does not reduce taxes owed on a peso for peso basis
but merely offers a fractional reduction in taxes owed.

Theoretically, the treatment of the discount as a deduction reduces the net


income of the private establishments concerned. The discounts given would have
entered the coffers and formed part of the gross sales of the private establishments,
were it not for R.A. No. 9257.
The permanent reduction in their total revenues is a forced subsidy
corresponding to the taking of private property for public use or benefit. [17] This
constitutes compensable taking for which petitioners would ordinarily become
entitled to a just compensation.

Just compensation is defined as the full and fair equivalent of the property
taken from its owner by the expropriator. The measure is not the takers gain but
the owners loss. The word just is used to intensify the meaning of the
word compensation, and to convey the idea that the equivalent to be rendered for
the property to be taken shall be real, substantial, full and ample.[18]
A tax deduction does not offer full reimbursement of the senior citizen
discount. As such, it would not meet the definition of just compensation.[19]

Having said that, this raises the question of whether the State, in promoting
the health and welfare of a special group of citizens, can impose upon private
establishments the burden of partly subsidizing a government program.

The Court believes so.

The Senior Citizens Act was enacted primarily to maximize the contribution
of senior citizens to nation-building, and to grant benefits and privileges to them
for their improvement and well-being as the State considers them an integral part
of our society.[20]

The priority given to senior citizens finds its basis in the Constitution as set
forth in the law itself. Thus, the Act provides:

SEC. 2. Republic Act No. 7432 is hereby amended to read as


follows:

SECTION 1. Declaration of Policies and Objectives.


Pursuant to Article XV, Section 4 of the Constitution, it is the duty of
the family to take care of its elderly members while the State may
design programs of social security for them. In addition to this,
Section 10 in the Declaration of Principles and State Policies
provides: The State shall provide social justice in all phases of
national development. Further, Article XIII, Section 11, provides:
The State shall adopt an integrated and comprehensive approach to
health development which shall endeavor to make essential goods,
health and other social services available to all the people at
affordable cost. There shall be priority for the needs of the
underprivileged sick, elderly, disabled, women and children.
Consonant with these constitutional principles the following are the
declared policies of this Act:

...

(f) To recognize the important role of the private sector in


the improvement of the welfare of senior citizens and to actively
seek their partnership.[21]
To implement the above policy, the law grants a twenty percent discount to
senior citizens for medical and dental services, and diagnostic and laboratory fees;
admission fees charged by theaters, concert halls, circuses, carnivals, and other
similar places of culture, leisure and amusement; fares for domestic land, air and
sea travel; utilization of services in hotels and similar lodging establishments,
restaurants and recreation centers; and purchases of medicines for the exclusive use
or enjoyment of senior citizens. As a form of reimbursement, the law provides that
business establishments extending the twenty percent discount to senior citizens
may claim the discount as a tax deduction.

The law is a legitimate exercise of police power which, similar to the power
of eminent domain, has general welfare for its object. Police power is not capable
of an exact definition, but has been purposely veiled in general terms to underscore
its comprehensiveness to meet all exigencies and provide enough room for an
efficient and flexible response to conditions and circumstances, thus assuring the
greatest benefits. [22] Accordingly, it has been described as the most essential,
insistent and the least limitable of powers, extending as it does to all the great
public needs.[23] It is [t]he power vested in the legislature by the constitution to
make, ordain, and establish all manner of wholesome and reasonable laws, statutes,
and ordinances, either with penalties or without, not repugnant to the constitution,
as they shall judge to be for the good and welfare of the commonwealth, and of the
subjects of the same.[24]

For this reason, when the conditions so demand as determined by the


legislature, property rights must bow to the primacy of police power because
property rights, though sheltered by due process, must yield to general welfare.[25]

Police power as an attribute to promote the common good would be diluted


considerably if on the mere plea of petitioners that they will suffer loss of earnings
and capital, the questioned provision is invalidated. Moreover, in the absence of
evidence demonstrating the alleged confiscatory effect of the provision in question,
there is no basis for its nullification in view of the presumption of validity which
every law has in its favor.[26]
Given these, it is incorrect for petitioners to insist that the grant of the senior
citizen discount is unduly oppressive to their business, because petitioners have not
taken time to calculate correctly and come up with a financial report, so that they
have not been able to show properly whether or not the tax deduction scheme
really works greatly to their disadvantage.[27]

In treating the discount as a tax deduction, petitioners insist that they will
incur losses because, referring to the DOF Opinion, for every P1.00 senior citizen
discount that petitioners would give, P0.68 will be shouldered by them as
only P0.32 will be refunded by the government by way of a tax deduction.

To illustrate this point, petitioner Carlos Super Drug cited the anti-
hypertensive maintenance drug Norvasc as an example. According to the latter, it
acquires Norvasc from the distributors at P37.57 per tablet, and retails it at P39.60
(or at a margin of 5%). If it grants a 20% discount to senior citizens or an amount
equivalent to P7.92, then it would have to sell Norvasc at P31.68 which translates
to a loss from capital of P5.89 per tablet. Even if the government will allow a tax
deduction, only P2.53 per tablet will be refunded and not the full amount of the
discount which is P7.92. In short, only 32% of the 20% discount will be
reimbursed to the drugstores.[28]

Petitioners computation is flawed. For purposes of reimbursement, the law


states that the cost of the discount shall be deducted from gross income, [29] the
amount of income derived from all sources before deducting allowable expenses,
which will result in net income. Here, petitioners tried to show a loss on a per
transaction basis, which should not be the case. An income statement, showing an
accounting of petitioners sales, expenses, and net profit (or loss) for a given period
could have accurately reflected the effect of the discount on their income. Absent
any financial statement, petitioners cannot substantiate their claim that they will be
operating at a loss should they give the discount. In addition, the computation was
erroneously based on the assumption that their customers consisted wholly of
senior citizens. Lastly, the 32% tax rate is to be imposed on income, not on the
amount of the discount.

Furthermore, it is unfair for petitioners to criticize the law because they


cannot raise the prices of their medicines given the cutthroat nature of the players
in the industry. It is a business decision on the part of petitioners to peg the mark-
up at 5%. Selling the medicines below acquisition cost, as alleged by petitioners, is
merely a result of this decision. Inasmuch as pricing is a property right, petitioners
cannot reproach the law for being oppressive, simply because they cannot afford to
raise their prices for fear of losing their customers to competition.

The Court is not oblivious of the retail side of the pharmaceutical industry
and the competitive pricing component of the business. While the Constitution
protects property rights, petitioners must accept the realities of business and the
State, in the exercise of police power, can intervene in the operations of a business
which may result in an impairment of property rights in the process.

Moreover, the right to property has a social dimension. While Article XIII of
the Constitution provides the precept for the protection of property, various laws
and jurisprudence, particularly on agrarian reform and the regulation of contracts
and public utilities, continuously serve as a reminder that the right to property can
be relinquished upon the command of the State for the promotion of public
good.[30]

Undeniably, the success of the senior citizens program rests largely on the
support imparted by petitioners and the other private establishments concerned.
This being the case, the means employed in invoking the active participation of the
private sector, in order to achieve the purpose or objective of the law, is reasonably
and directly related. Without sufficient proof that Section 4(a) of R.A. No. 9257 is
arbitrary, and that the continued implementation of the same would be
unconscionably detrimental to petitioners, the Court will refrain from quashing a
legislative act.[31]

WHEREFORE, the petition is DISMISSED for lack of merit.

No costs.

SO ORDERED.

XXXXXXXXXXXXXXXXXXXXXXXXXXXXXX

CASE NO. 2-
REYES VS ALMANZOR 196 SCRA 322 ( IDEM: PREVIOUS FT)

CASE NO. 3
[G.R. No. 119761. August 29, 1996]

COMMISSIONER OF INTERNAL REVENUE, petitioner, vs. HON.


COURT OF APPEALS, HON. COURT OF TAX APPEALS and
FORTUNE TOBACCO CORPORATION, respondents.

DECISION
VITUG, J.:

The Commissioner of Internal Revenue ("CIR") disputes the decision,


dated 31 March 1995, of respondent Court of Appeals[1] affirming the 10th
August 1994 decision and the 11th October 1994 resolution of the Court of
Tax Appeals[2] ("CTA") in C.T.A. Case No. 5015, entitled "Fortune Tobacco
Corporation vs. Liwayway Vinzons-Chato in her capacity as Commissioner
of Internal Revenue."
The facts, by and large, are not in dispute.
Fortune Tobacco Corporation ("Fortune Tobacco") is engaged in the
manufacture of different brands of cigarettes.
On various dates, the Philippine Patent Office issued to the corporation
separate certificates of trademark registration over "Champion," "Hope,"
and "More" cigarettes. In a letter, dated 06 January 1987, of then
Commissioner of Internal Revenue Bienvenido A. Tan, Jr., to Deputy
Minister Ramon Diaz of the Presidential Commission on Good
Government, "the initial position of the Commission was to classify
'Champion,' 'Hope,' and 'More' as foreign brands since they were listed in
the World Tobacco Directory as belonging to foreign companies. However,
Fortune Tobacco changed the names of 'Hope' to Hope Luxury' and 'More'
to 'Premium More,' thereby removing the said brands from the foreign
brand category. Proof was also submitted to the Bureau (of Internal
Revenue ['BIR']) that 'Champion' was an original Fortune Tobacco
Corporation register and therefore a local brand."[3] Ad Valorem taxes were
imposed on these brands,[4] at the following rates:
"BRAND AD VALOREM TAX RATE
E.O. 22
06-23-86
07-01-86 and E.O. 273
07-25-87
01-01-88 RA 6956
06-18-90
07-05-90

Hope Luxury M. 100's


Sec. 142, (c), (2) 40% 45%
Hope Luxury M. King
Sec. 142, (c), (2) 40% 45%
More Premium M. 100's
Sec. 142, (c), (2) 40% 45%
More Premium International
Sec. 142, (c), (2) 40% 45%
Champion Int'l. M. 100's
Sec. 142, (c), (2) 40% 45%
Champion M. 100's
Sec. 142, (c), (2) 40% 45%
Champion M. King
Sec. 142, (c), last par. 15% 20%
Champion Lights
Sec. 142, (c), last par. 15% 20%"[5]
A bill, which later became Republic Act ("RA") No. 7654, [6] was enacted,
on 10 June 1993, by the legislature and signed into law, on 14 June 1993,
by the President of the Philippines. The new law became effective on 03
July 1993. It amended Section 142(c)(1) of the National Internal Revenue
Code ("NIRC") to read; as follows:
"SEC. 142. Cigars and Cigarettes. -

"x x x xxx x x x.

"(c) Cigarettes packed by machine. - There shall be levied, assessed and


collected on cigarettes packed by machine a tax at the rates prescribed below based
on the constructive manufacturer's wholesale price or the actual manufacturer's
wholesale price, whichever is higher:

"(1) On locally manufactured cigarettes which are currently classified and taxed
at fifty-five percent (55%) or the exportation of which is not authorized by contract
or otherwise, fifty-five (55%) provided that the minimum tax shall not be less than
Five Pesos (P5.00) per pack.

"(2). On other locally manufactured cigarettes, forty-five percent (45%) provided


that the minimum tax shall not be less than Three Pesos (P3.00) per pack.

"x x x x x x x x x.

"When the registered manufacturer's wholesale price or the actual manufacturer's


wholesale price whichever is higher of existing brands of cigarettes, including the
amounts intended to cover the taxes, of cigarettes packed in twenties does not
exceed Four Pesos and eighty centavos (P4.80) per pack, the rate shall be twenty
percent (20%)."[7](Italics supplied.)

About a month after the enactment and two (2) days before the
effectivity of RA 7654, Revenue Memorandum Circular No. 37-93 ("RMC
37-93"), was issued by the BIR the full text of which expressed:

"REPUBLIKA NG PILIPINAS
KAGAWARAN NG PANANALAPI
KAWANIHAN NG RENTAS INTERNAS

July 1, 1993

REVENUE MEMORANDUM CIRCULAR NO. 37-93

SUBJECT : Reclassification of Cigarettes Subject to Excise Tax

TO : All Internal Revenue Officers and Others Concerned.

"In view of the issues raised on whether 'HOPE,' 'MORE' and 'CHAMPION'
cigarettes which are locally manufactured are appropriately considered as locally
manufactured cigarettes bearing a foreign brand, this Office is compelled to review
the previous rulings on the matter.

"Section 142(c)(1) National Internal Revenue Code, as amended by R.A. No. 6956,
provides:

"'On locally manufactured cigarettes bearing a foreign brand, fifty-five percent


(55%) Provided, That this rate shall apply regardless of whether or not the right to
use or title to the foreign brand was sold or transferred by its owner to the local
manufacturer. Whenever it has to be determined whether or not a cigarette bears a
foreign brand, the listing of brands manufactured in foreign countries appearing in
the current World Tobacco Directory shall govern."

"Under the foregoing, the test for imposition of the 55% ad valorem tax on
cigarettes is that the locally manufactured cigarettes bear a foreign brand regardless
of whether or not the right to use or title to the foreign brand was sold or
transferred by its owner to the local manufacturer. The brand must be originally
owned by a foreign manufacturer or producer. If ownership of the cigarette brand
is, however, not definitely determinable, 'x x x the listing of brands manufactured
in foreign countries appearing in the current World Tobacco Directory shall
govern. x x x'

"'HOPE' is listed in the World Tobacco Directory as being manufactured by (a)


Japan Tobacco, Japan and (b) Fortune Tobacco, Philippines. 'MORE' is listed in
the said directory as being manufactured by: (a) Fills de Julia Reig, Andorra; (b)
Rothmans, Australia; (c) RJR-Macdonald, Canada; (d) Rettig-Strenberg, Finland;
(e) Karellas, Greece; (f) R.J. Reynolds, Malaysia; (g) Rothmans, New Zealand; (h)
Fortune Tobacco, Philippines; (i) R.J. Reynolds, Puerto Rico; (j) R.J. Reynolds,
Spain; (k) Tabacalera, Spain; (l) R.J. Reynolds, Switzerland; and (m) R.J.
Reynolds, USA. 'Champion' is registered in the said directory as being
manufactured by (a) Commonwealth Bangladesh; (b) Sudan, Brazil; (c) Japan
Tobacco, Japan; (d) Fortune Tobacco, Philippines; (e) Haggar, Sudan; and (f)
Tabac Reunies, Switzerland.

"Since there is no showing who among the above-listed manufacturers of the


cigarettes bearing the said brands are the real owner/s thereof, then it follows that
the same shall be considered foreign brand for purposes of determining the ad
valorem tax pursuant to Section 142 of the National Internal Revenue Code. As
held in BIR Ruling No. 410-88, dated August 24, 1988, 'in cases where it cannot be
established or there is dearth of evidence as to whether a brand is foreign or not,
resort to the World Tobacco Directory should be made.'
"In view of the foregoing, the aforesaid brands of cigarettes, viz: 'HOPE,' 'MORE'
and 'CHAMPION' being manufactured by Fortune Tobacco Corporation are
hereby considered locally manufactured cigarettes bearing a foreign brand subject
to the 55% ad valorem tax on cigarettes.

"Any ruling inconsistent herewith is revoked or modified accordingly.

(SGD) LIWAYWAY
VINZONS-CHATO
Commissioner"
On 02 July 1993, at about 17:50 hours, BIR Deputy Commissioner
Victor A. Deoferio, Jr., sent via telefax a copy of RMC 37-93 to Fortune
Tobacco but it was addressed to no one in particular. On 15 July 1993,
Fortune Tobacco received, by ordinary mail, a certified xerox copy of RMC
37-93.
In a letter, dated 19 July 1993, addressed to the appellate division of
the BIR, Fortune Tobacco, requested for a review, reconsideration and
recall of RMC 37-93. The request was denied on 29 July 1993. The
following day, or on 30 July 1993, the CIR assessed Fortune Tobacco
for ad valoremtax deficiency amounting to P9,598,334.00.
On 03 August 1993, Fortune Tobacco filed a petition for review with the
CTA. [8]
On 10 August 1994, the CTA upheld the position of Fortune Tobacco
and adjudged:

"WHEREFORE, Revenue Memorandum Circular No. 37-93 reclassifying the


brands of cigarettes, viz: `HOPE,' `MORE' and `CHAMPION' being manufactured
by Fortune Tobacco Corporation as locally manufactured cigarettes bearing a
foreign brand subject to the 55% ad valorem tax on cigarettes is found to be
defective, invalid and unenforceable, such that when R.A. No. 7654 took effect on
July 3, 1993, the brands in question were not CURRENTLY CLASSIFIED AND
TAXED at 55% pursuant to Section 1142(c)(1) of the Tax Code, as amended by
R.A. No. 7654 and were therefore still classified as other locally manufactured
cigarettes and taxed at 45% or 20% as the case may be.

"Accordingly, the deficiency ad valorem tax assessment issued on petitioner


Fortune Tobacco Corporation in the amount of P9,598,334.00, exclusive of
surcharge and interest, is hereby canceled for lack of legal basis.
"Respondent Commissioner of Internal Revenue is hereby enjoined from collecting
the deficiency tax assessment made and issued on petitioner in relation to the
implementation of RMC No. 37-93.

"SO ORDERED." [9]

In its resolution, dated 11 October 1994, the CTA dismissed for lack of
merit the motion for reconsideration.
The CIR forthwith filed a petition for review with the Court of Appeals,
questioning the CTA's 10th August 1994 decision and 11th October 1994
resolution. On 31 March 1993, the appellate court's Special Thirteenth
Division affirmed in all respects the assailed decision and resolution.
In the instant petition, the Solicitor General argues: That -

"I. RMC 37-93 IS A RULING OR OPINION OF THE COMMISSIONER OF


INTERNAL REVENUE INTERPRETING THE PROVISIONS OF THE TAX
CODE.

"II. BEING AN INTERPRETATIVE RULING OR OPINION, THE


PUBLICATION OF RMC 37-93, FILING OF COPIES THEREOF WITH THE
UP LAW CENTER AND PRIOR HEARING ARE NOT NECESSARY TO ITS
VALIDITY, EFFECTIVITY AND ENFORCEABILITY.

"III. PRIVATE RESPONDENT IS DEEMED TO HAVE BEEN NOTIFIED


OR RMC 37-93 ON JULY 2, 1993.

IV. RMC 37-93 IS NOT DISCRIMINATORY SINCE IT APPLIES TO ALL


LOCALLY MANUFACTURED CIGARETTES SIMILARLY SITUATED AS
'HOPE,' 'MORE' AND 'CHAMPION' CIGARETTES.

"V. PETITIONER WAS NOT LEGALLY PROSCRIBED FROM


RECLASSIFYING HOPE, MORE AND CHAMPION CIGARETTES
BEFORE THE EFFECTIVITY OF R.A. NO. 7654.

VI. SINCE RMC 37-93 IS AN INTERPRETATIVE RULE, THE INQUIRY IS


NOT INTO ITS VALIDITY, EFFECTIVITY OR ENFORCEABILITY BUT
INTO ITS CORRECTNESS OR PROPRIETY; RMC 37-93 IS CORRECT." [10]

In fine, petitioner opines that RMC 37-93 is merely an interpretative


ruling of the BIR which can thus become effective without any prior need
for notice and hearing, nor publication, and that its issuance is not
discriminatory since it would apply under similar circumstances to all locally
manufactured cigarettes.
The Court must sustain both the appellate court and the tax court.
Petitioner stresses on the wide and ample authority of the BIR in the
issuance of rulings for the effective implementation of the provisions of the
National Internal Revenue Code. Let it be made clear that such authority of
the Commissioner is not here doubted. Like any other government agency,
however, the CIR may not disregard legal requirements or applicable
principles in the exercise of its quasi-legislative powers.
Let us first distinguish between two kinds of administrative issuances -
a legislative rule and an interpretative rule.
In Misamis Oriental Association of Coco Traders, Inc., vs. Department
of Finance Secretary, [11] the Court expressed:

"x x x a legislative rule is in the nature of subordinate legislation, designed to


implement a primary legislation by providing the details thereof. In the same way
that laws must have the benefit of public hearing, it is generally required that
before a legislative rule is adopted there must be hearing. In this connection, the
Administrative Code of 1987 provides:

"Public Participation. - If not otherwise required by law, an agency shall, as far as


practicable, publish or circulate notices of 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.

"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." [12]

It should be understandable that 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, upon 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 adds to
or 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.
A reading of RMC 37-93, particularly considering the circumstances
under which it has been issued, convinces us that the circular cannot be
viewed simply as a corrective measure (revoking in the process the
previous holdings of past Commissioners) or merely as construing Section
142(c)(1) of the NIRC, as amended, but has, in fact and most importantly,
been made in order to place "Hope Luxury," "Premium More" and
"Champion" within the classification of locally manufactured cigarettes
bearing foreign brands and to thereby have them covered by RA
7654. Specifically, the new law would have its amendatory provisions
applied to locally manufactured cigarettes which at the time of its
effectivity were not so classified as bearing foreign brands. Prior to the
issuance of the questioned circular, "Hope Luxury," "Premium More," and
"Champion" cigarettes were in the category of locally manufactured
cigarettes not bearing foreign brand subject to 45% ad
valorem tax. Hence, without RMC 37-93, the enactment of RA 7654, would
have had no new tax rate consequence on private respondent's
products. Evidently, in order to place "Hope Luxury," "Premium More,"
and "Champion" cigarettes within the scope of the amendatory law and
subject them to an increased tax rate, the now disputed RMC 37-93 had to
be issued. In so doing, the BIR not simply interpreted the law; verily, it
legislated under its quasi-legislative authority. The due observance of the
requirements of notice, of hearing, and of publication should not have been
then ignored.
Indeed, the BIR itself, in its RMC 10-86, has observed and provided:

"RMC NO. 10-86

Effectivity of Internal Revenue Rules and Regulations

"It has been observed that one of the problem areas bearing on compliance with
Internal Revenue Tax rules and regulations is lack or insufficiency of due notice to
the tax paying public. Unless there is due notice, due compliance therewith may
not be reasonably expected. And most importantly, their strict enforcement could
possibly suffer from legal infirmity in the light of the constitutional provision on
`due process of law' and the essence of the Civil Code provision concerning
effectivity of laws, whereby due notice is a basic requirement (Sec. 1, Art. IV,
Constitution; Art. 2, New Civil Code).
"In order that there shall be a just enforcement of rules and regulations, in
conformity with the basic element of due process, the following procedures are
hereby prescribed for the drafting, issuance and implementation of the said
Revenue Tax Issuances:

"(1). This Circular shall apply only to (a) Revenue Regulations; (b) Revenue Audit
Memorandum Orders; and (c) Revenue Memorandum Circulars and Revenue
Memorandum Orders bearing on internal revenue tax rules and regulations.

"(2). Except when the law otherwise expressly provides, the aforesaid internal
revenue tax issuances shall not begin to be operative until after due notice thereof
may be fairly presumed.

"Due notice of the said issuances may be fairly presumed only after the following
procedures have been taken:

"xxx xxx xxx

"(5). Strict compliance with the foregoing procedures is enjoined." [13]

Nothing on record could tell us that it was either impossible or impracticable


for the BIR to observe and comply with the above requirements before
giving effect to its questioned circular.
Not insignificantly, RMC 37-93 might have likewise infringed on
uniformity of taxation.
Article VI, Section 28, paragraph 1, of the 1987 Constitution mandates
taxation to be uniform and equitable. Uniformity requires that all subjects
or objects of taxation, similarly situated, are to be treated alike or put on
equal footing both in privileges and liabilities.[14] Thus, all taxable articles or
kinds of property of the same class must be taxed at the same rate [15] and
the tax must operate with the same force and effect in every place where
the subject may be found.
Apparently, RMC 37-93 would only apply to "Hope Luxury," Premium
More" and "Champion" cigarettes and, unless petitioner would be willing to
concede to the submission of private respondent that the circular should,
as in fact my esteemed colleague Mr. Justice Bellosillo so expresses in his
separate opinion, be considered adjudicatory in nature and thus violative of
due process following the Ang Tibay[16] doctrine, the measure suffers from
lack of uniformity of taxation. In its decision, the CTA has keenly noted that
other cigarettes bearing foreign brands have not been similarly included
within the scope of the circular, such as -
"1. Locally manufactured by ALHAMBRA INDUSTRIES, INC.

(a) `PALM TREE' is listed as manufactured by office of Monopoly, Korea


(Exhibit `R')

"2. Locally manufactured by LA SUERTE CIGAR and CIGARETTE COMPANY

(a) `GOLDEN KEY' is listed being manufactured by United Tobacco, Pakistan


(Exhibit `S')

(b) `CANNON' is listed as being manufactured by Alpha Tobacco, Bangladesh


(Exhibit `T')

"3. Locally manufactured by LA PERLA INDUSTRIES, INC.

(a) `WHITE HORSE' is listed as being manufactured by Rothman's, Malaysia


(Exhibit `U')

(b) `RIGHT' is listed as being manufactured by SVENSKA, Tobaks, Sweden


(Exhibit `V-1')

"4. Locally manufactured by MIGHTY CORPORATION

(a) 'WHITE HORSE' is listed as being manufactured by Rothman's, Malaysia


(Exhibit 'U-1')

"5. Locally manufactured by STERLING TOBACCO CORPORATION

(a) UNION' is listed as being manufactured by Sumatra Tobacco, Indonesia and


Brown and Williamson, USA (Exhibit 'U-3')

(b) WINNER' is listed as being manufactured by Alpha Tobacco, Bangladesh;


Nanyang, Hongkong; Joo Lan, Malaysia; Pakistan Tobacco Co., Pakistan; Premier
Tobacco, Pakistan and Haggar, Sudan (Exhibit 'U-4')." [17]

The court quoted at length from the transcript of the hearing conducted on
10 August 1993 by the Committee on Ways and Means of the House of
Representatives; viz:

"THE CHAIRMAN. So you have specific information on Fortune Tobacco


alone. You don't have specific information on other tobacco manufacturers. Now,
there are other brands which are similarly situated. They are locally manufactured
bearing foreign brands. And may I enumerate to you all these brands, which are
also listed in the World Tobacco Directory x x x. Why were these brands not
reclassified at 55 if your want to give a level playing field to foreign
manufacturers?

"MS. CHATO. Mr. Chairman, in fact, we have already prepared a Revenue


Memorandum Circular that was supposed to come after RMC No. 37-93 which
have really named specifically the list of locally manufactured cigarettes bearing
a foreign brand for excise tax purposes and includes all these brands that you
mentioned at 55 percent except that at that time, when we had to come up with
this, we were forced to study the brands of Hope, More and Champion because we
were given documents that would indicate the that these brands were actually
being claimed or patented in other countries because we went by Revenue
Memorandum Circular 1488 and we wanted to give some rationality to how it
came about but we couldn't find the rationale there. And we really found based on
our own interpretation that the only test that is given by that existing law would be
registration in the World Tobacco Directory. So we came out with this proposed
revenue memorandum circular which we forwarded to the Secretary of Finance
except that at that point in time, we went by the Republic Act 7654 in Section 1
which amended Section 142, C-1, it said, that on locally manufactured cigarettes
which are currently classified and taxed at 55 percent. So we were saying that
when this law took effect in July 3 and if we are going to come up with this revenue
circular thereafter, then I think our action would really be subject to question but
we feel that . . . Memorandum Circular Number 37-93 would really cover even
similarly situated brands. And in fact, it was really because of the study, the short
time that we were given to study the matter that we could not include all the rest of
the other brands that would have been really classified as foreign brand if we went
by the law itself. I am sure that by the reading of the law, you would without that
ruling by Commissioner Tan they would really have been included in the definition
or in the classification of foregoing brands. These brands that you referred to or
just read to us and in fact just for your information, we really came out with a
proposed revenue memorandum circular for those brands. (Italics supplied)

"Exhibit 'FF-2-C', pp. V-5 TO V-6, VI-1 to VI-3).

"x x x xxx x x x.

"MS. CHATO. x x x But I do agree with you now that it cannot and in fact that is
why I felt that we . . . I wanted to come up with a more extensive coverage and
precisely why I asked that revenue memorandum circular that would cover all
those similarly situated would be prepared but because of the lack of time and I
came out with a study of RA 7654, it would not have been possible to really come
up with the reclassification or the proper classification of all brands that are listed
there. x x x' (italics supplied) (Exhibit 'FF-2d', page IX-1)

"x x x xxx x x x.

"HON. DIAZ. But did you not consider that there are similarly situated?

"MS. CHATO. That is precisely why, Sir, after we have come up with this
Revenue Memorandum Circular No. 37-93, the other brands came about the would
have also clarified RMC 37-93 by I was saying really because of the fact that I was
just recently appointed and the lack of time, the period that was allotted to us to
come up with the right actions on the matter, we were really caught by the July 3
deadline. But in fact, We have already prepared a revenue memorandum circular
clarifying with the other . . . does not yet, would have been a list of locally
manufactured cigarettes bearing a foreign brand for excise tax purposes which
would include all the other brands that were mentioned by the Honorable
Chairman. (Italics supplied) (Exhibit 'FF-2-d,' par. IX-4)."18

All taken, the Court is convinced that the hastily promulgated RMC 37-
93 has fallen short of a valid and effective administrative issuance.
WHEREFORE, the decision of the Court of Appeals, sustaining that of
the Court of Tax Appeals, is AFFIRMED. No costs.
SO ORDERED.
TAX CASES ON EQUAL PROTECTION OF THE LAW
CASE NO. 1
GOMEZ VS PALOMAR ( IDEM : PREVIOUS CASE)

CASE NO. 2

G.R. No. L-1104 May 31, 1949

EASTERN THEATRICAL CO., INC., ET AL., plaintiffs-appellants,


vs.
VICTOR, ALFONSO as City Treasurer of Manila, THE MUNICIPAL
BOARD OF THE CITY OF MANILA, and JUAN NOLASCO, as Mayor of
the City of Manila, defendants-appellees.

PERFECTO, J.:

Twelve corporation engaged in motion picture business have initiated these


proceeding through a complaint dated May 5, 1946, to impugn the validity
of Ordinance No. 2958 of the City of Manila which was enacted by the
municipalBoard of said city on April 25 1946 approved by the Mayor on
April 27, 1946 and took effect on May 1, 1946 said ordinance reading as
follows:

AN ORDINANCE IMPOSING A FEE ON THE PRICE OF


EVERY ADMISSION TICKET SOLD BY CINEMATOGRAPHS,
THEATERS VAUDEVILLE COMPANIES THEATRICAL
SHOWS AND BOXING EXHIBITION AND PROVIDING FOR
OTHER PURPOSES.

SEC. 1. In addition to the fees paid by cinematographers, theaters,


vaudeville companies, theatrical shows and boxing exhibitions, as
provided for in sections 633 and 778 of Ordinance No. 1600, known
as the Revised Ordinance of the City of Manila, as amended, there
shall be collected from the place of amusement which are specifically
mentioned above the following fees on the price of every admission
ticket sold by such enterprises:
a. For every ticket sold the price of which P0.05
is from P0.25 to P0.99
b. For every ticket sold the price of which 0.10
is from P1 to P1.99
c. For every ticket sold the price of which 0.15
is from P2 to P2.99
d. for every ticket sold the price of which 0.20
is from P3 to P4.99
e. or every ticket sold the price of which 0.25
is from P5 to P5.99
f. For every ticket sold the price of which 0.35
is from P0 to P14.99
g. For ticket sold thee price of which is 0.50
from P15 or more

SEC. 2 It shall be the duty of every proprietor lessee, promoter, or


operatorof such cinematographs, theater, vaudeville companies,
theatrical show and boxing exhibition to provide himself with tickets
which shall be serially numbered, indication therein the name of
amusement place and the fee charge for admission. Before such
ticket are sold he same shall be presented to the office of the city
Treasurer for registration. Tickets once issued and presented at the
gate of entrance shall be cut by the gatekeeper into halves, the first
half to be returned to the customer and the other half to be retained
by the gate keeper.

It shall also be the duty of said proprietor lessee promoter or operator


to deliver to the Office of the City Treasurer the fees corresponding to
the number of ticket old by him within two days after the
performances or exhibition has taken place.

SEC. 3. The fees herein prescribed shall not be paid where the
admission fees or charge are collection for and in behalf of any
charitable education or religion institution or association.

All place of amusement which are operate by U.S. Army and Navy
with fund belonging to the U.S. Government are hereby exempted
from fees herein imposed.
SEC. 4. Any person violation any of the provision of this ordinance
shall upon conviction thereof be punished by a fine of not more than
P200 or by imprisonment for not more than six months or by both
such fine and imprisonment in the discretion of the court. If the
violation is committed by the club firm or corporation the manager the
managing director or person charged with the management of the
business of such club firm or corporation shall be criminally
responsible therefor.

SEC. 5. This Ordinance shall take effect on the May 1, 1946.

Plaintiffs, operator of theaters in Manila And distributor of local or imported


films allege that they are interested in the provision of section 1,2 and 4 of
said ordinance which they impugn as null and void upon the following
grounds: (a) For violation the Constitution more particular the provision
regarding the uniformity and equality of taxation and thee equal protection
of the laws; (b) because the Municipal Board of Manila exceeded and over-
stepped the power granted it the Charter of the City of Manila; (c) because
it contravenes violates and is inconsistent with, existing nationallegislation
more particularly revenue and tax laws and (d) because it is unfair, unjust,
arbitrary capricious unreasonable oppressive and is contrary to and
violation our basic and recognizes principles of taxation and licensing laws.

Defendants allege as affirmative defenses the following: (a) That the


ordinance was passed by the Municipal Board of Manila by virtue of its
express legislative power to tax fix the license fee and regulate the
business of theaters, cinematographs and further to fix the location of and
to tax, fix the license fee for and regulate the business of theatrical
performances public exhibition circus and other performances and places
of amusement; (b) that the graduated tax required by said ordinance being
applied to all cinematographs, theaters, vaudeville companies
theatricalshow and boxing exhibitions similarly situated and as a class
without distinction or exception the same does not violate the prohibition
against uniformity and equality of taxation; (c) that the graduated tax
onadmission tickets to theaters and other places of amusement imposed by
the National Internal Revenue Code (Commonwealth Act No. 466) is
collected by and for the purposes of the National Government, whereas,
Ordinance No.2958 imposes and requires the collection of a similar tax by
and for the purposes of the Government of the City of Manila, and there is
no case of double taxation, (d) that said ordinance having been enacted
under the express power of the Municipal Board to tax for revenue as
distinguishedfrom its power to license for purely police purposes, the fact
that the amount collected thereunder are higher than what are needed for
police regulation and supervision does not render said ordinance unfair
unjust capricious unreasonable and oppressive; (e) that consideration the
nature of the business of the plaintiffs and the enormous volume of
business they handle the graduated tax fixed by the ordinance is not
unreasonable.

Defendants allege also that since May 1, 1946, when the ordinance in
question took effect plaintiffs have been charging the theater-going public
increased prices for admission to the cinematographs owned and operated
to the graduated tax imposed by said ordinance and as a result while
refusing to pay said tax but at the same time collecting an amount equal to
said tax plaintiffs have taken undue advantage of said ordinance to realized
more profits.

On September 5, 1946, Judge Emilio Pena of the court of first Instance of


Manila rendered a decision upholding the validity of Ordinance No. 2958.

Plaintiffs appellants assign in the their brief three errors committed by the
trial court. We will consider them separately.

Appellants contend that the lower court erred in holding that under section
2444 (m) of the Revised administrative Code the Municipal Board of the
City ofManila had the power to enact Ordinance No. 2958.

Section 2444 (m) of the Revised Administrative code reads as follows:

To tax fix the license fee and regulate the business of hotels
restaurants refreshment places, cafes, lodging houses, boarding
houses livery garages warehouses, pawnshops theaters,
cinematographs; and further to fix the location of and to tax fix the
license fee for and regulate the businessof lively stables, the license
fee for and regulate the business of livery stable, boarding stables,
embalmers, public billiard table public pool tables, bowling alleys,
dance halls, public dancing halls, cabarets, circusand other similar
parades, public vehicles, race tracks, horse races,Junk dealers,
theatrical performances, public exhibitions, circus andother
performances and places of amusements, match factories,
blacksmith shops, foundries, steam boilers, lumber yards, shipyards,
thestorage and sale of gunpowder, tar, pitch, resin, coal, oil,
gasoline,benzene, turpentine, 'hemp, cotton, nitroglycerin, petroleum
or any Ofthe products thereof and of all other highly combustible or
explosivematerials and other establishment likely to endanger the
public safety or give rise to conflagration or explosion and subject to
the provision of ordinance issue by the (Philippines Health Service)
Bureau of Health in accordance with law tanneries, renders tallow
chandlers bone factories and soap factories.

Appellants line of argument runs as follows:

By virtue of the specific power granted in the above quoted provision of the
Revised Administration Code Ordinance No. 2958 was enacted.

On August 7, 1940 the National Assembly enacted Commonwealth Act No.


466, known as the National Internal Revenue Code section 18, 260 and
261 of which read as follows:

SEC. 18. Sources of revenue. The following taxes fees and


charges are deemed to be national internal revenue taxes:

(a) Income tax;


(b) Estate inheritance and gift taxes;
(c) Specific taxes on certain articles;
(d) Privilege taxes on business or occupation;
(e) Documentary stamp taxes;
(f) Mining taxes;
(g) Miscellaneous taxes fees and charges, namely, taxes on
banks and insurance companies franchise taxes on
amusements charges on forest product fees for sealing weights
and measures firearms license fees radio registration fees and
water rentals.

SEC. 260. Amusement taxes. There shall be collected from the


proprietor, lessee, or operation of theater cinematographs, concert
halls, circuses, boxing exhibition and other places of amusement the
following taxes:

(a) When the amount paid for admission exceeds twenty-nine


centavos, two centavos on each admission;

(b) When the amount paid for admission exceeds twenty-nine but
does not exceed thirty-nine centavos, three centavos on each
admission;
(c) When the amount paid for admission exceeds thirty-nine centavos
but does not exceed forty-nine centavos four centavos on each
admission.

(d) When the amount paid for admission exceeds forty-nine centavos
but does not exceed fifty-nine centavos five admission.

(e) When the amount paid for admission exceeds fifty-nine centavos
but does not exceed sixty-nine centavos six centavos on each
admission.

(f) When the amount paid for admission exceeds sixty-nine centavos
but does not exceed seventy nine centavos seven centavos on each
admission.

(g) When the amount paid for admission exceeds seventy nine
centavos but does not exceed eighty-nine centavos eight centavos on
each admission;

(h) When the amount paid for admission exceeds eighty-nine


centavos but does not exceed ninty-nine centavos, nine centavos on
each admission;

(i) When the amount paid for admission exceeds ninety-nine


centavos, ten centavos on each admission.

In the case of theaters or cinematographs, the taxes herein


prescribed shall first be decuted and withheld by the proprietros,
lessees, or operators of such theaters or cinematogrphs and paid to
the Collector of Internal Revenue before the gross receipts are
divided between the proprietros, lessees, or operators of the theaters
of cinematographs and the distributors of the cinematographic films.

In the case of cockpits, race tracks, and cabarets, there shall be


collected from the proprietor, lessee, or operator a tax equivalent to
ten per centum of the gross receipts, irrespective of whether or not
any amount is charged or paid for admission: Provided, however,
That in the case of race tracks, this tax is in addition to the privilege
tax prescribed in seciton 193. for the purpose of the amusement tax,
the term "gross receipts" embraces all the receipts of the proprietor,
lessee, or operator of the amusement place, excluding the receipts
derived by him from the sale of liquors, beverages, or other articles
subject to specific tax, or from any business subject to tax under this
Code. (This section was amended by section 8, Republic Act No. 39,
effective October 1, 1946. We are quoting the original provision to
show the status of the law when the Ordinance was passed.)

SEC. 261. Exemption. The tax herein imposed shall not be paid
where the admission fee or charges are collected by or for and in
behalf of any religious, charitable, scientific, or educational institution
or association, and where no part of the net proceeds of such
admission fees or charges inures to the benefit of any private
stockholder or individual.

Ordinance No. 2958 does not specify the kind of the tax sought to be
imposed but the seven schedules and other details of said ordinance are,
in every respect, identical with the amusement tax provided by section 260
of Commonwealth Act No. 466.

But, plaintiffs argue, that section 2444(m) of the Revised Administrative


Code confers upon the City of Manila the power to impose a tax on
business but not on amusement and, consequently, Ordinance No. 2958
was enacted beyond the charter powers of the City of Manila.

The whole argument of plaintiffs hinges, therefore, on the assumption that


the power granted to the City of Manila by section 2444(m) of the Revised
Administrative Code is limited to the authority to impose a tax on business,
with exclusion of the power to impose a tax amusement; but, the
assumption is based on an arbitrary labeling of the kind of tax authorized
by said section 2444(m). The distinction made by plaintiffs as to the power
to tax on business and the power to tax on amusement has no ground
under the provisions of section 2444(m) of the Revised Administrative
Code. The tax therein authorized cannot be defined as tax on business and
cannot be restricted within a smaller scope than what is authorized by the
words used, to the extent of excluding what plaintiffs describe as tax on
amusement.

The very fact that section 2444 (m) of the Revised Administrative Code
includes theaters, cinematographs, public billiard tables, public pool tables,
bowling alleys, dance halls, public dancing halls, cabarets, circuses and
other similar places, race tracks, horse races, theatrical performances,
public exhibition, circus and other performances and places of
amusements, will show conclusively that the power to tax amusement is
expressly included within the power granted by section 2444(m) of the
Revised Administrative Code.

Plaintiffs-appellants contend that the lower court erred in not holding that
section 2444 (m) of the Revised Administrative Code was repealed or the
power therein contained was withdrawn by the National Assembly by the
enactment of Commonwealth Act No. 466 known as the National Internal
Revenue Code.

In support of this contention, plaintiffs aver that the Charter of the City of
Manila, containing section 2444(m) of the Revised Administrative Code,
was enacted on December 8, 1929. On April 25, 1940, the National
Assembly enacted Commonwealth Act No. 466, including provisions on
amusement tax, covering the whole field on taxation and provided for more
than what the ordinance in question has provided. As a result, there are
two taxing powers seeking to occupy exactly the same field of legislation,
and so the apparent conflict must be resolved with the conclusion that, with
the enactment of Commonwealth Act No. 466, as later amended by
Republic Act No. 39, section 2444(m) of the Revised Administrative Code
has been impliedly repealed and the power therein delegated to the City of
Manila withdrawn.

We see absolutely no force in plaintiffs' contention. The conflict pointed out


by them is imaginary. Both provisions of law may stand together and be
enforced at the same time without any incompatibility among themselves.

Finally, plaintiffs contend that the trial court erred in not holding that
Ordinance No. 2958 violated the principle of equality and uniformity of
taxation enjoined by the Constitution (sec. 22, sub-sec. 1, Art. VI,
Constitution of the philippines).

To support this contenttion, appellantts point out to the fact that the
ordinance in question does not tax "many more kinds of amusements" than
those therein specified, such as "race tracks, cockpits, cabarets, concert
halls, circuses, and other places of amusement." the argument has
absolutely no merit. The fact that some places of amusement are not taxed
while others, such as cinematographs, theaters, vaudeville companies,
theatrical shows, and boxing exhibitions and other kinds of amusements or
places of amusement are taxed, is no argument at all against the equality
and uniformity of the tax imposition. Equality and uniformity of the tax
imposition. Equality and uniformity in taxation means that all taxable
articles or kinds of property of the same class shall be taxed at the same
rate. The taxing power has the authority to make reasonable and natural
classifications for purposes of taxation; and the appellants cannot point out
what places of amusement taxed by the ordinance do not constitute a class
by themselves and which can be confused with those not included in the
ordinance.

The judgment of the trial court is affirmed with costs against appellants.

CASE NO. 3

G.R. No. L-2947 January 11, 1951

MANILA RACE HORSE TRAINERS ASSOCIATION, INC., and JUAN T.


SORDAN, plaintiffs-appellants,
vs.
MANUEL DE LA FUENTE, defendant-appellee.

TUASON, J.:

This action was instituted for a declaratory relief by the Manila Race Horses
Trainers Association, Inc., a non-stock corporation duly organized and
existing under and by virtue of the laws of the Philippines, who allege that
they are owners of boarding stables for race horses and that their rights as
such are affected by Ordinance No. 3065 of the City of Manila approved on
July 1, 1947.1 They made the Mayor of Manila defendant and prayed that
said ordinance be declared invalid as violative of the Philippine
Constitution.

The case was submitted on the pleadings, and the decision was that the
ordinance in question "is constitutional and valid and has been enacted in
accordance with the powers of the Municipal Board granted by the Charter
of the City of Manila."

On appeal, the plaintiffs as appellants make three assignments of error, the


first two of which are discussed jointly in their brief under two separate
topics.

First, it is maintained that the ordinance under consideration is a tax on


race horses as distinct from boarding stables. It is argued that by section 2
the basis of the license fees "is the number of race horses kept or
maintained in the boarding stables to be paid by the maintainers at the rate
of P10.00 a year for each race horse;" that "the fee is increased
correspondingly P10 for each additional race horse maintained or fed in the
stable;" and that "by the same token, an empty stable for race horse pays
no license fee at all."

The spirit, rather than the letter, of an ordinance determines the


construction thereof, and the court looks less to its words and more to the
context, subject matter, consequence and effect. Accordingly, what is
within the spirit is within the ordinance although it is not within the letter
thereof, while that which is in the letter, although not within the spirit, is not
within the ordinance. (62 C. J. S., 845.) From the context of Ordinance No.
3065, the intent to tax or license stables and not horses is clearly manifest.
The tax is assessed not on the owners of the horses but on the owners of
the stables, as counsel admit in their brief, although there is nothing, of
course, to stop stable owners from shifting the tax to the horse owners in
the form of increased rents or fees, which is generally the case.

It is also plain from the text of the whole ordinance that the number of
horses is used in the assessment purely as a method of fixing an equitable
and practical distribution of the burden imposed by the measure. Far from
being obnoxious, the method is fair and just. It is but fair and just that for a
boarding stable where only one horse is maintained proportionately less
amount should be exacted than for a stable where more horses are kept
and from which greater income is derived.

We do not share plaintiff's opinion, apropos the second proposition, that the
ordinance in question is discriminatory and savors of class legislation. In
taxing only boarding stables for race horses, we do not believe that the
ordinance, makes arbitrary classification. In the case of Eastern Theatrical
Co. Inc., vs. Alfonso, 46 Off. Gaz. Supp. to No. 11, p. 303,* it was said
there is equality and uniformity in taxation if all articles or kinds of property
of the same class are taxed at the same rate. Thus, it was held in that
case, that "the fact that some places of amusement are not taxed while
others, such as cinematographs, theaters, vaudeville companies, theatrical
shows, and boxing exhibitions and other kinds of amusements or places of
amusement are taxed, is not argument at all against the equality and
uniformity of tax imposition." Applying this criterion to the present case,
there would be discrimination if some boarding stables of the same class
used for the same number of horses were not taxed or were made to pay
less or more than others.
From the viewpoint of economics and public policy the taxing of boarding
stables for race horses to the exclusion of boarding stables for horses
dedicated to other purposes is not indefensible. The owners of boarding
stables for race horses and, for that matter, the race horse owners
themselves, who in the scheme of shifting may carry the taxation burden,
are a class by themselves and appropriately taxed where owners of other
kinds of horses are taxed less or not at all, considering that equity in
taxation is generally conceived in terms of ability to pay in relation to the
benefits received by the taxpayer and by the public from the business or
property taxed. Race horses are devoted to gambling if legalized, their
owners derive fat income and the public hardly any profit from horse racing,
and this business demands relatively heavy police supervision. Taking
everything into account, the differentiation against which the plaintiffs
complain conforms to the practical dictates of justice and equity and is not
discrimatory within the meaning of the Constitution.

One ground of attack in the court below on the constitutionality of the


ordinance variance between the title and the subject matter
apparently has been abandoned. In its place a new question is brought up
on the appeal in the third and last assignment of error. It is now contended,
for the first time, that "the Municipal Board of Manila (is) without power to
enact ordinance taxing private stables for race horses," and that the lower
court erred in not so declaring. This assignment of error has reference to
Class B or the second sub-paragraph of section 1 of the ordinance.

Not having been raised in the pleading, this question was properly ignored,
not to say that even it had been raised it would not have been available as
basis for a declaration of nullity of the ordinance. The clause of the
ordinance taxing or licensing boarding stables for race horses does not
prejudice the plaintiffs in any material way, and it is well settled that a
person who is not adversely affected by a licensing ordinance may not
attack its validity. Stated differently, he may not complain that a licensing
ordinance is invalid as against a class other than that to which he belongs.
(62 C. J. S.830, 831.) By analogy, where a municipal ordinance is valid in
some of its parts and invalid as to others and the valid parts are separable
from the invalid ones in which latter case the valid provisions stand as
operative the plaintiff may contest the validity of the provisions that injure
his interest but not those that do not.

We are of the opinion that the trial court committed no error and the
judgment is affirmed with costs against the plaintiff-appellants.
CASE NO. 4
PUNSALAN VERSUS MUN. BOARD OF MANILA ( IDEM: PREVIOUS CASE)

CASE NO. 5

G.R. No. L-24756 October 31, 1968

CITY OF BAGUIO9, plaintiff-appellee,


vs.
FORTUNATO DE LEON, defendant-appellant.

FERNANDO, J.:

In this appeal, a lower court decision upholding the validity of an


ordinance1 of the City of Baguio imposing a license fee on any person, firm,
entity or corporation doing business in the City of Baguio is assailed by
defendant-appellant Fortunato de Leon. He was held liable as a real estate
dealer with a property therein worth more than P10,000, but not in excess
of P50,000, and therefore obligated to pay under such ordinance the P50
annual fee. That is the principal question. In addition, there has been a firm
and unyielding insistence by defendant-appellant of the lack of jurisdiction
of the City Court of Baguio, where the suit originated, a complaint having
been filed against him by the City Attorney of Baguio for his failure to pay
the amount of P300 as license fee covering the period from the first quarter
of 1958 to the fourth quarter of 1962, allegedly, inspite of repeated
demands. Nor was defendant-appellant agreeable to such a suit being
instituted by the City Treasurer without the consent of the Mayor, which for
him was indispensable. The lower court was of a different mind.

In its decision of December 19, 1964, it declared the above ordinance as


amended, valid and subsisting, and held defendant-appellant liable for the
fees therein prescribed as a real estate dealer. Hence, this appeal. Assume
the validity of such ordinance, and there would be no question about the
liability of defendant-appellant for the above license fee, it being shown in
the partial stipulation of facts, that he was "engaged in the rental of his
property in Baguio" deriving income therefrom during the period covered by
the first quarter of 1958 to the fourth quarter of 1962.
The source of authority for the challenged ordinance is supplied by
Republic Act No. 329, amending the city charter of Baguio2 empowering it
to fix the license fee and regulate "businesses, trades and occupations as
may be established or practiced in the City."

Unless it can be shown then that such a grant of authority is not broad
enough to justify the enactment of the ordinance now assailed, the decision
appealed from must be affirmed. The task confronting defendant-appellant,
therefore, was far from easy. Why he failed is understandable, considering
that even a cursory reading of the above amendment readily discloses that
the enactment of the ordinance in question finds support in the power thus
conferred.

Nor is the question raised by him as to the validity thereof novel in


character. In Medina v. City of Baguio,3 the effect of the amendatory
section insofar as it would expand the previous power vested by the city
charter was clarified in these terms: "Appellants apparently have in mind
section 2553, paragraph (c) of the Revised Administrative Code, which
empowers the City of Baguio merely to impose a license fee for the
purpose of rating the business that may be established in the city. The
power as thus conferred is indeed limited, as it does not include the power
to levy a tax. But on July 15, 1948, Republic Act No. 329 was enacted
amending the charter of said city and adding to its power to license the
power to tax and to regulate. And it is precisely having in view this
amendment that Ordinance No. 99 was approved in order to increase the
revenues of the city. In our opinion, the amendment above adverted to
empowers the city council not only to impose a license fee but also to levy
a tax for purposes of revenue, more so when in amending section 2553 (b),
the phrase 'as provided by law' has been removed by section 2 of Republic
Act No. 329. The city council of Baguio, therefore, has now the power to
tax, to license and to regulate provided that the subjects affected be one of
those included in the charter. In this sense, the ordinance under
consideration cannot be considered ultra vires whether its purpose be to
levy a tax or impose a license fee. The terminology used is of no
consequence."

It would be an undue and unwarranted emasculation of the above power


thus granted if defendant-appellant were to be sustained in his contention
that no such statutory authority for the enactment of the challenged
ordinance could be discerned from the language used in the amendatory
act. That is about all that needs to be said in upholding the lower court,
considering that the City of Baguio was not devoid of authority in enacting
this particular ordinance. As mentioned at the outset, however, defendant-
appellant likewise alleged procedural missteps and asserted that the
challenged ordinance suffered from certain constitutional infirmities. To
such points raised by him, we shall now turn.

1. Defendant-appellant makes much of the alleged lack of jurisdiction of the


City Court of Baguio in the suit for the collection of the real estate dealer's
fee from him in the amount of P300. He contended before the lower court,
and it is his contention now, that while the amount of P300 sought was
within the jurisdiction of the City Court of Baguio where this action
originated, since the principal issue was the legality and constitutionality of
the challenged ordinance, it is not such City Court but the Court of First
Instance that has original jurisdiction.

There is here a misapprehension of the Judiciary Act. The City Court has
jurisdiction. Only recently, on September 7, 1968 to be exact, we rejected a
contention similar in character in Nemenzo v. Sabillano.4 The plaintiff in
that case filed a claim for the payment of his salary before the Justice of the
Peace Court of Pagadian, Zamboanga del Sur. The question of jurisdiction
was raised; the defendant Mayor asserted that what was in issue was the
enforcement of the decision of the Commission of Civil Service; the Justice
of the Peace Court was thus without jurisdiction to try the case. The above
plea was curtly dismissed by Us, as what was involved was "an ordinary
money claim" and therefore "within the original jurisdiction of the Justice of
the Peace Court where it was filed, considering the amount involved." Such
is likewise the situation here.

Moreover, in City of Manila v. Bugsuk Lumber Co.,5 a suit to collect from a


defendant this license fee corresponding to the years 1951 and 1952 was
filed with the Municipal Court of Manila, in view of the amount involved. The
thought that the municipal court lacked jurisdiction apparently was not even
in the minds of the parties and did not receive any consideration by this
Court.

Evidently, the fear is entertained by defendant-appellant that whenever a


constitutional question is raised, it is the Court of First Instance that should
have original jurisdiction on the matter. It does not admit of doubt, however,
that what confers jurisdiction is the amount set forth in the complaint. Here,
the sum sought to be recovered was clearly within the jurisdiction of the
City Court of Baguio.
Nor could it be plausibly maintained that the validity of such ordinance
being open to question as a defense against its enforcement from one
adversely affected, the matter should be elevated to the Court of First
Instance. For the City Court could rely on the presumption of the validity of
such ordinance,6 and the mere fact, however, that in the answer to such a
complaint a constitutional question was raised did not suffice to oust the
City Court of its jurisdiction. The suit remains one for collection, the lack of
validity being only a defense to such an attempt at recovery. Since the City
Court is possessed of judicial power and it is likewise axiomatic that the
judicial power embraces the ascertainment of facts and the application of
the law, the Constitution as the highest law superseding any statute or
ordinance in conflict therewith, it cannot be said that a City Court is bereft
of competence to proceed on the matter. In the exercise of such delicate
power, however, the admonition of Cooley on inferior tribunals is well worth
remembering. Thus: "It must be evident to any one that the power to
declare a legislative enactment void is one which the judge, conscious of
the fallibility of the human judgment, will shrink from exercising in any case
where he can conscientiously and with due regard to duty and official oath
decline the responsibility."7 While it remains undoubted that such a power
to pass on the validity of an ordinance alleged to infringe certain
constitutional rights of a litigant exists, still it should be exercised with due
care and circumspection, considering not only the presumption of validity
but also the relatively modest rank of a city court in the judicial hierarchy.

2. To repeat the challenged ordinance cannot be considered ultra vires as


there is more than ample statutory authority for the enactment thereof.
Nonetheless, its validity on constitutional grounds is challenged because of
the allegation that it imposed double taxation, which is repugnant to the due
process clause, and that it violated the requirement of uniformity. We do
not view the matter thus.

As to why double taxation is not violative of due process, Justice Holmes


made clear in this language: "The objection to the taxation as double may
be laid down on one side. ... The 14th Amendment [the due process
clause] no more forbids double taxation than it does doubling the amount of
a tax, short of confiscation or proceedings unconstitutional on other
grounds."8With that decision rendered at a time when American
sovereignty in the Philippines was recognized, it possesses more than just
a persuasive effect. To some, it delivered the coup de grace to the bogey of
double taxation as a constitutional bar to the exercise of the taxing power. It
would seem though that in the United States, as with us, its ghost as noted
by an eminent critic, still stalks the juridical state. In a 1947 decision,
however,9 we quoted with approval this excerpt from a leading American
decision:10 "Where, as here, Congress has clearly expressed its intention,
the statute must be sustained even though double taxation results."

At any rate, it has been expressly affirmed by us that such an "argument


against double taxation may not be invoked where one tax is imposed by
the state and the other is imposed by the city ..., it being widely recognized
that there is nothing inherently obnoxious in the requirement that license
fees or taxes be exacted with respect to the same occupation, calling or
activity by both the state and the political subdivisions thereof."11

The above would clearly indicate how lacking in merit is this argument
based on double taxation.

Now, as to the claim that there was a violation of the rule of uniformity
established by the constitution. According to the challenged ordinance, a
real estate dealer who leases property worth P50,000 or above must pay
an annual fee of P100. If the property is worth P10,000 but not over
P50,000, then he pays P50 and P24 if the value is less than P10,000. On
its face, therefore, the above ordinance cannot be assailed as violative of
the constitutional requirement of uniformity. In Philippine Trust Company v.
Yatco,12 Justice Laurel, speaking for the Court, stated: "A tax is considered
uniform when it operates with the same force and effect in every place
where the subject may be found."

There was no occasion in that case to consider the possible effect on such
a constitutional requirement where there is a classification. The opportunity
came in Eastern Theatrical Co. v. Alfonso.13 Thus: "Equality and uniformity
in taxation means that all taxable articles or kinds of property of the same
class shall be taxed at the same rate. The taxing power has the authority to
make reasonable and natural classifications for purposes of taxation; ..."
About two years later, Justice Tuason, speaking for this Court in Manila
Race Horses Trainers Assn. v. De la Fuente14 incorporated the above
excerpt in his opinion and continued: "Taking everything into account, the
differentiation against which the plaintiffs complain conforms to the practical
dictates of justice and equity and is not discriminatory within the meaning of
the Constitution."

To satisfy this requirement then, all that is needed as held in another case
decided two years later, 15 is that the statute or ordinance in question
"applies equally to all persons, firms and corporations placed in similar
situation." This Court is on record as accepting the view in a leading
American case16 that "inequalities which result from a singling out of one
particular class for taxation or exemption infringe no constitutional
limitation."17

It is thus apparent from the above that in much the same way that the plea
of double taxation is unavailing, the allegation that there was a violation of
the principle of uniformity is inherently lacking in persuasiveness. There is
no need to pass upon the other allegations to assail the validity of the
above ordinance, it being maintained that the license fees therein imposed
"is excessive, unreasonable and oppressive" and that there is a failure to
observe the mandate of equal protection. A reading of the ordinance will
readily disclose their inherent lack of plausibility.

3. That would dispose of all the errors assigned, except the last two, which
would predicate a grievance on the complaint having been started by the
City Treasurer rather than the City Mayor of Baguio. These alleged errors,
as was the case with the others assigned, lack merit.

In much the same way that an act of a department head of the national
government, performed within the limits of his authority, is presumptively
the act of the President unless reprobated or disapproved,18 similarly the
act of the City Treasurer, whose position is roughly analogous, may be
assumed to carry the seal of approval of the City Mayor unless repudiated
or set aside. This should be the case considering that such city official is
called upon to see to it that revenues due the City are collected. When
administrative steps are futile and unavailing, given the stubbornness and
obduracy of a taxpayer, convinced in good faith that no tax was due,
judicial remedy may be resorted to by him. It would be a reflection on the
state of the law if such fidelity to duty would be met by condemnation rather
than commendation.

So, much for the analytical approach. The conclusion thus reached has a
reinforcement that comes to it from the functional and pragmatic test. If a
city treasurer has to await the nod from the city mayor before a municipal
ordinance is enforced, then opportunity exists for favoritism and undue
discrimination to come into play. Whatever valid reason may exist as to
why one taxpayer is to be accorded a treatment denied another, the
suspicion is unavoidable that such a manifestation of official favor could
have been induced by unnamed but not unknown consideration. It would
not be going too far to assert that even defendant-appellant would find no
satisfaction in such a sad state of affairs. The more desirable legal doctrine
therefore, on the assumption that a choice exists, is one that would do
away with such temptation on the part of both taxpayer and public official
alike.

WHEREFORE, the lower court decision of December 19, 1964, is hereby


affirmed. Costs against defendant-appellant.

CASE NO. 6

G.R. No. L-59431 July 25, 1984

ANTERO M. SISON, JR., petitioner,


vs.
RUBEN B. ANCHETA, Acting Commissioner, Bureau of Internal
Revenue; ROMULO VILLA, Deputy Commissioner, Bureau of Internal
Revenue; TOMAS TOLEDO Deputy Commissioner, Bureau of Internal
Revenue; MANUEL ALBA, Minister of Budget, FRANCISCO
TANTUICO, Chairman, Commissioner on Audit, and CESAR E. A.
VIRATA, Minister of Finance, respondents.

FERNANDO, C.J.:

The success of the challenge posed in this suit for declaratory relief or
prohibition proceeding 1 on the validity of Section I of Batas Pambansa Blg.
135 depends upon a showing of its constitutional infirmity. The assailed
provision further amends Section 21 of the National Internal Revenue Code
of 1977, which provides for rates of tax on citizens or residents on (a)
taxable compensation income, (b) taxable net income, (c) royalties, prizes,
and other winnings, (d) interest from bank deposits and yield or any other
monetary benefit from deposit substitutes and from trust fund and similar
arrangements, (e) dividends and share of individual partner in the net
profits of taxable partnership, (f) adjusted gross income. 2 Petitioner 3 as
taxpayer alleges that by virtue thereof, "he would be unduly discriminated
against by the imposition of higher rates of tax upon his income arising
from the exercise of his profession vis-a-vis those which are imposed upon
fixed income or salaried individual taxpayers. 4 He characterizes the above
sction as arbitrary amounting to class legislation, oppressive and capricious
in character 5For petitioner, therefore, there is a transgression of both the
equal protection and due process clauses 6 of the Constitution as well as of
the rule requiring uniformity in taxation. 7

The Court, in a resolution of January 26, 1982, required respondents to file


an answer within 10 days from notice. Such an answer, after two
extensions were granted the Office of the Solicitor General, was filed on
May 28, 1982.8 The facts as alleged were admitted but not the allegations
which to their mind are "mere arguments, opinions or conclusions on the
part of the petitioner, the truth [for them] being those stated [in their]
Special and Affirmative Defenses." 9 The answer then affirmed: "Batas
Pambansa Big. 135 is a valid exercise of the State's power to tax. The
authorities and cases cited while correctly quoted or paraghraph do not
support petitioner's stand." 10 The prayer is for the dismissal of the petition
for lack of merit.

This Court finds such a plea more than justified. The petition must be
dismissed.

1. It is manifest that the field of state activity has assumed a much wider
scope, The reason was so clearly set forth by retired Chief Justice
Makalintal thus: "The areas which used to be left to private enterprise and
initiative and which the government was called upon to enter optionally,
and only 'because it was better equipped to administer for the public
welfare than is any private individual or group of individuals,' continue to
lose their well-defined boundaries and to be absorbed within activities that
the government must undertake in its sovereign capacity if it is to meet the
increasing social challenges of the times." 11 Hence the need for more
revenues. The power to tax, an inherent prerogative, has to be availed of to
assure the performance of vital state functions. It is the source of the bulk
of public funds. To praphrase a recent decision, taxes being the lifeblood of
the government, their prompt and certain availability is of the essence. 12
2. The power to tax moreover, to borrow from Justice Malcolm, "is an
attribute of sovereignty. It is the strongest of all the powers of of
government." 13 It is, of course, to be admitted that for all its plenitude 'the
power to tax is not unconfined. There are restrictions. The Constitution sets
forth such limits . Adversely affecting as it does properly rights, both the
due process and equal protection clauses inay properly be invoked, all
petitioner does, to invalidate in appropriate cases a revenue measure. if it
were otherwise, there would -be truth to the 1803 dictum of Chief Justice
Marshall that "the power to tax involves the power to destroy." 14 In a
separate opinion in Graves v. New York, 15 Justice Frankfurter, after
referring to it as an 1, unfortunate remark characterized it as "a flourish of
rhetoric [attributable to] the intellectual fashion of the times following] a free
use of absolutes." 16 This is merely to emphasize that it is riot and there
cannot be such a constitutional mandate. Justice Frankfurter could rightfully
conclude: "The web of unreality spun from Marshall's famous dictum was
brushed away by one stroke of Mr. Justice Holmess pen: 'The power to tax
is not the power to destroy while this Court sits." 17 So it is in the
Philippines.

3. This Court then is left with no choice. The Constitution as the


fundamental law overrides any legislative or executive, act that runs
counter to it. In any case therefore where it can be demonstrated that the
challenged statutory provision as petitioner here alleges fails to abide
by its command, then this Court must so declare and adjudge it null. The
injury thus is centered on the question of whether the imposition of a higher
tax rate on taxable net income derived from business or profession than on
compensation is constitutionally infirm.

4, The difficulty confronting petitioner is thus apparent. He alleges


arbitrariness. A mere allegation, as here. does not suffice. There must be a
factual foundation of such unconstitutional taint. Considering that petitioner
here would condemn such a provision as void or its face, he has not made
out a case. This is merely to adhere to the authoritative doctrine that were
the due process and equal protection clauses are invoked, considering that
they arc not fixed rules but rather broad standards, there is a need for of
such persuasive character as would lead to such a conclusion. Absent
such a showing, the presumption of validity must prevail. 18

5. It is undoubted that the due process clause may be invoked where a


taxing statute is so arbitrary that it finds no support in the Constitution. An
obvious example is where it can be shown to amount to the confiscation of
property. That would be a clear abuse of power. It then becomes the duty
of this Court to say that such an arbitrary act amounted to the exercise of
an authority not conferred. That properly calls for the application of the
Holmes dictum. It has also been held that where the assailed tax measure
is beyond the jurisdiction of the state, or is not for a public purpose, or, in
case of a retroactive statute is so harsh and unreasonable, it is subject to
attack on due process grounds. 19

6. Now for equal protection. The applicable standard to avoid the charge
that there is a denial of this constitutional mandate whether the assailed act
is in the exercise of the lice power or the power of eminent domain is to
demonstrated that the governmental act assailed, far from being inspired
by the attainment of the common weal was prompted by the spirit of
hostility, or at the very least, discrimination that finds no support in reason.
It suffices then that the laws operate equally and uniformly on all persons
under similar circumstances or that all persons must be treated in the same
manner, the conditions not being different, both in the privileges conferred
and the liabilities imposed. Favoritism and undue preference cannot be
allowed. For the principle is that equal protection and security shall be
given to every person under circumtances which if not Identical are
analogous. If law be looked upon in terms of burden or charges, those that
fall within a class should be treated in the same fashion, whatever
restrictions cast on some in the group equally binding on the rest." 20 That
same formulation applies as well to taxation measures. The equal
protection clause is, of course, inspired by the noble concept of
approximating the Ideal of the laws benefits being available to all and the
affairs of men being governed by that serene and impartial uniformity,
which is of the very essence of the Idea of law. There is, however, wisdom,
as well as realism in these words of Justice Frankfurter: "The equality at
which the 'equal protection' clause aims is not a disembodied equality. The
Fourteenth Amendment enjoins 'the equal protection of the laws,' and laws
are not abstract propositions. They do not relate to abstract units A, B and
C, but are expressions of policy arising out of specific difficulties, address
to the attainment of specific ends by the use of specific remedies. The
Constitution does not require things which are different in fact or opinion to
be treated in law as though they were the same." 21Hence the constant
reiteration of the view that classification if rational in character is allowable.
As a matter of fact, in a leading case of Lutz V. Araneta, 22 this Court,
through Justice J.B.L. Reyes, went so far as to hold "at any rate, it is
inherent in the power to tax that a state be free to select the subjects of
taxation, and it has been repeatedly held that 'inequalities which result from
a singling out of one particular class for taxation, or exemption infringe no
constitutional limitation.'" 23
7. Petitioner likewise invoked the kindred concept of uniformity. According
to the Constitution: "The rule of taxation shag be uniform and
equitable." 24 This requirement is met according to Justice Laurel
in Philippine Trust Company v. Yatco, 25 decided in 1940, when the tax
"operates with the same force and effect in every place where the subject
may be found. " 26 He likewise added: "The rule of uniformity does not call
for perfect uniformity or perfect equality, because this is hardly
attainable." 27 The problem of classification did not present itself in that
case. It did not arise until nine years later, when the Supreme Court held:
"Equality and uniformity in taxation means that all taxable articles or kinds
of property of the same class shall be taxed at the same rate. The taxing
power has the authority to make reasonable and natural classifications for
purposes of taxation, ... . 28 As clarified by Justice Tuason, where "the
differentiation" complained of "conforms to the practical dictates of justice
and equity" it "is not discriminatory within the meaning of this clause and is
therefore uniform." 29 There is quite a similarity then to the standard of
equal protection for all that is required is that the tax "applies equally to all
persons, firms and corporations placed in similar situation." 30

8. Further on this point. Apparently, what misled petitioner is his failure to


take into consideration the distinction between a tax rate and a tax base.
There is no legal objection to a broader tax base or taxable income by
eliminating all deductible items and at the same time reducing the
applicable tax rate. Taxpayers may be classified into different categories.
To repeat, it. is enough that the classification must rest upon substantial
distinctions that make real differences. In the case of the gross income
taxation embodied in Batas Pambansa Blg. 135, the, discernible basis of
classification is the susceptibility of the income to the application of
generalized rules removing all deductible items for all taxpayers within the
class and fixing a set of reduced tax rates to be applied to all of them.
Taxpayers who are recipients of compensation income are set apart as a
class. As there is practically no overhead expense, these taxpayers are e
not entitled to make deductions for income tax purposes because they are
in the same situation more or less. On the other hand, in the case of
professionals in the practice of their calling and businessmen, there is no
uniformity in the costs or expenses necessary to produce their income. It
would not be just then to disregard the disparities by giving all of them zero
deduction and indiscriminately impose on all alike the same tax rates on
the basis of gross income. There is ample justification then for the
Batasang Pambansa to adopt the gross system of income taxation to
compensation income, while continuing the system of net income taxation
as regards professional and business income.
9. Nothing can be clearer, therefore, than that the petition is without merit,
considering the (1) lack of factual foundation to show the arbitrary character
of the assailed provision; 31 (2) the force of controlling doctrines on due
process, equal protection, and uniformity in taxation and (3) the
reasonableness of the distinction between compensation and taxable net
income of professionals and businessman certainly not a suspect
classification,

WHEREFORE, the petition is dismissed. Costs against petitioner.

CASE NO. 7

G.R. No. L-3538 May 28, 1952

JUAN LUNA SUBDIVISION, INC., plaintiff-appellee,


vs.
M. SARMIENTO, ET AL., defendants-appellants.

TUASON, J.:

This is an appeal by the City Treasurer of the City of Manila from the
following judgment handed down in the above-entitled cause:

POR TODAS CONSIDERACIONES, el Jugado dicta sentencia


ordenado: que el demandado Tesorero de la Ciudad de Manila
pague a la demandante la cantidad de P2,210.52 sin intereses; que
la demandada Philippine Trust Companypague a la demandante la
suma de P105 sin intereses.

The Philippine Trust Company did not appeal.

The facts of the case, in so far as they are not in controversy, are these:
The plaintiff was a corporation duly organized and existing under the laws
of the Philippines with principal office in Manila. On December 29, 1941 it
issued to the City Treasurer of Manila, and the City Treasurer accepted
checks No. 628334 for P2,210.52 drawn upon the Philippine Trust
Company with which it had a credit balance of P4,940.17 on its account.
This check was to be applied to plaintiff's land tax for the second semester
of 1941 the exact amount of which was yet undetermine and so it was
entered in the ledger, Exhibit "F", as deposit by the taxpayer. On February
20, 1942, presumably after the exact amount had been verified, which was
P341.60, the balance of P1,868.92, covered by voucher No. 1487 of the
City Treasure's office, was noted in the ledger as a credit to the Juan Luna
Subdivision, Inc.

Further than this, the records of the City Treasurer's office do not show
what was done with the check. But the books of the Philippine Trust
Company do reveal that it was deposited with the Philippine National Bank,
the City Treasurer's sole depository, on December 29, 1941, and that it
was presented by that Bank to the Philippine Trust Company on May 1,
1944 and was cashed by the drawee. Manuel F. Garcia, Assistant
Treasurer of the Philippine Trust Company, testified that soon after his
bank was authorized in March, 1942, to reopen for business (it had been
closed by order of the Japanese military authorities,) it received from the
Philippine National Bank a bundle of checks, including appellees check No.
628334, drawn upon the Philippine Trust Company before the Japanese
occupation and held in abeyance by the Philippine National Bank pending
resumption of operation by the Philippine Trust Company; that these
checks, including the appellee's check, were accepted and the amounts
thereof debited against the respective drawer's accounts; that with respect
to check No. 628334, the operation was effected on May 1, 1944.

The City refused after liberation to refund the plaintiff's deposit or apply it to
such future taxes as might be found due, while the Philippine Trust
Company was unwilling to reverse its debit entry against the Juan Luna
Subdivision, Inc. It was upon this predicament that the Juan Luna
Subdivision, Inc. brought this suit against the City Treasurer and the
Philippine Trust Company as defendants in the alternative. The purpose of
the action is determine which of the two defendants is liable for plaintiff's
check. There is a separate cause of action which concerns the plaintiff and
the City Treasurer alone.

On the main cause of action the burden of the City Treasurer's defense is
that his office was not benefited why the check. He denies that the said
check was cashed "or rather there was no proof that it was." It is pointed
out that Mr. Gibbs, testifying in open court, admitted that he had never
received nor could he have received the cancelled checks;" that "the courts
finding that sum P2,210.52 was in fact and in truth added to the actual cash
of the Treasurer of the City of Manila is based on conjectures and surprises
without any support of pertinent and competent proof;" that "special ledger
sheet of the City Treasurer . . . simply showed that some accounting
transaction in the book value was done or accomplished but these
accounting processes did not show that actual payment had been made
(by the Philippine National Bank) to the City Treasurer, and that the City
Treasurer had in effect received said amount represented by said checks;"
that "the burden of proving that the check in question was in fact paid rest
on the defendant Philippine Trust Company." It is further argued that "there
is a lot of difference between the book value and the cash value of this
check," that the acceptance by the City Treasurer and the issuance of the
Official Receipt No. 755402 on December 29, 1941 in favor of Juan Luna
Subdivision, Inc. did not simultaneously and automatically place in the
hands of the City Treasurer the cash value represented by the said checks
in the amount of P2,210.52".

That the plaintiff's check was deposited by the City Treasurer with the
Philippine National Bank, and the latter was paid the cash equivalent
thereof by the Philippine Trust Company, admits of no doubt. The entries in
the books of the latter bank are not in the least impugned. Whether the City
Treasurer was paid that amount by the Philippine National Bank or given
credit for it, the City Treasurer would neither admit nor deny. He said:

A. Not that I am not willing (to admit); I am willing, but I am not the
right party to admit that the check was actually collected by the City of
Manila from the Philippine Trust Company, The Philippine Trust
Company never submitted any financial statement. To my knowledge,
the City Treasurer of Manila has never been informed by the
Philippine Trust Company or by the Philippine National Bank, which is
the depository of the City of Manila, that same check was collected by
the City Manila from the Philippine National Bank; by that I am not
trying to say that the check was not actually collected by the City.

xxx xxx xxx

Q. This particular check in question pertains to the revenue account


of the City of Manila, is that right?

A. Yes, sir.

Q. Ordinarily it would be deposited with the Philippine National Bank,


is that right?

A. That is right.
Q. And the Philippine National Bank has not rendered you any
account of its collections?

A. I would not say that; they probably gave us statement, but as we


have lost our records pertaining to the occupation and the pre-war
years, I could not make a categorial statement.

From the fact that the Philippine National Bank was open throughout the
Japanese occupation and the other facts heretofore admitted or not denied,
it is to be presumed that the Philippine National Bank credited the City
Treasurer with the amount of the check in question, and that the City
Treasurer, taking ordinary care of his concerns, withdrew that amount. This
is in accordance with the presumption that things happened according to
the ordinary course of business and habits. The burden is on the City
Treasurer, not on the plaintiff, to rebut these presumptions.

But the point is not material at all as far as the plaintiff is concerned. What
became of the check or where the money went is a matter between the City
Treasurer and the Philippine National Bank. The drawer of the check had
funds on deposit to meet it; the City Treasurer accepted it and deposited it
with the Philippine National Bank, and the Philippine National Bank,
collected the equivalent amount from the drawee Bank. In the light of these
circumstances, the City Treasurer became the Philippine National Bank's
creditor and the Juan Luna Subdivision, Inc. was released from liability on
its checks. If the City Treasurer did not collect his credit from the Philippine
National Bank or otherwise make use of it, he alone was to blame and
should suffer the consequences of his neglect. That the City Treasurer held
the check merely in trust for plaintiff does not alter the situation as far as his
branch of the case goes.

The amount to be refunded to the plaintiff is the subject of another


disagreement between the Juan Luna Subdivision, Inc. and the City
Treasurer. This is the ground of other cause of action heretofore referred
to.

The plaintiff claims the whole amount of the check contending that taxes for
the last semester of 1941 have been remitted by Commonwealth Act No.
703.

Section 1 of this Act, which was approved on November 1, 1945, provides:


All land taxes and penalties due and payable for the years nineteen
hundred and forty-two nineteen hundred and forty-three nineteen
hundred and forty-four and fifty per cent of the tax due for nineteen
hundred and forty-five, are hereby remitted. The land taxes and
penalties due and payable for the second semester of the year
nineteen hundred and forty-one shall also be remitted the if the
remaining fifty per cent corresponding to the year nineteen hundred
and forty-five shall been paid on or before December thirty-first,
nineteen hundred and forty-five.

Does this provision cover taxes paid before its enactment as the plaintiff
maintains and the court below held, or does it refer, as the City Treasurer
believes, only to taxes which were still unpaid?

There is no ambiguity in the language of the law. It says "taxes and


penalties due and payable," the literal meaning of which taxes owned or
owing. (See Webster's New International Dictionary) Note that the provision
speaks of penalties, and note that penalties accrue only when taxes are not
paid on time. The word "remit" underlined by the appellant does not help its
theory, for to remit to desist or refrain from exacting, inflicting, or enforcing
something as well as to restore what has already been taken. (Webster's
New International Dictionary.)

We do not see that literal interpretation of Commonwealth Act No. 703 runs
counter and does violence to its spirit and intention , nor do we think that
such interpretation would be "constitutionally bad" in that "it would unduly
discriminate against taxpayers who had paid in favor of delinquent
taxpayers."

The remission of taxes due and payable to the exclusion of taxes already
collected does not constitute unfair discrimination. Each set of taxes is a
class by itself, and the law would be open to attack as class legislation only
if all taxpayers belonging to one class were not treated alike. They are not.

As to the justice of the measure, the confinement of the condonation to


deliquent taxes was not without good reason. The property owners who
had paid their taxes before liberation and those who had not were not on
the same footing on the need of material relief. It is true that the ravages
and devastations wrought by was operations had rendered the bulk of the
people destitute or impoverished and that it was this situation which
prompted the passage of Commonwealth Act No. 703. But it is also true
that the taxpayers who had been in arrears in their obligation would have to
satisfy their liability with genuine currency, while the taxes paid during the
occupation had been satisfied in Japanese military notes, many of them at
a time when those notes were well-nigh worthless. To refund those taxes
with the restored currency, even if the Government could afford to do so,
would be unduly to enrich many of the payers at a greater expense to the
people at large. What is more, the process of refunding would entail a
tremendous amount of work and difficulties, what with the destruction of tax
records and the great number of claimants who would take advantage of
such grace.

It is said that the plaintiff's check was in the nature of deposit, held trust by
the City Treasurer, and that for this reason, plaintiff's taxes are to be
regarded as still due and payable. This argument is well taken but only to
the extent of P1,868.92. The amount of P341.60 as early as February 20,
1942, had been applied to the second half of plaintiff's 1941 tax and
become part of the general funds of the city treasury. From that date that
tax was legally and actually paid and settled.

The appealed judgment should, therefore, be modified so that the


defendant City Treasurer shall refund to the plaintiff the sum of P1,868.92
instead P2,210.52, without costs. It is so ordered.

CASE NO. 8

G.R. No. L-4376 May 22, 1953

ASSOCIATION OF CUSTOMS BROKERS, INC. and G. MANLAPIT,


INC., petitioners-appellants,
vs.
THE MUNICIPALITY BOARD, THE CITY TREASURER, THE CITY
ASSESSOR and THE CITY MAYOR, all of the City of
Manila, respondents-appellees.

BAUTISTA ANGELO, J.:

This is a petition for declaratory relief to test the validity of Ordinance No.
3379 passed by the Municipal Board of the City of Manila on March 24,
1950.

The Association of Customs Brokers, Inc., which is composed of all brokers


and public service operators of motor vehicles in the City of Manila, and G.
Manlapit, Inc., a member of said association, also a public service operator
of the trucks in said City, challenge the validity of said ordinance on the
ground that (1) while it levies a so-called property tax it is in reality a license
tax which is beyond the power of the Municipal Board of the City of Manila;
(2) said ordinance offends against the rule of uniformity of taxation; and (3)
it constitutes double taxation.

The respondents, represented by the city fiscal, contend on their part that
the challenged ordinance imposes a property tax which is within the power
of the City of Manila to impose under its Revised Charter [Section 18 (p) of
Republic Act No. 409], and that the tax in question does not violate the rule
of uniformity of taxation, nor does it constitute double taxation.

The issues having been joined, the Court of First Instance of Manila
sustained the validity of the ordinance and dismissed the petition. Hence
this appeal.

The disputed ordinance was passed by the Municipal Board of the City of
Manila under the authority conferred by section 18 (p) of Republic Act No.
409. Said section confers upon the municipal board the power "to tax motor
and other vehicles operating within the City of Manila the provisions of any
existing law to the contrary notwithstanding." It is contended that this power
is broad enough to confer upon the City of Manila the power to enact an
ordinance imposing the property tax on motor vehicles operating within the
city limits.

In the deciding the issue before us it is necessary to bear in mind the


pertinent provisions of the Motor Vehicles Law, as amended, (Act No.
3992) which has a bearing on the power of the municipal corporation to
impose tax on motor vehicles operating in any highway in the Philippines.
The pertinent provisions are contained in section 70 (b) which provide in
part:

No further fees than those fixed in this Act shall be exacted or


demanded by any public highway, bridge or ferry, or for the exercise
of the profession of chauffeur, or for the operation of any motor
vehicle by the owner thereof: Provided, however, That nothing in this
Act shall be construed to exempt any motor vehicle from the payment
of any lawful and equitable insular, local or municipal property tax
imposed thereupon. . . .
Note that under the above section no fees may be exacted or demanded
for the operation of any motor vehicle other than those therein provided, the
only exception being that which refers to the property tax which may be
imposed by a municipal corporation. This provision is all-inclusive in that
sense that it applies to all motor vehicles. In this sense, this provision
should be construed as limiting the broad grant of power conferred upon
the City of Manila by its Charter to impose taxes. When section 18 of said
Charter provides that the City of Manila can impose a tax on motor vehicles
operating within its limit, it can only refers to property tax as a different
interpretation would make it repugnant to the Motor Vehicle Law.

Coming now to the ordinance in question, we find that its title refers to it as
"An Ordinance Levying a Property Tax on All Motor Vehicles Operating
Within the City of Manila", and that in its section 1 it provides that the tax
should be 1 per cent ad valorem per annum. It also provides that the
proceeds of the tax "shall accrue to the Streets and Bridges Funds of the
City and shall be expended exclusively for the repair, maintenance and
improvement of its streets and bridges." Considering the wording used in
the ordinance in the light in the purpose for which the tax is created, can we
consider the tax thus imposed as property tax, as claimed by respondents?

While as a rule an ad valorem tax is a property tax, and this rule is


supported by some authorities, the rule should not be taken in its absolute
sense if the nature and purpose of the tax as gathered from the context
show that it is in effect an excise or a license tax. Thus, it has been held
that "If a tax is in its nature an excise, it does not become a property tax
because it is proportioned in amount to the value of the property used in
connection with the occupation, privilege or act which is taxed. Every
excise necessarily must finally fall upon and be paid by property and so
may be indirectly a tax upon property; but if it is really imposed upon the
performance of an act, enjoyment of a privilege, or the engaging in an
occupation, it will be considered an excise." (26 R. C. L., 35-36.) It has also
been held that

The character of the tax as a property tax or a license or occupation


tax must be determined by its incidents, and from the natural and
legal effect of the language employed in the act or ordinance, and not
by the name by which it is described, or by the mode adopted in fixing
its amount. If it is clearly a property tax, it will be so regarded, even
though nominally and in form it is a license or occupation tax; and, on
the other hand, if the tax is levied upon persons on account of their
business, it will be construed as a license or occupation tax, even
though it is graduated according to the property used in such
business, or on the gross receipts of the business. (37 C.J., 172)

The ordinance in question falls under the foregoing rules. While it refers to
property tax and it is fixed ad valoremyet we cannot reject the idea that it is
merely levied on motor vehicles operating within the City of Manila with the
main purpose of raising funds to be expended exclusively for the repair,
maintenance and improvement of the streets and bridges in said city. This
is precisely what the Motor Vehicle Law (Act No. 3992) intends to prevent,
for the reason that, under said Act, municipal corporation already
participate in the distribution of the proceeds that are raised for the same
purpose of repairing, maintaining and improving bridges and public
highway (section 73 of the Motor Vehicle Law). This prohibition is intended
to prevent duplication in the imposition of fees for the same purpose. It is
for this reason that we believe that the ordinance in question merely
imposes a license fee although under the cloak of an ad valorem tax to
circumvent the prohibition above adverted to.

It is also our opinion that the ordinance infringes the rule of the uniformity of
taxation ordained by our Constitution. Note that the ordinance exacts the
tax upon all motor vehicles operating within the City of Manila. It does not
distinguish between a motor vehicle for hire and one which is purely for
private use. Neither does it distinguish between a motor vehicle registered
in the City of Manila and one registered in another place but occasionally
comes to Manila and uses its streets and public highways. The distinction
is important if we note that the ordinance intends to burden with the tax
only those registered in the City of Manila as may be inferred from the word
"operating" used therein. The word "operating" denotes a connotation
which is akin to a registration, for under the Motor Vehicle Law no motor
vehicle can be operated without previous payment of the registration fees.
There is no pretense that the ordinance equally applies to motor vehicles
who come to Manila for a temporary stay or for short errands, and it cannot
be denied that they contribute in no small degree to the deterioration of the
streets and public highway. The fact that they are benefited by their use
they should also be made to share the corresponding burden. And yet such
is not the case. This is an inequality which we find in the ordinance, and
which renders it offensive to the Constitution.

Wherefore, reversing the decision appealed from, we hereby declare the


ordinance null and void.
Paras, C.J., Bengzon and Tuason, JJ., concur.
Montemayor, Reyes, Jugo and Labrador, JJ., concur in the result.

CASE NO. 9

G.R. No. L-23794 February 17, 1968

ORMOC SUGAR COMPANY, INC., plaintiff-appellant,


vs.
THE TREASURER OF ORMOC CITY, THE MUNICIPAL BOARD OF
ORMOC CITY, HON. ESTEBAN C. CONEJOS as Mayor of Ormoc City
and ORMOC CITY, defendants-appellees.

BENGZON, J.P., J.:

On January 29, 1964, the Municipal Board of Ormoc City


1
passed Ordinance No. 4, Series of 1964, imposing "on any and all
productions of centrifugal sugar milled at the Ormoc Sugar Company, Inc.,
in Ormoc City a municipal tax equivalent to one per centum (1%) per export
sale to the United States of America and other foreign countries." 2

Payments for said tax were made, under protest, by Ormoc Sugar
Company, Inc. on March 20, 1964 for P7,087.50 and on April 20, 1964 for
P5,000, or a total of P12,087.50.

On June 1, 1964, Ormoc Sugar Company, Inc. filed before the Court
of First Instance of Leyte, with service of a copy upon the Solicitor General,
a complaint 3 against the City of Ormoc as well as its Treasurer, Municipal
Board and Mayor, alleging that the afore-stated ordinance is
unconstitutional for being violative of the equal protection clause (Sec. 1[1],
Art. III, Constitution) and the rule of uniformity of taxation (Sec. 22[1]), Art.
VI, Constitution), aside from being an export tax forbidden under Section
2287 of the Revised Administrative Code. It further alleged that the tax is
neither a production nor a license tax which Ormoc City under Section 15-
kk of its charter and under Section 2 of Republic Act 2264, otherwise
known as the Local Autonomy Act, is authorized to impose; and that the tax
amounts to a customs duty, fee or charge in violation of paragraph 1 of
Section 2 of Republic Act 2264 because the tax is on both the sale and
export of sugar.
Answering, the defendants asserted that the tax ordinance was
within defendant city's power to enact under the Local Autonomy Act and
that the same did not violate the afore-cited constitutional limitations. After
pre-trial and submission of the case on memoranda, the Court of First
Instance, on August 6, 1964, rendered a decision that upheld the
constitutionality of the ordinance and declared the taxing power of
defendant chartered city broadened by the Local Autonomy Act to include
all other forms of taxes, licenses or fees not excluded in its charter.

Appeal therefrom was directly taken to Us by plaintiff Ormoc Sugar


Company, Inc. Appellant alleges the same statutory and constitutional
violations in the aforesaid taxing ordinance mentioned earlier.

Section 1 of the ordinance states: "There shall be paid to the City


Treasurer on any and all productions of centrifugal sugar milled at the
Ormoc Sugar Company, Incorporated, in Ormoc City, a municipal tax
equivalent to one per centum (1%) per export sale to the United States of
America and other foreign countries." Though referred to as a tax on the
export of centrifugal sugar produced at Ormoc Sugar Company, Inc. For
production of sugar alone is not taxable; the only time the tax applies is
when the sugar produced is exported.

Appellant questions the authority of the defendant Municipal Board to


levy such an export tax, in view of Section 2287 of the Revised
Administrative Code which denies from municipal councils the power to
impose an export tax. Section 2287 in part states: "It shall not be in the
power of the municipal council to impose a tax in any form whatever, upon
goods and merchandise carried into the municipality, or out of the same,
and any attempt to impose an import or export tax upon such goods in the
guise of an unreasonable charge for wharfage use of bridges or otherwise,
shall be void."

Subsequently, however, Section 2 of Republic Act 2264 effective


June 19, 1959, gave chartered cities, municipalities and municipal districts
authority to levy for public purposes just and uniform taxes, licenses or
fees. Anent the inconsistency between Section 2287 of the Revised
Administrative Code and Section 2 of Republic Act 2264, this Court, in Nin
Bay Mining Co. v. Municipality of Roxas 4 held the former to have been
repealed by the latter. And expressing Our awareness of the
transcendental effects that municipal export or import taxes or licenses will
have on the national economy, due to Section 2 of Republic Act 2264, We
stated that there was no other alternative until Congress acts to provide
remedial measures to forestall any unfavorable results.

The point remains to be determined, however, whether constitutional


limits on the power of taxation, specifically the equal protection clause and
rule of uniformity of taxation, were infringed.

The Constitution in the bill of rights provides: ". . . nor shall any
person be denied the equal protection of the laws." (Sec. 1 [1], Art. III)
In Felwa vs. Salas, 5 We ruled that the equal protection clause applies only
to persons or things identically situated and does not bar a reasonable
classification of the subject of legislation, and a classification is reasonable
where (1) it is based on substantial distinctions which make real
differences; (2) these are germane to the purpose of the law; (3) the
classification applies not only to present conditions but also to future
conditions which are substantially identical to those of the present; (4) the
classification applies only to those who belong to the same class.

A perusal of the requisites instantly shows that the questioned


ordinance does not meet them, for it taxes only centrifugal sugar produced
and exported by the Ormoc Sugar Company, Inc. and none other. At the
time of the taxing ordinance's enactment, Ormoc Sugar Company, Inc., it is
true, was the only sugar central in the city of Ormoc. Still, the classification,
to be reasonable, should be in terms applicable to future conditions as well.
The taxing ordinance should not be singular and exclusive as to exclude
any subsequently established sugar central, of the same class as plaintiff,
for the coverage of the tax. As it is now, even if later a similar company is
set up, it cannot be subject to the tax because the ordinance expressly
points only to Ormoc City Sugar Company, Inc. as the entity to be levied
upon.

Appellant, however, is not entitled to interest; on the refund because


the taxes were not arbitrarily collected (Collector of Internal Revenue v.
Binalbagan). 6 At the time of collection, the ordinance provided a sufficient
basis to preclude arbitrariness, the same being then presumed
constitutional until declared otherwise.

WHEREFORE, the decision appealed from is hereby reversed, the


challenged ordinance is declared unconstitutional and the defendants-
appellees are hereby ordered to refund the P12,087.50 plaintiff-appellant
paid under protest. No costs. So ordered.
CASE NO. 10

REYES VERSUS ALMANZOR ( IDEM: PREVIOUS CASE)

CASE NO. 11

VILLEGAS VERSUS HSIU CHIONG CHAI PAO ( IDEM:


PREVIOUS CASE)

CASE NO. 11

G.R. No. 108524 November 10, 1994

MISAMIS ORIENTAL ASSOCIATION OF COCO TRADERS,


INC., petitioner,
vs.
DEPARTMENT OF FINANCE SECRETARY, COMMISSIONER OF THE
BUREAU OF INTERNAL REVENUE (BIR), AND REVENUE DISTRICT
OFFICER, BIR MISAMIS ORIENTAL, respondents.

MENDOZA, J.:

This is a petition for prohibition and injunction seeking to nullify Revenue


Memorandum Circular No. 47-91 and enjoin the collection by respondent
revenue officials of the Value Added Tax (VAT) on the sale of copra by
members of petitioner organization. 1

Petitioner Misamis Oriental Association of Coco Traders, Inc. is a domestic


corporation whose members, individually or collectively, are engaged in the
buying and selling of copra in Misamis Oriental. The petitioner alleges that
prior to the issuance of Revenue Memorandum Circular 47-91 on June 11,
1991, which implemented VAT Ruling 190-90, copra was classified as
agricultural food product under $ 103(b) of the National Internal Revenue
Code and, therefore, exempt from VAT at all stages of production or
distribution.
Respondents represent departments of the executive branch of
government charged with the generation of funds and the assessment, levy
and collection of taxes and other imposts.

The pertinent provision of the NIRC states:

Sec. 103. Exempt Transactions. The following shall be


exempt from the value-added tax:

(a) Sale of nonfood agricultural, marine and forest products in


their original state by the primary producer or the owner of the
land where the same are produced;

(b) Sale or importation in their original state of agricultural and


marine food products, livestock and poultry of a kind generally
used as, or yielding or producing foods for human consumption,
and breeding stock and genetic material therefor;

Under 103(a), as above quoted, the sale of agricultural non-food products


in their original state is exempt from VAT only if the sale is made by the
primary producer or owner of the land from which the same are produced.
The sale made by any other person or entity, like a trader or dealer, is not
exempt from the tax. On the other hand, under 103(b) the sale of
agricultural food products in their original state is exempt from VAT at all
stages of production or distribution regardless of who the seller is.

The question is whether copra is an agricultural food or non-food product


for purposes of this provision of the NIRC. On June 11, 1991, respondent
Commissioner of Internal Revenue issued the circular in question,
classifying copra as an agricultural non-food product and declaring it
"exempt from VAT only if the sale is made by the primary producer
pursuant to Section 103(a) of the Tax Code, as amended." 2

The reclassification had the effect of denying to the petitioner the


exemption it previously enjoyed when copra was classified as an
agricultural food product under 103(b) of the NIRC. Petitioner challenges
RMC No. 47-91 on various grounds, which will be presently discussed
although not in the order raised in the petition for prohibition.

First. Petitioner contends that the Bureau of Food and Drug of the
Department of Health and not the BIR is the competent government agency
to determine the proper classification of food products. Petitioner cites the
opinion of Dr. Quintin Kintanar of the Bureau of Food and Drug to the effect
that copra should be considered "food" because it is produced from
coconut which is food and 80% of coconut products are edible.

On the other hand, the respondents argue that the opinion of the BIR, as
the government agency charged with the implementation and interpretation
of the tax laws, is entitled to great respect.

We agree with respondents. In interpreting 103(a) and (b) of the NIRC,


the Commissioner of Internal Revenue gave it a strict construction
consistent with the rule that tax exemptions must be strictly construed
against the taxpayer and liberally in favor of the state. Indeed, even Dr.
Kintanar said that his classification of copra as food was based on "the
broader definition of food which includes agricultural commodities and other
components used in the manufacture/processing of food." The full text of
his letter reads:

10 April 1991

Mr. VICTOR A. DEOFERIO, JR.


Chairman VAT Review Committee
Bureau of Internal Revenue
Diliman, Quezon City

Dear Mr. Deoferio:

This is to clarify a previous communication made by this Office


about copra in a letter dated 05 December 1990 stating that
copra is not classified as food. The statement was made in the
context of BFAD's regulatory responsibilities which focus mainly
on foods that are processed and packaged, and thereby copra
is not covered.

However, in the broader definition of food which include


agricultural commodities and other components used in the
manufacture/ processing of food, it is our opinion that copra
should be classified as an agricultural food product since copra
is produced from coconut meat which is food and based on
available information, more than 80% of products derived from
copra are edible products.
Very
truly
yours
,

QUIN
TIN
L.
KINT
ANA
R,
M.D.,
Ph.D.

Direc
tor
Assis
tant
Secr
etary
of
Healt
h for
Stan
dards
and
Regu
lation
s

Moreover, as the government agency charged with the enforcement of the


law, the opinion of the Commissioner of Internal Revenue, in the absence
of any showing that it is plainly wrong, is entitled to great weight. Indeed,
the ruling was made by the Commissioner of Internal Revenue in the
exercise of his power under 245 of the NIRC to "make rulings or opinions
in connection with the implementation of the provisions of internal revenue
laws,including rulings on the classification of articles for sales tax and
similar purposes."

Second. Petitioner complains that it was denied due process because it


was not heard before the ruling was made. There is a distinction in
administrative law between legislative rules and interpretative rules. 3 There
would be force in petitioner's argument if the circular in question were in the
nature of a legislative rule. But it is not. It is a mere interpretative rule.

The reason for this distinction is that a legislative rule is in the nature of
subordinate legislation, designed to implement a primary legislation by
providing the details thereof. In the same way that laws must have the
benefit of public hearing, it is generally required that before a legislative
rule is adopted there must be hearing. In this connection, the Administrative
Code of 1987 provides:

Public Participation. If not otherwise required by law, an


agency shall, as far as practicable, publish or circulate notices
of proposed rules and afford interested parties the opportunity
to submit their views prior to the adoption of any rule.

(2) In the fixing of rates, no rule or final order shall be valid


unless the proposed rates shall have been published in a
newspaper of general circulation at least two (2) weeks before
the first hearing thereon.

(3) In case of opposition, the rules on contested cases shall be


observed. 4

In addition such rule must be published. 5 On the other hand, interpretative


rules are designed to provide guidelines to the law which the administrative
agency is in charge of enforcing.

Accordingly, in considering a legislative rule a court is free to make three


inquiries: (i) whether the rule is within the delegated authority of the
administrative agency; (ii) whether it is reasonable; and (iii) whether it was
issued pursuant to proper procedure. But the court is not free to substitute
its judgment as to the desirability or wisdom of the rule for the legislative
body, by its delegation of administrative judgment, has committed those
questions to administrative judgments and not to judicial judgments. In the
case of an interpretative rule, the inquiry is not into the validity but into the
correctness or propriety of the rule. As a matter of power a court, when
confronted with an interpretative rule, is free to (i) give the force of law to
the rule; (ii) go to the opposite extreme and substitute its judgment; or (iii)
give some intermediate degree of authoritative weight to the interpretative
rule. 6
In the case at bar, we find no reason for holding that respondent
Commissioner erred in not considering copra as an "agricultural food
product" within the meaning of 103(b) of the NIRC. As the Solicitor
General contends, "copra per se is not food, that is, it is not intended for
human consumption. Simply stated, nobody eats copra for food." That
previous Commissioners considered it so, is not reason for holding that the
present interpretation is wrong. The Commissioner of Internal Revenue is
not bound by the ruling of his predecessors. 7 To the contrary, the
overruling of decisions is inherent in the interpretation of laws.

Third. Petitioner likewise claims that RMC No. 47-91 is discriminatory and
violative of the equal protection clause of the Constitution because while
coconut farmers and copra producers are exempt, traders and dealers are
not, although both sell copra in its original state. Petitioners add that oil
millers do not enjoy tax credit out of the VAT payment of traders and
dealers.

The argument has no merit. There is a material or substantial difference


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

It is not true that oil millers are exempt from VAT. Pursuant to 102 of the
NIRC, they are subject to 10% VAT on the sale of services. Under 104 of
the Tax Code, they are allowed to credit the input tax on the sale of copra
by traders and dealers, but there is no tax credit if the sale is made directly
by the copra producer as the sale is VAT exempt. In the same manner,
copra traders and dealers are allowed to credit the input tax on the sale of
copra by other traders and dealers, but there is no tax credit if the sale is
made by the producer.

Fourth. It is finally argued that RMC No. 47-91 is counterproductive


because traders and dealers would be forced to buy copra from coconut
farmers who are exempt from the VAT and that to the extent that prices are
reduced the government would lose revenues as the 10% tax base is
correspondingly diminished.

This is not so. The sale of agricultural non-food products is exempt from
VAT only when made by the primary producer or owner of the land from
which the same is produced, but in the case of agricultural food products
their sale in their original state is exempt at all stages of production or
distribution. At any rate, the argument that the classification of copra as
agricultural non-food product is counterproductive is a question of wisdom
or policy which should be addressed to respondent officials and to
Congress.

WHEREFORE, the petition is DISMISSED.

SO ORDERED.

CASE NO. 12

ARTURO M. TOLENTINO,
Petitioner,
G. R. No. 115455

August 25, 1994


-versus-
THE SECRETARY OF FINANCE
and THE COMMISSIONER OF INTERNAL REVENUE,
Respondents.
_____________________________________________
JUAN T. DAVID,
Petitioner,
G. R. No. 115525

August 25, 1994


-versus-
TEOFISTO T. GUINGONA, JR., as Executive Secretary,
ROBERTO DE OCAMPO, as Secretary of Finance,
LIWAYWAY VINZONS-CHATO, as Commissioner of Internal
Revenue and their Authorized Agents or Representatives,
Respondents.
______________________________________________

RAUL S. ROCO and the INTEGRATED BAR OF THE


PHILIPPINES,
Petitioners,
G. R. No. 115543
August 25, 1994
-versus-

THE SECRETARY OF THE DEPARTMENT OF FINANCE,


THE COMMISSIONERS OF THE BUREAU OF INTERNAL
REVENUE
and THE BUREAU OF CUSTOMS,
Respondents.
____________________________________________________
_

PHILIPPINE PRESS INSTITUTE, INC., EGP PUBLISHING


CO., INC.,
PHILIPPINE JOURNALISTS, INC., JOSE L. PAVIA,
and OFELIA L. DIMALANTA,
Petitioners,
G. R. No. 115544

August 25, 1994


-versus-

HON. LIWAYWAY V. CHATO, in Her Capacity as


Commissioner
of Internal Revenue, HON. TEOFISTO T. GUINGONA, JR., in
His
Capacity as Executive Secretary and HON. ROBERTO B. DE
OCAMPO,
in His Capacity as Secretary of Finance,
Respondents.
____________________________________________________
_________

CHAMBER OF REAL ESTATE AND BUILDERS


ASSOCIATIONS, INC.,
[CREBA],
Petitioner,
G. R. No. 115754
August 25, 1994
-versus-

THE COMMISSIONER OF INTERNAL REVENUE,


Respondent.

____________________________________________________
__________

KILOSBAYAN, INC., JOVITO R. SALONGA, CIRILO A.


RIGOS,
ERME CAMBA, EMILIO C. CAPULONG, JR., JOSE T. APOLO,
EPHRAIM TENDERO, FERNANDO SANTIAGO, JOSE ABCEDE,
CHRISTINE TAN, FELIPE L. GOZON, RAFAEL G. FERNANDO,
RAOUL V. VICTORINO, JOSE CUNANAN, QUINTIN S.
DOROMAL,
MOVEMENT OF ATTORNEYS FOR BROTHERHOOD,
INTEGRITY
AND NATIONALISM, INC. ["MABINI"], FREEDOM FROM
DEBT
COALITION, INC., PHILIPPINE BIBLE SOCIETY,
INC.chanrobles virtual law library
and WIGBERTO TAADA,
Petitioners,
G. R. No. 115781

August 25, 1994


-versus-
THE EXECUTIVE SECRETARY, THE SECRETARY OF
FINANCE,
THE COMMISSIONER OF INTERNAL REVENUE and
THE COMMISSIONER OF CUSTOMS,
Respondents.
____________________________________________________
___

PHILIPPINE AIRLINES, INC.,


Petitioner,
G. R. No. 115852
August 25, 1994
-versus-

THE SECRETARY OF FINANCE


and COMMISSIONER OF INTERNAL REVENUE,
Respondents.
____________________________________________________
___

COOPERATIVE UNION OF THE PHILIPPINES,


Petitioners,
G. R. No. 115873

August 25, 1994


-versus-

HON. LIWAYWAY V. CHATO, in Her Capacity as the


Commissioner
of Internal Revenue, HON. TEOFISTO T. GUINGONA, JR., in
His
Capacity as Executive Secretary and HON. ROBERTO B. DE
OCAMPO,
in His Capacity as Secretary of Finance,
Respondents.
_______________________________________________
______________

PHILIPPINE EDUCATIONAL PUBLISHERS ASSOCIATION,


INC.chanrobles virtual law library
and ASSOCIATION OF PHILIPPINE BOOK-SELLERS,
Petitioners,
G. R. No. 115931

August 25, 1994


-versus-

HON. ROBERTO B. DE OCAMPO, as the Secretary of


Finance,
HON. LIWAYWAY V. CHATO, as the Commissioner of
Internal Revenue
and HON. GUILLERMO PARAYNO, JR., in His Capacity as
the
Commissioner of Customs,
Respondents.
____________________________________________________
__________

RESOLUTION
MENDOZA, J.:

The Value-Added Tax [VAT] is levied on the sale, barter or


exchange of goods and properties as well as on the sale or
exchange of services. It is equivalent to 10% of the gross selling
price or gross value in money of goods or properties sold,
bartered or exchanged or of the gross receipts from the sale or
exchange of services. Republic Act No. 7716 seeks to widen the
tax base of the existing VAT system and enhance its
administration by amending the National Internal Revenue Code.
These are various suits for certiorari and prohibition challenging
the constitutionality of Republic Act No. 7716 on various grounds
summarized in the Resolution of July 6, 1994 of this Court, as
follows:
I. Procedural Issues:

A. Does Republic Act No. 7716 violate Art. VI, Section 24 of the
Constitution?
B. Does it violate Art. VI, Section 26[2] of the Constitution?
C. What is the extent of the power of the Bicameral Conference
Committee?
II. Substantive Issues:

A. Does the law violate the following provisions in the Bill of


Rights [Art. III]?
1. Section1
2. Section 4
3. Section 5
4. Section 10

B. Does the law violate the following other provisions of the


Constitution?

1. Art. VI, Section 28[1]


2. Art. VI, Section 28[3]

These questions will be dealt with in the order they are stated
above. As will presently be explained, not all of these questions
are judicially cognizable because not all provisions of the
Constitution are self-executing and, therefore, judicially
enforceable. The other departments of the government are
equally charged with the enforcement of the Constitution
especially the provisions relating to them.

I. PROCEDURAL ISSUES
The contention of petitioners is that in enacting Republic Act No.
7716 or the Expanded Value-Added Tax Law, Congress violated
the Constitution because, although H. No. 11197 had originated
in the House of Representatives, it was not passed by the Senate
but was simply consolidated with the Senate version [S. No.
1630] in the Conference Committee to produce the bill which the
President signed into law. The following provisions of the
Constitution are cited in support of the proposition that because
Republic Act No. 7716 was passed in this manner, it did not
originate in the House of Representatives and it has not thereby
become a law:
Art. VI, Section 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.
Id., Section 26[2]: No bill passed by either House shall become a
law unless it has passed three readings on separate days, and
printed copies thereof in its final form have been distributed to its
Members three days before its passage, except when the
President certifies to the necessity of its immediate enactment to
meet a public calamity or emergency. Upon the last reading of a
bill, no amendment thereto shall be allowed, and the vote
thereon shall be taken immediately thereafter, and the yeas and
nays entered in the Journal.

It appears that on various dates between July 22, 1992 and


August 31, 1993, several bills [1] were introduced in the House
of Representatives seeking to amend certain provisions of the
National Internal Revenue Code relative to the Value-Added Tax
or VAT. These bills were referred to the House Ways and Means
Committee which recommended for approval a substitute
measure, H. No. 11197, entitled:
AN ACT RESTRUCTURING THE VALUE-ADDED TAX [VAT]
SYSTEM TO WIDEN ITS TAX BASE AND ENHANCE ITS
ADMINISTRATION, AMENDING FOR THESE PURPOSES
SECTIONS 99, 100, 102, 103, 104, 105, 106, 107, 108 AND
110 OF TITLE IV, 112, 115 AND 116 OF TITLE V, AND 236,
237 AND 238 OF TITLE IX, AND REPEALING SECTIONS 113
AND 114 OF TITLE V, ALL OF THE NATIONAL INTERNAL
REVENUE CODE, AS AMENDED
The bill [H. No. 11197] was considered on second reading
starting November 6, 1993 and, on November 17, 1993, it was
approved by the House of Representatives after third and final
reading.
It was sent to the Senate on November 23, 1993 and later
referred by that body to its Committee on Ways and
Means.cralaw
On February 7, 1994, the Senate Committee submitted its report
recommending approval of S. No. 1630, entitled:
AN ACT RESTRUCTURING THE VALUE-ADDED TAX [VAT]
SYSTEM TO WIDEN ITS TAX BASE AND ENHANCE ITS
ADMINISTRATION, AMENDING FOR THESE PURPOSES
SECTIONS 99, 100, 102, 103, 104, 105, 107, 108, AND 110
OF TITLE IV, 112 OF TITLE V, AND 236, 237, AND 238 OF
TITLE IX, AND REPEALING SECTIONS 113, 114 and 116 OF
TITLE V, ALL OF THE NATIONAL INTERNAL REVENUE CODE,
AS AMENDED, AND FOR OTHER PURPOSES
It was stated that the bill was being submitted "in substitution of
Senate Bill No. 1129, taking into consideration P.S. Res. No. 734
and H.B. No. 11197."
On February 8, 1994, the Senate began consideration of the bill
[S. No. 1630]. It finished debates on the bill and approved it on
second reading on March 24, 1994. On the same day, it approved
the bill on third reading by the affirmative votes of 13 of its
members, with one abstention. H. No. 11197 and its Senate
version [S. No. 1630] were then referred to a conference
committee which, after meeting four times [April 13, 19, 21 and
25, 1994], recommended that "House Bill No. 11197, in
consolidation with Senate Bill No. 1630, be approved in
accordance with the attached copy of the bill as reconciled and
approved by the conferees."
The Conference Committee bill, entitled: "AN ACT
RESTRUCTURING THE VALUE-ADDED TAX (VAT) SYSTEM,
WIDENING ITS TAX BASE AND ENHANCING ITS
ADMINISTRATION AND FOR THESE PURPOSES AMENDING
AND REPEALING THE RELEVANT PROVISIONS OF THE
NATIONAL INTERNAL REVENUE CODE, AS AMENDED, AND
FOR OTHER PURPOSES,"was thereafter approved by the House
of Representatives on April 27, 1994 and by the Senate on May 2,
1994. The enrolled bill was then presented to the President of the
Philippines who, on May 5, 1994, signed it. It became Republic
Act No. 7716. On May 12, 1994, Republic Act No. 7716 was
published in two newspapers of general circulation and, on May
28, 1994, it took effect, although its implementation was
suspended until June 30, 1994 to allow time for the registration
of business entities. It would have been enforced on July 1, 1994
but its enforcement was stopped because this Court, by the vote
of 11 to 4 of its members, granted a temporary restraining order
on June 30, 1994.cralaw
First. Petitioners' contention is that Republic Act No. 7716 did not
"originate exclusively" in the House of Representatives as
required by Art. VI, Section 24 of the Constitution, because it is in
fact the result of the consolidation of two distinct bills, H. No.
11197 and S. No. 1630. In this connection, petitioners point out
that although Art. VI, SS 24 was adopted from the American
Federal Constitution, [2] it is notable in two respects: the verb
"shall originate" is qualified in the Philippine Constitution by the
word "exclusively" and the phrase "as on other bills" in the
American version is omitted. This means, according to them, that
to be considered as having originated in the House, Republic Act
No. 7716 must retain the essence of H. No. 11197.cralaw
This argument will not bear analysis. 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. The possibility of a
third version by the conference committee will be discussed later.
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
Senate's 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.cralaw
The contention that the constitutional design is to limit the
Senate's power in respect of revenue bills in order to compensate
for the grant to the Senate of the treaty-ratifying power [3] and
thereby equalize its powers and those of the House overlooks the
fact that the powers being compared are different. We are dealing
here with the legislative power which under the Constitution is
vested not in any particular chamber but in the Congress of the
Philippines, consisting of "a Senate and a House of
Representatives." [4] The exercise of the treaty-ratifying power
is not the exercise of legislative power. It is the exercise of a
check on the executive power. There is, therefore, no justification
for comparing the legislative powers of the House and of the
Senate on the basis of the possession of such nonlegislative
power by the Senate. The possession of a similar power by the
U.S. Senate [5] has never been thought of as giving it more
legislative powers than the House of Representatives.cralaw
In the United States, the validity of a provision [Section 37]
imposing an ad valorem tax based on the weight of vessels,
which the U.S. Senate had inserted in the Tariff Act of 1909, was
upheld against the claim that the provision was a revenue bill
which originated in the Senate in contravention of Art. I, Section
7 of the U.S. Constitution. [6] Nor is the power to amend limited
to adding a provision or two in a revenue bill emanating from the
House. The U.S. Senate has gone so far as changing the whole of
bills following the enacting clause and substituting its own
versions. In 1883, for example, it struck out everything after the
enacting clause of a tariff bill and wrote in its place its own
measure, and the House subsequently accepted the amendment.
The U.S. Senate likewise added 847 amendments to what later
became the Payne-Aldrich Tariff Act of 1909; it dictated the
schedules of the Tariff Act of 1921; it rewrote an extensive tax
revision bill in the same year and recast most of the tariff bill of
1922. [7]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.cralaw
It is insisted, however, that S. No. 1630 was passed not in
substitution of H. No. 11197 but of another Senate bill [S. No.
1129] earlier filed and that what the Senate did was merely to
"take [H. No. 11197] into consideration" in enacting S. No. 1630.
There is really no difference between the Senate preserving H.
No. 11197 up to the enacting clause and then writing its own
version following the enacting clause [which, it would seem,
petitioners admit is an amendment by substitution], and, on the
other hand, separately presenting a bill of its own on the same
subject matter. In either case the result are two bills on the same
subject.cralaw
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.cralaw
Nor does the Constitution prohibit the filing in the Senate of a
substitute bill in anticipation of its receipt of the bill from the
House, so long as action by the Senate as a body is withheld
pending receipt of the House bill. The Court cannot, therefore,
understand the alarm expressed over the fact that on March 1,
1993, eight months before the House passed H. No. 11197, S.
No. 1129 had been filed in the Senate. After all it does not appear
that the Senate ever considered it. It was only after the Senate
had received H. No. 11197 on November 23, 1993 that the
process of legislation in respect of it began with the referral to the
Senate Committee on Ways and Means of H. No. 11197 and the
submission by the Committee on February 7, 1994 of S. No.
1630. For that matter, if the question were simply the priority in
the time of filing of bills, the fact is that it was in the House that a
bill [H. No. 253] to amend the VAT law was first filed on July 22,
1992. Several other bills had been filed in the House before S.
No. 1129 was filed in the Senate, and H. No. 11197 was only a
substitute of those earlier bills.cralaw
Second. Enough has been said to show that it was within the
power of the Senate to propose S. No. 1630. We now pass to the
next argument of petitioners that S. No. 1630 did not pass three
readings on separate days as required by the
Constitution [8] because the second and third readings were
done on the same day, March 24, 1994. But this was because on
February 24, 1994 [9]and again on March 22, 1994, [10] the
President had certified S. No. 1630 as urgent. The presidential
certification dispensed with the requirement not only of printing
but also that of reading the bill on separate days. The phrase
"except when the President certifies to the necessity of its
immediate enactment, etc." in Art. VI, Section 26[2] qualifies the
two stated conditions before a bill can become a law: [i] the bill
has passed three readings on separate days and [ii] t has been
printed in its final form and distributed three days before it is
finally approved.cralaw
In other words, the "unless" clause must be read in relation to
the "except" clause, because the two are really coordinate clauses
of the same sentence. To construe the "except" clause as simply
dispensing with the second requirement in the "unless" clause
[i.e., printing and distribution three days before final approval]
would not only violate the rules of grammar. It would also negate
the very premise of the "except" clause: the necessity of securing
the immediate enactment of a bill which is certified in order to
meet a public calamity or emergency. For if it is only the printing
that is dispensed with by presidential certification, the time saved
would be so negligible as to be of any use in insuring immediate
enactment. It may well be doubted whether doing away with the
necessity of printing and distributing copies of the bill three days
before the third reading would insure speedy enactment of a law
in the face of an emergency requiring the calling of a special
election for President and Vice-President. Under the Constitution,
such a law is required to be made within seven days of the
convening of Congress in emergency session. [11]
That upon the certification of a bill by the President, the
requirement of three readings on separate days and of printing
and distribution can be dispensed with is supported by the weight
of legislative practice. For example, the bill defining the certiorari
jurisdiction of this Court which, in consolidation with the Senate
version, became Republic Act No. 5440, was passed on second
and third readings in the House of Representatives on the same
day [May 14, 1968] after the bill had been certified by the
President as urgent. [12]
There is, therefore, no merit in the contention that presidential
certification dispenses only with the requirement for the printing
of the bill and its distribution three days before its passage but
not with the requirement of three readings on separate days,
also.cralaw
It is nonetheless, urged that the certification of the bill in this
case was invalid because there was no emergency, the condition
stated in the certification of a "growing budget deficit" not being
an unusual condition in this country.cralaw
It is noteworthy that no member of the Senate saw it fit to
controvert the reality of the factual basis of the certification. To
the contrary, by passing S. No. 1630 on second and third
readings on March 24, 1994, the Senate accepted the President's
certification. Should such certification be now reviewed by this
Court, especially when no evidence has been shown that, because
S. No. 1630 was taken up on second and third readings on the
same day, the members of the Senate were deprived of the time
needed for the study of a vital piece of legislation?
The sufficiency of the factual basis of the suspension of the writ of
habeas corpus or declaration of martial law under Art. VII,
Section 18, or the existence of a national emergency justifying
the delegation of extraordinary powers to the President under Art.
VI, Section 23[2], is subject to judicial review because basic
rights of individuals may be at hazard. But the factual basis of
presidential certification of bills, which involves doing away with
procedural requirements designed to insure that bills are duly
considered by members of Congress, certainly should elicit a
different standard of review.cralaw
Petitioners also invite attention to the fact that the President
certified S. No. 1630 and not H. No. 11197. That is because S.
No. 1630 was what the Senate was considering. When the matter
was before the House, the President likewise certified H. No. 9210
the pending in the House.cralaw
Third . Finally it is contended that the bill which became Republic
Act No. 7716 is the bill which the Conference Committee prepared
by consolidating H. No. 11197 and S. No. 1630. It is claimed that
the Conference Committee report included provisions not found in
either the House bill or the Senate bill and that these provisions
were "surreptitiously" inserted by the Conference Committee.
Much is made of the fact that in the last two days of its session
on April 21 and 25, 1994 the Committee met behind closed
doors. We are not told, however, whether the provisions were not
the result of the give and take that often mark the proceedings of
conference committees.cralaw
Nor is there anything unusual or extraordinary about the fact that
the Conference Committee met in executive sessions. Often the
only way to reach agreement on conflicting provisions is to meet
behind closed doors, with only the conferees present. Otherwise,
no compromise is likely to be made. The Court is not about to
take the suggestion of a cabal or sinister motive attributed to the
conferees on the basis solely of their "secret meetings" on April
21 and 25, 1994, nor read anything into the incomplete remarks
of the members, marked in the transcript of stenographic notes
by ellipses. The incomplete sentences are probably due to the
stenographer's own limitations or to the incoherence that
sometimes characterize conversations. William Safire noted some
such lapses in recorded talks even by recent past Presidents of
the United States.cralaw
In any event, in the United States conference committees had
been customarily held in executive sessions with only the
conferees and their staffs in attendance. [13] Only in November
1975 was a new rule adopted requiring open sessions. Even then
a majority of either chamber's conferees may vote in public to
close the meetings. [14] As to the possibility of an entirely new
bill emerging out of a Conference Committee, it has been
explained:
Under congressional rules of procedure, conference committees
are not expected to make any material change in the measure at
issue, either by deleting provisions to which both houses have
already agreed or by inserting new provisions. But this is a
difficult provision to enforce. Note the problem when one house
amends a proposal originating in either house by striking out
everything following the enacting clause and substituting
provisions which make it an entirely new bill. The versions are
now altogether different, permitting a conference committee to
draft essentially a new bill. [15]

The result is a third version, which is considered an "amendment


in the nature of a substitute," the only requirement for which
being that the third version be germane to the subject of the
House and Senate bills. [16]
Indeed, this Court recently 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. [17] 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. [18]
Nonetheless, it is argued that under the respective Rules of the
Senate and the House of Representatives a conference committee
can only act on the differing provisions of a Senate bill and a
House bill, and that contrary to these Rules the Conference
Committee inserted provisions not found in the bills submitted to
it. The following provisions are cited in support of this contention:
Rules of the Senate

Rule XII:

Section 26. 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 days after
their composition.
The President shall designate the members of the conference
committee in accordance with subparagraph (c), Section 3 of Rule
III.
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 the conferees.
The consideration of such report shall not be in order unless the
report has been filed with the Secretary of the Senate and copies
thereof have been distributed to the Members. [Emphasis
added].

Rules of the House of Representatives

Rule XIV:

Section 85. Conference Committee Reports.- In the event that


the House does not agree with the Senate on the amendments to
any bill or joint resolution, the differences may be settled by
conference committees of both Chambers.
The consideration of conference committee reports shall always
be in order, except when the journal is being read, while the roll
is being called or the House is dividing on any question. Each of
the pages of such reports shall be signed by the conferees. Each
report shall contain a detailed, sufficiently explicit statement of
the changes in or amendments to the subject measure.
The consideration of such report shall not be in order unless
copies thereof are distributed to the Members: Provided, That in
the last fifteen days of each session period it shall be deemed
sufficient that three copies of the report, signed as above
provided, are deposited in the office of the Secretary
General.[Emphasis added].
To be sure, nothing in the Rules limits a conference committee to
a consideration of conflicting provisions. But Rule XLIV, Section
112 of the Rules of the Senate is cited to the effect that "If there
is no Rule applicable to a specific case the precedents of the
Legislative Department of the Philippines shall be resorted to, and
as a supplement of these, the Rules contained in Jefferson's
Manual." The following is then quoted from the Jefferson's
Manual:
The managers of a conference must confine themselves to the
differences committed to them and may not include subjects not
within disagreements, even though germane to a question in
issue.cralaw
Note that according to Rule XLIX, Section 112, in case there is no
specific rule applicable, resort must be to the legislative practice.
The Jefferson's Manual is resorted to only as supplement. It is
common place in Congress that conference committee reports
include new matters which, though germane, have not been
committed to the committee. This practice was admitted by
Senator Raul S. Roco, petitioner in G. R. No. 115543, during the
oral argument in these cases. Whatever, then, may be provided
in the Jefferson's Manual must be considered to have been
modified by the legislative practice. If a change is desired in the
practice 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. Thus, Art. VI, Section 16[3] of the Constitution
provides that "Each House may determine the rules of its
proceedings."
This observation applies to the other contention that the Rules of
the two chambers were likewise disregarded in the preparation of
the Conference Committee Report because the Report did not
contain a "detailed and sufficiently explicit statement of changes
in, or amendments to, the subject measure." The Report used
brackets and capital letters to indicate the changes. This is a
standard practice in bill-drafting. We cannot say that in using
these marks and symbols, the Committee violated the Rules of
the Senate and the House. Moreover, this Court is not the proper
forum for the enforcement of these internal Rules. To the
contrary, as we have already ruled, "parliamentary rules are
merely procedural and with their observance the courts have no
concern." [19]Our concern is with the procedural requirements of
the Constitution for the enactment of laws. As far as these
requirements are concerned, we are satisfied that they have been
faithfully observed in these cases.cralaw
Nor is there any reason for requiring that the Committee's 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 modifications of the
compromise bill. The nature of the bill, therefore, requires that it
be acted upon by each house on a "take it or leave it" basis, with
the only alternative that if it is not approved by both houses,
another conference committee must be appointed. But then again
the result would still be a compromise measure that may not be
wholly satisfying to both houses.cralaw
Art. VI, Section 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. For if the
purpose of requiring three readings is to give members of
Congress time to study bills, it cannot be gainsaid that H. No.
11197 was passed in the House after three readings; that in the
Senate it was considered on first reading and then referred to a
committee of that body; that although the Senate committee did
not report out the House bill, it submitted a version [S. No. 1630]
which it had prepared by "taking into consideration" the House
bill; that for its part the Conference Committee consolidated the
two bills and prepared a compromise version; that the
Conference Committee Report was thereafter approved by the
House and the Senate, presumably after appropriate study by
their members. We cannot say that, as a matter of fact, the
members of Congress were not fully informed of the provisions of
the bill. The allegation that the Conference Committee usurped
the legislative power of Congress is, in our view, without warrant
in fact and in law.cralaw
Fourth. Whatever doubts there may be as to the formal validity
of Republic Act No. 7716 must be resolved in its favor. Our
cases [20] manifest firm adherence to the rule that an enrolled
copy of a bill is conclusive not only of its provisions but also of its
due enactment. Not even claims that a proposed constitutional
amendment was invalid because the requisite votes for its
approval had not been obtained [21] or that certain provisions of
a statute had been "smuggled" in the printing of the
bill [22] have moved or persuaded us to look behind the
proceedings of a coequal branch of the government. There is no
reason now to depart from this rule.cralaw
No claim is here made that the "enrolled bill" rule is absolute. In
fact in one case [23] we "went behind" an enrolled bill and
consulted the Journal to determine whether certain provisions of
a statute had been approved by the Senate in view of the fact
that the President of the Senate himself, who had signed the
enrolled bill, admitted a mistake and withdrew his signature, so
that in effect there was no longer an enrolled bill to
consider.cralaw
But where allegations that the constitutional procedures for the
passage of bills have not been observed have no more basis than
another allegation that the Conference Committee
"surreptitiously" inserted provisions into a bill which it had
prepared, we should decline the invitation to go behind the
enrolled copy of the bill. To disregard the "enrolled bill" rule in
such cases would be to disregard the respect due the other two
departments of our government.cralaw
Fifth. An additional attack on the formal validity of Republic Act
No. 7716 is made by the Philippine Airlines, Inc., petitioner in G.
R. No. 11582, namely, that it violates Art. VI, Section 26[1]
which provides that "Every bill passed by Congress shall embrace
only one subject which shall be expressed in the title thereof." It
is contended that neither H. No. 11197 nor S. No. 1630 provided
for removal of exemption of PAL transactions from the payment
of the VAT and that this was made only in the Conference
Committee bill which became Republic Act No. 7716 without
reflecting this fact in its title.cralaw
The title of Republic Act No. 7716 is:
AN ACT RESTRUCTURING THE VALUE-ADDED TAX [VAT]
SYSTEM, WIDENING ITS TAX BASE AND ENHANCING ITS
ADMINISTRATION, AND FOR THESE PURPOSES AMENDING
AND REPEALING THE RELEVANT PROVISIONS OF THE
NATIONAL INTERNAL REVENUE CODE, AS AMENDED, AND
FOR OTHER PURPOSES.chanrobles virtual law library
Among the provisions of the NIRC amended is Section 103, which
originally read:
Section 103. Exempt Transactions.- The following shall be
exempt from the value-added tax:
[q] Transactions which are exempt under special laws or
international agreements to which the Philippines is a signatory.
Among the transactions exempted from the VAT were those of
PAL because it was exempted under its franchise (P.D. No. 1590)
from the payment of all "other taxes now or in the near future,"
in consideration of the payment by it either of the corporate
income tax or a franchise tax of 2%.

As a result of its amendment by Republic Act No. 7716, Section


103 of the NIRC now provides:
Section 103. Exempt Transactions.- The following shall be
exempt from the value-added tax:
[q] Transactions which are exempt under special laws, except
those granted under Presidential Decree Nos. 66, 529, 972, 1491,
1590.

The effect of the amendment is to remove the exemption granted


to PAL, as far as the VAT is concerned.
The question is whether this amendment of Section 103 of the
NIRC is fairly embraced in the title of Republic Act No. 7716,
although no mention is made therein of P. D. No. 1590 as among
those which the statute amends. We think it is, since the title
states that the purpose of the statute is to expand the VAT
system, and one way of doing this is to widen its base by
withdrawing some of the exemptions granted before. To insist
that P. D. No. 1590 be mentioned in the title of the law, in
addition to Section 103 of the NIRC, in which it is specifically
referred to, would be to insist that the title of a bill should be a
complete index of its content.cralaw
The constitutional requirement that every bill passed by Congress
shall embrace only one subject which shall be expressed in its
title is intended to prevent surprise upon the members of
Congress and to inform the people of pending legislation so that,
if they wish to, they can be heard regarding it. If, in the case at
bar, petitioner did not know before that its exemption had been
withdrawn, it is not because of any defect in the title but perhaps
for the same reason other statutes, although published, pass
unnoticed until some event somehow calls attention to their
existence. Indeed, the title of Republic Act No. 7716 is not any
more general than the title of PAL's own franchise under P. D. No.
1590, and yet no mention is made of its tax exemption. The title
of P. D. No. 1590 is:
AN ACT GRANTING A NEW FRANCHISE TO PHILIPPINE
AIRLINES, INC. TO ESTABLISH, OPERATE, AND MAINTAIN
AIR TRANSPORT SERVICES IN THE PHILIPPINES AND
BETWEEN THE PHILIPPINES AND OTHER
COUNTRIES.chanrobles virtual law library
The trend in our cases is to construe the constitutional
requirement in such a manner that courts do not unduly interfere
with the enactment of necessary legislation and to consider it
sufficient if the title expresses the general subject of the statute
and all its provisions are germane to the general subject thus
expressed. [24]
It is further contended that amendment of petitioner's franchise
may only be made by special law, in view of Section 24 of P. D.
No. 1590 which provides:
This franchise, as amended, or any section or provision hereof
may only be modified, amended, or repealed expressly by a
special law or decree that shall specifically modify, amend, or
repeal this franchise or any section or provision thereof.

This provision is evidently intended to prevent the amendment of


the franchise by mere implication resulting from the enactment of
a later inconsistent statute, in consideration of the fact that a
franchise is a contract which can be altered only by consent of
the parties. Thus in Manila Railroad Co. v.Rafferty, [25] it was
held that an Act of the U.S. Congress, which provided for the
payment of tax on certain goods and articles imported into the
Philippines, did not amend the franchise of plaintiff, which
exempted it from all taxes except those mentioned in its
franchise. It was held that a special law cannot be amended by a
general law.
In contrast, in the case at bar, Republic Act No. 7716 expressly
amends PAL's franchise [P. D. No. 1590] by specifically excepting
from the grant of exemptions from the VAT PAL's exemption
under P. D. No. 1590. This is within the power of Congress to do
under Art. XII, Section 11 of the Constitution, which provides that
the grant of a franchise for the operation of a public utility is
subject to amendment, alteration or repeal by Congress when the
common good so requires.

II. SUBSTANTIVE ISSUES


A. Claims of Press Freedom, Freedom of Thought and Religious
Freedom
The Philippine Press Institute [PPI], petitioner in G. R. No.
115544, is a non-profit organization of newspaper publishers
established for the improvement of journalism in the Philippines.
On the other hand, petitioner in G. R. No. 115781, the Philippine
Bible Society [PBS], is a nonprofit organization engaged in the
printing and distribution of bibles and other religious articles.
Both petitioners claim violations of their rights under Sections 4
and 5 of the Bill of Rights as a result of the enactment of the VAT
Law.cralaw
The PPI questions the law insofar as it has withdrawn the
exemption previously granted to the press under Section 103 [f]
of the NIRC. Although the exemption was subsequently restored
by administrative regulation with respect to the circulation
income of newspapers, the PPI presses its claim because of the
possibility that the exemption may still be removed by mere
revocation of the regulation of the Secretary of Finance. On the
other hand, the PBS goes so far as to question the Secretary's
power to grant exemption for two reasons: [1] The Secretary of
Finance has no power to grant tax exemption because this is
vested in Congress and requires for its exercise the vote of a
majority of all its members; [26] and [2] the Secretary's duty is
to execute the law.cralaw
Section 103 of the NIRC contains a list of transactions exempted
from VAT. Among the transactions previously granted exemption
were:
[f] Printing, publication, importation or sale of books and any
newspaper, magazine, review, or bulletin which appears at
regular intervals with fixed prices for subscription and sale and
which is devoted principally to the publication of advertisements.

Republic Act No. 7716 amended Section 103 by deleting


paragraph [f] with the result that print media became subject to
the VAT with respect to all aspects of their operations. Later,
however, based on a memorandum of the Secretary of Justice,
respondent Secretary of Finance issued Revenue Regulations No.
11-94 dated June 27, 1994, exempting the "circulation income of
print media pursuant to Section 4 Article III of the 1987
Philippine Constitution guaranteeing against abridgment of
freedom of the press, among others." The exemption of
"circulation income" has left income from advertisements still
subject to the VAT.
It is unnecessary to pass upon the contention that the exemption
granted is beyond the authority of the Secretary of Finance to
give, in view of PPI's contention that even with the exemption of
the circulation revenue of print media, there is still an
unconstitutional abridgment of press freedom because of the
imposition of the VAT on the gross receipts of newspapers from
advertisements and on their acquisition of paper, ink and services
for publication. Even on the assumption that no exemption has
effectively been granted to print media transactions, We find no
violation of press freedom in these cases.cralaw
To be sure, We are not dealing here with a statute that on its face
operates in the area of press freedom. The PPI's claim is simply
that as applied to newspapers, the law abridges press freedom.
Even with due recognition of its high estate and its importance in
a democratic society, however, the press is not immune from
general regulation by the State. It has been held:
The publisher of a newspaper has no immunity from the
application of general laws. He has no special privilege to invade
the rights and liberties of others. He must answer for libel. He
may be punished for contempt of court. Like others, he must pay
equitable and nondiscriminatory taxes on his business. [27]

The PPI does not dispute this point, either.


What it contends is that by withdrawing the exemption previously
granted to print media transactions involving printing,
publication, importation or sale of newspapers, Republic Act No.
7716 has singled out the press for discriminatory treatment and
that within the class of mass media the law discriminates against
print media by giving broadcast media favored treatment. We
have carefully examined this argument, but we are unable to find
a differential treatment of the press by the law, much less any
censorial motivation for its enactment. If the press is now
required to pay a value-added tax on its transactions, it is not
because it is being singled out, much less targeted, for special
treatment but only because of the removal of the exemption
previously granted to it by law. The withdrawal of exemption is all
that is involved in these cases. Other transactions, likewise
previously granted exemption, have been delisted as part of the
scheme to expand the base and the scope of the VAT system. The
law would perhaps be open to the charge of discriminatory
treatment if the only privilege withdrawn had been that granted
to the press. But that is not the case.cralaw
The situation in the case at bar is indeed a far cry from those
cited by the PPI in support of its claim that Republic Act No. 7716
subjects the press to discriminatory taxation. In the cases cited,
the discriminatory purpose was clear either from the background
of the law or from its operation. For example, in Grosjean v.
American Press Co., [28] the law imposed a license tax
equivalent to 2% of the gross receipts derived from
advertisements only on newspapers which had a circulation of
more than 20,000 copies per week. Because the tax was not
based on the volume of advertisement alone but was measured
by the extent of its circulation as well, the law applied only to the
thirteen large newspapers in Louisiana, leaving untaxed four
papers with circulation of only slightly less than 20,000 copies a
week and 120 weekly newspapers which were in serious
competition with the thirteen newspapers in question. It was well
known that the thirteen newspapers had been critical of Senator
Huey Long, and the Long-dominated legislature of Louisiana
respondent by taxing what Long described as the "lying
newspapers" by imposing on them "a tax on lying." The effect of
the tax was to curtail both their revenue and their circulation. As
the U.S. Supreme Court noted, the tax was "a deliberate and
calculated device in the guise of a tax to limit the circulation of
information to which the public is entitled in virtue of the
constitutional guaranties." [29] The case is a classic illustration
of the warning that the power to tax is the power to
destroy.cralaw
In the other case [30] invoked by the PPI, the press was also
found to have been singled out because everything was exempt
from the "use tax" on ink and paper, except the press. Minnesota
imposed a tax on the sales of goods in that state. To protect the
sales tax, it enacted a complementary tax on the privilege of
"using, storing or consuming in that state tangible personal
property" by eliminating the residents' incentive to get goods
from outside states where the sales tax might be lower. The
Minnesota Star Tribune was exempted from both taxes from 1967
to 1971. In 1971, however, the state legislature amended the tax
scheme by imposing the "use tax" on the cost of paper and ink
used for publication. The law was held to have singled out the
press because [1] there was no reason for imposing the "use tax"
since the press was exempt from the sales tax and [2] the "use
tax" was laid on an "intermediate transaction rather than the
ultimate retail sale." Minnesota had a heavy burden of justifying
the differential treatment and it failed to do so. In addition, the
U.S. Supreme Court found the law to be discriminatory because
the legislature, by again amending the law so as to exempt the
first $100,000 of paper and ink used, further narrowed the
coverage of the tax so that "only a handful of publishers pay any
tax at all and even fewer pay any significant amount of
tax." [31] The discriminatory purpose was thus very clear.cralaw
More recently, in Arkansas Writers' Project, Inc. v.
Ragland, [32] it was held that a law which taxed general interest
magazines but not newspapers and religious, professional, trade
and sports journals was discriminatory because while the tax did
not single out the press as a whole, it targeted a small group
within the press. What is more, by differentiating on the basis of
contents [i.e., between general interest and special interests such
as religion or sports] the law became "entirely incompatible with
the First Amendment's guarantee of freedom of the press."
These cases come down to this: that unless justified, the
differential treatment of the press creates risks of suppression of
expression. In contrast, in the cases at bar, the statute applies to
a wide range of goods and services. The argument that, by
imposing the VAT only on print media whose gross sales exceeds
P480,000 but not more than P750,000, the law
discriminates [33] is without merit since it has not been shown
that as a result the class subject to tax has been unreasonably
narrowed. The fact is that this limitation does not apply to the
press along but to all sales. Nor is impermissible motive shown by
the fact that print media and broadcast media are treated
differently. The press is taxed on its transactions involving
printing and publication, which are different from the transactions
of broadcast media. There is thus a reasonable basis for the
classification.cralaw
The cases canvassed, it must be stressed, eschew any suggestion
that "owners of newspapers are immune from any forms of
ordinary taxation." The license tax in the Grosjean case was
declared invalid because it was "one single in kind, with a long
history of hostile misuse against the freedom of
thepress." [34] On the other hand, Minneapolis Star
acknowledged that "The First Amendment does not prohibit all
regulation of the press [and that] the States and the Federal
Government can subject newspapers to generally applicable
economic regulations without creating constitutional
problems." [35]
What has been said above also disposes of the allegations of the
PBS that the removal of the exemption of printing, publication or
importation of books and religious articles, as well as their
printing and publication, likewise violates freedom of thought and
of conscience. For as the U.S. Supreme Court unanimously held
in Jimmy Swaggart Ministries v. Board of Equalization, [36] the
Free Exercise of Religion Clause does not prohibit imposing a
generally applicable sales and use tax on the sale of religious
materials by a religious organization.cralaw
This brings us to the question whether the registration provision
of the law, [37]although of general applicability, nonetheless is
invalid when applied to the press because it lays a prior restraint
on its essential freedom. The case of American Bible Society v.
City of Manila [38] is cited by both the PBS and the PPI in
support of their contention that the law imposes censorship.
There, this Court held that an ordinance of the City of Manila,
which imposed a license fee on those engaged in the business of
general merchandise, could not be applied to the appellant's sale
of bibles and other religious literature. This Court relied on
Murdock v. Pennsylvania, [39] in which it was held that, as a
license fee is fixed in amount and unrelated to the receipts of the
taxpayer, the license fee, when applied to a religious sect, was
actually being imposed as a condition for the exercise of the
sect's right under the Constitution. For that reason, it was held,
the license fee "restrains in advance those constitutional liberties
of press and religion and inevitably tends to suppress their
exercise." [40]
But in this case, the fee in Section 107, although a fixed amount
[P1,000], is not imposed for the exercise of a privilege but only
for the purpose of defraying part of the cost of registration. The
registration requirement is a central feature of the VAT system. It
is designed to provide a record of tax credits because any person
who is subject to the payment of the VAT pays an input tax, even
as he collects an output tax on sales made or services rendered.
The registration fee is thus a mere administrative fee, one not
imposed on the exercise of a privilege, much less a constitutional
right.cralaw
For the foregoing reasons, we find the attack on Republic Act No.
7716 on the ground that it offends the free speech, press and
freedom of religion guarantees of the Constitution to be without
merit. For the same reasons, we find the claim of the Philippine
Educational Publishers Association [PEPA] in G. R. No. 115931
that the increase in the price of books and other educational
materials as a result of the VAT would violate the constitutional
mandate to the government to give priority to education, science
and technology [Art. II, Section 17] to be untenable.
B. Claims of Regressivity, Denial of Due Process, Equal Protection,
and Impairment of Contracts
There is basis for passing upon claims that on its face the statute
violates the guarantees of freedom of speech, press and religion.
The possible "chilling effect" which it may have on the essential
freedom of the mind and conscience and the need to assure that
the channels of communication are open and operating
importunately demand the exercise of this Court's power of
review.cralaw
There is, however, no justification for passing upon the claims
that the law also violates the rule that taxation must be
progressive and that it denies petitioners' right to due process
and that equal protection of the laws. The reason for this different
treatment has been cogently stated by an eminent authority on
constitutional law thus: "when freedom of the mind is imperiled
by law, it is freedom that commands a momentum of respect;
when property is imperiled it is the lawmakers' judgment that
commands respect. This dual standard may not precisely reverse
the presumption of constitutionality in civil liberties cases, but
obviously it does set up a hierarchy of values within the due
process clause." [41]
Indeed, the absence of threat of immediate harm makes the need
for judicial intervention less evident and underscores the essential
nature of petitioners' attack on the law on the grounds of
regressivity, denial of due process and equal protection and
impairment of contracts as a mere academic discussion of the
merits of the law. For the fact is that there have even been no
notices of assessments issued to petitioners and no
determinations at the administrative levels of their claims so as to
illuminate the actual operation of the law and enable us to reach
sound judgment regarding so fundamental questions as those
raised in these suits.cralaw
Thus, the broad argument against the VAT is that it is regressive
and that it violates the requirement that "The rule of taxation
shall be uniform and equitable [and] Congress shall evolve a
progressive system of taxation." [42]Petitioners in G. R. No.
115781 quote from a paper, entitled "VAT Policy Issues:
Structure, Regressivity, Inflation and Exports" by Alan A. Tait of
the International Monetary Fund, that "VAT payment by low-
income households will be a higher proportion of their incomes
[and expenditures] than payments by higher-income households.
That is, the VAT will be regressive." Petitioners contend that as a
result of the uniform 10% VAT, the tax on consumption goods of
those who are in the higher-income bracket, which before were
taxed at a rate higher than 10%, has been reduced, while basic
commodities, which before were taxed at rates ranging from 3%
to 5%, are now taxed at a higher rate.cralaw
Just as vigorously as it is asserted that the law is regressive, the
opposite claim is pressed by respondents that in fact it distributes
the tax burden to as many goods and services as possible
particularly to those which are within the reach of higher-income
groups, even as the law exempts basic goods and services. It is
thus equitable. The goods and properties subject to the VAT are
those used or consumed by higher-income groups. These include
real properties held primarily for sale to customers or held for
lease in the ordinary course of business, the right or privilege to
use industrial, commercial or scientific equipment, hotels,
restaurants and similar places, tourist buses, and the like. On the
other hand, small business establishments, with annual gross
sales of less than P500,000, are exempted. This, according to
respondents, removes from the coverage of the law some 30,000
business establishments. On the other hand, an occasional
paper [43] of the Center for Research and Communication cites a
NEDA study that the VAT has a minimal impact on inflation and
income distribution and that, while additional expenditure for the
lowest income class is only P301 or 1.49% a year, that for a
family earning P500,000 a year or more is P8,340 or 2.2%.cralaw
Lacking empirical data on which to base any conclusion regarding
these arguments, any discussion whether the VAT is regressive in
the sense that it will hit the "poor" and middle-income group in
society harder than it will the "rich," as the Cooperative Union of
the Philippines [CUP] claims in G. R. No. 115873, is largely an
academic exercise. On the other hand, the CUP's contention that
Congress' withdrawal of exemption of producers cooperatives,
marketing cooperatives, and service cooperatives, while
maintaining that granted to electric cooperatives, not only goes
against the constitutional policy to promote cooperatives as
instruments of social justice [Art. XII, Section 15] but also denies
such cooperatives the equal protection of the law is actually a
policy argument. The legislature is not required to adhere to a
policy of "all or none" in choosing the subject of taxation. [44]
Nor is the contention of the Chamber of Real Estate and Builders
Association [CREBA], petitioner in G. R. 115754, that the VAT will
reduce the mark up of its members by as much as 85% to 90%,
any more concrete. It is a mere allegation. On the other hand,
the claim of the Philippine Press Institute, petitioner in G. R. No.
115544, that the VAT will drive some of its members out of
circulation because their profits from advertisements will not be
enough to pay for their tax liability, while purporting to be based
on the financial statements of the newspapers in question, still
falls short of the establishment of facts by evidence so necessary
for adjudicating the question whether the tax is oppressive and
confiscatory.cralaw
Indeed, regressivity is not a negative standard for courts to
enforce. What Congress is required by the Constitution to do is to
"evolve a progressive system of taxation." This is a directive to
Congress, just like the directive to it to give priority to the
enactment of laws for the enhancement of human dignity and the
reduction of social, economic and political inequalities [Art. XIII,
Section 1] or for the promotion of the right to "quality education"
[Art. XIV, Section 1]. These provisions are put in the Constitution
as moral incentives to legislation, not as judicially enforceable
rights.cralaw
At all events, our 1988 decision in Kapatiran [45] should have
laid to rest the questions now raised against the VAT. There
similar arguments made against the original VAT Law [Executive
Order No. 273] were held to be hypothetical, with no more basis
than newspaper articles which this Court found to be "hearsay
and [without] evidentiary value." As Republic Act No. 7716
merely expands the base of the VAT system and its coverage as
provided in the original VAT Law, further debate on the
desirability and wisdom of the law should have shifted to
Congress.cralaw
Only slightly less abstract but nonetheless hypothetical is the
contention of CREBA that the imposition of the VAT on the sales
and leases of real estate by virtue of contracts entered into prior
to the effectivity of the law would violate the constitutional
provision that "No law impairing the obligation of contracts shall
be passed." It is enough to say that the parties to a contract
cannot, through the exercise of prophetic discernment, fetter the
exercise of the taxing power of the State. For not only are
existing laws read into contracts in order to fix obligations as
between parties, but the reservation of essential attributes of
sovereign power is also read into contracts as a basic postulate of
the legal order. The policy of protecting contracts against
impairment presupposes the maintenance of a government which
retains adequate authority to secure the peace and good order of
society. [46]
In truth, the Contract Clause has never been thought as a
limitation on the exercise of the State's power of taxation save
only where a tax exemption has been granted for a valid
consideration. [47] Such is not the case of PAL in G. R. No.
115852, and we do not understand it to make this claim. Rather,
its position, as discussed above, is that the removal of its tax
exemption cannot be made by a general, but only by a specific,
law.cralaw
The substantive issues raised in some of the cases are presented
in abstract, hypothetical form because of the lack of a concrete
record. We accept that this Court does not only adjudicate private
cases; that public actions by "non-Hohfeldian" [48] or ideological
plaintiffs are now cognizable provided they meet the standing
requirement of the Constitution; that under Art. VIII, Section 1,
paragraph 2, the Court has a "special function" of vindicating
constitutional rights. Nonetheless the feeling cannot be escaped
that We do not have before Us in these cases, a fully developed
factual record that alone can impart to our adjudication the
impact of actuality [49] to insure that decision-making is
informed and well grounded. Needless to say, we do not have
power to render advisory opinions or even jurisdiction over
petitions for declaratory judgment. In effect we are being asked
to do what the Conference Committee is precisely accused of
having done in these cases to sit as a third legislative chamber
to review legislation.cralaw
We are told, however, that the power of judicial review is not so
much power as it is duty imposed on this Court by the
Constitution and that we would be remiss in the performance of
that duty if we decline to look behind the barriers set by the
principle of separation of powers. Art. VIII, Section 1, paragraph
2 is cited in support of this view:
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.cralaw
To view the judicial power of review as a duty is nothing new.
Chief Justice Marshall said so in 1803 to justify the assertion of
this power in Marbury v. Madison:
It is emphatically the province and duty of the judicial
department to say what the law is. Those who apply the rule to
particular cases must of necessity expound and interpret that
rule. If two laws conflict with each other, the courts must decide
on the operation of each. [50]

Justice Laurel echoed this justification in 1936 in Angara v.


Electoral Commission:
And when the judiciary mediates to allocate constitutional
boundaries, it does not assert any superiority over the other
departments; it does not in reality nullify or invalidate an act of
the legislature, but only asserts the solemn and sacred obligation
assigned to it by the Constitution to determine conflicting claims
of authority under the Constitution and to establish for the parties
in an actual controversy the rights which that instrument secures
and guarantees to them. [51]

This conception of the judicial power has been affirmed in several


cases [52] of this Court following Angara.
It does not add anything, therefore, to invoke this "duty" to
justify this Court's intervention in what is essentially a case that
at best is not ripe for adjudication. That duty must still be
performed in the context of a concrete case or controversy, as
Art. VIII, Section 5[2] clearly defines our jurisdiction in terms of
"cases," and nothing but "cases." That the other departments of
the government may have committed a grave abuse of discretion
is not an independent ground for exercising our power. Disregard
of the essential limits imposed by the case and controversy
requirement can in the long run only result in undermining our
authority as a court of law. For, as judges, what We are called
upon to render is judgment according to law, not according to
what may appear to be the opinion of the day.cralaw
In the preceeding pages, We have endeavored to discuss, within
limits, the validity of Republic Act No. 7716 in its formal and
substantive aspects as this has been raised in the various cases
before Us. To sum up, We hold:
[1] That the procedural requirements of the Constitution have
been complied with by Congress in the enactment of the statute;
[2] That judicial inquiry, whether the formal requirements for the
enactment of statutes beyond those prescribed by the
Constitution have been observed, is precluded by the principle of
separation of powers;
[3] That the law does not abridge freedom of speech, expression
or the press, nor interfere with the free exercise of religion, nor
deny to any of the parties the right to an education; and
[4] That, in view of the absence of a factual foundation of record,
claims that the law is regressive, oppressive and confiscatory and
that it violates vested rights protected under the Contract Clause
are prematurely raised and do not justify the grant of prospective
relief by writ of prohibition.
WHEREFORE, the petitions in these cases are dismissed.
Bidin, Quiason and Kapunan, JJ., concur.

Separate Opinions

NARVASA, C.J.:

I fully concur with the conclusions set forth in the scholarly


opinion of my learned colleague, Mr. Justice Vicente V. Mendoza.
I write this separate opinion to express my own views relative to
the procedural issues raised by the various petitions and death
with by some other Members of the Court in their separate
opinions.
By their very nature, it would seem, discussions of constitutional
issues prove fertile ground for a not uncommon phenomenon:
debate marked by passionate partisanship amounting sometimes
to impatience with adverse views, an eagerness on the part of the
proponents on each side to assume the role of, or be perceived
as, staunch defenders of constitutional principles, manifesting
itself in flights of rhetoric, even hyperbole. The peril in this,
obviously, is a diminution of objectivity that quality which, on the
part of those charged with the duty and authority of interpreting
the fundamental law, is of the essence of their great function. For
the Court, more perhaps than for any other person or group, it is
necessary to maintain that desirable objectivity. It must make
certain that on this as on any other occasion, the judicial function
is meticulously performed, the facts ascertained as
comprehensively and as accurately as possible, all the issues
particularly identified, all the arguments clearly understood; else,
it may itself be accused, by its own members or by others, of a
lack of adherence to, or a careless observance of, its own
procedures, the signatures of its individual members on its
enrolled verdicts notwithstanding.cralaw
In the matter now before the Court, and whatever reservations
some people may entertain about their intellectual limitations or
moral scruples, I cannot bring myself to accept the thesis which
necessarily implies that the members of our august Congress, in
enacting the expanded VAT law, exposed their ignorance, or
indifference to the observance, of the rules of procedure set down
by the Constitution or by their respective chambers, or what is
worse, deliberately ignored those rules for some yet undiscovered
purpose nefarious in nature, or at least some purpose other than
the public weal; or that a few of their fellows, acting as a
bicameral conference committee, by devious schemes and
cunning maneuvers, and in conspiracy with officials of the
Executive Department and others, succeeded in "pulling the wool
over the eyes" of all their other colleagues and foisting on them a
bill containing provisions that neither chamber of our bicameral
legislature conceived or contemplated. This is the thesis that the
petitioners would have this Court approve. It is a thesis I consider
bereft of any factual or logical foundation.cralaw
Other than the bare declarations of some of the petitioners, or
arguments from the use and import of the language employed in
the relevant documents and records, there is no evidence before
the Court adequate to support a finding that the legislators
concerned, whether of the upper or lower chamber, acted
otherwise than in good faith, in the honest discharge of their
functions, in the sincere belief that the established procedures
were being regularly observed or, at least, that there occurred no
serious or fatal deviation therefrom. There is no evidence on
which reasonably to rest a conclusion that any executive or other
official took part in or unduly influenced the proceedings before
the bicameral conference committee, or that the members of the
latter were motivated by a desire to surreptitiously introduce
improper revisions in the bills which they were required to
reconcile, or that after agreement had been reached on the mode
and manner of reconciliation of the "disagreeing provisions," had
resorted to stratragems or employed under-handed ploys to
ensure their approval and adoption by either House. Neither is
there any proof that in voting on the Bicameral Conference
Committee [BCC] version of the reconciled bills, the members of
the Senate and the House did so in ignorance of, or without
understanding, the contents thereof or the bills therein
reconciled.cralaw
Also unacceptable is the theory that since the Constitution
requires appropriation and revenue bills to originate exclusively in
the House of Representatives, it is improper if not
unconstitutional for the Senate to formulate, or even think about
formulating, its own draft of this type of measure in anticipation
of receipt of one transmitted by the lower Chamber. This is
specially cogent as regards much-publicized suggestions for
legislation [like the expanded VAT Law] emanating from one or
more legislators, or from the Executive Department, or the
private sector, etc. which understandably could be expected to
forthwith generate much Congressional cogitation.cralaw
Exclusive origination, I submit, should have no reference to time
of conception. As a practical matter, origination should refer to
the affirmative act which effectively puts the bicameral legislative
procedure in motion, i.e., the transmission by one chamber to the
other of a bill for its adoption. This is the purposeful act which
sets the legislative machinery in operation to effectively lead to
the enactment of a statute. Until this transmission takes place,
the formulation and discussions or the reading for three or more
times of proposed measures in either chamber, would be
meaningless in the context of the activity leading towards
concrete legislation. Unless transmitted to the other chamber, a
bill prepared by either house cannot possibly become law. In
other words, the first affirmative, efficacious step, the operative
act as it were, leading to actual enactment of a statute, is the
transmission of a bill from one house to the other for action by
the latter. This is the origination that is spoken of in the
Constitution in its Article VI, Section 24, in reference to
appropriation, revenue, or tariff bills, etc.cralaw
It may be that in the Senate, revenue or tax measures are
discussed, even drafted, and this before a similar activity takes
place in the House. This is of no moment, so long as those
measures or bill remain in the Senate and are not sent over the
House. There is no origination of revenue or tax measures by the
Senate in this case. However, once the House completes the
drawing up of a similar tax measure in accordance with the
prescribed procedure, ven if this is done subsequent to the
Senates own measure indeed, even if this be inspired by
information that measure of the Senate and after third reading
transmits its bill to the Senate, there is origination by [or in] the
House within the contemplation of the Constitution.cralaw
So it is entirely possible, as intimated, that in expectation of the
receipt of a revenue or tax bill from the House of
Representatives, the Senate commences deliberations on its own
concept of such a legislative measure. This, possibly to save time,
so that when the House bill raches it, its thoughts and views on
the matter are already formed and even reduced to writing in the
form of a draft statute. This should not be thought ilegal, as
interdicted by the Constitution. What the Constitution prohibits is
for the Senate to begin the legislative process first, by sending its
own revenue bill to the House of Representatives for its
consideration and action. This is the initiation that is prohibited to
the Senate.cralaw
But petitioners claims that this last was what in fact happened,
that the went through the legislative mill and was finally
approved as R. A. No. 7716, was the Senate version, S.B. 1630.
This is disputed by the respondents. They claim it was House Bill
11197 that, after being transmitted to the Senate, was referred
after first reading to its Committee on Ways and Means; was
reported out by said Committee; underwent second and third
readings, was sent to the bicameral conference committee and
then, after appropriate proceedings therein culminating in
extensive amendments thereof, was finally approved by both
Houses and became the Expanded VAT Law.cralaw
On whose side does the truth lie? If it is not possible to make that
determination from the pleadings and records before this Court,
shall it require evidence to be presented? No, on both law and
principle. The Court will reject a case where the legal issues
raised, whatever they may be, depend for their resolution on still
unsettled questions of fact. Petitioners may not, by raising what
are Court to assume the role of a trier of facts. It is on the
contrary their obligation, before raising those questions to this
Court, to see to it that all issues of fact are settled in accordance
with the procedures laid down by law for proof of facts. Failing
this, petitioners would have only themselves to blame for a
peremptory dismissal.cralaw
Now, what is really proven about what happened to H.B. 11197
after it was transmitted to the Senate? It seems to be admitted
on all sides that after going through first reading, H.B. 11197 was
referred to the Committee on Ways and Means chaired by
Senator Ernesto Herrera.cralaw
It is, however, surmised that after this initial step, H.B. 11197
was never afterwards deliberated on in the Senate, that it was
there given nothing more than a passing glance, and that it never
went through a proper second and third reading. There is no
competent proof to substantiate this claim. What is certain is that
on February 7, 1994, the Senate Committee on Ways and Means
submitted its Report [No. 349] stating that H.B. 11197 was
considered, and recommending that S.B. 1630 be approved "in
substitution of S.B. No. 1129, taking into consideration P.S. Res.
No. 734 [1] and H.B. No. 11197." This Report made known to
the Senate, and clearly indicates, that H.B. No. 11197 was indeed
deliberated on by the Committee; in truth, as Senator Herrera
pointed out, the BCC later "agreed to adopt [a broader coverage
of the VAT] which is closely adhering to the Senate version with
some new provisions or amendments." The plain implication is
that the Senate Committee had indeed discussed H.B. 11197 in
comparison with the inconsistent parts of SB 1129 and afterwards
proposed amendments to the former in the form of a new bill
[No. 1630] more closely akin to the Senate bill [No. 1129].cralaw
And it is as reasonable to suppose as not that later, during the
second and third readings on March 24, 1994, the Senators,
assembled as a body, had before them copies of H.B. 11197 and
S.B. 1129, as well as of the Committee's new "S.B. 1630" that
had been recommended for their approval, or at the very least
were otherwise perfectly aware that they were considering the
particular provisions of these bills. That there was such a
deliberation in the Senate on H.B. 11197 in light of inconsistent
portions of S.B. 1630, may further be necessarily inferred from
the request, made by the Senate on the same day, March 24,
1994, for the convocation of a bicameral conference committee to
reconcile "the disagreeing provisions of said bill [S.B. 1630] and
House Bill No. 11197," a request that could not have been made
had not the Senators more or less closely examined the
provisions of H.B. 11197 and compared them with those of the
counterpart Senate measures.cralaw
Were the proceedings before the bicameral conference committee
fatally flawed? The affirmative is suggested because the
committee allegedly overlooked or ignored the fact that S.B.
1630 could not validly originate in the Senate, and that H.B.
11197 and S.B. 1630 never properly passed both chambers. The
untenability of these contentions has already been demonstrated.
Now, demonstration of the indefensibility of other arguments
purporting to establish the impropriety of the BCC proceedings
will be attempted.cralaw
There is the argument, for instance, that the conference
committee never used H.B. 11197 even as "frame of reference"
because it does not appear that the suggestion therefor [made by
House Penal Chairman Exequiel Javier at the bicameral
conference committee's meeting on April 19, 1994, with the
concurrence of Senator Maceda] was ever resolved, the minutes
being regrettably vague as to what occurred after that suggestion
was made. It is, however, as reasonable to assume that it was,
as it was not, given the vagueness of the minutes already alluded
to. In fact, a reading of the BCC Report persuasively
demonstrates that H.B. 11197 was not only utilized as a "frame
of reference" but actually discussed and deliberated on.cralaw
Said BCC Report pertinently states: [2]

CONFERENCE COMMITTEE REPORT

The Conference Committee on the disagreeing provisions of


House Bill No. 11197 entitled:
AN ACT RESTRUCTURING THE VALUE ADDED TAX [VAT] SYSTEM
TO WIDEN ITS TAX BASE AND ENHANCE ITS ADMINISTRATION,
AMENDING FOR THESE PURPOSES SECTIONS 99, 100, 102,
1013, 104, 105, 106, 107, 108 AND 110 OF TITLE IV, 112, 115
AND 116 OF TITLE V, AND 236, 237, AND 238 OF TITLE IX, AND
REPEALING SECTIONS 113SD AND 114 OF TITLE V, ALL OF THE
NATIONAL INTERNAL REVENUE CODE, AS AMENDED.
and Senate Bill No. 1630 entitled:
AN ACT RESTRUCTURING THE VALUE ADDED TAX [VAT] SYSTEM
TO WIDEN ITS TAX BASE AND ENHANCE ITS ADMINISTRATION,
AMENDING FOR THESE PURPOSES SECTIONS 99, 100, 102, 103,
104, 1 106, 107, 108 AND 110 OF TITLE IV, 112, 115, 117 AND
121 OF TITLE V, ACND 236, 237, AND 238 OF TITLE IX, AND
REPEALING SECTIONS 1113, 114, 116, 119 AND 120 OF TITLE V,
ALL OF THE NATIONAL INTERNAL REVENUE CODE, AS AMENDED
AND FOR OTHER PURPOSES.
having met, after full and free conference, has agreed to
recommend and do hereby recommend to their respective Houses
that House Bill No. 11197, in consolidation with Senate Bill No.
1630, be approved in accordance with the attached copy of the
bill as reconciled and approved by the conferees.
Approved.

The Report, it will be noted, explicitly adverts to House Bill No.


11197, it being in fact mentioned ahead of Senate Bill No. 1630;
graphically shows the very close identity of the subjects of both
bills [indicated in their respective titles]; and clearly says that the
committee met in "full and free conference" on the "disagreeing
provisions" of both bills [obviously in an effort to reconcile them];
and that reconciliation of said "disagreeing provisions" had been
effected, the BCC having agreed that "House Bill No. 11197, in
consolidation with Senate Bill No. 1630, be approved in
accordance with the attached copy of the bill as reconciled and
approved by the conferees."
It may be concluded, in other words, that, conformably to the
procedure provided in the Constitution with which all the
Members of the bicameral conference committee cannot but be
presumed to be familiar, and no proof to the contrary having
been adduced on the point, it was the original bill [H.B. 11197]
which said body had considered and deliberated on in detail,
reconciled or harmonized with S.B. 1630, and used as basis for
drawing up the amended version eventually reported out and
submitted to both houses of Congress.cralaw
It is further contended that the BCC was created and convoked
prematurely, that S.B. 1630 should first have been sent to the
House of Representatives for concurrence It is maintained, in
other words, that the latter chamber should have refused the
Senate request for a bicameral conference committee to reconcile
the "disagreeing provisions" of both bills, and should have
required that S.B. 1630 be first transmitted to it. This, seemingly,
is nit-picking given the urgency of the proposed legislation as
certified by the President [to both houses, in fact]. Time was of
the essence, according to the President's best judgment as
regards which absolutely no one in either chamber of Congress
took exception, general acceptance being on the contrary
otherwise manifested and that judgment the Court will not now
question. In light of that urgency, what was so vital or
indispensable about such a transmittal that its absence would
invalidate all else that had been done towards enactment of the
law, completely escapes me, specially considering that the House
had immediately acceded without demur to the request for
convocation of the conference committee.cralaw
What has just been said should dispose of the argument that the
statement in the enrolled bill, that "This Act which is a
consolidation of House Bill No. 11197 and Senate Bill No. 11630
was finally passed by the House of Representatives and the
Senate on April 27, 1994 and May 2, 1994," necessarily signifies
that there were two [2] bills separately introduced, retaining their
independent existence until they reached the bicameral
conference committee where they were consolidated, and
therefore, the VAT law did not originate exclusively in the House
having originated in part in the Senate as S.B. 1630, which bill
was not embodied in but merely merged with H.B. 11197,
retaining its separate identity until it was joined by the BCC with
the house measure. The more logical, and fairer, course is to
construe the expression, "consolidation of House Bill No. 11197
and Senate Bill No. 11630" in the context of accompanying and
contemporaneous statements, i.e.,: [a] the declaration in the
BCC Report,supra, that the committee met to reconcile the
disagreeing provisions of the two bills, "and after full and free
conference" on the matter, agreed and so recommended that
"House Bill No. 11197, in consolidation with Senate Bill No. 1630,
be approved in accordance with the attached copy of the bill as
reconciled and approved by the conferees"; and[b] the averment
of Senator Herrera, in the Report of the Ways and Means
Committee, supra, that the committee had actually "considered"
[discussed] H.B. No. 11197 and taken it "into consideration" in
recommending that its own version of the measure [S.B. 1630]
be the one approved.cralaw
That the Senate might have drawn up its own version of the
expanded VAT bill, contemporaneously with or even before the
House did, is of no moment. It bears repeating in this connection
that no VAT bill ever originated in the Senate; neither its S.B.
1129 or S.B. 1630 or any of its drafts was ever officially
transmitted to the House as an initiating bill which, as already
pointed out, is what the Constitution forbids; it was H.B. 11197
that was first sent to the Senate, underwent first reading, was
referred to Committee on Ways and Means and there discussed in
relation to and in comparison with the counterpart Senate version
or versions the mere formulation of which was, as also already
discussed, not prohibited to it and afterwards considered by the
Senate itself, also in connection with S.B. 1630, on second and
third readings. H.B. 11197 was in the truest sense, the
originating bill.cralaw
An issue has also arisen respecting the so-called "enrolled bill
doctrine" which, it is said, whatever sacrosanct status it might
originally have enjoyed, is now in bad odor with modern scholars
on account of its imputed rigidity and unrealism; it being also
submitted that the ruling in Mabanag v. Lopez Vito [78 Phil. 1]
and the cases reaffirming it, is no longer good law, it being based
on a provision of the Code of Civil Procedure [3] long since
stricken from the statute books.cralaw
I would myself consider the "enrolled bill" theory as laying down a
presumption of so strong a character as to be well nigh absolute
or conclusive, fully in accord with the familiar and fundamental
philosophy of separation of powers. The result, as far as I am
concerned, is to make discussion of the enrolled bill principle
purely academic; for as already pointed out, there is no proof
worthy of the name of any facts to justify its re-examination and,
possibly, disregard.cralaw
The other question is, what is the nature of the power given to a
bicameral conference committee of reconciling differences
between, or "disagreeing provisions" in, a bill originating from the
House in relation to amendments proposed by the Senate
whether as regards some or all of its provisions? Is the mode of
reconciliation, subject to fixed procedure and guidelines? What
exactly can the committee do, or not do? Can it only clarify or
revise provisions found in either Senate or House bill? Is it
forbidden to propose additional or new provisions, even on
matters necessarily or reasonably connected with or germane to
items in the bills being reconciled?
In answer, it is postulated that the reconciliation function is quite
limited. In these cases, the conference committee should have
confined itself to reconciliation of differences or inconsistencies
only by [a] restoring provisions of H.B.11197 eliminated by S.B.
1630, or [b] sustaining wholly or partly the Senate amendments;
or [c] as a compromise, agreeing that neither provisions nor
amendments be carried into the final form of H.B. 11197 for
submission to both chambers of the legislature.cralaw
The trouble is, it is theorized, the committee incorporated
activities or transactions which were not within the contemplation
of both bills; it made additions and deletions which did not enjoy
the enlightenment of initial committee studies; it exercised what
is known as an "ex post veto power" granted to it by no law, rule
or regulation, a power that in truth is denied to it by the rules of
both the Senate and the House. In substantiation, the Senate rule
is cited, similar to that of the House, providing that "differences
shall be settled by a conference committee" whose report shall
contain "detailed and sufficiently explicit statement of the
changes in or amendments to the subject measure, [to be]
signed by the conferees;" as well as the "Jefferson's Manual,"
adopted by the Senate as supplement to its own rules, directing
that the managers of the conference must confine themselves to
differences submitted to them; they may not include subjects not
within the disagreements even though germane to a question in
issue."
It is significant that the limiting proviso in the relevant rules has
been construed and applied as directory, not mandatory. During
the oral argument, counsel for petitioners admitted that the
practice for decades has been for bicameral conference
committees to include such provisions in the reconciled bill as
they believed to be germane or necessary and acceptable to both
chambers, even if not within any of the "disagreeing provisions,"
and the reconciled bills, containing such provisions had invariably
been approved and adopted by both houses of Congress. It is a
practice, they say, that should be stopped. But it is a practice
that establishes in no uncertain manner the prevailing concept in
both houses of Congress of the permissible and acceptable modes
of reconciliation that their conference committees may adopt, one
whose undesirability is not all that patent if not, indeed, incapable
of unquestionable demonstration. The fact is that conference
committees only take up bills which have already been freely and
fully discussed in both chambers of the legislature, but as to
which there is need of reconciliation in view of "disagreeing
provisions" between them; and both chambers entrust the
function of reconciling the bills to their delegates at a conference
committee with full awareness, and tacit consent, that
conformably with established practice unquestioningly observed
over many years, new provisions may be included even if not
within the "disagreeing provisions" but of which, together with
other changes, they will be given detailed and sufficiently explicit
information prior to voting on the conference committee
version.cralaw
In any event, a fairly recent decision written for the Court by
Senior Associate Justice Isagani A. Cruz, promulgated on
November 11, 1993 [G. R. No. 105371, The Philippine Judges
Association, etc., et al. v. Hon. Pete Prado, etc., et al.], should
leave no doubt of the continuing vitality of the enrolled bill
doctrine and give an insight into the nature of the reconciling
function of bicameral conference committees. In that case, a
bilateral conference committee was constituted and met to
reconcile Senate Bill No. 720 and House Bill No. 4200. It adopted
a "reconciled" measure that was submitted to and approved by
both chambers of Congress and ultimately signed into law by the
President, as R. A. No. 7354. A provision in this statute
[removing the franking privilege from the courts, among others]
was assailed as being an invalid amendment because it was not
included in the original version of either the senate or the house
bill and hence had generated no disagreement between them
which had to be reconciled. The Court held:
While it is true that a conference committee is the mechanism for
compromising differences between the Senate and the House, it
is not limited in its jurisdiction to this question. Its broader
function is described thus:
A conference committee may deal generally with the subject
matter or it may be limited to resolving the precise differences
between the two houses. Even where the conference committee
is not by rule limited in its jurisdiction, legislative custom severely
limits the freedom with which new subject matter can be inserted
into the conference bill. But occasionally a conference committee
produces unexpected results, results beyond its mandate. These
excursions occur even where the rules impose strict limitations on
conference committee jurisdiction. This is symptomatic of the
authoritarian power of conference committee [Davies, Legislative
Law and Process: In A Nutshell, 1987 Ed., p. 81].

It is a matter of record that the Conference Committee Report on


the bill in question was returned to and duly approved by both
the Senate and the House of Representatives. Thereafter, the bill
was enrolled with its certification by Senate President Neptali A.
Gonzales and Speaker Ramon V. Mitra of the House of
Representatives as having been duly passed by both Houses of
Congress. It was then presented to and approved by President
Corazon C. Aquino on April 3, 1992.
Under the doctrine of separation of powers, the Court may not
inquire beyond the certification of the approval of a bill from the
presiding officers of Congress. Casco Philippine Chemical Co. v.
Gimenez [7 SCRA 347] laid down the rule that the enrolled bill is
conclusive upon the Judiciary (except in matters that have to be
entered in the journals like the yeas and nays on the final reading
of the bill) [Mabanag v. Lopez Vito, 78 Phil. 1]. The journals are
themselves also binding on the Supreme Court, as we held in the
old (but still valid) case of U.S. v. Pons [34 Phil. 729] where we
explained the reason thus:
To inquire into the veracity of the journals of the Philippine
legislature when they are, as we have said, clear and explicit,
would be to violate both the letter and spirit of the organic laws
by which the Philippine Government was brought into existence,
to invade a coordinate and independent department of the
Government, and to interfere with the legitimate powers and
functions of the Legislature. Applying these principles, we shall
decline to look into the petitioners' charges that an amendment
was made upon the last reading of the bill that eventually R. A.
No. 7354 and that copies thereof in its final form were not
distributed among the members of each House. Both the enrolled
bill and the legislative journals certify that the measure was duly
enacted, i.e., in accordance with Article VI, Sec. 26 [2] of the
Constitution. We are bound by such official assurances from a
coordinate department of the government, to which we owe, at
the very least, a becoming courtesy.

Withal, an analysis of the changes made by the conference


committee in H.B. 11197 and S.B. 1630 by way of reconciling
their "disagreeing provisions," assailed by petitioners as
unauthorized or incongrouous reveals that many of the changes
related to actual "disagreeing provisions," and that those that
might perhaps be considered as entirely new are nevertheless
necessarily or logically connected with or germane to particular
matters in the bills being reconciled.
For instance, the change made by the bicameral conference
committee [BCC] concerning amendments to Section 99 of the
National Internal Revenue Code [NIRC] the addition of "lessors
of goods or properties and importers of goods" is really a
reconciliation of disagreeing provisions, for while H.B. 11197
mentions as among those subject to tax, "one who sells, barters,
or exchanges goods or properties and any person who leases
personal properties," S.B. 1630 does not. The change also merely
clarifies the provision by providing that the contemplated
taxpayers includes "importers." The revision as regards the
amendment to Section 100, NIRC, is also simple reconciliation,
being nothing more than the adoption by the BCC of the provision
in H.B. 11197 governing the sale of gold to Bangko Sentral, in
contrast to S.B. 1630 containing no such provision. Similarly, only
simple reconciliation was involved as regards approval by the BCC
of a provision declaring as not exempt, the sale of real properties
primarily held for sale to customers or held for lease in the
ordinary course of trade or business, which provision is found in
H.B. 11197 but not in S.B. 1630; as regards the adoption by the
BCC of a provision on life insurance business, contained in S.B.
1630 but not found in H.B. 11197; as regards adoption by the
BCC of the provision in S.B. 1630 for deferment of tax on certain
goods and services for no longer than 3 years, as to which there
was no counterpart provision in S.B. 11197; and as regards the
fixing of a period for the adoption of implementing rules, a period
being prescribed in S.B. 1630 and none in H.B. 11197.cralaw
In respect of other revisions, it would seem that questions
logically arose in the course of the discussion of specific
"disagreeing provisions" to which answers were given which,
because believed acceptable to both houses of Congress, were
placed in the BCC draft. For example, during consideration of
radio and television time [Sec. 100, NIRC] dealt with in both
House and Senate bills, the question apparently came up, the
relevance of which is apparent on its face, relative to satellite
transmission and cable television time. Hence, a provision in the
BCC bill on the matter. Again, while deliberating on the definition
of goods or properties in relation to the provision subjecting sales
thereof to tax, a question apparently arose, logically relevant,
about real properties intended to be sold by a person in economic
difficulties, or because he wishes to buy a car, i.e., not as part of
a business, the BCC evidently resolved to clarify the matter by
excluding from the tax, "real properties held primarily for sale to
customers or held for lease in the ordinary course of business."
And in the course of consideration of the term, sale or exchange
of services [Sec 102, NIRC], the inquiry most probably was posed
as to whether the term should be understood as including other
services: e.g., services of lessors of property whether real or
personal, of warehousemen, of keepers of resthouses, pension
houses, inns, resorts, or of common carriers, etc., and
presumably the BCC resolved to clarify the matter by including
the services just mentioned. Surely, changes of this nature are
obviously to be expected in proceedings before bicameral
conference committees and may even be considered grist for
their mill, given the history of such BCCs and their general
practice here and abroad
In any case, all the changes and revisions, and deletions, made
by the conference committee were all subsequently considered by
and approved by both the Senate and the House, meeting and
voting separately. It is an unacceptable theorization, to repeat,
that when the BCC report and its proposed bill were submitted to
the Senate and the House, the members thereof did not bother to
read, or what is worse, having read did not understand, what was
before them, or did not realize that there were new provisions in
the reconciled version unrelated to any "disagreeing provisions,"
or that said new provisions or revisions were effectively concealed
from them
Moreover, it certainly was entirely within the power and
prerogative of either legislative chamber to reject the BCC bill
and require the organization of a new bicameral conference
committee. That this option was not exercised by either house
only proves that the BCC measure was found to be acceptable as
in fact it was approved and adopted by both chambers.cralaw
I vote to dismiss the petitions for lack of merit.

PADILLA, J.:

I.chanrobles virtual law library


The Original VAT Law and the Expanded VAT Law
In Kapatiran v. Tan, [1] where the ponente was the writer of this
Separate Opinion, a unanimous Supreme Court en banc upheld
the validity of the original VAT law [Executive Order No. 273,
approved on 25 July 1987]. It will, in my view, be pointless at
this time to re-open arguments advanced in said case as to why
said VAT law was invalid, and it will be equally redundant to re-
state the principles laid down by the Court in the same case
affirming the validity of the VAT law as a tax measure. And yet,
the same arguments are, in effect, marshalled against the merits
and substance of the expanded VAT law [Rep. Act. No. 7716,
approved on 5 May 1994]. The same Supreme Court decision
should therefore dispose, in the main, of such arguments, for the
expanded VAT law is predicated basically on the same principles
as the original VAT law, except that now the tax base of the VAT
imposition has been expanded or broadened.cralaw
It only needs to be stated what actually should be obvious that
a tax measure, like the expanded VAT law [Republic Act. No.
7716], is enacted by Congress and approved by the President in
the exercise of the State's power to tax, which is an attribute of
sovereignty. And while the power to tax, if exercised without
limit, is a power to destroy, and should, therefore, not be allowed
in such form, it has to be equally recognized that the power to
tax is an essential right of government. Without taxes, basic
services to the people can come to a halt; economic progress will
be stunted, and, in the long run, the people will suffer the pains
of stagnation and retrogression.cralaw
Consequently, upon careful deliberation, I have no difficulty in
reaching the conclusion that the expanded VAT law comes within
the legitimate power of the state to tax. And as I had occasion to
previously state:
Constitutional Law, to begin with, is concerned with power not
political convenience, wisdom, exigency, or even necessity.
Neither the Executive nor the legislative [Commission on
Appointments] can create power where the Constitution confers
none. [2]

Likewise, in the first VAT case, I said:


In any event, if petitioners seriously believe that the adoption and
continued application of the VAT are prejudicial to the general
welfare or the interests of the majority of the people, they should
seek, recourse and relief from the political branches of the
government. The Court, following the time-honored doctrine of
separation of powers, cannot substitute its judgment for that of
the President [and Congress] as to the wisdom, justice and
advisability of the adoption of the VAT. [3]

This Court should not, as a rule, concern itself with questions of


policy, much less, economic policy. That is better left to the two
[2] political branches of government. That the expanded VAT law
is unwise, unpopular and even anti-poor, among other things said
against it, are arguments and considerations within the realm of
policy-debate, which only Congress and the Executive have the
authority to decisively confront, alleviate, remedy and resolve.

II.chanrobles virtual law library


The Procedure Followed in the Approval of Rep. Act No.
7716
Petitioners however posit that the present case raises a far-
reaching constitutional question which the Court is duty-bound to
decide under its expanded jurisdiction in the 1987
Constitution. [4] Petitioners more specifically question and
impugn the manner by which the expanded VAT law [Rep. Act.
No. 7716] was approved by Congress. They contend that it was
approved in violation of the Constitution from which fact it
follows, as a consequence, that the law is null and void. Main
reliance of the petitioners in their assault in Section 24, Art. VI of
the Constitution which provides:
Sec. 24. All appropriation, revenue or tariff bills, bills authorizing
increase of the public debt, bill of local application, and private
bills shall originate exclusively in the House of Representatives,
but the Senate may propose or concur with amendments.

While it should be admitted at the outset that there was no


rigorous and strict adherence to the literal command of the above
provision, it may however be said, after careful reflection, that
there was substantial compliance with the provision.
There is no question that House Bill No. 11197 expanding the VAT
law originated from the House of Representatives. It is
undeniably a House measure. On the other hand, Senate Bill No.
1129, also expanding the VAT law, originated from the Senate. It
is undeniably a Senate measure which, in point of time, actually
antedated House Bill No. 11197.cralaw
But it is of record that when House Bill No. 11197 was, after
approval by the House, sent to the Senate, it was referred to, and
considered by the Senate Committee on Ways and Means [after
first reading] together with Senate Bill No. 1129, and the
Committee came out with Senate Bill No. 1630 in substitution of
Senate Bill No. 1129 but after expressly taking into consideration
House Bill No. 11197.

Since the Senate is, under the above-quoted constitutional


provision, empowered to concur with a revenue measure
exclusively originating from the House, or to propose
amendments thereto, to the extent of proposing amendments by
substitution to the House measure, the approval by the Senate of
Senate Bill No. 1630, after it had considered House Bill No.
11197, may be taken, in my view, as an amendment by
substitution by the Senate not only of Senate Bill No. 1129 but of
House Bill No. 11197 as well which, it must be remembered,
originated exclusively from the House.cralaw
But then, in recognition of the fact that House Bill No. 11197
which originated exclusively from the House and Senate Bill No.
1630 contained conflicting provisions, both bills [House Bill No.
11197 and Senate Bill No. 1630] were referred to the Bicameral
Conference Committee for joint consideration with a view to
reconciling their conflicting provisions.cralaw
The Conference Committee came out eventually with a
Conference Committee Bill which was submitted to both
chambers of Congress [the Senate and the House]. The
Conference Committee reported out a bill consolidating provisions
in House Bill No. 11197 and Senate Bill No. 1630. What
transpired in both chambers after the Conference Committee
Report was submitted to them, is not clear from the records in
this case. What is clear, however, is that both chambers voted
separately on the bill reported out by the Conference Committee
and both chambers approved the bill of the Conference
Committee.cralaw
To me then, what should really be important is that both
chambers of Congress approved the bill reported out by the
Conference Committee. In my considered view, the act of both
chambers of Congress in approving the Conference Committee
bill, should put an end to any inquiry by this Court as to how the
bill came about. What is more, such separate approvals cured
whatever constitutional infirmities may have arisen in the
procedures leading to such approvals. For if such infirmities were
serious enough to impugn the very validity of the measure itself,
there would have been an objection or objections from members
of both chambers to the approval. The Court has been shown no
such objection on record in both chambers.cralaw
Petitioners contend that there were violations of Sec. 26
paragraph 2, Article VI of the Constitution which provides:
Sec. 26.

[2] No bill passed by either House shall become a law unless it


has passed three readings on separate days, and printed copies
thereof in its final form have been distributed to its Members
three days before its passage, except when the President certifies
to the necessity of its immediate enactment to meet a public
calamity or emergency. Upon the last reading of a bill, no
amendment thereto shall be allowed, and the vote thereon shall
be taken immediately thereafter, and the yeas and nays entered
in the Journal.

in that when Senate Bill No. 1630 [the Senate counterpart of


House Bill No. 11197] was approved by the Senate, after it had
been reported out by the Senate Committee on Ways and Means,
the bill went through second and third readings on the same day
[not separate days] and printed copies thereof in its final form
were not distributed to the members of the Senate at least three
[3] days before its passage by the Senate. But We are told by the
respondents that the reason for this "short cut" was that the
President had certified to the necessity of the bill's immediate
enactment to meet an emergency a certification that, by leave of
the same constitutional provision, dispensed with the second and
third readings on separate days and the printed form at least
three [3] days before its passage.
We have here then a situation where the President did certify to
the necessity of Senate Bill No. 1630's immediate enactment to
meet an emergency and the Senate responded accordingly. While
I would be the last to say that this Court cannot review the
exercise of such power by the President in appropriate cases ripe
for judicial review, I am not prepared however to say that the
President gravely abused his discretion in the exercise of such
power as to require that this Court overturn his action. We have
been shown no fact or circumstance which would impugn the
judgment of the President, concurred in by the Senate, that there
was an emergency that required the immediate enactment of
Senate Bill No. 1630. On the other hand, a becoming respect for
a co-equal and coordinate department of government points that
weight and credibility be given to such Presidential
judgment.cralaw
The authority or power of the Conference Committee to make
insertions in and deletions from the bills referred to it, namely,
House Bill No. 11197 and Senate Bill No. 1630 is likewise assailed
by petitioners. Again, what appears important here is that both
chambers approved and ratified the bill as reported out by the
Conference Committee [with the reported insertions and
deletions]. This is perhaps attributable to the known legislative
practice of allowing a Conference Committee to make insertions
in and deletions from bills referred to it for consideration, as long
as they are germane to the subject matter of the bills under
consideration. Besides, when the Conference Committee made
the insertions and deletions complained of by petitioners, was it
not actually performing the task assigned to it of reconciling
conflicting provisions in House Bill No. 11197 and Senate Bill No.
1630?
This Court impliedly if not expressly recognized the fact of such
legislative practice in Philippine Judges Association, etc. vs. Hon.
Peter Prado, etc., [5] In said case, We stated thus:
The petitioners also invoke Sec. 74 of the Rules of the House of
Representatives, requiring that amendment to any bill when the
House and the Senate shall have differences thereon may be
settled by a conference committee of both chambers. They stress
that Sec. 35 was never a subject of any disagreement between
both Houses and so the second paragraph could not have been
validly added as an amendment.
These arguments are unacceptable.
While it is true that a conference committee is the mechanism for
compromising differences between the Senate and the House, it
is not limited in its jurisdiction to this question. Its broader
function is described thus:
A conference committee may deal generally with the subject
matter or it may be limited to resolving the precise differences
between the two houses. Even where the conference committee
is not by rule limited in its jurisdiction, legislative custom severely
limits the freedom with which new subject matter can be inserted
into the conference bill. But occasionally, a conference committee
produces unexpected results, results beyond its mandate. These
excursions occur even where the rules impose strict limitations on
conference committee jurisdiction. This is symptomatic of the
authoritarian power of conference committee [Davies, Legislative
Law and Process: In A Nutshell, 1986 ed., p. 81].

It is a matter of record that the Conference Committee Report on


the bill in question was returned to and duly approved by both
the Senate and the House of Representatives. Thereafter, the bill
was enrolled with its certification by Senate President Neptali A.
Gonzales and Speaker Ramon V. Mitra of the House of
Representatives as having been duly passed by both Houses of
Congress. It was then presented to and approved by President
Corazon C. Aquino on April 3, 1992.
It would seem that if corrective measures are in order to clip the
powers of the Conference Committee, the remedy should come
from either or both chambers of Congress, not from this Court,
under the time-honored doctrine of separation of powers.cralaw
Finally, as certified by the Secretary of the Senate and the
Secretary General of the House of Representatives:
This Act [Rep. Act No. 7716] is a consolidation of House Bill No.
11197 and Senate Bill No. 1630 was finally passed by the House
of Representatives and the Senate on April 27, 1994 and May 2,
1994, respectively.

Under the long-accepted doctrine of the "enrolled bill," the Court


in deference to a co-equal and coordinate branch of government
is held to a recognition of Rep. Act No. 7716 as a law validly
enacted by Congress and, thereafter, approved by the President
on 5 May 1994. Again, We quote from Our recent decision in
Philippine Judges Association, supra:
Under the doctrine of separation of powers, the Court may not
inquire beyond the certification of the approval of a bill from the
presiding officers of Congress. Casco Philippine Chemical Co. v.
Gimenez [6] laid down the rule that the enrolled bill is conclusive
upon the Judiciary [except in matters that have to be entered in
the journals like the yeas and nays on the finally reading of the
bill]. The journals are themselves also binding on the Supreme
Court, [7] as We held in the old [but still valid] case of U.S. vs.
Pons, [8] where We explained the reason thus:
To inquire into the veracity of the journals of the Philippine
legislature when they are, as we have said, clear and explicit,
would be to violate both the letter and spirit of the organic laws
by which the Philippine Government was brought into existence,
to invade a coordinate and independent department of the
Government, and to interfere with the legitimate powers and
functions of the Legislature.

Applying these principles, We shall decline to look into the


petitioners' charges that an amendment was made upon the last
reading of the bill that eventually became R. A. No. 7354 and that
copies thereof in its final form were not distributed among the
members of each House. Both the enrolled bill and the legislative
journals certify that the measure was duly enacted i.e., in
accordance with Article VI, Sec. 26[2] of the Constitution. We are
bound by such official assurances from a coordinate department
of the government, to which We owe, at the very least, a
becoming courtesy.

III.chanrobles virtual law library


Press Freedom and Religious Freedom and Rep. Act No.
7716
The validity of the passage of Rep. Act No. 7716 notwithstanding,
certain provisions of the law have to be examined separately and
carefully.cralaw
Rep. Act. No. 7716 in imposing a value-added tax on circulation
income of newspapers and similar publications and on income
derived from publishing advertisements in newspapers [9] , to
my mind, violates Sec. 4, Art. III of the Constitution. Indeed,
even the Executive Department has tried to cure this defect by
the issuance of the BIR Regulation No. 11-94 precluding
implementation of the tax in this area. It should be clear,
however, that the BIR regulation cannot amend the law [Rep. Act
No. 7716]. Only legislation [as distinguished from administration
regulation] can amend an existing law.cralaw
Freedom of the press was virtually unknown in the Philippines
before 1900. In fact, a prime cause of the revolution against
Spain at the turn of the 19th century was the repression of the
freedom of speech and expression and of the press. No less than
our national hero, Dr. Jose P. Rizal, in "Filipinas Despues de Cien
Anos" [The Philippines a Century Hence] describing the
reforms sine quibus non which the Filipinos were insisting upon,
stated: "The minister who wants his reforms to be reforms, must
begin by declaring the press in the Philippines free."[10]
Press freedom in the Philippines has met repressions, most
notable of which was the closure of almost all forms of existing
mass media upon the imposition of martial law on 21 September
1972.
Section 4, Art. III of the Constitution maybe traced to the United
States Federal Constitution. The guarantee of freedom of
expression was planted in the Philippines by President McKinley in
the Magna Carta of Philippine Liberty, Instructions to the Second
Philippine Commission on 7 April 1900.cralaw
The present constitutional provision which reads:
Sec. 4 No law shall be passed abridging the freedom of speech, of
expression, or of the press, or the right of the people peaceably
to assemble and petition the government for redress of
grievances.

is essentially the same as that guaranteed in the U.S. Federal


Constitution, for which reason, American case law giving judicial
expression as to its meaning is highly persuasive in the
Philippines.
The plain words of the provision reveal the clear intention that no
prior restraint can be imposed on the exercise of free speech and
expression if they are to remain effective and meaningful. The
U.S. Supreme Court in the leading case of Grosjean v. American
Press Co. Inc. [11] declared a statute imposing a gross receipts
license tax of 2% on circulation and advertising income of
newspaper publishers as constituting a prior restraint which is
contrary to the guarantee of freedom of the press.cralaw
In Bantam Books, Inc. v. Sullivan, [12] the U.S. Supreme Court
stated: "Any system of prior restraint of expression comes to this
Court bearing a heavy presumption against its constitutionality."

In this jurisdiction, prior restraint on the exercise of free


expression can be justified only on the ground that there is a
clear and present danger of a substantive evil which the State
has the right to prevent. [13]
In the present case, the tax imposed on circulation and
advertising income of newspaper publishers is in the nature of a
prior restraint on circulation and free expression and, absent a
clear showing that the requisite for prior restraint is present, the
constitutional flaw in the law is at once apparent and should not
be allowed to proliferate.cralaw
Similarly, the imposition of the VAT on the sale and distribution of
religious articles must be struck down for being contrary to Sec.
5, Art. III of the Constitution which provides:
Sec. 5. No law shall be made respecting an establishment of
religion, or prohibiting the free exercise thereof. The free exercise
and enjoyment of religious profession and worship, without
discrimination or preference, shall forever be allowed. No
religious test shall be required for the exercise of civil or political
rights.

That such a tax on the sale and distribution of religious articles is


unconstitutional, has been long settled in American Bible
Society, supra.
Insofar, therefore, as Rep. Act No. 7716 imposes a value-added
tax on the exercise of the above- discussed two [2] basic
constitutional rights, Rep. Act No. 7716 should be declared
unconstitutional and of no legal force and effect.

IV.chanrobles virtual law library


Petitions of CREBA and PAL and Rep. Act No. 7716
The Chamber of Real Estate and Builders' Association, Inc.
[CREBA] filed its own petition [G. R. No. 11574] arguing that the
provisions of Rep. Act No. 7716 imposing a 10% value-added tax
on the gross selling price or gross value in money of every sale,
barter or exchange of goods or properties [Section 2] and a 10%
value-added tax on gross receipts derived from the sale or
exchange of services, including the use or lease of properties
[Section 3], violate the equal protection, due process and non-
impairment provisions of the Constitution as well as the rule that
taxation should be uniform, equitable and progressive.cralaw
The issue of whether or not the value-added tax is uniform,
equitable and progressive has been settled in Kapatiran.cralaw
CREBA which specifically assails the 10% value-added tax on the
gross selling price of real properties, fails to distinguish between
a sale of real properties primarily held for sale to customers or
held for lease in the ordinary course of trade or business and
isolated sales by individual real property owners (Sec. 103[s]).
That those engaged in the business of real estate development
realize great profits is of common knowledge and need not be
discussed at length here. The qualification in the law that the
10% VAT covers only sales of real property primarily held for sale
to customers, i.e. for trade or business thus takes into
consideration a taxpayer's capacity to pay. There is no showing
that the consequent distinction in real estate sales is arbitrary
and in violation of the equal protection clause of the Constitution.
The inherent power to tax of the State, which is vested in the
legislature, includes the power to determine whom or what to
tax, as well as how much to tax. In the absence of a clear
showing that the tax violates the due process and equal
protection clauses of the Constitution, this Court, in keeping with
the doctrine of separation of powers, has to defer to the
discretion and judgment of Congress on this point.cralaw
Philippine Airlines [PAL] in a separate petition [G. R. No. 115852]
claims that its franchise under P.D. No. 1590 which makes it
liable for a franchise tax of only 2% of gross revenues "in lieu of
all the other fees and charges of any kind, nature or description,
imposed, levied, established, assessed or collected by any
municipal, city, provincial, or national authority or government
agency, now or in the future," cannot be amended by Rep. Act
No. 7716 as to make it [PAL] liable for a 10% value-added tax on
revenues, because Sec. 24 of P.D. No. 1590 provides that PAL's
franchise can only be amended, modified or repealed by a special
law specifically for that purpose.cralaw
The validity of PAL's above argument can be tested by
ascertaining the true intention of Congress in enacting Rep. Act
No. 7716. Sec. 4 thereof dealing with Exempt Transactions
states:
Sec. 103. Exempt Transactions.- The following shall be exempt
from the value-added tax:
xxx xxx xxx
[q] Transactions which are exempt under special laws, except
those granted under Presidential Decrees No. 66, 529, 972,
1491,1590," [Emphasis supplied].

The repealing clause of Rep. Act No. 7716 further reads:


Sec. 20. Repealing clauses.- The provisions of any special law
relative to the rate of franchise taxes are hereby expressly
repealed.
xxx xxx xxx
All other laws, orders, issuances, rules and regulations or parts
thereof inconsistent with this Act are hereby repealed, amended
or modified accordingly. [Emphasis supplied].

There can be no dispute in my mind, that the clear intent of


Congress was to modify PAL's franchise with respect to the taxes
it has to pay. To this extent, Rep. Act No. 7716 can be considered
as a special law amending PAL's franchise and its tax liability
thereunder. That Rep. Act. No. 7716 imposes the value-added
taxes on other subjects does not make it a general law which
cannot amend PD No. 1590.
To sum up: it is my considered view that Rep. Act No. 7716 [the
expanded value-added tax] is a valid law, viewed from both
substantive and procedural standards, except only insofar as it
violates Secs. 4 and 5, Art. III of the Constitution [the guarantees
of freedom of expression and the free exercise of religion]. To
that extent, it is, in its present form, unconstitutional.cralaw
I, therefore, vote to dismiss the petitions, subject to the above
qualification.

VITUG, J.:

Lest we be lost by a quagmire of trifles, the real threshold and


prejudicial issue, to my mind, is whether or not this Court is
ready to assume and to take upon itself with an overriding
authority the awesome responsibility of overseeing the entire
bureaucracy. Far from it, ours is merely to construe and to apply
the law regardless of its wisdom and salutariness, and to strike it
down only when it clearly disregards constitutional proscriptions.
It is what the fundamental law mandates, and it is what the Court
must do.
I cannot yet concede to the novel theory, so challengingly
provocative as it might be, that under the 1987 Constitution the
Court may now at good liberty intrude, in the guise of the
people's imprimatur, into every affair of the government. What
significance can still then remain, I ask, of the time-honored and
widely-acclaimed principle of separation of powers, if at every
turn the Court allows itself to pass upon, at will, the disposition of
a co-equal, independent and coordinate branch in our system of
government. I dread to think of the so varied uncertainties that
such an undue interference can lead to. The respect for long
standing doctrines in our jurisprudence, nourished through time,
is one of maturity not timidity, of stability rather than
quiescence.cralaw
It has never occurred to me, and neither do I believe it has been
intended, that judicial tyranny is envisioned, let alone
institutionalized, by our people in the 1987 Constitution. The test
of tyranny is not solely on how it is wielded but on how, in the
first place, it can be capable of being exercised. It is time that
any such perception of judicial omnipotence is corrected.cralaw
Against all that has been said, I see, in actuality in these cases at
bench, neither a constitutional infringement of substance, judging
from precedents already laid down by this Court in previous
cases, nor a justiciability even now of the issues raised, more
than an attempt to sadly highlight the perceived shortcomings in
the procedural enactment of laws, a matter which is internal to
Congress and an area that is best left to its own basic concern.
The fact of the matter is that the legislative enactment, in its final
form, has received the ultimate approval of both houses of
Congress. The finest rhetoric, indeed fashionable in the early part
of this closing century, would still be a poor substitute for
tangibility. I join, nonetheless, some of my colleagues in
respectfully inviting the kind attention of the honorable members
of our Congress in the suggested circumspect observance of their
own rules.cralaw
A final remark. I should like to make it clear that this opinion
does not necessarily foreclose the right, peculiar to any taxpayer
adversely affected, to pursue at the proper time, in appropriate
proceedings, and in proper fora, the specific remedies prescribed
therefor by the National Internal Revenue Code, Republic Act
1125, and other laws, as well as rules of procedure, such as may
be pertinent. Some petitions filed with this Court are, in essence,
although styled differently, in the nature of declaratory relief over
which this Court is bereft of original jurisdiction.cralaw
All considered, I, therefore, join my colleagues who are voting for
the dismissal of the petitions.

CRUZ, J.:

It is a curious and almost incredible fact that at the hearing of


these cases on July 7, 1994, the lawyers who argued for the
petitioners, two of them former presidents of the Senate and the
third also a member of that body, all asked this Court to look into
the internal operations of their Chamber and correct the
irregularities they claimed had been committed there as well as in
the House of Representatives and in the bicameral conference
committee.cralaw
While a member of the legislative would normally resist such
intervention and invoke the doctrine of separation of powers to
protect Congress from what he would call judicial intrusion, these
counsel practically implored the Court to examine the questioned
proceedings and to this end go beyond the journals of each
House, scrutinize the minutes of the committee, and investigate
all other matters relating to the passage of the bill (or bills) that
eventually became R. A. No. 7716.cralaw
In effect, the petitioners would have us disregard the time-
honored inhibitions laid down by the Court upon itself in the
landmark case of U.S. v. Pons [34 Phil. 725] where it refused to
consider extraneous evidence to disprove the recitals in the
journals of the Philippine Legislature that it had adjourned sine
die at midnight of February 28, 1914. Although it was generally
known then that the special session had actually exceeded the
deadline fixed by the Governor-General in his proclamation, the
Court chose to be guided solely by the legislative journals,
holding significantly as follows:
From their very nature and object, the records of the legislature
are as important as those of the judiciary, and to inquire into the
veracity of the journals of the Philippine Legislature, when they
are, as we have said, clear and explicit, would be to violate both
the letter and the spirit of the organic laws by which the
Philippine Government was brought into existence, to invade a
coordinate and independent department of the Government, and
to interfere with the legitimate powers and functions of the
Legislature. But counsel in his argument says that the public
knows that the Assembly's clock was stopped on February 28,
1914, at midnight and left so until the determination of the
discussion of all pending matters. Or, in other words, the hands
of the clock were stayed in order to enable the Assembly to effect
an adjournment apparently within the fixed time by the
Governor's proclamation for the expiration of the special session,
in direct violation of the Act of Congress of July 1, 1902. If the
clock was, in fact, stopped, as here suggested, "the resultant evil
might be slight as compared with that of altering the probative
force and character of legislative records, and making the proof of
legislative action depend upon uncertain oral evidence, liable to
loss by death or absence, and so imperfect on account of the
treachery of memory.
The journals say that the Legislature adjourned at 12 midnight on
February 28, 1914. This settles the question, and the court did
not err in declining to go beyond the journals.
As one who has always respected the rationale of the separation
of powers, I realize only too well the serious implications of the
relaxation of the doctrine except only for the weightiest of
reasons. The lowering of the barriers now dividing the three
major branches of the government could lead to individious
incursions by one department into the exclusive domains of the
other departments to the detriment of the proper discharge of the
functions assigned to each of them by the Constitution.
Still, while acknowledging the value of tradition and the reasons
for judicial non-interference announced in Pons, I am not
disinclined to take a second look at the ruling from a more
pragmatic viewpoint and to tear down, if we must, the iron
curtain it has hung, perhaps improvidently, around the
proceedings of the legislature.cralaw
I am persuaded even now that where a specific procedure is fixed
by the Constitution itself, it should not suffice for Congress to
simply say that the rules have been observed and flatly consider
the matter closed. It does not have to be as final as that. I would
imagine that the judiciary, and particularly this Court, should be
able to verify that statement and determine for itself, through the
exercise of its own powers, if the Constitution has, indeed, been
obeyed.cralaw
In fact, the Court had already said that the question of whether
certain procedural rules have been followed is justiciable rather
than political because what is involved is the legality and not the
wisdom of the act in question. So we ruled in Sanidad v.
Commission on Elections [73 SCRA 333] on the amendment of
the Constitution; in Daza v. Singson [180 SCRA 496] on the
composition of the Commission on Appointments; and in the
earlier case of Taada v. Cuenco [100 SCRA 1101] on the
organization of the Senate Electoral Tribunal, among several
other cases.cralaw
By the same token, the ascertainment of whether a bill
underwent the obligatory three readings in both Houses of
Congress should not be considered an invasion of the territory of
the legislature as this would not involve an inquiry into its
discretion in approving the measure but only the manner in which
the measure was enacted.cralaw
These views may upset the conservatives among us who are
most comfortable when they allow themselves to be petrified by
precedents instead of venturing into uncharted waters. To be
sure, there is much to be said of the wisdom of the past
expressed by vanished judges talking to the future. Via trita est
tuttisima.Except when there is a need to revise them because of
an altered situation or an emergent idea, precedents should tell
Us that, indeed, the trodden path is the safest path.cralaw
It could be that the altered situation has arrived to welcome the
emergent idea. The jurisdiction of this Court has been expanded
by the Constitution, to possibly include the review the petitioners
would have us make of the congressional proceedings being
questioned. Perhaps it is also time to declare that the activities of
Congress can no longer be smoke-screened in the inviolate
recitals of its journals to prevent examination of its sacrosanct
records in the name of the separation of powers.cralaw
But then again, perhaps all this is not yet necessary at this time
and all these observations are but wishful musings for a more
activist judiciary. For I find that this is not even necessary, at
least for me, to leave the trodden path in the search for new
adventures in the byways of the law. The answer we seek, as I
see it, is not far afield. It seems to me that it can be found
through a study of the enrolled bill alone and that we do not have
to go beyond that measure to ascertain if R. A. No. 7716 has
been validly enacted.cralaw
It is settled in this jurisdiction that in case of conflict between the
enrolled bill and the legislative journals, it is the former that
should prevail except only as to matters that the Constitution
requires to be entered in the journals. [Mabanag v. Lopez Vito, 78
Phil. 1]. These are the yeas and nays on the final reading of a bill
or on any question at the request of at least one-fifth of the
member of the House (Constitution, Art. VI, Sec. 16[4]), the
objections of the President to a vetoed bill or item (Ibid., Sec. 27
[1]), and the names of the members voting for or against the
overriding of his veto (Id., Section 27 [1]), The original of a bill is
not specifically required by the Constitution to be entered in the
journals. Hence, on this particular manner, it is the recitals in the
enrolled bill and not in the journals that must control.cralaw
Article VI, Section 24, of the Constitution provides:
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.

The enrolled bill submitted to and later approved by the President


of the Philippines as R. A. No. 7716 was signed by the President
of the Senate and the Speaker of the House of Representatives.
It carried the following certification over the signatures of the
Secretary of the Senate and the Acting Secretary of the House of
Representatives:
This Act which is a consolidation of House Bill No. 11197 and
Senate Bill No. 11630 was finally passed by the House of
Representative and the Senate on April 27, 1994, and May 2,
1994.

Let us turn to Webster for the meaning of certain words. To


"originate" is "to bring into being; to create something (original);
to invent; to begin; start." The word "exclusively" means
"excluding all others" and is derived from the word "exclusive,"
meaning "not shared or divided; sole; single." Applying these
meanings, I would read Section 24 as saying that the bills
mentioned therein must be brought into being, or created, or
invented, or begun or started, only or singly or by no other body
than the house of Representatives.
According to the certification, R. A. No. 7716 "is a consolidation of
House Bill No. 11197 and Senate Bill No. 1630." Again giving the
words used their natural and ordinary sense conformably to an
accepted canon of construction, I would read the word
"consolidation" as a "combination or merger" and derived from
the word "consolidated," meaning "to combine into one; merge;
unite."
The two bills were separately introduced in their respective
Chambers. Both retained their independent existence until they
reached the bicameral conference committee where they were
consolidated. It was this consolidated measure that was finally
passed by Congress and submitted to the President of the
Philippines for his approval.cralaw
House Bill No. 11197 originated in the House of Representatives
but this was not the bill that eventually became R. A. No. 7716.
The measure that was signed into law by President Ramos was
the consolidation of that bill and another bill, viz., Senate Bill No.
1630, which was introduced in the Senate. The resultant enrolled
bill thus did not originate exclusively in the House of
Representatives. The enrolled bill itself says that part of it (and it
does not matter to what extent) originated in the Senate.cralaw
It would have been different if the only participation of the
Senate was in the amendment of the measure that was originally
proposed in the House of Representatives. But this was not the
case. The participation of the Senate was not in proposing or
concurring with amendments that would have been incorporated
in House Bill No. 11197. Its participation was in originating its
own Senate Bill No. 1630, which was not embodied in but merged
with House Bill No. 11197.cralaw
Senate Bill No. 1630 was not even an amendment by
substitution, assuming this was permissible. To "substitute"
means "to take the place of; to put or use in place of another."
Senate Bill No. 1630 did not, upon its approval replace [and thus
eliminate] House Bill No. 11197. Both bills retained their separate
identities until they were joined or united into what became the
enrolled bill and ultimately R. A. No. 7716.cralaw
The certification in the enrolled bill says it all. It is clear that R. A.
No. 7716 did not originate exclusively in the House of
Representatives.cralaw
To go back to my earlier observations, this conclusion does not
require the reversal of U.S. vs. Pons and an inquiry by this Court
into the proceedings of the legislature beyond the recitals of its
journals. All we need to do is consider the certification in the
enrolled bill and, without entering the precincts of Congress,
declare that by this own admission it has, indeed, not complied
with the Constitution.
While this Court respects the prerogatives of the other
departments, it will not hesitate to rise to its higher duty to
require from them, if they go astray, full and strict compliance
with the fundamental law. Our fidelity to it must be total. There is
no loftier principle in our democracy than the supremacy of the
Constitution, to which all must submit.cralaw
I vote to invalidate R. A. No. 7716 for violation of Article VI, Sec.
24, of the Constitution.

REGALADO, J.:

It would seem like an inconceivable irony that Republic Act No.


7716 which, so respondents claim, was conceived by the
collective wisdom of a bicameral Congress and crafted with
sedulous care by two branches of government should now be
embroiled in challenges to its validity for having been enacted in
disregard of mandatory prescriptions of the Constitution itself.
Indeed, such impugnment by petitioners goes beyond merely the
procedural flaws in the parturition of the law. Creating and
regulating as it does definite rights to property, but with its own
passage having been violative of explicit provisions of the organic
law, even without going into the intrinsic merits of the provisions
of Republic Act No. 7716 its substantive invalidity is pro
facto necessarily entailed.
How it was legislated into its present statutory existence is not in
serious dispute and need not detain us except for a recital of
some salient and relevant facts. The House of Representatives
passed House Bill No. 11197 [1] on third reading on November
17, 1993 and, the following day, It transmitted the same to the
Senate for concurrence. On its part, the Senate approved Senate
Bill No. 1630 on second and third readings on March 24, 1994. It
is important to note in this regard that on March 22, 1994, said
S.B. No. 1630 had been certified by President Fidel V. Ramos for
immediate enactment to meet a public emergency, that is, a
growing budgetary deficit. There was no such certification for
H.B. No. 11197 although it was the initiating revenue bill.cralaw
It is, therefore, not only a curious fact but, more importantly, an
invalid procedure since that Presidential certification was
erroneously made for and confined to S.B. No. 1630 which was
indisputably a tax bill and, under the Constitution, could not
validly originate in the Senate. Whatever is claimed in favor of
S.B. No. 1630 under the blessings of that certification, such as its
alleged exemption from the three separate readings requirement,
is accordingly negated and rendered inutile by the inefficacious
nature of said certification as it could lawfully have been issued
only for a revenue measure originating exclusively from the lower
House. To hold otherwise would be to validate a Presidential
certification of a bill initiated in the Senate despite the
Constitutional prohibition against its originating therefrom.cralaw
Equally of serious significance is the fact that S.B. No. 1630 was
reported out in Committee Report No. 349 submitted to the
Senate on February 7, 1994 and approved by that body "in
substitution of S.B. No. 1129," while merely "taking into
consideration P.S. No. 734 and H.B. No. 11197." [2] S.B. No.
1630, therefore, was never filed in substitution of either P.S. No.
734 or, more emphatically, of H.B. No. 11197 as these two
legislative issuances were merely taken account of, at the most,
as referential bases or materials.cralaw
This is not a play on misdirection for, in the first instance, the
respondents assure us that H.B. No. 11197 was actually the sole
source of and started the whole legislative process which
culminated in Republic Act No. 7716. The participation of the
Senate in enacting S.B. No. 1630 was, it is claimed, justified as it
was merely in pursuance of its power to concur in or propose
amendments to H.B. No. 11197. Citing the 83-year old case of
Flint vs. Stone Tracy Co., [3] it is blithely announced that such
power to amend includes an amendment by substitution, that is,
even the extent of substituting the entire H.B. No. 11197 by an
altogether completely new measure of Senate provenance. Ergo,
so the justification goes, the Senate acted perfectly in accordance
with its amending power under Section 24, Article VI of the
Constitution since it merely proposed amendments through a bill
allegedly prepared in advance.cralaw
This is a mode of argumentation which, by reason of factual
inaccuracy and logical implausibility, both astounds and
confounds. For, it is of official record that S.B. No. 1630 was filed,
certified and enacted in substitution of S.B. No. 1129 which in
itself was likewise in derogation of the Constitutional prohibition
against such initiation of a tax bill in the Senate. In any event,
S.B. No. 1630 was neither intended as a bill to be adopted by the
Senate nor to be referred to the bicameral conference committee
as a substitute for H.B. No. 11197. These indelible facts
appearing in official documents cannot be erased by any amount
of strained convolutions or incredible pretensions that S.B. No.
1630 was supposedly enacted in anticipation of H.B. No.
11197.cralaw
On that score alone, the invocation by the Solicitor General of the
hoary concept of amendment by substitution falls flat on its face.
Worse, his concomitant citation of Flint to recover from that
prone position only succeeded in turning the same postulation
over, this time supinely flat on its back. As elsewhere noted by
some colleagues, which I will just refer to briefly to avoid
duplication, respondents initially sought sanctuary in that doctrine
supposedly laid down in Flint, thus: "It has, in fact, been held
that the substitution of an entirely new measure for the one
originally proposed can be supported as a valid
amendment." [4] [Emphasis supplied]. During the interpellation
by the writer at the oral argument held in these cases, the
attention of the Solicitor General was called to the fact that the
amendment in Flint consisted only of a single item, that its, the
substitution of a corporate tax for an inheritance tax proposed in
a general revenue bill; and that the text of the decision therein
nowhere contained the supposed doctrines he quoted and
ascribed to the court, as those were merely summations of
arguments of counsel therein. It is indeed a source of
disappointment for us, but an admission of desperation on his
part, that, instead of making a clarification or a defense of his
contention, the Solicitor General merely reproduced all over
again [1] the same quotations as they appeared in his original
consolidated comment, without venturing any explanation or
justification.cralaw
The aforestated dissemblance, thus unmasked, has further
undesirable implications on the contentions advanced by
respondents in their defense. For, even indulging respondents ex
gratia argumenti in their pretension that S.B. No. 1630
substituted or replaced H.B. No. 11197, aside from muddling the
issue of the true origination of the disputed law, this would
further enmesh respondents in a hopeless contradiction.cralaw
In a publication authorized by the Senate and from which the
Solicitor General has liberally quoted, it is reported as an
accepted rule therein that "an amendment by substitution when
approved takes the place of the principal bill. C.R. March 19,
1963, p. 943." [6] Stated elsewise, the principal bill is supplanted
and goes out of actuality. Applied to the present situation, and
following respondents' submission that H.B. No. 11197 had been
substituted or replaced in its entirety, then in law it had no
further existence for purposes of the subsequent stages of
legislation except, possibly, for referential data.cralaw
Now, the enrolled bill thereafter submitted to the President of the
Philippines, signed by the President of the Senate and the
Speaker of the House of Representatives, carried this solemn
certification over the signatures of the respective secretaries of
both chambers: "This Act which is a consolidation of House Bill
No. 11197 and Senate Bill No. 1630 was finally passed by the
House of Representatives and the Senate on April 27, 1994, and
May 2, 1994."[Emphasis mine). In reliance thereon, the Chief
Executive signed the same into law as Republic Act No.
7716.cralaw
The confusion to which the writer has already confessed is now
compounded by that official text of the aforequoted certification
which speaks, and this cannot be a mere lapsus calami, of two
independent and existing bills [one of them being H.B. No.
11197] which were consolidated to produce the enrolled bill. In
parliamentary usage, to consolidate two bills, is to unite them
into one [7] and which, in the case at bar, necessarily assumes
that H.B. No. 11197 never became legally inexistent. But did not
the Solicitor General, under the theory of amendment by
substitution of the entire H.B. No. 11197 by S.B. No. 1630,
thereby premise the same upon the replacement, hence the total
elimination from the legislative process, of H.B. 11197?
It results, therefore, that to prove compliance with the
requirement for the exclusive origination of H.B. No. 11197, two
alternative but inconsistent theories had to be espoused and
defended by respondents' counsel. To justify the introduction and
passage of S.B. No. 1630 in the Senate, it was supposedly
enacted only as an amendment by substitution, hence on that
theory H.B. No. 11197 had to be considered as displaced and
terminated from its role or existence. Yet, likewise for the same
purpose but this time on the theory of origination by
consolidation, H.B. No. 11197 had to be resuscitated so it could
be united or merged with S.B. No. 1630. This latter alternative
theory, unfortunately, also exacerbates the constitutional defect
for then it is an admission of a dual origination of the two tax
bills, each respectively initiated in and coming from the lower and
upper chambers of Congress.cralaw
Parenthetically, it was also this writer who pointedly brought this
baffling situation to the attention of the Solicitor General during
the aforesaid oral argument, to the extent of reading aloud the
certification in full. We had hoped thereby to be clarified on these
vital issue in respondents' projected memorandum, but we have
not been favored with an explanation unraveling this delimma.
Verily, by passing sub silentio on these intriguing submissions,
respondents have wreaked havoc on both logic and law just to
gloss over their non-compliance with the Constitutional mandate
for exclusive origination of a revenue bill. The procedure required
therefor, We emphatically add, can be satisfied only by complete
and strict compliance since this is laid down by the Constitution
itself and not by a mere statute.cralaw
This writer consequently agrees with the clearly tenable
proposition of petitioners that when the Senate passed and
approved S.B. No. 1630, had it certified by the Chief Executive,
and thereafter caused its consideration by the bicameral
conference committee in total substitution of H.B. No. 11197, it
clearly and deliberately violated the requirements of the
Constitution not only in the origination of the bill but in the very
enactment of Republic Act No. 7716. Contrarily, the shifting
sands of inconsistency in the arguments adduced for respondents
betray such lack of intellectual rectitude as to give the impression
of being mere rhetorics in defense of the indefensible.cralaw
We are told, however, that by our discoursing on the foregoing
issues we are introducing into non-justiciable areas long declared
verboten by such time-honored doctrines as those on political
questions, the enrolled bill theory and the respect due to two co-
equal and coordinate branches of Government, all derived from
the separation of powers inherent in republicanism. We
appreciate the lectures, but we are not exactly unaware of the
teachings in U.S. vs. Pons,[8] Mabanag, vs. Lopez
Vito, [9] Casco Philippine Chemical Co., Inc. vs. Gimenez, etc., et
al., [10] Morales vs. Subido, etc., [11] and Philippine Judges
Association, etc., et al. vs. Prado, etc., et al., [12] on the one
hand, and Taada, et al. vs. Cuenco, et al., [13] Sanidad, et al.,
vs. Commission on Elections, et al., [14] and Daza vs. Singson,
et al., [15] on the other, to know which would be applicable to
the present controversy and which should be rejected.cralaw
But, first, a positional exordium. The writer of this opinion would
be among the first to acknowledge and enjoin not only courtesy
to, but respect for, the official acts of the Executive and
Legislative departments, but only so long as the same are in
accordance with or are defensible under the fundamental charter
and the statutory law. He would readily be numbered in the ranks
of those who would preach a reasoned sermon on the separation
of powers, but with the qualification that the same are not
contained in tripartite compartments separated by empermeable
membranes. He also ascribes to the general validity of American
constitutional doctrines as a matter of historical and legal
necessity, but not to the extent of being oblivious to political
changes or unmindful of the fallacy of undue generalization
arising from myopic disregard of the factual setting of each
particular case.cralaw
These ruminations have likewise been articulated and dissected
by my colleagues, hence it is felt that the only issue which must
be set aright in this dissenting opinion is the so-called enrolled bill
doctrine to which we are urged to cling with reptilian tenacity. It
will be preliminarily noted that the official certification appearing
right on the face of Republic Act No. 7716 would even render
unnecessary any further judicial inquiry into the proceedings
which transpired in the two legislative chambers and, on a parody
of tricameralism, in the bicameral conference committee.
Moreover, we have the excellent dissertations of some of my
colleagues on these matters, but respondents insist en contra
that the congressional proceedings cannot properly be inquired
into by this Court. Such objection confirms a suppressive pattern
aimed at sacrificing the rule of law to the fiat of
expediency.cralaw
Respondents thus emplaced on their battlements the
pronouncement of this Court in the aforecited case of Philippine
Judges Association vs. Prado. [16] Their reliance thereon falls
into the same error committed by their seeking refuge in the Flint
case, ante. which, as has earlier been demonstrated [aside from
the quotational misrepresentation] could not be on par with the
factual situation in the present case. Flint, to repeat, involved a
mere amendment on a single legislative item, that is, substituting
the proposal therein of an inheritance tax by one on corporate
tax. Now, in their submission based on Philippine Judges
Association, respondents studiously avoid mention of the fact that
the questioned insertion referred likewise to a single item, that is,
the repeal of the franking privilege thretofore granted to the
judiciary. That both cases cannot be equated with those at bar,
considering the multitude of items challenged and the plethora of
constitutional violations involved, is too obvious to belabor. Legal
advocacy and judicial adjudication must have a becoming sense
of qualitative proportion, instead of lapsing into the discredited
and maligned practice of yielding blind adherence to
precedents.cralaw
The writer unqualifiedly affirms his respect for valid official acts of
the two branches of government and eschews any unnecessary
intrusion into their operational management and internal affairs.
These, without doubt, are matters traditionally protected by the
republican principle of separation of powers. Where, however,
there is an overriding necessity for judicial intervention in light of
the pervasive magnitude of the problems presented and the
gravity of the constitutional violations alleged, but this Court
cannot perform its constitutional duty expressed in Section 1,
Article VIII of the Constitution unless it makes the inescapable
inquiry, then the confluence of such factors should compel an
exception to the rule as an ultimate recourse. The cases now
before us present both the inevitable challenge and the
inescapable exigency for judicial review. For the Court to now
shirk its bounden duty would not only project it as a citadel of the
timorous and the slothful, but could even undermine its raison
d'etre as the highest and ultimate tribunal.cralaw
Hence, this dissenting opinion has touched on events behind and
which transpired prior to the presentation of the enrolled bill for
approval into law. The details of that law which resulted from the
legislative action followed by both houses of Congress, the
substantive validity of whose provisions and the procedural
validity of which legislative process are here challenged as
unconstitutional, have been graphically presented by petitioners
and admirably explained in the respective opinions of my
brethren. The writer concurs in the conclusions drawn therefrom
and rejects the contention that we have unjustifiably breached
the dike of the enrolled bill doctrine.cralaw
Even in the land of its source, the so-called conclusive
presumption of validity originally attributed to that doctrine has
long been revisited and qualified, if not altogether rejected. On
the competency of judicial inquiry, it has been held that "[u]nder
the 'enrolled bill rule' by which an enrolled bill is sole expository
of its contents and conclusive evidence of its existence and valid
enactment, it is nevertheless competent for courts to inquire as
to what prerequisites are fixed by the Constitution of which
journals of respective houses of Legislature are required to
furnish the evidence." [17]
In fact, in Gwynn vs. Hardee, etc., et al., [18] the Supreme
Court of Florida declared:
[1] While the presumption is that the enrolled bill, as signed by
the legislative officers and filed with the secretary of state, is the
bill as it passed, yet this presumption is not conclusive, and when
it is shown from the legislative journals that a bill though
engrossed and enrolled, and signed by the legislative officers,
contains provisions that have not passed both houses, such
provisions will be held spurious and not a part of the law. As was
said by Mr. Justice Cockrell in the case of Wade vs. Atlantic
Lumber Co., 51 Fla. 628, text 633, 41 So. 72, 73:
This Court is firmly committed to the holding that when the
journals speak they control, and against such proof the enrolled
bill is not conclusive.

More enlightening and apropos to the present controversy is the


decision promulgated on May 13, 1980 by the Supreme Court of
Kentucky in D & W Auto Supply, et al. vs. Department of
Revenue, et al., [19] pertinent excerpts wherefrom are
extensively reproduced hereunder:
In arriving at our decision we must, perforce, reconsider the
validity of a long line of decisions of this court which created and
nurtured the so-called "enrolled bill" doctrine.
xxx xxx xxx
[1] Section 46 of the Kentucky Constitution sets out certain
procedures that the legislature must follow before a bill can be
considered for final passage.
xxx xxx xxx
Under the enrolled bill doctrine as it now exists in Kentucky, a
court may not look behind such a bill, enrolled and certified by
the appropriate officers, to determine if there are any defects.
xxx xxx xxx
In Lafferty, passage of the law in question violated this provision,
yet the bill was properly enrolled and approved by the governor.
In declining to look behind the law to determine the propriety of
its enactment, the court enunciated three reasons for adopting
the enrolled bill rule. First, the court was reluctant to scrutinize
the processes of the legislature, an equal branch of government.
Second, reasons of convenience prevailed, which discouraged
requiring the legislature to preserve its records and anticipated
considerable complex litigation if the court ruled otherwise. Third,
the court acknowledged the poor record-keeping abilities of the
General Assembly and expressed a preference for accepting the
final bill as enrolled, rather than opening up the records of the
legislature.
xxx xxx xxx
Nowhere has the rule been adopted without reason, or as a result
of judicial whim. There are four historical bases for the doctrine.
[1] An enrolled bill was a "record" and, as such, was not subject
to attack at common law. [2] Since the legislature is one of the
three branches of government, the courts, being coequal, must
indulge in every presumption that legislative acts are valid. [3]
When the rule was originally formulated, record-keeping of the
legislatures was so inadequate that a balancing of equities
required that the final act, the enrolled bill, be given efficacy. [4]
There were theories of convenience as expressed by the Kentucky
court in Lafferty.
The rule is not unanimous in the several states, however, and it
has not been without its critics. From an examination of cases
and treaties, we can summarize the criticisms as follows: [1]
Artificial presumptions, especially conclusive ones, are not
favored. [2] Such a rule frequently (as in the present case)
produces results which do not accord with facts or constitutional
provisions. [3] The rule is conducive to fraud, forgery, corruption
and other wrongdoings. [4] Modern automatic and electronic
record-keeping devices now used by legislatures remove one of
the original reasons for the rule. [5] The rule disregards the
primary obligation of the courts to seek the truth and to provide a
remedy for a wrong committed by any branch of government. In
light of these considerations, we are convinced that the time has
come to re-examine the enrolled bill doctrine.
[2] This court is not unmindful of the admonition of the doctrine
of stare decisis. The maxim is "Stare decisis et non quieta
movere," which simply suggests that we stand by precedents and
not disturb settled points of law. Yet, this rule is not inflexible,
nor is it of such a nature as to require perpetuation of error or
logic. As we stated in Daniel's Adm'r v. Hoofnel, 287 Ky 834, 155
S.W. 2d 469, 471-72 (1941) [citations omitted]:
The force of the rule depends upon the nature of the question to
be decided and the extent of the disturbance of rights and
practices which a change in the interpretation of the law or the
course of judicial opinions may create. Cogent considerations are
whether there is clear error and urgent reasons "for neither
justice nor wisdom requires a court to go from one doubtful rule
to another," and whether or not the evils of the principle that has
been followed will be more injurious than can possibly result from
a change.
Certainly, when a theory supporting a rule of law is not grounded
on facts, or upon sound logic, or is unjust, or has been
discredited by actual experience, it should be discarded, and with
it the rule it supports.
[3] It is clear to us that the major premise of the Lafferty
decision, the poor record-keeping of the legislature, has
disappeared. Modern equipment and technology are the rule in
record-keeping by our General Assembly. Tape recorders, electric
typewriters, duplicating machines, recording equipment, printing
presses, computers, electronic voting machines, and the like
remove all doubts and fears as to the ability of the General
Assembly to keep accurate and readily accessible records.
It is also apparent that the "convenience" rule is not appropriate
in today's modern and developing judicial philosophy. The fact
that the number and complexity of lawsuits may increase is not
persuasive if one is mindful that the overriding purpose of our
judicial system is to discover the truth and see that justice is
done. The existence of difficulties and complexities should not
deter this pursuit and we reject any doctrine or presumption that
so provides.
Lastly, we address the premises that the equality of the various
branches of government requires that we shut our eyes to
constitutional failings and other errors of our coparceners in
government. We simply do not agree. Section 26 of the Kentucky
Constitution provides that any law contrary to the constitution is
"void." The proper exercise of judicial authority requires us to
recognize any law which is unconstitutional and to declare it void.
Without belaboring the point, we believe that under section 228
of the Kentucky Constitution it is our obligation to "support the
Constitution of the commonwealth." We are sworn to see that
violations of the constitution by any person, corporation, state
agency or branch of government are brought to light and
corrected. To countenance an artificial rule of law that silences
our voices when confronted with violations of our constitution is
not acceptable to this court.
We believe that a more reasonable rule is the one which Professor
Sutherland describes as the "extrinsic evidence" rule. Under this
approach there is a prima facie presumption that an enrolled bill
is valid, but such presumption may be overcome by clear,
satisfactory and convincing evidence establishing that
constitutional requirements have not been met.
We, therefore, overrule Lafferty v. Huffman and all other cases
following the so-called enrolled bill doctrine, to the extent that
there is no longer a conclusive presumption that an enrolled bill is
valid. [Emphasis mine].

Undeniably, the value-added tax system may have its own merits
to commend its continued adoption, and the proposed widening
of its base could achieve laudable governmental objectives if
properly formulated and conscientiously implemented. We would
like to believe, however, that ours is not only an enlightened
democracy nurtured by a policy of transparency but one where
the edicts of the fundamental law are sacrosanct for all, barring
none. While the realization of the lofty ends of this administration
should indeed be the devout wish of all, likewise barring none, it
can never be justified by methods which, even if unintended, are
suggestive of Machiavellism.
Accordingly, I vote to grant the instant petitions and to invalidate
Republic Act No. 7716 for having been enacted in violation of
Section 24, Article VI of the Constitution.

DAVIDE, JR., J.:

The legislative history of R. A. No. 7716, as highlighted in the


Consolidated Memorandum for the public respondents submitted
by the Office of the Solicitor General, demonstrates beyond doubt
that it was passed in violation or deliberate disregard of
mandatory provisions of the Constitution and of the rules of both
chambers of Congress relating to the enactment of bills.
I, therefore, vote to strike down R. A. No. 7716 as
unconstitutional and as having been enacted with grave abuse of
discretion.cralaw
The Constitution provides for a bicameral Congress. Therefore, no
bill can be enacted into law unless it is approved by both
chambers the Senate and the House of Representatives
(hereinafter House). Otherwise stated, each chamber may
propose and approve a bill, but until it is submitted to the other
chamber and passed by the latter, it cannot be submitted to the
President for its approval into law.

Paragraph 2, Section 26, Article VI of the Constitution provides:


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.cralaw
The "three readings" refers to the three readings in both
chambers. There are, however, bills which must originate
exclusively in the House. Section 24, Article VI of the Constitution
enumerates them:
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.

Webster's Third New International Dictionary [1] defines


originate as follows:
v.t.1: to cause the beginning of: give rise to: INITIATE.2. to start
(a person or thing) on a course or journey.vi: to take or have
origin: be derived: ARISE, BEGIN, START.

Black's Law Dictionary [2] defines the word exclusively in this


wise:
Apart from all others; only; solely; substantially all or for the
greater part. To the exclusion of all others; without admission of
others to participation; in a manner to exclude.

In City Mayor vs. The Chief of Philippine Constabulary, [3] this


Court said:
The term "exclusive" in its usual and generally accepted sense,
means possessed to the exclusion of others; appertaining to the
subject alone, not including, admitting or pertaining to another or
others, undivided, sole. [15 Words and Phrases, p. 510, citing
Mitchel v. Tulsa Water, Light, Heat and Power Co., 95 P. 961, 21
Okl. 243; and p. 513, citing Commonwealth v. Superintendent of
House of Correction, 64 Pa. Super. 613, 615].

Indisputably then, only the House can cause the beginning or


initiate the passage of any appropriation, revenue, or tarriff bill,
any bill increasing the public debt, any bill of local application, or
any private bill. The Senate can only "propose or concur with
amendments."
Under the Rules of the Senate, the first reading is the reading of
the title of the bill and its referral to the corresponding
committee; the second reading consists of the reading of the bill
in the form recommended by the corresponding committee; and
the third reading is the reading of the bill in the form it will be
after approval on second reading. [4] During the second reading,
the following takes place:
[1] Second reading of the bill;
[2] Sponsorship by the Committee Chairman or any member
designated by the corresponding committee;
[3] If a debate ensues, turns for and against the bill shall be
taken alternately;
[4] The sponsor of the bill closes the debate;
[5] After the close of the debate, the period of amendments
follows;
[6] Then, after the period of amendments is closed, the voting on
the bill on second reading. [5]
After approval on second readings, printed copies thereof in its
final form shall be distributed to the Members of the Senate at
least three days prior to the third reading, except in cases of
certified bills. At the third reading, the final vote shall be taken
and the yeas and nays shall be entered in the Journal. [6]

Under the Rules of the House, the first reading of a bill consists of
a reading of the number, title, and author followed by the referral
to the appropriate committees; [7] the second reading consists
of the reading in full of the bill with the amendments proposed by
the committee, it any; [8] and the third reading is the reading of
the bill in the form as approved on second reading and takes
place only after printed copies thereof in its final form have been
distributed to the Members at least three days before, unless the
bill iscertified. [9] At the second reading, the following takes
place:
[1] Reading of the bill;
[2] Sponsorship;
[3] Debates;
[4] Period of Amendments; and
[5] Voting on Second Reading. [10]
At the third reading, the votes shall be taken immediately and the
yeas and nays entered in the Journal. [11] Clearly, whether in
the Senate or in the House, every bill must pass the three
readings on separate days, except when the bill is certified.
Amendments to the bill on third reading are constitutionally
prohibited.[12]
After its passage by one chamber, the bill should then be
transmitted to the other chamber for its concurrence. Section 83,
Rule XIV of the Rules of the House expressly provides:
Sec. 83. Transmittal to Senate.- The Secretary General, without
need of express order, shall transmit to the Senate for its
concurrence all the bills and joint or concurrent resolutions
approved by the House or the amendments of the House to the
bills or resolutions of the Senate, as the case may be. If the
measures approved without amendments are bills or resolutions
of the Senate, or if amendments of the Senate to bills of the
House are accepted, he shall forthwith notify the Senate of the
action taken.

Simplified, this rule means that:


1. As to a bill originating in the House:
[a] Upon its approval by the House, the bill shall be transmitted
to the Senate;
[b] The Senate may approve it with or without amendments;
[c] The Senate returns the bill to the House;
[d] The House may accept the Senate amendments; if it does
not, the Secretary General shall notify the Senate of that action.
As hereinafter be shown, a request for conference shall then be in
order.
2. As to bills originating in the Senate:
[a] Upon its approval by the Senate, the bill shall be transmitted
to the House;
[b] The House may approve it with or without amendments;
[c] The House then returns it to the Senate, informing it of the
action taken;
[d] The Senate may accept the House amendements; if it does
not, it shall notify the House and make a request for conference.
The transmitted bill shall then pass three readings in the other
chamber on separate days. Section 84, Rule XIV of the Rules of
the House states:
Sec. 84. Bills from the Senate.- The bills, resolutions and
communications of the Senate shall be referred to the
corresponding committee in the same manner as bills presented
by Members of the House.
and Section 51, Rule XXIII of the Rules of the Senate provides:
Sec. 51. Prior to their final approval, bills and joint resolutions
shall be read at least three times.

It is only when the period of disagreement is reached, i.e.,


amended proposed by one chamber to a bill originating from the
other are not accepted by the latter, that a request for conference
is made or is in order. The request for conference is specifically
covered by Section 26, Rule XII of the Rules of the Senate which
reads:
Sec. 26. 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 days after
its composition.

and Section 85, Rule XIV of the Rules of the House which reads:
Sec. 85. Conference Committee Reports.- In the event that the
House does not agree with the Senate on the amendments to any
bill or joint resolution, the differences may be settled by
conference committees of both Chambers.

The foregoing provisions of the Constitution and the Rules of both


chambers of Congress are mandatory. In his Treatise On the
Constitutional Limitations, [13]more particularly on enactment of
bill, Cooley states:
Where, for an instance, the legislative power is to be exercised by
two houses, and by settled and well-understood parliamentary
law these two houses are to hold separate sessions for their
deliberations, and the determination of the one upon a proposes
law is to be submitted to the separate determination of the other,
the constitution, in providing for two houses, has evidently
spoken in reference to this settled custom, incorporating it as a
rule of constitutional interpretation; so that it would require no
prohibitory clause to forbid the two houses from combining in
one, and jointly enacting laws by the vote of a majority of all. All
those rules which are of the essentials of law-making must be
observed and followed; and it is only the customary rules of order
and routine, such as in every deliberative body are always
understood to be under its control, and subject to constant
change at its will, that the constitution can be understood to have
left as matters of discretion, to be established, modified, or
abolished by the bodies for whose government in non-essential
matters they exist.

In respect of appropriation, revenue, or tariff bills, bills increasing


the public debt, bills of local application, or private bills, the
return thereof to the House after the Senate shall have "proposed
or concurred with amendments" for the former either to accept or
reject the amendments would not only be in conformity with the
foregoing rules but is also implicit from Section 24 of Article VI.
With the foregoing as our guiding light, I shall now show the
violations of the Constitution and of the Rules of the Senate and
of the House in the passage of R.A. No. 7716.cralaw
VIOLATIONS OF SECTION 24, ARTICLE VI OF THE
CONSTITUTION:
First violation. Since R. A. No. 7716 is a revenue measure, it
must originate exclusively in the House not in the Senate. As
correctly asserted by petitioner Tolentino, on the face of the
enrolled copy of R. A. No. 7716, it is a "CONSOLIDATION OF
HOUSE BILL NO. 11197 AND SENATE BILL NO. 1630." In short, it
is an illicit marriage of a bill which originated in the House and a
bill which originated in the Senate. Therefore, R. A. No. 7716 did
not originate exclusively in the House.cralaw
The only bill which could serve as a valid basis for R. A. No. 7716
is House Bill [HB] No. 11197. This bill, which is the substitute bill
recommended by the House Committee on Ways and Means in
substitution of House Bills Nos. 253, 771, 2450, 7033, 8086,
9030, 9210, 9397, 10012, and 10100, and covered by its
Committee Report No. 367, [14] was approved on third reading
by the House on 17 November 1993. [15] Interestingly, H.B. No.
9210, [16] which was filed by Representative Exequiel B. Javier
on 19 May 1993, was certified by the President in his letter to
Speaker Jose de Venecia, Jr. of 1 June 1993. [17] Yet, H.B. No.
11197, which substituted H.B. No. 9210 and the others above-
stated, was not. Its certification seemed to have been entirely
forgotten.cralaw
On 18 November 1993, the Secretary-General of the House,
pursuant to Section 83, Rule XIV of the Rules of the House,
transmitted to the President of the Senate H.B. No. 11197 and
requested the concurrence of the Senate therewith.[18]
However, H.B. No. 11197 had passed only its first reading in that
Senate by its referral to its Committee on Ways and Means. That
Committee never deliberated on HB No. 11197 as it should have.
It acted only on Senate Bill [S.B.] No. 1129[19] introduced by
Senator Ernesto F. Herrera on 1 March 1993. It then prepared
and proposed S.B. No. 1630, and in its Committee Report
No.349 [20] which was submitted to the Senate on 7 February
1994, [21] it recommended that S.B. No. 1630 be approved "in
substitution of S.B. No. 1129, taking into consideration P.S. Res.
No. 734 and H.B. No. 11197." [22] It must be carefully noted
that S.B. No. 1630 was proposed and submitted for approval by
the Senate in substitution of S.B. No. 1129, and not H.B. No.
11197. Obviously, the principal measure which the Committee
deliberated on and acted upon was S.B. No. 1129 and not H.B.
No. 11197. The latter, instead of being the only measure to be
taken up, deliberated upon, and reported back to the Senate for
its consideration on second reading and, eventually, on third
reading, was, at the most, merely given by the Committee a
passing glance.cralaw
This specific unequivocal action of the Senate Committee on
Ways and Means, i.e., proposing and recommending approval of
S.B. No. 1630 as a substitute for or in substitution of S.B. No.
1129 demolishes at once the thesis of the Solicitor General that:
Assuming that S.B. 1630 is distinct from H.B. 11197, amendment
by substitution is within the purview of Section 24, Article VI of
the Constitution.

because, according to him, [a] "Section 68, Rule XXIX of the


Rules of the Senate authorizes an amendment by substitution and
the only condition required is that "the text thereof is submitted
in writing"; and [b] "In Flint vs. Stone Tracy Co. [220 U.S. 107]
the United Stated Supreme Court, interpreting the provision in
the United States Constitution similar to Section 24, Article VI of
the Philippine Constitution, stated that the power of the Senate to
amend a revenue bill includes substitution of an entirely new
measure for the one originally proposed by the House of
Representatives." [23]
This thesis is utterly without merit. In the first place, it reads into
the Committee Report something which it had not contemplated,
that is, to propose S.B. No. 1630 in substitution of H.B. No.
11197; or speculates that the Committee may have committed
an error in stating that it is S.B. No. 1129, and not H.B. No.
11197, which is to be substituted by S.B. No. 1630. Either, of
course, is unwarranted because the words of the Report,
solemnly signed by the Chairman, Vice-Chairman [who dissented]
seven members, and three ex-officiomembers, [24] leave no
room for doubt that although S.B. No. 1129, P.S. Res No. 734,
and H.B. No. 11197 were referred to and considered by the
Committee, it had prepared the attached S.B. No. 1630 which it
recommends for approval "in substitution of S.B. No. 11197,
taking into consideration P.S. No. 734 and H.B. No. 11197 with
Senators Herrera, Angara, Romulo, Sotto, Ople and Shahani as
authors." To do as suggested would be to substitute the
judgment of the Committee with another that is completely
inconsistent with it, or, simply, to capriciously ignore the
facts.cralaw
In the second place, the Office of the Solicitor General
intentionally made it appear, to mislead rather than to persuade
Us, that in Flint vs. Stone Tracy Co.[25] The U.S. Supreme Court
ruled, as quoted by it in the Consolidated Memorandum for
Respondents, as follows: [26]
The Senate has the power to amend a revenue bill. This power to
amend is not confined to the elimination of provisions contained
in the original act, but embraces as well the addition of such
provisions thereto as may render the original act satisfactory to
the body which is called upon to support it. It has, in fact, been
held that the substitution of an entirely new measure for the one
originally proposed can be supported as a valid amendment.
xxx xxx xxx

It is contended, in the first place, that this section of the act is


unconstitutional, because it is a revenue measure, and originated
in the Senate in violation of Section 7 of Article 1 of the
Constitution, providing that "all bills for raising revenue shall
originate in the House of Representatives, but the Senate may
propose or concur with the amendments, as on other bills."
The first part is not a statement of the Court, but a summary of
the arguments of counsel in one of the companion cases [No.
425, entitled: "Gay vs. Baltic Mining Co."]. The second part is the
second paragraph of the opinion of the Court delivered by Mr.
Justice Day. The misrepresentation that the first part is a
statement of the Court is highly contemptuous. To show such
deliberate misrepresentation, it is well to quote what actually are
found in 55 L. Ed. 408, 410, to wit:
Messrs. Charles A. Snow and Joseph H. Knight filed a brief for
appellees in No. 425:
xxx xxx xxx
The Senate has the power to amend a revenue bill. This power to
amend is not confined to the elimination of provisions contained
in the original act, but embraces as well the addition of such
provisions thereto as may render the original act satisfactory to
the body which is called upon to support it. It has, in fact, been
held that the substitution of an entirely new measure for the one
originally proposed can be supported as a valid
amendment. Brake v. Collison, 122 Fed. 722.

Mr. James L. Quackenbush filed a statement for appellees in No.


442.
Solicitor General Lehmann [by special leave] argued the cause for
the United States on reargument.

Mr. Justice Day delivered the opinion of the court:


These cases involve the constitutional validity of 38 of the act of
Congress approved August 5, 1909, known as "the corporation
tax" law. 36 Stat. at L. 11, 112-117, chap. 6, U.S. Comp. Stat.
Supp. 1909, pp. 659, 844-849.
It is contended, in the first place, that this section of the act is
unconstitutional, because it is a revenue measure, and originated
in the Senate in violation of 7 of article 1 of the Constitution,
providing the "all bills for raising revenue shall originate in the
House of Representatives, but the Senate may propose or concur
with the amendments, as on other bills." The history of the act is
contained in the government's brief, and is accepted as correct,
no objection being made to its accuracy.
This statement shows that the tariff bill of which the section
under consideration is a part, originated in the House of
Representatives, and was there a general bill for the collection of
revenue. As originally introduced, it contained a plan of
inheritance taxation. In the Senate the proposed tax was
removed from the bill, and the corporation tax, in a measure,
substituted therefor. The bill having properly originated in the
House, we perceive no reason in the constitutional provision
relied upon why it may not be amended in the Senate in the
manner which it was in this case. The amendment was germane
to the subject-matter of the bill, and not beyond the power of the
Senate to propose. [Emphasis supplied].
xxx xxx xxx

As shown above, the underlined portions were deliberately


omitted in the quotation made by the Office of the Solicitor
General.
In the third place, a Senate amendment by substitution with an
entirely new bill of a bill, which under Section 24, Article VI of the
Constitution can only originate exclusively in the House, is not
authorized by said Section 24. Flint vs. Stone Tracy Co. cannot be
invoked in favor of such a view. As pointed out by Mr. Justice
Florenz D. Regalado during the oral arguments of these cases and
during the initial deliberations thereon by the Court, Flint involves
a Senate amendment to a revenue bill which, under the United
States Constitution, should originate from the House of
Representatives. The amendment consisted of the substitution of
a corporation tax in lieu of the plan of inheritance taxation
contained in a general bill for the collection of revenue as it came
from the House of Representatives where the bill originated. The
constitutional provision in question is Section 7, Article I of the
United States Constitution which reads:
Sec. 7. Bills and Resolutions. - All Bills for raising Revenue shall
originate in the House of Representatives; but the Senate may
propose or concur with Amendments, as on other Bills.

This provision, contrary to the misleading claim of the Solicitor


General, is not similar to Section 24, Article VI of our
Constitution, which for easy comparison is hereunder quoted
again:
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.

Note that in the former, the word "exclusively" does not appear.
And, in the latter, the phrase "as on other Bill," which is found in
the former, does not appear. These are very significant in
determining the authority of the upper chamber over the bills
enumerated in Section 24. Since the origination is not exclusively
vested in the House of Representatives of the United States, the
Senate's authority to propose or concur with amendments is
necessarily broader. That broader authority is further confirmed
by the phrase "as on other Bills," i.e., its power to propose or
concur with amendments thereon is the same as in ordinary bills.
The absence of this phrase in our Constitution was clearly
intended to restrict or limit the Philippine Senate's power to
propose or concur with amendments. In the light of the
exclusivity of origination and the absence of the phrase "as on
other Bills," the Philippine Senate cannot amend by substitution
with an entirely new bill of its own any bill covered by Section 24
of Article VI which the House of Representatives transmitted to it
because such substitution would indirectly violate Section 24.
These obvious substantive differences between Section 7, Article
I of the U.S. Constitution and Section 24, Article VI of our
Constitution are enough reasons why this Court should neither
allow itself to be misled by Flint vs. Stone nor be awed by Rainey
vs. United States [27] and the opinion of Messrs. Ogg and
Ray[28] which the majority cites to support the view that the
power of the U.S. Senate to amend a revenue measure is
unlimited. Rainey concerns the Tariff Act of 1909 of the United
States of America and specifically involved was its Section 37
which was an amendment introduced by the U.S. Senate. It was
claimed by the petitioners that the said section is a revenue
measure which should originate in the House of Representatives.
The U.S. Supreme Court, however, adopted and approved the
finding of the court a quo that:
The section in question is not void as a bill for raising revenue
originating in the Senate, and not in the House of
Representatives. It appears that the section was proposed by the
Senate as an amendment to a bill for raising revenue which
originated in the House. That is sufficient.

Messrs. Ogg and Ray, who are professors emeritus of political


science, based their statement not even on a case decided by the
U.S. Supreme Court but on their perception of what Section 7,
Article I of the U.S. Constitution permits. In the tenth edition
[1951] of their work, they state:
Any bill may make its first appearance in either house, except
only that bills for raising revenue are required by the constitution
to "originate" in the House of Representatives. Indeed, through
its right to amend revenue bills, even to the extent of substituting
new ones, the Senate may, in effect, originate them also.[29]

Their "in effect" conclusion is, of course, logically correct because


the word exclusively does not appear in said Section 7, Article I of
the U.S. Constitution.
Neither can I find myself in agreement with the view of the
majority that the Constitution does not prohibit the filing in the
Senate of a substitute bill in anticipation of its receipt of the bill
from the House so long as action by the Senate as a body is
withheld pending receipt of the House bill, thereby stating, in
effect, that S.B. No. 1129 was such an anticipatory substitute bill,
which, nevertheless, does not seem to have been considered by
the Senate except only after its receipt of H.B. No. 11179 on 23
November 1993 when the process of legislation in respect of it
began with a referral to the Senate Committee on Ways and
Means. Firstly, to say that the Constitution does not prohibit it is
to render meaningless Section 24 of Article VI or to sanction its
blatant disregard through the simple expedient of filing in the
Senate of a so-called anticipatory substitute bill. Secondly, it
suggests that S.B. No. 1129 was filed as an anticipatory measure
to substitute for H.B. No. 11179. This is a speculation which even
the author of S.B. No. 1129 may not have indulged in. S.B. No.
1129 was filed in the Senate by Senator Herrera on 1 March
1993. H.B. No. 11197 was approved by the House on third
reading only on 17 November 1993. Frankly, I cannot believe that
Senator Herrera was able to prophesy that the House would pass
any VAT bill, much less to know its provisions. That "it does not
seem that the Senate even considered" the latter not until after
its receipt of H.B. No. 11179 is another speculation. As stated
earlier, S.B. No. 1129 was filed in the Senate on 1 March 1993,
while H.B. No. 11197 was transmitted to the Senate only on 18
November 1993. There is no evidence on record to show that
both were referred to the Senate Committee on Ways and Means
at the same time. Finally, in respect of H.B. No. 11197, its
legislative process did not begin with its referral to the Senate's
Ways and Means Committee. It began upon its filing, as a
Committee Bill of the House of Committee on Ways and Means, in
the House.cralaw
Second violation. Since S.B. No. 1129 is a revenue measure, it
could not even be validly introduced or initiated in the Senate. It
follows too, that the Senate cannot validly act thereon.cralaw
Third violation. Since S.B. No. 1129 could not have been
validly introduced in the Senate and could not have been validly
acted on by the Senate, then it cannot be substituted by another
revenue measure, S.B. No. 1630, which the Senate Committee on
Ways and Means introduced in substitution of S.B. No. 1129. The
filing or introduction in the Senate of S.B. No. 1630 also violated
Section 24, Article VI of the Constitution.cralaw
VIOLATIONS OF SECTION 26(2), ARTICLE VI OF THE
CONSTITUTION:
First violation. The Senate, despite its lack of constitutional
authority to consider S.B. No. 1630 or SB No. 1129 which the
former substituted, opened deliberations on second reading of
S.B. No. 1630 on 8 February 1994. On 24 March 1994, the
Senate approved it on second reading and on third
reading. [30]That approval on the same day violated Section
26[2] Article VI of the Constitution. The justification therefor was
that on 24 February 1994 the President certified to "the necessity
of the enactment of SB No. 1630 to meet a public
emergency." [31]
I submit, however, that the Presidential certification is void ab
initio not necessarily for the reason adduced by petitioner
Kilosbayan, Inc., but because it was addressed to the Senate for
a bill which is prohibited from originating therein. The only bill
which could be properly certified on permissible constitutional
grounds even if it had already been transmitted to the Senate is
H.B. No. 11197. As earlier observed, this was not so certified,
although H.B. No. 9210 [one of those consolidated into H.B. No.
11197] was certified on 1 June 1993. [32]
Also, the certification of S.B. No. 1630 cannot, by any stretch of
the imagination, be extended to H.B. No. 11197 because S.B. No.
1630 did not substitute H.B. No. 11197 but S.B. No. 1129.cralaw
Considering that the certification of S.B. No. 1630 is void, its
approval on second and third readings in one day violated Section
26[2], Article VI of the Constitution.cralaw
Second violation. It further appears that on 24 June 1994,
after the approval of S.B. No. 1630, the Secretary of the Senate,
upon directive of the Senate President, formally notified the
House Speaker of the Senate's approval thereof and its request
for a bicameral conference "in view of the disagreeing provisions
of said bill and House Bill No. 11197." [33]
It must be stressed again that H.B. No. 11197 was never
submitted for or acted on second and third readings in the
Senate, and S.B. No. 1630 was never sent to the House for its
concurrence. Elsewise stated, both were only half-way through
the legislative mill. Their submission to a conference committee
was not only anomalously premature, but violative of the
constitutional rule on three readings.cralaw
The suggestion that S.B. No. 1630 was not required to be
submitted to the House for otherwise the procedure would be
endless, is unacceptable for, firstly, it violates Section 26, Rule
XII of the Rules of the Senate and Section 85, Rule XIV of the
Rules of the House, and, secondly, it is never endless. If the
chamber of origin refuses to accept the amendments of the other
chamber, the request for conference shall be made.cralaw
VIOLATIONS OF THE RULES OF BOTH CHAMBERS;GRAVE
ABUSE OF DISCRETION:
The erroneous referral to the Conference Committee needs
further discussion. Since S.B. No. 1630 was not a substitute bill
for H.B. No. 11197 but for S.B. No. 1129, it [S.B. No. 1630]
remained a bill which originated in the Senate. Even assuming
arguendo that it could be validly initiated in the Senate, it should
have been first transmitted to the House where it would undergo
three readings. On the other hand, since H.B. No. 11197 was
never acted upon by the Senate on second and third readings, no
differences or inconsistencies could as yet arise so as to warrant
a request for a conference. It should be noted that under Section
83, Rule XIV of the Rules of the House, it is only when the Senate
shall have approved with amendments H.B. No. 11197 and the
House declines to accept the amendments after having been
notified thereof that the request for a conference may be made
by the House, not by the Senate. Conversely, the Senate's
request for a conference would only be proper if, following the
transmittal of S.B. No. 1630 to the House, it was approved by the
latter with amendments but the Senate rejected the
amendments.cralaw
Indisputably then, when the request for a bicameral conference
was made by the Senate, S.B. No. 1630 was not yet transmitted
to the House for consideration on three readings and H.B. No.
11197 was still in the Senate awaiting consideration on second
and third readings. Their referral to the bicameral conference
committee was palpably premature and, in so doing, both the
Senate and the House acted without authority or with grave
abuse of discretion. Nothing, and absolutely nothing, could have
been validly acted upon by the bicameral conference
committee.cralaw
GRAVE ABUSE OF DISCRETION COMMITTED BYTHE
BICAMERAL CONFERENCE COMMITTEE:
Serious irregularities amounting to lack of jurisdiction or grave
abuse of discretion were committed by the bicameral conference
committee.cralaw
First , it assumed, and took for granted that S.B. No. 1630 could
validly originate in the Senate. This assumption is
erroneous.cralaw
Second , it assumed that H.B. No. 11197 and S.B. No. 1630 had
properly passed both chambers of Congress and were properly
and regularly submitted to it. As earlier discussed, the
assumption is unfounded in fact.cralaw
Third , per the bicameral conference committee's proceedings of
19 April 1994, Representative Exequiel Javier, Chairman of the
panel from the House, initially suggested that H.B. No. 11197
should be the "frame of reference," because it is a revenue
measure, to which Senator Ernesto Maceda concurred. However,
after an incompletely recorded reaction of Senator Ernesto
Herrera, Chairman of the Senate panel, Representative Javier
seemed to agree that "all amendments will be coming from the
Senate." The issue of what should be the "frame of reference"
does not appear to have been resolved. These facts are recorded
in this wise, as quoted in the Consolidated Memorandum for
Respondents: [34]
CHAIRMAN JAVIER.
First of all, what would be the basis, no, or framework para
huwag naman mawala yung personality namin dito sa bicameral,
no, because the bill originates from the House because this is a
revenue bill, so we would just want to ask, we make the House
Bill as the frame of reference, and then everything will just be
inserted?
HON. MACEDA.
Yes. That's true for every revenue measure. There's no other
way. The House Bill has got to be the base. Of course, for the
record, we know that this is an administration; this is certified by
the President and I was about to put into the records as I am
saying now that your problem about the impact on prices on the
people was already decided when the President and the
administration sent this to us and certified it. They have already
gotten over that political implication of this bill and the economic
impact on prices.
CHAIRMAN HERRERA.
Yung concern mo about the bill as the reference in this discussion
is something that we can just.
CHAIRMAN JAVIER.
We will just xxx all the amendments will be coming from the
Senate.
(BICAMERAL CONFERENCE ON MAJOR DIFFERENCES BETWEEN
H.B. NO. 11197 AND S.B. NO. 1630 [Cte. on Ways & Means]
APRIL 19, 1994, II-6 and II-7; Emphasis supplied).
These exchanges would suggest that Representative Javier had
wanted H.B. No. 11197 to be the principal measure on which
reconciliation of the differences should be based. However, since
the Senate did not act on this Bill on second and third readings
because its Committee on Ways and Means did not deliberate on
it but instead proposed S.B. No. 1630 in substitution of S.B. No.
1129, the suggestion has no factual basis. Then, when finally he
agreed that "all amendments will be coming from the Senate," he
in fact withdrew the former suggestion and agreed that S.B. No.
1630, which is the Senate version of the Value Added Tax [VAT]
measure, should be the "frame of reference." But then S.B. No.
1630 was never transmitted to the House for the latter's
concurrence. Hence, it cannot serve as the "frame of reference"
or as the basis for deliberation. The posture taken by
Representative Javier also indicates that S.B. No. 1630 should be
taken as the amendment to H.B. No. 11197. This, too, is
unfounded because S.B. No. 1630 was not proposed in
substitution of H.B. No. 11197.
Since S.B. No. 1630 did not pass three readings in the House and
H.B. No. 11197 did not pass second and third readings in the
Senate, it logically follows that no disagreeing provisions had as
yet arisen. The bicameral conference committee erroneously
assumed the contrary.cralaw
Even granting arguendo that both H.B. No. 11197 and S.B. No.
1630 had been validly approved by both chambers of Congress
and validly referred to the bicameral conference committee, the
latter had very limited authority thereon. It was created "in view
of the disagreeing provisions of" the two bills. [35] Its duty was
limited to the reconciliation of disagreeing provisions or the
resolution of differences or inconsistencies. The committee
recognized that limited authority in the opening paragraph of its
Report [36] when it said:
The Conference Committee on the disagreeing provisions of
House Bill No. 11197 and Senate Bill No. 1630.

Under such limited authority, it could only either [a] restore,


wholly or partly, the specific provisions of H.B. No. 11197
amended by S.B. No. 1630; [b] sustain, wholly or partly, the
Senate's amendments; or [c] by way of a compromise, to agree
that neither provisions in H.B. No. 11197 amended by the Senate
nor the latter's amendments thereto be carried into the final form
of the former.
But as pointed out by petitioners Senator Raul Roco and
Kilosbayan, Inc., the bicameral conference committee not only
struck out non-disagreeing provisions of H.B. No. 11197 and S.B.
No. 1630, i.e., provisions where both bills are in full agreement;
it added more activities or transactions to be covered by VAT,
which were not within the contemplation of both bills.
Since both H.B. No. 11197 and S.B. No. 1630 were still half-
cooked in the legislative vat, and were not ready for referral to a
conference, the bicameral conference committee clearly acted
without jurisdiction or with grave abuse of discretion when it
consolidated both into one bill which became R. A. No.
7716.cralaw
APPROVAL BY BOTH CHAMBERS OF CONFERENCE
COMMITTEE REPORT AND PROPOSED BILL DID NOT CURE
CONSTITUTIONAL INFIRMITIES:
I cannot agree with the suggestion that since both the Senate
and the House had approved the bicameral conference committee
report and the bill proposed by it in substitution of H.B. No.
11197 and S.B. No. 1630, whatever infirmities may have been
committed by it were cured by ratification. This doctrine of
ratification may apply to minor procedural flaws or tolerable
breachs of the parameters of the bicameral conference
committee's limited powers but never to violations of the
Constitution. Congress is not above the Constitution. In the
instant case, since S.B. No. 1630 was introduced in violation of
Section 24, Article VI of the Constitution, was passed in the
Senate in violation of the "three readings" rule, and was not
transmitted to the House for the completion of the constitutional
process of legislation, and H.B. No. 11197 was not likewise
passed by the Senate on second and third readings, neither the
Senate nor the House could validly approve the bicameral
conference committee report and the proposed bill.cralaw
In view of the foregoing, the conclusion is inevitable that for non-
compliance with mandatory provisions of the Constitution and of
the Rules of the Senate and of the House on the enactment of
laws, R. A. No. 7716 is unconstitutional and, therefore, null and
void. A discussion then of the instrinsic validity of some of its
provisions would be unnecessary.cralaw
The majority opinion, however, invokes the enrolled bill doctrine
and wants this Court to desist from looking behind the copy of
the assailed measure as certified by the Senate President and the
Speaker of the House. I respectfully submit that the invocation is
misplaced.cralaw
First , as to the issue of origination, the certification in this case
explicitly states that R. A. No. 7716 is a "consolidation of House
Bill No. 11197 and Senate Bill No. 1630." This is conclusive
evidence that the measure did not originate exclusively in the
House.cralaw
Second , the enrolled bill doctrine is of American origin, and
unquestioned fealty to it may no longer be justified in view of the
expanded jurisdiction [37] of this Court under Section 1, Article
VIII of our Constitution which now expressly grants authority to
this Court 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.

Third , even under the regime of the 1935 Constitution which did
not contain the above provision, this Court, through Mr. Chief
Justice Makalintal in Astorga vs. Villegas, [38] declared that it
cannot be truly said that Mabanag vs. Lopez Vito [39] has laid to
rest the question of whether the enrolled bill doctrine or the
journal entry rule should be adhered to in this jurisdiction, and
stated:
As far as Congress itself is concerned, there is nothing sacrosanct
in the certification made by the presiding officers. It is merely a
mode of authentication. The lawmaking process in Congress ends
when the bill is approved by both Houses, and the certification
does not add to the validity of the bill or cure any defect already
present upon its passage. In other words, it is the approval of
Congress and not the signatures of the presiding officers that is
essential. Thus the [1935] Constitution says that "(e)very bill
passed by the Congress shall, before it becomes law, be
presented to the President." In Brown vs. Morris, supra, the
Supreme Court of Missouri, interpreting a similar provision in the
State Constitution, said that the same "makes it clear that the
indispensable step in the passage" and it follows that if a bill,
otherwise fully enacted as a law, is not attested by the presiding
officer, other proof that it has "passed both houses will satisfy the
constitutional requirement."

Fourth , even in the United States, the enrolled bill doctrine has
been substantially undercut. This is shown in the disquisitions of
Mr. Justice Reynato S. Puno in his dissenting opinion, citing
Sutherland, Statutory Construction.
Last , the pleadings of the parties have established beyond doubt
that H.B; No. 11197 was not acted on second and third readings
in the Senate and S.B. No. 1630, which was approved by the
Senate on second and third readings in substitution of S.B. No.
1129, was never transmitted to the House for its passage.
Otherwise stated, they were only passed in their respective
chamber of origin but not in the other. In no way can each
become a law under paragraph 2, Section 26, Article VI of the
Constitution. For the Court to close its eyes to this fact because of
the enrolled bill doctrine is to shrink its duty to hold "inviolate
what is decreed by the Constitution." [40]
I vote then to grant these petitions and to declare R. A. No. 7716
as unconstitutional.

ROMERO, J.:

Few issues brought before this Court for resolution have roiled
the citizenry as much as the instant case brought by nine
petitioners which challenges the constitutionality of Republic Act
No. 7716 [to be referred to herein as the "Expanded Value Added
Tax" or EVAT law to distinguish it from Executive Order No. 273
which is the VAT law proper] that was enacted on May 5, 1994. A
visceral issue, it has galvanized the populace into mass action
and strident protest even as the EVAT proponents have taken to
podia and media in a post facto information campaign.
The Court is confronted here with an atypical case. Not only is it a
vatful of seething controversy but some unlikely petitioners
invoke unorthodox remedies. Three Senator-petitioners would
nullify a statute that bore the indispensable stamp of approval of
their own Chamber with two of them publicly repudiating what
they had earlier endorsed. With two former colleagues, one of
them an erstwhile Senate President, making common cause with
them, they would stay the implementation by the Executive
Department of a law which they themselves have initiated. They
address a prayer to a co-equal Department to probe their official
acts for any procedural irregularities they have themselves
committed lest the effects of these aberrations inflict such
damage or irreparable loss as would bring down the wrath of the
people on their heads.cralaw
To the extent that they perceive that a vital cog in the internal
machinery of the Legislature has malfunctioned from having
operated in blatant violation of the enabling Rules they have
themselves laid down, they would now plead that this other
Branch of Government step in, invoking the exercise of what is at
once a delicate and awesome power. Undoubtedly, the case at
bench is as much a test for the Legislature as it is for the
Judiciary.cralaw
A backward glance on the Value Added Tax (VAT) is in order at
this point.cralaw
The first codification of the country's internal revenue laws was
effected with the enactment of Commonwealth Act No. 466,
commonly known as the "National Internal Revenue Code" which
was approved on June 15, 1939 and took effect on July 1, 1939,
although the provisions on the income tax were made retroactive
to January 1, 1939.cralaw
Since 1939 when the turnover tax was replaced by the
manufacturer's sales tax, the Tax Code had provided for a single-
stage value-added tax on original sales by manufacturers,
producers and importers computed on the "cost deduction
method" and later, on the basis of the "tax credit method." The
turnover tax was re-introduced in 1985 by Presidential Decree
No. 1991 (as amended by Presidential Decree No. 2006). [1]
In 1986, a tax reform package was approved by the Aquino
Cabinet. It contained twenty-nine measures, one of which
proposed the adoption of the VAT, as well as the simplification of
the sales tax structure and the abolition of the turnover
tax.cralaw
Up until 1987, the system of taxing goods consisted of [a] an
excise tax on certain selected articles; [b] fixed and percentage
taxes on original and subsequent sales, on importations and on
milled articles; and [c] mining taxes on mineral products.
Services were subjected to percentage taxes based mainly on
gross receipts. [2]
On July 25, 1987, President Corazon C. Aquino signed into law
Executive Order No. 273 which adopted the VAT. From the former
single-stage value-added tax, it introduced the multi-stage VAT
system where "the value-added tax is imposed on the sale of and
distribution process culminating in sale, to the final consumer.
Generally described, the taxpayer [the seller] determines his tax
liability by computing the tax on the gross selling price or gross
receipt ["output tax"] and subtracting or crediting the earlier VAT
on the purchase or importation of goods or on the sale of service
["input tax"] against the tax due on his own sale." [3]
On January 1, 1988, implementing rules and regulations for the
VAT were promulgated. President Aquino then issued
Proclamation No. 219 on February 12, 1988 urging the public and
private sectors to join the nationwide consumers' education
campaign for VAT.cralaw
Soon after the implementation of Executive Order No. 273, its
constitutionality was assailed before this Court in the case of
Kapatiran ng mga Naglilingkod sa Pamahalaan ng Pilipinas, Inc.,
et al. v. Tan. [4] The four petitioners sought to nullify the VAT
law "for being unconstitutional in that its enactment is not
allegedly within the powers of the President; that the VAT is
oppressive, discriminatory, regressive, and violates the due
process and equal protection clauses and other provisions of the
1987 Constitution." [5] In dismissing the consolidated petitions,
this Court stated:
The Court, following the time-honored doctrine of separation of
powers cannot substitute its judgment for that of the President as
to the wisdom, justice and advisability of the VAT. The Court can
only look into and determine whether or not Executive Order No.
273 was enacted and made effective as law, in the manner
required by and consistent with, the Constitution, and to make
sure that it was not issued in grave abuse of discretion amounting
to lack or excess of jurisdiction; and, in this regard, the Court
finds no reason to impede its application or continued
implementation. [6]
Although declared constitutional, the VAT law was sought to be
amended from 1992 on by a series of bills filed in both Houses of
Congress. In chronological sequence, these were:

HB/SB No. Date Filed in Congress


HB No. 253 - July 22, 1992
HB No. 771 - August 10, 1992
HB No. 2450 - September 9, 1992
Senate Res. No. 734 [7] - September 10, 1992
HB No. 7033 - February 3, 1993
SB No. 1129 [8] - March 1, 1993
HB No. 8086 - March 9, 1993
HB No. 9030 - May 11, 1993
HB No. 9210 [9] - May 19, 1993
HB No. 9297 - May 25, 1993
HB No. 10012 - July 28, 1993
HB No. 10100 - August 3, 1993
HB No. 11197 in substitution of
HB Nos. 253, 771, 2450, 7033, 8086, 9030, 9210, 9297, 10012
and10100 [10] - November 5, 1993
We now trace the course taken by H.B. No. 11197 and S.B. No.
1129.cralaw
HB/SB No.cralaw
HB No. 11197 was approved in the Lower House on second
reading - November 11, 1993
HB No. 11197 was approved in the Lower House on third reading
and voted upon with 114 Yeas and 12 Nays - November 17, 1993
HB No. 11197 was transmitted to the Senate - November 18,
1993
Senate Committee on Ways and Means submitted Com. Report
No. 349 recommeding for approval SB No. 1630 in substitution of
SB No. 1129, taking into consideration PS Res. No.734 and HB
No. 11197 [11] - February 7, 1994
Certification by President Fidel V.Ramos of Senate Bill No.1630
for immediate enactment to meet a public emergency - March 22,
1994
SB No. 1630 was approved by the Senate on second and third
readings and subsequently voted upon with 13 yeas, none
against and one abstention - March 24, 1994
Transmittal by the Senate to the Lower House of a reques tfor a
conference in view of disagreeing provisions of SB No. 1630 and
HB NO.11197 - March 24, 1994
The Bicameral Conference Committee conducted various
meetings to reconcile the proposals on the VAT - April 13, 19, 20,
21, 25
The House agreed on the Conference Committee Report - April
27, 1994
The Senate agreed on the ConferenceCommittee Report - May 2,
1994
The President signed Republic Act No. 7716 - The Expanded VAT
Law [12] - May 5, 1994
Republic Act No. 7716 was published in two newspapers of
general circulation - May 12, 1994
Republic Act No. 7716 became effective - May 28, 1994

Republic Act No. 7716 merely expanded the base of the VAT law
even as the tax retained its multi-stage character.cralaw
At the oral hearing held on July 7, 1994, this Court delimited
petitioners' arguments to the following issues culled from their
respective petitions.cralaw
PROCEDURAL ISSUES
Does Republic Act No. 7716 violate Article VI, Section 24, of the
Constitution?[13]
Does it violate Article VI, Section 26, paragraph 2, of
theConstitution? [14]
What is the extent of the power of the Bicameral Conference
Committee?
SUBSTANTIVE ISSUES
Does the law violate the following provisions in Article III (Bill of
Rights) of the Constitution: 1. Section 1 [15]
2. Section 4 1 [16]
3. Section 5 [17]
4. Section 10 [18]
Does the law violate the following other provisions of the
Constitution?
1. Article VI, Section 28, paragraph 1 [19]
2. Article VI, Section 28, paragraph 3 [20]
As a result of the unedifying experience of the past where the
Court had the propensity to steer clear of questions it perceived
to be "political" in nature, the present Constitution, in contrast,
has explicitly expanded judicial power to include the duty of the
courts, especially the Supreme Court, "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." [21] I submit that under
this explicit mandate, the Court is empowered to rule upon acts
of other Government entities for the purpose of determining
whether there may have been, in fact, irregularities committed
tantamount to violation of the Constitution, which case would
clearly constitute a grave abuse of discretion on their part.cralaw
In the words of the sponsor of the above-quoted Article of the
Constitution on the Judiciary, the former Chief Justice Roberto R.
Concepcion, "the judiciary is the final arbiter on the question of
whether or not a branch of government or any of its officials has
acted without jurisdiction or in excess of jurisdiction, or so
capriciously as to constitute an abuse of discretion amounting to
excess of jurisdiction or lack of jurisdiction. This is not only a
judicial power but a duty to pass judgment on matters of this
nature.cralaw
This is the back ground of paragraph 2 of Section 1, which means
that the courts cannot hereafter exhibit its wonted reticence by
claiming that such matters constitute a political
question." [22] In the instant petitions, this Court is called
upon, not so much to exercise its traditional power of judicial
review as to determine whether or not there has indeed been a
grave abuse of discretion on the part of the Legislature
amounting to lack or excess of jurisdiction.cralaw
Where there are grounds to resolve a case without touching on its
constitutionality, the Court will do so with utmost alacrity in due
deference to the doctrine of separation of powers anchored on
the respect that must be accorded to the other branches of
government which are coordinate, coequal and, as far as
practicable, independent of one another. Once it is palpable that
the constitutional issue is unavoidable, then it is time to assume
jurisdiction, provided that the following requisites for a judicial
inquiry are met: that there must be an actual and appropriate
case; a personal and substantial interest of the party raising the
constitutional question; the constitutional question must be raised
at the earliest possible opportunity and the decision of the
constitutional question must be necessary to the determination of
the case itself, the same being the lis mota of the case. [23]
Having assured ourselves that the above-cited requisites are
present in the instant petitions, we proceed to take them
up.cralaw
ARTICLE VI, SECTION 24
Some petitioners assail the constitutionality of Republic Act No.
7716 as being in violation of Article VI, Section 24 of the
Constitution which provides:
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.cralaw
In G.R. Nos. 115455 and 115781, petitioners argue:
(a) The bill which became Republic Act No. 7716 did not originate
exclusively in the House of Representatives. The Senate, after
receiving H.B. No. 11197, submitted its own bill, S.B. No. 1630,
and proceeded to vote and approve the same after second and
third readings.cralaw
(b) The Senate exceeded its authority to "propose or concur with
amendments" when it submitted its own bill, S.B. No. 1630,
recommending its approval "in substitution of S.B. No. 1129,
taking into consideration P.S. Res. No. 734 and H.B. No. 11197."
(c) H.B. No. 11197 was not deliberated upon by the Senate.
Neither was it voted upon by the Senate on second and third
readings, as what was voted upon was S.B. No. 1630.
Article VI, Section 24 is taken word for word from Article VI,
Section 18 of the 1935 Constitution which was, in turn, patterned
after Article I, Section 7 (1) of the Constitution of the United
States, which states:
All bills for raising revenue shall originate in the House of
Representatives, but the Senate may propose or concur with
amendments as on other bills.cralaw
The historical precedent for requiring revenue bills to originate in
Congress is explained in the U.S. case of Morgan v. Murray. [24]
The constitutional requirement that all bills for raising revenue
shall originate in the House of Representatives stemmed from a
remedial outgrowth of the historic conflict between Parliament
[i.e., Commons] and the Crown, whose ability to dominate the
monarchially appointive and hereditary Lords was patent. [See 1
Story, Constitution, S 875 et seq., 5th Ed.; 1 Cooley,
Constitutional Limitations, pp. 267, 268, 8th Ed., 1 Sutherland,
Statutory Construction, S 806, 3d Ed.] There was a measure of
like justification for the insertion of the provision of article I, S 7,
cl. 1, of the Federal Constitution. At that time [787] and
thereafter until the adoption [in 1913] of the Seventeenth
Amendment providing for the direct election of senators, the
members of the United States Senate were elected for each state
by the joint vote of both houses of the Legislature of the
respective states, and hence, were removed from the
people.cralaw
The legislative authority under the 1935 Constitution being
unicameral in the form of the National Assembly, it served no
purpose to include the subject provision in the draft submitted by
the 1934 Constitutional Convention to the Filipino people for
ratification.cralaw
In 1940, however, the Constitution was amended to establish a
bicameral Congress of the Philippines composed of a House of
Representatives and a Senate. In the wake of the creation of a
new legislative machinery, new provisions were enacted
regarding the law-making power of Congress. The National
Assembly explained how the final formulation of the subject
provision came about:
The concurrence of both houses would be necessary to the
enactment of a law. However, all appropriation, revenue or tariff
bills, bills authorizing an increase of the public debt, bills of local
application, and private bills, should originate exclusively in the
House of Representatives, although the Senate could propose or
concur with amendments.cralaw
In one of the first drafts of the amendments, it was proposed to
give both houses equal powers in lawmaking. There was,
however, much opposition on the part of several members of the
Assembly. In another draft; the following provision, more
restrictive than the present provision in the amendment, was
proposed and for sometime was seriously considered:
All bills appropriating public funds, revenue or tariff bills, bills of
local application, and private bills shall originate exclusively in the
Assembly, but the Senate may propose or concur with
amendments. In case of disapproval by the Senate of any such
bills, the Assembly may repass the same by a two-thirds vote of
all its members, and thereupon, the bill so repassed shall be
deemed enacted and may be submitted to the President for
corresponding action. In the event that the Senate should fail to
finally act on any such bills, the Assembly may, after thirty days
from the opening of the next regular sessions of the same
legislative term, reapprove the same with a vote of two-thirds of
all the members of the Assembly. And upon such reapproval, the
bill shall be deemed enacted and may be submitted to the
president for corresponding action.cralaw
However, the special committee voted finally to report the
present amending provision as it is now worded; and in that form
it was approved by the National Assembly with the approval of
Resolution No. 38 and later of Resolution No. 73.[25] [Emphasis
supplied].
Thus, the present Constitution is identically worded as its 1935
precursor: "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].
That all revenue bills, such as Republic Act No. 7716, should
"originate exclusively in the House of Representatives" logically
flows from the more representative and broadly-based character
of this Chamber.cralaw
It is said that the House of Representatives being the more
popular branch of the legislature, being closer to the people, and
having more frequent contacts with them than the Senate, should
have the privilege of taking the initiative in the proposals of
revenue and tax project, the disposal of the people's money, and
the contracting of public indebtedness. These powers of initiative
in the raising and spending of public funds enable the House of
Representatives not only to implement but even to determine the
fiscal policies of the government. They place on its shoulders
much of the responsibility of solving the financial problems of the
government, which are so closely related to the economic life of
the country, and of deciding on the proper distribution of
revenues for such uses as may best advance public
interests. [26]
The popular nature of the Lower House has been more
pronounced with the inclusion of Presidentially-appointed sectoral
representatives, as provided in Article VI, Section 5 [2], of the
Constitution, thus: "The party-list representatives shall constitute
twenty per centum of the total number of representatives
including those under the party list. For three consecutive terms
after the ratification of this Constitution, one-half of the seats
allocated to party-list representatives shall be filled, as provided
by law, by selection or election from the labor, peasant, urban
poor, indigenous cultural communities, women, youth, and such
other sectors as may be provided by law, except the religious
sector." [Emphasis supplied].
This novel provision which was implemented in the Batasang
Pambansa during the martial law regime [27] was eventually
incorporated in the present Constitution in order to give those
from the marginalized and often deprived sector, an opportunity
to have their voices heard in the halls of the Legislature, thus
giving substance and meaning to the concept of "people
empowerment."

That the Congressmen indeed have access to, and consult their
constituencies has been demonstrated often enough by the fact
that even after a House bill has been transmitted to the Senate
for concurrence, some Congressmen have been known to express
their desire to change their earlier official position or reverse
themselves after having heard their constituents' adverse
reactions to their representations.cralaw
In trying to determine whether the mandate of the Constitution
with regard to the initiation of revenue bills has been preserved
inviolate, we have recourse to the tried and tested method of
definition of terms. The term "originate" is defined by Webster's
New International Dictionary [3rd Edition, 1986] as follows: "v.i.,
to come into being; begin; to start."
On the other hand, the word "exclusively" is defined by the same
Webster's Dictionary as "in an exclusive manner; to the exclusion
of all others; only; as, it is his, exclusively." Black's Law
Dictionary has this definition: "apart from all others; only; solely;
substantially all or for the greater part. To the exclusion of all
other; without admission of others to participation; in a manner
to exclude. Standard Oil Co. of Texas v. State, Tex. Civ. App.,
142 S.W. 2d 519, 521, 522, 523."
This Court had occasion to define the term "exclusive" as follows:
In its usual and generally accepted sense, the term means
possessed to the exclusion of others; appertaining to the subject
alone; not including, admitting or pertaining to another or others;
undivided, sole. [28]

When this writer, during the oral argument of July 7, 1994, asked
the petitioner in G. R. No. 115455 whether he considers the word
"exclusively" to be synonymous with "solely," he replied in the
affirmative. [29]
A careful examination of the legislative history traced earlier in
this decision shows that the original VAT law, Executive Order No.
273, was sought to be amended by ten House bills which finally
culminated in House Bill No. 11197, as well as two Senate bills. It
is to be noted that the first House Bill No. 253 was filed on July
22, 1992, and two other House bills followed in quick succession
on August 10 and September 9, 1992 before a Senate Resolution,
namely, Senate Res. No. 734, was filed on September 10, 1992
and much later, a Senate Bill proper, viz., Senate Bill No. 1129 on
March 1, 1993. Undoubtedly, therefore, these bills originated or
had their start in the House and before any Senate bill amending
the VAT law was filed. In point of time and venue, the conclusion
is ineluctable that Republic Act No. 7716, which is indisputably a
revenue measure, originated in the House of Representatives in
the form of House Bill No. 253, the first EVAT bill.cralaw
Additionally, the content and substance of the ten amendatory
House Bills filed over the roughly one-year period from July 1992
to August 1993 reenforce the position that these revenue bills,
pertaining as they do, to Executive Order No. 273, the prevailing
VAT law, originated in the Lower House.cralaw
House Bill Nos. 253, 771, 2450, 7033, 8086, 9030, 9210, 9297,
10012 and 10100 were intended to restructure the VAT system
by exempting or imposing the tax on certain items or otherwise
introducing reforms in the mechanics of implementation. [30] Of
these, House Bill No. 9210 was favored with a Presidential
certification on the need for its immediate enactment to meet a
public emergency. Easily the most comprehensive, it noted that
the revenue performance of the VAT, being far from satisfactory
since the collections have always fallen short of projections, "the
system is rendered inefficient, inequitable and less
comprehensive." Hence, the Bill proposed several amendments
designed to widen the tax base of the VAT and enhance its
administration. [31]
That House Bill No. 11197 being a revenue bill, originated from
the Lower House was acknowledged, in fact was virtually taken
for granted, by the Chairmen of the Committee on Ways and
Means of both the House of Representatives and the Senate.
Consequently, at the April 19, 1994 meeting of the Bicameral
Conference Committee, the Members agreed to make the House
Bill as the "frame of reference" or "base" of the discussions of the
Bicameral Conference Committee with the "amendments" or
"insertions to emanate from the Senate."[32]
As to whether the bills originated exclusively in the Lower House
is altogether a different matter. Obviously, bills amendatory of
VAT did not originate solely in the House to the exclusion of all
others for there were P.S. Res. No. 734 filed in the Senate on
September 10, 1992 followed by Senate Bill No. 1129 which was
filed on March 1, 1993. About a year later, this was substituted
by Senate Bill No. 1630 that eventually became the EVAT law,
namely, Republic Act No. 7716.cralaw
Adverting to the passage of the amendatory VAT bills in the
Lower House, it is to be noted that House Bill No. 11197 which
substituted all the prior bills introduced in said House complied
with the required readings, that is, the first reading consisting of
the reading of the title and referral to the appropriate Committee,
approval on second reading on November 11, 1993 and on third
reading on November 17, 1993 before being finally transmitted to
the Senate. In the Senate, its identity was preserved and its
provisions were taken into consideration when the Senate
Committee on Ways and Means submitted Com. Report No. 349
which recommended for approval "S.B. No. 1630 in substitution
of S.B. No. 1129, taking into consideration P.S. Res. No. 734 and
H.B. No. 11197." At this stage, the subject bill may be considered
to have passed first reading in the Senate with the submission of
said Committee Report No. 349 by the Senate Committee on
Ways and Means to which it had been referred earlier. What
remained, therefore, was no longer House Bill No. 11197 but
Senate Bill No. 1630. Thence, the Senate, instead of transmitting
the bill to the Lower House for its concurrence and amendments,
if any, took a "shortcut," bypassed the Lower House and instead,
approved Senate Bill No. 1630 on both second and third readings
on the same day, March 24, 1994.cralaw
The first irregularity, that is, the failure to return Senate Bill No.
1630 to the Lower House for its approval is fatal inasmuch as the
other chamber of legislature was not afforded the opportunity to
deliberate and make known its views. It is no idle dictum that no
less than the Constitution ordains: "The legislative power shall be
vested in the Congress of the Philippines which shall consist of a
Senate and a House of Representatives." [33] [Emphasis
supplied].
It is to be pointed out, too, that inasmuch as Senate Bill No. 1630
which had "taken into consideration" House Bill No. 11197 was
not returned to the Lower House for deliberation, the latter
Chamber had no opportunity at all to express its views thereon or
to introduce any amendment. The customary practice is, after the
Senate has considered the Lower House Bill, it returns the same
to the House of origin with its amendments. In the event that
there may be any differences between the two, the same shall
then be referred to a Conference Committee composed of
members from both Chambers which shall then proceed to
reconcile said differences.cralaw
In the instant case, the Senate transmitted to the Lower House
on March 24, 1994, a letter informing the latter that it had
"passed S. No. 1630entitled xxx [and] in view of the disagreeing
provisions of said bill and House Bill No. 11197, entitled xxx the
Senate requests a conference xxx." This, in spite of the fact that
Com. Report No. 349 of the Senate Committee on Ways and
Means had already recommended for approval on February 7,
1994 "S.B. No. 1630 taking into consideration H.B. No. 11197."
Clearly, the Conference Committee could only have acted upon
Senate Bill No. 1630, for House Bill No. 11197 had already been
fused into the former.cralaw
At the oral hearing of July 7, 1994, petitioner in G. R. No. 115455
admitted, in response to this writer's query, that he had
attempted to rectify some of the perceived irregularities by
presenting a motion in the Senate to recall the bill from the
Conference Committee so that it could revert to the period of
amendment, but he was outvoted, in fact "slaughtered." [34]
In accordance with the Rules of the House of Representatives and
the Senate, Republic Act No. 7716 was duly authenticated after it
was signed by the President of the Senate and the Speaker of the
House of Representatives followed by the certifications of the
Secretary of the Senate and the Acting Secretary General of the
House of Representatives. [35] With the signature of President
Fidel V. Ramos under the words "Approved: 5 May 1994," it was
finally promulgated.cralaw
Its legislative journey ended, Republic Act No. 7716 attained the
status of an enrolled bill which is defined as one "which has been
duly introduced, finally passed by both houses, signed by the
proper officers of each, approved by the governor [or president]
and filed by the secretary of state." [36]
Stated differently:
It is a declaration by the two houses, through their presiding
officers, to the president, that a bill, thus attested, has received
in due form, the sanction of the legislative branch of the
government, and that it is delivered to him in obedience to the
constitutional requirement that all bills which pass Congress shall
be presented to him. And when a bill, thus attested, receives his
approval, and is deposited in the public archives, its
authentication as a bill that has passed Congress should be
deemed complete and unimpeachable. As the President has no
authority to approve a bill not passed by Congress, an enrolled
Act in the custody of the Secretary of State, and having the
official attestations of the Speaker of the House of
Representatives, of the President of the Senate, and of the
President of the United States, carries, on its face, a solemn
assurance by the legislative and executive departments of the
government, charged, respectively, with the duty of enacting and
executing the laws, that it was passed by Congress. The respect
due to coequal and independent departments requires the judicial
department to act upon that assurance, and to accept, as having
passed Congress, all bills authenticated in the manner stated;
leaving the courts to determine, when the question properly
arises, whether the Act, so authenticated, is in conformity with
the Constitution. [37]

The enrolled bill assumes importance when there is some


variance between what actually transpired in the halls of
Congress, as reflected in its journals, and as shown in the text of
the law as finally enacted. But suppose the journals of either or
both Houses fail to disclose that the law was passed in
accordance with what was certified to by their respective
presiding officers and the President. Or that certain constitutional
requirements regarding its passage were not observed, as in the
instant case. Which shall prevail: the journal or the enrolled bill?
A word on the journal.cralaw
The journal is the official record of the acts of a legislative body.
It should be a true record of the proceedings arranged in
chronological order. It should be a record of what is done rather
than what is said. The journal should be a clear, concise,
unembellished statement of all proposals made and all actions
taken complying with all requirements of constitutions, statutes,
charters or rules concerning what is to be recorded and how it is
to be recorded. [38]
Article VI, Section 16 [4] of the Constitution ordains:
Each house shall keep a Journal of its proceedings, and from time
to time publish the same, excepting such parts as may, in its
judgment, affect national security; and the yeas and nays on any
question shall, at the request of one-fifth of the Members
present, be entered in the Journal.
Each House shall also keep a Record of its
proceedings." [Emphasis supplied].
The rationale behind the above provision and of the "journal entry
rule" is as follows:
It is apparent that the object of this provision is to make the
legislature show what it has done, leaving nothing whatever to
implication. And, when the legislature says what it has done, with
regard to the passage of any bill, it negatives the idea that it has
done anything else in regard thereto. Silence proves nothing
where one is commanded to speak. Our constitution commands
certain things to be done in regard to the passage of a bill, and
says that no bill shall become a law unless these things are done.
It seems a travesty upon our supreme law to say that it
guaranties to the people the right to have their laws made in this
manner only, and that there is no way of enforcing this right, or
for the court to say that this is law when the constitution says it
is not law. There is one safe course which is in harmony with the
constitution, and that is to adhere to the rule that the legislature
must show, as commanded by the constitution, that it has done
everything required by the constitution to be done in the serious
and important matter of making laws. This is the rule of evidence
provided by the constitution. It is not presumptuous in the courts,
nor disrespectful to the legislature, to judge the acts of the
legislature by its own evidence. [39]

Confronted with a discrepancy between the journal proceedings


and the law as duly enacted, courts have indulged in different
theories. The "enrolled bill" and "journal entry" rules, being
rooted deep in the Parliamentary practices of England where
there is no written constitution, and then transplanted to the
United States, it may be instructive to examine which rule
prevails in the latter country through which, by a process of
legislative osmosis, we adopted them in turn.
There seems to be three distinct and different rules as applicable
to the enrolled bill recognized by the various courts of this
country. The first of these rules appears to be that the enrolled
bill is the ultimate proof and exclusive and conclusive evidence
that the bill passed the legislature in accordance with the
provisions of the Constitution. Such has been the holding in
California, Georgia, Kentucky, Texas, Washington, New Mexico,
Mississippi, Indiana, South Dakota, and may be some
others.cralaw
The second of the rules seems to be that the enrolled bill is a
verity and resort cannot be had to the journals of the Legislature
to show that the constitutional mandates were not complied with
by the Legislature, except as to those provisions of the
Constitution, compliance with which is expressly required to be
shown on the journal. This rule has been adopted in South
Carolina, Montana, Oklahoma, Utah, Ohio, New Jersey, United
States Supreme Court, and others.cralaw
The third of the rules seems to be that the enrolled bill raises only
a prima facie presumption that the mandatory provisions of the
Constitution have been complied with and that resort may be had
to the journals to refute that presumption, and if the
constitutional provision is one, compliance with which is expressly
required by the Constitution to be shown on the journals, then
the mere silence of the journals to show a compliance therewith
will refute the presumption. This rule has been adopted in Illinois,
Florida, Kansas, Louisiana, Tennessee, Arkansas, Idaho,
Minnesota, Nebraska, Arizona, Oregon, New Jersey, Colorado,
and others. [40]
In the 1980 case of D & W Auto Supply v. Department of
Revenue, the Supreme Court of Kentucky which had subscribed in
the past to the first of the three theories, made the
pronouncement that it had shifted its stand and would henceforth
adopt the third. It justified its changed stance, thus:
We believe that a more reasonable rule is the one which Professor
Sutherland describes as the "extrinsic evidence" rule. Under this
approach there is a prima facie presumption that an enrolled bill
is valid, but such presumption may be overcome by clear
satisfactory and convincing evidence establishing that
constitutional requirements have not been met. [41]

What rule, if any, has been adopted in this jurisdiction?


Advocates of the "journal entry rule" cite the 1916 decision in
U.S. v. Pons [42]where this Court placed reliance on the
legislative journals to determine whether Act No. 2381 was
passed on February 28, 1914 which is what appears in the
Journal, or on March 1, 1914 which was closer to the truth. The
confusion was caused by the adjournment sine die at midnight of
February 28, 1914 of the Philippine Commission.cralaw
A close examination of the decision reveals that the Court did not
apply the "journal entry rule" vis-a-vis the "enrolled bill rule" but
the former as against what are "behind the legislative journals."
Passing over the question of whether the printed Act [No. 2381]
published by authority of law, is conclusive evidence as to the
date when it was passed, we will inquire whether the courts may
go behind the legislative journals for the purpose of determining
the date of adjournment when such journals are clear and
explicit. [43]
It is to be noted from the above that the Court "passed over" the
probative value to be accorded to the enrolled bill. Opting for the
journals, the Court proceeded to explain:
From their very nature and object, the records of the Legislature
are as important as those of the judiciary, and to inquire into the
veracity of the journals of the Philippine Legislature, when they
are, as we have said clear and explicit, would be to violate both
the letter and the spirit of the organic laws by which the
Philippine Government was brought into existence, to invade a
coordinate and independent department of the Government, and
to interfere with the legitimate powers and functions of the
Legislature. [44]

Following the courts in the United States since the Constitution of


the Philippine Government is modeled after that of the Federal
Government, the Court did not hesitate to follow the courts in
said country, i.e., to consider the journals decisive of the point at
issue. Thus: "The journals say that the Legislature adjourned at
12 midnight on February 28, 1914. This settles the question and
the court did not err in declining to go behind these
journals." [45]
The Court made a categorical stand for the "enrolled bill rule" for
the first time in the 1947 case of Mabanag v. Lopez
Vito [46] where it held that an enrolled bill imports absolute
verity and is binding on the courts. This Court held itself bound
by an authenticated resolution, despite the fact that the vote of
three-fourths of the Members of the Congress [as required by the
Constitution to approve proposals for constitutional amendments]
was not actually obtained on account of the suspension of some
members of the House of Representatives and the Senate. In this
connection, the Court invoked the "enrolled bill rule" in this wise:
"If a political question conclusively binds the judges out of respect
to the political departments, a duly certified law or resolution also
binds the judges under the 'enrolled bill rule' born of that
respect." [47]
Mindful that the U.S. Supreme Court is on the side of those who
favor the rule and for no other reason than that it conforms to
the expressed policy of our law making body [i.e., Sec. 313 of the
old Code of Civil Procedure, as amended by Act No. 2210], the
Court said that "duly certified copies shall be conclusive proof of
the provisions of such Acts and of the due enactment thereof."
Without pulling the legal underpinnings from U.S. v. Pons, it
justified its position by saying that if the Court at the time looked
into the journals, "in all probability, those were the documents
offered in evidence" and that "even if both the journals and
authenticated copy of the Act had been presented, the disposal of
the issue by the Court on the basis of the journals does not imply
rejection of the enrolled theory; for as already stated, the due
enactment of a law may be proved in either of the two ways
specified in Section 313 of Act No. 190 as amended." [48] Three
Justices voiced their dissent from the majority decision.cralaw
Again, the Court made its position plain in the 1963 case of Casco
Philippine Chemical Co., Inc. v. Gimenez [49] when a unanimous
Court ruled that: "The enrolled bill is conclusive upon the courts
as regards the tenor of the measure passed by Congress and
approved by the President. If there has been any mistake in the
printing of a bill before it was certified by the officers of Congress
and approved by the Executive, the remedy is by amendment or
curative legislation not by judicial decree." According to Webster's
New 20th Century Dictionary, 2nd Ed., 1983, the word "tenor"
means, among others, "the general drift of something spoken or
written; intent, purport, substance."
Thus, the Court upheld the respondent Auditor General's
interpretation that Republic Act No. 2609 really exempted from
the margin fee on foreign exchange transactions "urea
formaldehyde" as found in the law and not "urea and
formaldehyde" which petitioner insisted were the words contained
in the bill and were so intended by Congress.cralaw
In 1969, the Court similarly placed the weight of its authority
behind the conclusiveness of the enrolled bill. In denying the
motion for reconsideration, the Court ruled in Morales v. Subido
that "the enrolled Act in the office of the legislative secretary of
the President of the Philippines shows that Section 10 is exactly
as it is in the statute as officially published in slip form by the
Bureau of Printing. Expressed elsewise, this is a matter worthy of
the attention not of an Oliver Wendell Holmes but of a Sherlock
Holmes." [50] The alleged omission of a phrase in the final Act
was made, not at any stage of the legislative proceedings, but
only in the course of the engrossment of the bill, more specifically
in the proofreading thereof.cralaw
But the Court did include a caveat that qualified the absoluteness
of the "enrolled bill" rule stating:
By what we have essayed above we are not of course to be
understood as holding that in all cases the journals must yield to
the enrolled bill. To be sure there are certain matters which the
Constitution (Art. VI, secs. 10 [4], 20 [1], and 21 [1]) expressly
requires must be entered on the journal of each house. To what
extent the validity of a legislative act may be affected by a failure
to have such matters entered on the journal, is a question which
we do not now decide (Cf. e.g., Wilkes Country Comm'rs. v.
Coler, 180 U.S. 506 [1900]). All we hold is that with respect to
matters not expressly required to be entered on the journal, the
enrolled bill prevails in the event of any discrepancy. [51]

More recently, in the 1993 case of Philippine Judges Association


v. Prado, [52]this Court, in ruling on the unconstitutionality of
Section 35 of Republic Act No. 7354 withdrawing the franking
privilege from the entire hierarchy of courts, did not so much
adhere to the enrolled bill rule alone as to both "enrolled bill and
legislative journals." Through Mr. Justice Isagani A. Cruz, We
stated: "Both the enrolled bill and the legislative journals certify
that the measure was duly enacted, i.e., in accordance with
Article VI, Sec. 26[2] of the Constitution. We are bound by such
official assurances from a coordinate department of the
government, to which we owe, at the very least, a becoming
courtesy."
Aware of the shifting sands on which the validity and continuing
relevance of the "enrolled bill" theory rests, I have taken pains to
trace the history of its applicability in this jurisdiction, as
influenced in varying degrees by different Federal rulings.cralaw
As applied to the instant petition, the issue posed is whether or
not the procedural irregularities that attended the passage of
House Bill No. 11197 and Senate Bill No. 1630, outside of the
reading and printing requirements which were exempted by the
Presidential certification, may no longer be impugned, having
been "saved" by the conclusiveness on us of the enrolled bill. I
see no cogent reason why we cannot continue to place reliance
on the enrolled bill, but only with respect to matters pertaining to
the procedure followed in the enactment of bills in Congress and
their subsequent engrossment, printing errors, omission of words
and phrases and similar relatively minor matters relating more to
form and factual issues which do not materially alter the essence
and substance of the law itself.cralaw
Certainly, "courts cannot claim greater ability to judge procedural
legitimacy, since constitutional rules on legislative procedure are
easily mastered. Procedural disputes are over facts whether or
not the bill had enough votes, or three readings, or whatever not
over the meaning of the constitution. Legislators, as
eyewitnesses, are in a better position than a court to rule on the
facts. The argument is also made that legislatures would be
offended if courts examined legislative procedure. [53]
Such a rationale, however, cannot conceivably apply to
substantive changes in a bill introduced towards the end of its
tortuous trip through Congress, catching both legislators and the
public unawares and altering the same beyond recognition even
by its sponsors.cralaw
This issue I wish to address forthwith.cralaw
EXTENT OF THE POWER OF THE BICAMERAL CONFERENCE
COMMITTEE
One of the issues raised in these petitions, especially in G. R.
Nos. 115781, 115543 and 115754, respectively, is whether or
not:
Congress violated Section 26, Par. 2, Article VI [of the 1987
Constitution] when it approved the Bicameral Conference
Committee Report which embodied, in violation of Rule XII of the
Rules of the Senate, a radically altered tax measure containing
provisions not reported out or discussed in either House as well
as provisions on which there was no disagreement between the
House and the Senate and, worse, provisions contrary to what
the House and the Senate had approved after three separate
readings. [54]
and
By adding or deleting provisions, when there was no conflicting
provisions between the House and Senate versions, the BICAM
acted in excess of its jurisdiction or with such grave abuse of
discretion as to amount to loss of jurisdiction..In adding to the bill
and thus subjecting to VAT, real properties, media and
cooperatives despite the contrary decision of both Houses, the
BICAM exceeded its jurisdiction or acted with such abuse of
discretion as to amount to loss of jurisdiction. [55]

I wish to consider this issue in the light of Article VIII, Sec. 1 of


the Constitution which provides that "(j)udicial power includes the
duty of the courts of justice 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." We are also guided by the principle that a court
may interfere with the internal procedures of its coordinate
branch only to uphold the Constitution. [56]
A conference committee has been defined:
Unlike the joint committee is two committees, one appointed by
each house. It is normally appointed for a specific bill and its
function is to gain accord between the two houses either by the
recession of one house from its bill or its amendments or by the
further amendment of the existing legislation or by the
substitution of an entirely new bill. Obviously the conference
committee is always a special committee and normally includes
the member who introduced the bill and the chairman of the
committee which considered it together with such other
representatives of the house as seem expedient. (Horack, Cases
and Materials on Legislation [1940] 220. See also Zinn,
Conference Procedure in Congress, 38 ABAJ 864 [1952]; Steiner,
The Congressional Conference Committee [U of III.
Press,1951]). [57]

From the foregoing definition, it is clear that a bicameral


conference committee is a creature, not of the Constitution, but
of the legislative body under its power to determine rules of its
proceedings under Article VI, Sec. 16 (3) of the Constitution.
Thus, it draws its life and vitality from the rules governing its
creation. The why, when, how and wherefore of its operations, in
other words, the parameters within which it is to function, are to
be found in Section 26, Rule XII of the Rules of the Senate and
Section 85 of the Rules of the House of Representatives,
respectively, which provide:
Rule XII, Rules of the Senate
Sec. 26. 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 days after
their composition.
The President shall designate the members of the conference
committee in accordance with subparagraph (c), Section 8 of Rule
III.
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 the conferees.
The consideration of such report shall not be in order unless the
report has been filed with the Secretary of the Senate and copies
thereof have been distributed to the Members.
Rules of the House of Representatives
Sec. 85. Conference Committee Reports.- In the event that the
House does not agree with the Senate on the amendments to any
bill or joint resolution, the differences may be settled by
conference committee of both Chambers.
The consideration of conference committee reports shall always
be in order, except when the journal is being read, while the roll
is being called or the House is dividing on any question. Each of
the pages of such reports shall contain a detailed, sufficiently
explicit statement of the changes in or amendments to the
subject measure.
The consideration of such report shall not be in order unless
copies thereof are distributed to the Members: Provided, That in
the last fifteen days of each session period it shall be deemed
sufficient that three copies of the report, signed as above
provided, are deposited in the office of the Secretary General.

Under these Rules, a bicameral conference committee comes into


being only when there are disagreements and differences
between the Senate and the House with regard to certain
provisions of a particular legislative act which have to be
reconciled.
Jefferson's Manual, which, according to Section 112, Rule XLIX of
the Senate Rules, supplements it, states that a conference
committee is usually called "on the occasion of amendments
between the Houses" and "in all cases of difference of opinion
between the two House on matters pending between
them." [58] It further states:
The managers of a conference must confine themselves to the
differences committed to them, and may not include subjects not
within the disagreements, even though germane to a question in
issue. But they may perfect amendments committed to them if
they do not in so doing go beyond the differences. Managers may
not change the text to which both Houses have
agreed. [59][Emphasis supplied].

Mason's Manual of Legislative Procedures which is also considered


as controlling authority for any situation not covered by a specific
legislative rule, [60] states that either House may "request a
conference with the other on any matter of difference or dispute
between them" and that in such a request, "the subject of the
conference should always be stated." [61]
In the Philippines, as in the United States, the Conference
Committee exercises such a wide range of authority that they
virtually constitute a third House in the Legislature. As admitted
by the Solicitor General, "It was the practice in past Congresses
for Conference Committees to insert in bills approved by the two
Houses new provisions that were not originally contemplated by
them." [62] In Legislative Procedure, Robert Luce gives a graphic
description of the milieu and the circumstances which have
conspired to transform an initially innocuous mechanism designed
to facilitate action into an all-powerful Frankenstein that brooks
no challenge to its authority even from its own members:
Their power lies chiefly in the fact that reports of conference
committees must be accepted without amendment or else
rejected in toto. The impulse is to get done with the matters and
so the motion to accept has undue advantage, for some members
are sure to prefer swallowing unpalatable provisions rather than
prolong controversy. This is the more likely if the report comes in
the rush of business toward the end of a session, when to seek
further conference might result in the loss of the measure
altogether. At any time in the session there is some risk of such a
result following the rejection of a conference report, for it may
not be possible to secure a second conference, or delay may give
opposition to the main proposal chance to develop more strength.
xxx xxx xxx
Entangled in a network of rule and custom, the Representative
who resents and would resist this theft of his rights, finds himself
helpless. Rarely can he vote, rarely can he voice his mind, in the
matter of any fraction of the bill. Usually he cannot even record
himself as protesting against some one feature while accepting
the measure as whole. Worst of all, he cannot by argument or
suggested change, try to improve what the other branch has
done.
This means more than the subversion of individual rights. It
means to a degree the abandonment of whatever advantage the
bicameral system may have. By so much it in effect transfers the
lawmaking power to a small group of members who work out in
private a decision that almost always prevails. What is worse,
these men are not chosen in a way to ensure the wisest choice. It
has become the practice to name as conferees the ranking
members of the committee, so that the accident of seniority
determines. Exceptions are made, but in general it is not a
question of who are most competent to serve. Chance governs,
sometimes giving way to favor, rarely to merit.
xxx xxx xxx
Speaking broadly, the system of legislating by conference
committee is unscientific and therefore defective. Usually it
forfeits the benefit of scrutiny and judgment by all the wisdom
available. Uncontrolled, it is inferior to that process by which
every amendment is secured independent discussion and
vote. [63][mphasis supplied].
Not surprisingly has it been said: "Conference Committee action
is the most undemocratic procedure in the legislative process; it
is an appropriate target for legislative critics." [64]
In the case at bench, petitioners insist that the Conference
Committee to which Senate Bill No. 1630 and House Bill No.
11197 were referred for the purpose of harmonizing their
differences, overreached themselves in not confining their
"reconciliation" function to those areas of disagreement in the two
bills but actually making "surreptitious insertions" and deletions
which amounted to a grave abuse of discretion.cralaw
At this point, it becomes imperative to focus on the errant
provisions which found their way into Republic Act No. 7716.
Below is a breakdown to facilitate understanding the grounds for
petitioners' objections:

INSERTIONS MADE BY BICAMERAL CONFERENCE


COMMITTEE [BICAM] TO SENATE BILL [SB] NO. 1630 AND
HOUSE BILL [HB] NO. 11197
1. Sec. 99 of the National Internal Revenue Code [NIRC]
[1] Under the H.B., this section includes any person who, in the
course of trade or business, sells, barters or exchanges goods or
properties and any person who leases personal properties.
[2] The S.B. completely changed the said section and defined a
number of words and phrases. Also, Section 99-A was added
which included one who sells, exchanges, barters properties and
one who imports properties.
[3] The BICAM version makes Lessors of goods or properties and
importers of goods liable to VAT [subject of petition in G. R. No.
115754].
2. Section 100 [VAT on Sale of Goods]
The term "goods" or "properties" includes the following, which
were not found in either the H.B. or the S.B.:
In addition to radio and television time; satellite transmission and
cable television time.
The term "Other similar properties" was deleted, which was
present in the HB and the SB.
Real properties held primarily for sale to customers or held for
lease in the ordinary course or business were included, which was
neither in the H.B. nor the S.B. [subject of petition in G. R. No.
115754].
3. Section 102
On what are included in the term "sale or exchange of services,"
as to make them subject to VAT, the BICAM included/inserted the
following [not found in either House or Senate Bills]:
1. Services of lessors of property, whether personal or real
[subject of petition in G. R. No. 115754];
2. Warehousing services;
3. Keepers of resthouses, pension houses, inns, resorts;
4. Common carriers by land, air and sea;
5. Services of franchise grantees of telephone and telegraph;
6. Radio and television broadcasting;
7. All other franchise grantees except those under Section 117 of
this Code [subject of petition in G. R. No. 115852];
8. Services of surety, fidelity, indemnity, and bonding companies;
9. Also inserted by the BICAM [on page 8 thereof] is the lease or
use of or the right to use of satellite transmission and cable
television time.
4. Section 103 [Exempt Transactions]
The BICAM deleted subsection [f] in its entirety, despite its
inclusion in both the House and Senate Bills. Therefore, under
Republic Act No. 7716, the "printing, publication, importation or
sale of books and any newspaper, magazine, review, or bulletin
which appears at regular intervals with fixed prices for
subscription and sale and which is not devoted principally to the
publication of advertisements" is subject to VAT [subject of
petition in G. R. No. 115931 and G. R. No. 115544].cralaw
The HB and SB did not touch Subsection (g) but it was amended
by the BICAM by changing the word TEN to FIVE. Thus,
importation of vessels with tonnage of more than five thousand
tons is VAT exempt.cralaw
Subsection L, which was identical in the HB and the SB that
stated that medical, dental, hospital and veterinary services were
exempted from the VAT was amended by the BICAM by adding
the qualifying phrase: EXCEPT THOSE RENDERED BY
PROFESSIONALS, thus subjecting doctors, dentists and
veterinarians to the VAT.cralaw
Subsection U which exempts from VAT "transactions which are
exempt under special laws," was amended by the BICAM by
adding the phrase: EXCEPT THOSE GRANTED UNDER P.D. Nos.
66, 529, 972, 1491, AND 1590, AND NON-ELECTRIC
COOPERATIVES UNDER R.A. 6938 [subject of petition in G. R. No.
115873], not found in either the H.B. or the S.B., resulting in the
inclusion of all cooperatives to the VAT, except non-electric
cooperatives.cralaw
The sale of real properties was included in the exempt
transactions under the House Bill, but the BICAM qualified this
with the provision:
(S) SALE OF REAL PROPERTIES NOT PRIMARILY HELD FOR SALE
TO CUSTOMERS OR HELD FOR LEASE IN THE ORDINARY COURSE
OF TRADE OR BUSINESS OR REAL PROPERTY UTILIZED FOR
LOW-COST AND SOCIALIZED HOUSING AS DEFINED BY RA NO.
7279 OTHERWISE KNOWN AS THE URBAN DEVELOPMENT AND
HOUSING ACT OF 1992 AND OTHER RELATED LAWS. [Subject of
petition in G. R. No. 115754].

The BICAM also exempted the sale of properties, the receipts of


which are not less than P480,000.00 or more than P720,000.00.
Under the S.B., no amount was given, but in the H.B. it was
stated that receipts from the sale of properties not less than
P350,000.00 nor more than P600,000.00 were exempt.
It did not include, as VAT exempt, the sale or transfer of
securities, as defined in the Revised Securities Act [BP 178] which
was contained in both Senate and House Bills.cralaw
5. Section 104
Not included in the H.B. or the S.B. is the phrase "INCLUDING
PACKAGING MATERIALS" which was inserted by the BICAM in
Section 104 (A) (1) (B), thus excluding from creditable input tax
packaging materials and the phrase "ON WHICH A VALUE-ADDED
TAX HAS BEEN ACTUALLY PAID" in Section 104 [A] (2).cralaw
6. Section 107
Both House and Senate Bills provide for the payment of P500.00
VAT registration fee but this was increased by BICAM to
P1,000.00.cralaw
7. Section 112
Regarding a person whose sales or receipts are exempt under
Section 103 [w], the BICAM inserted the phrase: "THREE
PERCENT UPON THE EFFECTIVITY OF THIS ACT AND FOUR
PERCENT [4%] TWO YEARS THEREAFTER," although the S.B. and
the H.B. provide only "three percent of his gross quarterly sales."
8. Section 115
The BICAM adopted the H.B. version which subjects common
carriers by land, air or water for the transport of passengers to
3% of their gross quarterly sales, which is not found in the
S.B.cralaw
9. Section 117
The BICAM amended this section by subjecting franchises on
electric, gas and water utilities to a tax of two percent (2%) on
gross receipts derived, although neither the H.B. nor the S.B. has
a similar provision.cralaw
10. Section 17 (d)
(a) The BICAM defers for only 2 years the VAT on services of
actors and actresses, although the S.B. defers it for 3 years.
(b) The BICAM uses the word "EXCLUDE" in the section on
deferment of VAT collection on certain goods and services. The
H.B. does not contain any counterpart provision and S.B. only
allows deferment for no longer than 3 years.
11. Section 18 on the Tax Administration Development Fund is an
entirely new provision not contained in the House/Senate Bills.
This fund is supposed to ensure effective implementation of
Republic Act No. 7716.
12. Section 19
No period within which to promulgate the implementing rules and
regulations is found in the H.B. or the S.B. but BICAM provided
"within 90 days" which found its way in Republic Act No. 7716.

Even a cursory perusal of the above outline will convince one


that, indeed, the Bicameral Conference Committee [henceforth to
be referred to as BICAM] exceeded the power and authority
granted in the Rules of its creation. Both Senate and House Rules
limit the task of the Conference Committee in almost identical
language to the settlement of differences in the provisions or
amendments to any bill or joint resolution. If it means anything
at all, it is that there are provisions in subject bill, to start with,
which differ and, therefore, need reconciliation. Nowhere in the
Rules is it authorized to initiate or propose completely new
matter. Although under certain rules on legislative procedure, like
those in Jefferson's Manual, a conference committee may
introduce germane matters in a particular bill, such matters
should be circumscribed by the committee's sole authority and
function to reconcile differences.cralaw
Parenthetically, in the Senate and in the House, a matter is
"germane" to a particular bill if there is a common tie between
said matter and the provisions which tend to promote the object
and purpose of the bill it seeks to amend. If it introduces a new
subject matter not within the purview of the bill, then it is not
"germane" to the bill. [65] The test is whether or not the change
represented an amendment or extension of the basic purpose of
the original, or the introduction of an entirely new and different
subject matter. [66]
In the BICAM, however, the germane subject matter must be
within the ambit of the disagreement between the two Houses. If
the "germane" subject is not covered by the disagreement but it
is reflected in the final version of the bill as reported by the
Conference Committee or, if what appears to be a "germane"
matter in the sense that it is "relevant or closely allied" [67] with
the purpose of the bill, was not the subject of a disagreement
between the Senate and the House, it should be deemed an
extraneous matter or even a "rider" which should never be
considered legally passed for not having undergone the three-day
reading requirement. Insertion of new matter on the part of the
BICAM is, therefore, an ultra vires act which makes the same
void.cralaw
The determination of what is "germane" and what is not may
appear to be a difficult task but the Congress, having been
confronted with the problem before, resolved it in accordance
with the rules. In that case, the Congress approved a Conference
Committee's insertion of new provisions that were not
contemplated in any of the provisions in question between the
Houses simply because of the provision in Jefferson's Manual that
conferees may report matters "which are germane modifications
of subjects in disagreement between the Houses and the
committee. [68] In other words, the matter was germane to the
points of disagreement between the House and the Senate.cralaw
As regards inserted amendments in the BICAM, therefore, the
task of determining what is germane to a bill is simplified, thus: If
the amendments are not circumscribed by the subjects of
disagreement between the two Houses, then they are not
germane to the purpose of the bill. In the instant case before Us,
the insertions and deletions made do not merely spell an effort at
settling conflicting provisions but have materially altered the bill,
thus giving rise to the instant petitions on the part of those who
were caught unawares by the legislative legerdemain that took
place. Going by the definition of the word "amendment" in Black's
Law Dictionary, 5th ed., 1979, which means "to change or modify
for the better; to alter by modification, deletion, or addition," said
insertions and deletions constitute amendments. Consequently,
these violated Article VI, Section 26 [2] which provides inter alia:
"Upon the last reading of a bill, no amendment thereto shall
beallowed." This proscription is intended to subject all bills and
their amendments to intensive deliberation by the legislators and
the ample ventilation of issues to afford the public an opportunity
to express their opinions or objections issues to afford the public
an opportunity to express their opinions or objections thereon.
The same rationale underlies the three-reading requirement to
the end that no surprises may be sprung on an unsuspecting
citizenry.cralaw
Provisions of the "now you see it, now you don't" variety,
meaning those which were either in the House and/or Senate
versions but simply disappeared or were "bracketed out" of
existence in the BICAM Report, were eventually incorporated in
Republic Act No. 7716. Worse, some goods, properties or services
which were not covered by the two versions and, therefore, were
never intended to be so covered, suddenly found their way into
the same Report. No advance notice of such insertions prepared
the rest of the legislators, much less the public who could be
adversely affected, so that they could be given the opportunity to
express their views thereon. Well has the final BICAM report been
described, therefore, as an instance of "taxation without
representation."
That the conferees or delegates in the BICAM representing the
two Chambers could not possibly be charged with bad faith or
sinister motives or, at the very least, unseemly behavior, is of no
moment. The stark fact is that items not previously subjected to
the VAT now fell under its coverage without interested sectors or
parties having been afforded the opportunity to be heard thereon.
This is not to say that the Conference Committee Report should
have undergone the three readings required in Article VI, Section
26 [2], for this clearly refers only to bills which, after having been
initially filed in either House, negotiated the labyrinthine passage
therein until its approval. The composition of the BICAM including
as it usually does, the Chairman of the appropriate Committee,
the sponsor of the bill and other interested members ensures an
informed discussion, at least with respect to the disagreeing
provisions. The same does not obtain as regards completely new
matter which suddenly spring on the legislative horizon.cralaw
It has been pointed out that such extraneous matters
notwithstanding, all Congressman and Senators were given the
opportunity to approve or turn down the Committee Report in
toto, thus "curing" whatever defect or irregularity it bore.cralaw
Earlier in this opinion, I explained that the source of the
acknowledged power of this ad hoc committee stems from the
precise fact that, the meetings, being scheduled "take it or leave
it" basis. It has not been uncommon for legislators who, for one
reason or another have been frustrated in their attempt to pass a
pet bill in their own chamber, to work for its passage in the
BICAM where it may enjoy a more hospitable reception and faster
approval. In the instant case, had there been full, open and
unfettered discussion on the bills during the Committee sessions,
there would not have been as much vociferous objections on this
score. Unfortunately, however, the Committee held two of the
five sessions behind closed doors, sans stenographers, record-
takers and interested observers. To that extent, the proceedings
were shrouded in mystery and the public's right to information on
matters of public concern as enshrined in Article III, Section
7 [69] and the government's policy of transparency in
transactions involving public interest in Article II, Section 28 of
theConstitution [70] are undermined.cralaw
Moreover, that which is void ab initio such as the objectionable
provisions in the Conference Committee Report, cannot be
"cured" or ratified. For all intents and purposes, these never
existed. Quae ab initio non valent, ex post facto convalescere non
possunt. Things that are invalid from the beginning are not made
valid by a subsequent act.cralaw
Should this argument be unacceptable, the "enrolled bill"
doctrine, in turn, is invoked to support the proposition that the
certification by the presiding officers of Congress, together with
the signature of the President, bars further judicial inquiry into
the validity of the law. I reiterate my submission that the
"enrolled bill ruling" may be applicable but only with respect to
questions pertaining to the procedural enactment, engrossment,
printing, the insertion or deletion of a word or phrase here and
there, but would draw a dividing line with respect to substantial
substantive changes, such as those introduced by the BICAM
herein.cralaw
We have before Us then the spectacle of a body created by the
two Houses of Congress for the very limited purpose of settling
disagreements in provisions between bills emanating therefrom,
exercising the plenary legislative powers of the parent chambers
but holding itself exempt from the mandatory constitutional
requirements that are the hallmarks of legislation under the aegis
of a democratic political system. From the initial filing, through
the three readings which entail detailed debates and discussions
in Committee and plenary sessions, and on to the transmittal to
the other House in a repetition of the entire process to ensure
exhaustive deliberations all these have been skipped over. In the
proverbial twinkling of an eye, provisions that probably may not
have seen the light of day had they but run their full course
through the legislative mill, sprang into existence and emerged
full-blown laws.cralaw
Yet our Constitution vests the legislative power in "the Congress
of the Philippines which shall consist of a Senate and a House
ofRepresentatives." [71]and not in any special, standing or super
committee of its own creation, no matter that these have been
described, accurately enough, as "the eye, the ear, the hand, and
very often the brain of the house."
Firstly, that usage or custom has sanctioned this abbreviated, if
questionable, procedure does not warrant its being legitimized
and perpetuated any longer. Consuetudo, contra rationem
introducta, potius usurpatio quam consuetudo appellari debet. A
custom against reason is rather an usurpation. In the hierarchy of
sources of legislative procedure, constitutional rules, statutory
provisions and adopted rules [as for example, the Senate and
House Rules], rank highest, certainly much ahead of customs and
usages.cralaw
Secondly, is this Court to assume the role of passive spectator or
indulgent third party, timorous about exercising its power or
more importantly, performing its duty, of making a judicial
determination on the issue of whether there has been grave
abuse of discretion by the other branches or instrumentalities of
government, where the same is properly invoked? The time is
past when the Court was not loathe to raise the bogeyman of the
political question to avert a head-on collision with either the
Executive or Legislative Departments. Even the separation of
powers doctrine was burnished to a bright sheen as often as it
was invoked to keep the judiciary within bounds. No longer does
this condition obtain. Article VIII, Section 2 of the Constitution
partly quoted in this paragraph has broadened the scope of
judicial inquiry. This Court can now safely fulfill its mandate of
delimiting the powers of co-equal departments like the Congress,
its officers or its committees which may have no compunctions
about exercising legislative powers in full.cralaw
Thirdly, dare we close our eyes to the presumptuous assumption
by a runaway committee of its progenitor's legislative powers in
derogation of the rights of the people, in the process, subverting
the democratic principles we all are sworn to uphold, when a
proper case is made out for our intervention? The answers to the
above queries are self-evident.cralaw
I call to mind this exhortation: "We are sworn to see that
violations of the constitution by any person, corporation, state
agency or branch of government are brought to light and
corrected. To countenance an artificial rule of law that silences
our voices when confronted with violations of our Constitution is
not acceptable to this Court." [72]
I am not unaware that a rather recent decision of ours brushed
aside an argument that a provision in subject law regarding the
withdrawal of the franking privilege from the petitioners and this
Court itself, not having been included in the original version of
Senate Bill No. 720 or of House Bill No. 4200 but only in the
Conference Committee Report, was violative of Article VI, Section
26 [2] of the Constitution. Likewise, that said Section 35, never
having been a subject of disagreement between both Houses,
could not have been validly added as an amendment before the
Conference Committee.cralaw
The majority opinion in said case explained:
While it is true that a conference committee is the mechanism for
compromising differences between the Senate and the House, it
is not limited in its jurisdiction to this question. Its broader
function is described thus:
A conference committee may deal generally with the subject
matter or it may be limited to resolving the precise differences
between the two houses. Even where the conference committee
is not by rule limited in its jurisdiction, legislative custom severely
limits the freedom with which new subject matter can be inserted
into the conference bill. But occasionally a conference committee
produces unexpected results, results beyond its mandate. These
excursions occur even where the rules impose strict limitations on
conference committee jurisdiction. This is symptomatic of the
authoritarian power of conference committee (Davies, Legislative
Law and Process: In a Nutshell, 1986 Ed., p. 81).[73] [Emphasis
supplied].

At the risk of being repetitious, I wish to point out that the


general rule, as quoted above, is: "Even where the conference
committee is not by rule limited in its jurisdiction, legislative
custom severely limits the freedom with which new subject
matter can be inserted into the conference bill." What follows,
that is, "occasionally a conference committee produces
unexpected results, results beyond its mandate." is the
exception. Then it concludes with a declaration that: "This is
symptomatic of the authoritarian power of conference
committee." Are we about to reinstall another institution that
smacks of authoritarianism which, after our past experience, has
become anathema to the Filipino people?
The ruling above can hardly be cited in support of the proposition
that a provision in a BICAM report which was not the subject of
differences between the House and Senate versions of a bill
cannot be nullified. It submit that such is not authorized in our
Basic Law. Moreover, this decision concerns merely one provision
whereas the BICAM Report that culminated in the EVAT law has a
wider scope as it, in fact, expanded the base of the original VAT
law by imposing the tax on several items which were not so
covered prior to the EVAT.cralaw
One other flaw in most BICAM Reports, not excluding this one
under scrutiny, is that, hastily drawn up, it often fails to conform
to the Senate and House Rules requiring no less than a "detailed"
and "sufficiently explicit statement of the changes in or
amendments to the subject measure." The Report of the
committee, as may be gleaned from the preceding pages, was no
more than the final version of the bill as "passed" by the BICAM.
The amendments or subjects of dissension, as well as the
reconciliation made by the committee, are not even pointed out,
much less explained therein.cralaw
It may be argued that legislative rules of procedure may properly
be suspended, modified, revoked or waived at will by the
legislators themselves. [74] This principle, however, does not
come into play in interpreting what the record of the proceedings
shows was, or was not, done. It is rather designed to test the
validity of legislative action where the record shows a final action
in violation or disregard of legislative rules. [75] Utilizing the
Senate and the House Rules as both guidelines and yardstick, the
BICAM here obviously did not adhere to the rule on what the
Report should contain.cralaw
Given all these irregularities that have apparently been engrafted
into the BICAM system, and which have been tolerated, if not
accorded outright acceptance by everyone involved in or
conversant with, the institution, it may be asked: Why not leave
well enough alone?
That these practices have remained unchallenged in the past does
not justify our closing our eyes and turning a deaf ear to them.
Writ large is the spectacle of a mechanism ensconced in the very
heart of the people's legislative halls, that now stands indicted
with the charge of arrogating legislative powers unto itself
through the use of dubious "shortcuts." Here, for the people to
judge, is the "mother of all shortcuts."
In the petitions at bench, we are confronted with the enactment
of a tax law which was designed to broaden the tax base. It is
rote learning for any law student that as an attribute of
sovereignty, the power to tax is "the strongest of all the powers
of government." [76] Admittedly, "for all its plenitude, the power
to tax is not unconfined. There are restrictions." [77] Were there
none, then the oft-quoted 1803 dictum of Chief Justice Marshall
that "the power to tax involves the power to destroy" [78] would
be a truism. Happily, we can concur with, and the people can find
comfort in, the reassuring words of Mr. Justice Holmes: "The
power to tax is not the power to destroy while this Court
sits." [79]
Manakanaka, mayroong dumudulog dito sa Kataastaasang
Hukuman na may kamangha-manghang hinaing. Angkop na
halimbawa ay ang mga petisyong iniharap ngayon sa amin. Ang
ilan sa kanila ay mga Senador na nais mapawalang bisa ang
isang batas ukol sa buwis na ipinasa mismo nila. Diumano ito ay
hindi tumalima sa mga itinatadhana ng Saligang Batas. Bukod sa
rito, tutol sila sa mga bagong talata na isiningit ng "Bicameral
Conference Committee" na nagdagdag ng mga bagong bagay
bagay at serbisyo na papatawan ng buwis. Ayon sa kanila,
ginampanan ng komiteng iyan ang gawain na nauukol sa buong
Kongreso. Kung kaya't ang nararapat na mangyari ay ihatol ng
Kataastaasang Hukuman na malabis na pagsasamantala sa
sariling pagpapasiya ang ginawa ng Kongreso.
Bagama't bantulot kaming makialam sa isang kapantay na
sangay ng Pamahalaan, hindi naman nararapat na kami ay
tumangging gampanan ang tungkulin na iniatas sa amin ng
Saligang Batas. Lalu't-lalo nang ang batas na kinauukulan ay
maaaring makapinsala sa nakararami sa sambayanan.
Sa ganang akin, itong batas na inihaharap sa amin ngayon, ay
totoong labag sa Saligang Batas, samakatuwid ay walang bisa.
Nguni't ito ay nauukol lamang sa mga katiwalian na may
kinalaman sa paraan ng pagpapasabatas nito. Hindi namin
patakaran ang makialam o humadlang sa itinakdang gawain ng
Saligang Batas sa Pangulo at sa Kongreso. Ang dalawang sangay
na iyan ng Pamahalaan ang higit na maalam ukol sa kung ang
anumang panukalang batas ay nararapat, kanais-nais o
magagampanan; kung kaya't hindi kami nararapat na maghatol o
magpapasiya sa mga bagay na iyan. Ang makapapataw ng
angkop na lunas sa larangan na iyan ay ang mismong mga
kinatawan ng sambayanan sa Kongreso.

Faced with this challenge of protecting the rights of the people by


striking down a law that I submit is unconstitutional and in the
process, checking the wonted excesses of the Bicameral
Conference Committee system, I see in this case a suitable
vehicle to discharge the Court's Constitutional mandate and duty
of declaring that there has indeed been a grave abuse of
discretion amounting to lack or excess of jurisdiction on the part
of the Legislature.
Republic Act No. 7716, being unconstitutional and void, I find no
necessity to rule on the substantive issues as dealt with in the
majority opinion as they have been rendered moot and academic.
These issues pertain to the intrinsic merits of the law. It is
axiomatic that the wisdom, desirability and advisability of
enacting certain laws lie, not within the province of the Judiciary
but that of the political departments, the Executive and the
Legislative. The relief sought by petitioners from what they
perceive to be the harsh and onerous effect of the EVAT on the
people is within their reach. For Congress, of which Senator-
petitioners are a part, can furnish the solution by either repealing
or amending the subject law.cralaw
For the foregoing reasons, I vote to grant the petition.

PUNO, J.:

Petitioners plead that We affirm the self-evident proposition that


they who make law should not break the law. There are many
evils whose elimination can be trusted to time. The evil of
lawlessness in lawmaking cannot. It must be slain on sight for it
subverts the sovereignty of the people.
First, a fast snapshot of the facts. On November 17, 1993, the
House of Representatives passed on third reading House Bill
[H.B.] No. 11197 entitled "An Act Restructuring the Value Added
Tax [VAT] System to Widen its Tax Base and Enhance its
Administration, Amending for These Purposes Sections 99, 100,
102 to 108 and 110 Title V and 236, 237 and 238 of Title IX, and
Repealing Sections 113 and 114 of Title V, all of the National
Internal Revenue Code as Amended." The vote was 114 Yeas and
12 Nays. The next day, November 18, 1993, H.B. No. 11197 was
transmitted to the Senate for its concurrence by the Hon. Camilo
L. Sabio, Secretary General of the House of
Representatives.cralaw
On February 7, 1994, the Senate Committee on Ways and Means
submitted Senate Bill [S.B.] No. 1630, recommending its
approval "in substitution of Senate Bill No. 1129 taking into
consideration P.S. Res. No. 734 and House Bill No. 11197." On
March 24, 1994, S.B. No. 1630 was approved on second and third
readings. On the same day, the Senate, thru Secretary Edgardo
E. Tumangan, requested the House for a conference "in view of
the disagreeing provisions of S.B. No. 1630 and H.B. No. 11197."
It designated the following as members of its Committee:
Senators Ernesto F. Herrera, Leticia R. Shahani, Alberto S.
Romulo, John H. Osmea, Ernesto M. Maceda, Blas F. Ople,
Francisco S. Tatad, Rodolfo G. Biazon, and Wigberto S. Taada.
On the part of the House, the members of the Committee were:
Congressmen Exequiel B. Javier, James L. Chiongbian, Renato V.
Diaz, Arnulfo P. Fuentebella, Mariano M. Tajon, Gregorio
Andolong, Thelma Almario, and Catalino Figueroa. After five (5)
meetings, [1] the Bicameral Conference Committee submitted its
Report to the Senate and the House stating:
CONFERENCE COMMITTEE REPORT
The Conference Committee on the disagreeing provisions of
House Bill No. 11197, entitled:
AN ACT RESTRUCTURING THE VALUE ADDED TAX [VAT]
SYSTEM TO WIDEN ITS TAX BASE AND ENHANCE ITS
ADMINISTRATION, AMENDING FOR THESE PURPOSES
SECTIONS 99, 100, 102, 103, 104, 105, 106, 107, 108 AND
110 OF TITLE IV, 112, 115 AND 116 OF TITLE V, AND 236,
237, AND 238 OF TITLE IX, AND REPEALING SECTIONS 113
AND 114 OF TITLE V, ALL OF THE NATIONAL INTERNAL
REVENUE CODE, AS AMENDED
and Senate Bill No. 1630 entitled:
AN ACT RESTRUCTURING THE VALUE ADDED TAX [VAT]
SYSTEM TO WIDEN ITS TAX BASE AND ENHANCE ITS
ADMINISTRATION, AMENDING FOR THESE PURPOSES
SECTIONS 99, 100, 102, 103, 104, 106, 107, 108 AND 110
OF TITLE IV, 112, 115, 117 AND 121 OF TITLE V, AND 236,
237, AND 238 OF TITLE IX, AND REPEALING SECTIONS
113, 114, 116, 119 AND 120 OF TITLE V, ALL OF THE
NATIONAL INTERNAL REVENUE CODE, AS AMENDED AND
FOR OTHER PURPOSES
having met, after full and free conference, has agreed to
recommend and do hereby recommend to their respective Houses
that House Bill No. 11197, in consolidation with Senate Bill No.
1630, be approved in accordance with the attached copy of the
bill as reconciled and approved by the conferees.
Approved.
The Report was approved by the House on April 27, 1994. The
Senate approved it on May 2, 1994. On May 5, 1994, the
President signed the bill into law as R. A. No. 7716.
There is no question that the Bicameral Conference Committee
did more than reconcile differences between House Bill No. 11197
and Senate Bill No. 1630. In several instances, it either added
new provisions or deleted provisions already approved in House
Bill No. 11197 and Senate Bill No. 1630. These
insertions/deletions numbering twenty four (24) are specified in
detail by petitioner Tolentino as follows: [2]
SOME SALIENT POINTS ON THE(AMENDMENTS TO THE
VATE LAW [E.O. 273] SHOWING ADDITIONS/INSERTIONS
MADE BY BICAMERALCONFERENCE COMMITTEE TO S.B.
1630 & H.B. 11197.chanrobles virtual law library
I. On Sec. 99 of the NIRC
H.B. 11197 amends this section by including, as liable to VAT,
any person who in the course of trade of business, sells, barters,
or exchanges goods or PROPERTIES and any person who LEASES
PERSONAL PROPERTIES.cralaw
Senate Bill 1630 deleted Sec. 99 to give way for a new Section
99 DEFINITION OF TERMS where eleven [11] terms were
defined. A new Section, Section 99-A was incorporated which
included as subject to VAT, one who sells, exchanges, barters
PROPERTIES and one who imports PROPERTIES.cralaw
The BCC version [R. A. 7716] makes LESSORS of goods OR
PROPERTIES and importers of goods LIABLE to VAT.cralaw
II. On Section 100 [VAT on sale of goods]
A. The H.B., S.B., and the BCC [R. A. 7716] all included sale of
PROPERTIES as subject to VAT.
The term GOODS or PROPERTIES includes the following:

HB pls. refer SB (pls. refer BCC [RA 7716


to Sec. 2] To Sec. 1[4] (Sec. 2)

1. Right or the 1. The same 1. The same


privilege to use
patent, copyright,
design, or model,
plan, secret
formula or process,
goodwill trademark,
tradebrand or other
like property or
right.

2. Right or the 2. The same 2. The same


privilege to use
in the Philippines
of any industrial,
commercial, or
scientific equip-
ment.

3. Right or the 3. The same 3. The same


privilege to use
motion picture films,
films, tapes and
discs.
4. Radio and 4. The same 4. In addition
Television time to radio and
television time the
following were
included:
SATELLITE TRANSMISSION
and CABLE
TELEVISION TIME

5. Other Similar 5. The Same 5. 'Other


properties similar properties'
was deleted

6. - 6. - 6. Real
properties held
primarily for sale to
customers or held
for lease in the
ordinary course or
business

B. The HB and the BCC Bills has each a provision which includes
THE SALE OF GOLD TO BANGKO SENTRAL NG PILIPINAS as
falling under the term Export Sales, hence subject to 0% VAT.
The Senate Bill does not contain such provision [See Section 102-
A thereof].cralaw
III. On Section 102
This section was amended to include as subject to a 10% VAT the
gross receipts derived from THE SALE OR EXCHANGE OF
SERVICES, INCLUDING THE USE OR LEASE OF PROPERTIES.
The SB, HB, and BCC have the same provisions on this.cralaw
However, on what are included in the term SALE OR EXCHANGE
OF SERVICES, the BCC included/inserted the following [not found
in either the House or Senate Bills]:
1. Services of lessors of property WHETHER PERSONAL OR REAL;
[See BCC Report/Bill p. 7]
2. WAREHOUSING SERVICES (Ibid.)
3. Keepers of RESTHOUSES, PENSION HOUSES, INNS, RESORTS
(Ibid.)
4. Common carriers by LAND, AIR AND SEA (Ibid.)
5. SERVICES OF FRANCHISE GRANTEES OF TELEPHONE AND
TELEGRAPH;
6. RADIO AND TELEVISION BROADCASTING
7. ALL OTHER FRANCHISE GRANTEES EXCEPT THOSE UNDER
SECTION 117 OF THIS CODE
8. SERVICES OF SURETY, FIDELITY, INDEMNITY, AND BONDING
COMPANIES.
9. Also inserted by the BCC (on page B thereof) is the LEASE OR
USE OF OR THE RIGHT TO USE OF SATTELITE TRANSMISSION
AND CABLE TELEVISION TIME
IV. On Section 103 ]Exempt Transactions]
The BCC deleted subsection (f) in its entirety, despite its
retention in both the House and Senate Bills, thus under RA
7716, the "printing, publication, importation or sale of books and
any newspaper, magazine, review, or bulletin which appears at
regular intervals with fixed prices for subscription and sale and
which is not devoted principally to the publication of
advertisements" is subject to VAT.
Subsection (g) was amended by the BCC (both Senate and House
Bills did not) by changing the word TEN to FIVE, thus:
"Importation of passenger and/or cargo vessel of more than five
thousand ton to ocean going, including engine and spare parts of
said vessel to be used by the importer himself as operator
thereof." In short, importation of vessels with tonnage of more
than 5 thousand is VAT exempt.cralaw
Subsection L, was amended by the BCC by adding the qualifying
phrase: EXCEPT THOSE RENDERED BY PROFESSIONALS.cralaw
Subsection U which exempts from VAT "Transactions which are
exempt under special laws", was amended by BCC by adding the
phrase: EXCEPT THOSE GRANTED UNDER PD NOS. 66, 529, 972,
1491, and 1590, and NON-ELECTRIC COOPERATIVES under RA
6938. This is the reason why
cooperatives are now subject to VAT.cralaw
While the SALE OF REAL PROPERTIES was included in the exempt
transactions under the House Bill, the BCC made a qualification
by stating:
(S) SALE OF REAL PROPERTIES NOT PRIMARILY HELD FOR SALE
TO CUSTOMERS OR HELD FOR LEASE IN THE ORDINARY COURSE
OF TRADE OR BUSINESS OR REAL PROPERTY UTILIZED FOR
LOW-COST AND SOCIALIZED HOUSING AS DEFINED BY R.A. NO.
7279 OTHERWISE KNOWN AS THE URBAN DEVELOPMENT AND
HOUSING ACT OF 1992 AND OTHER RELATED LAWS.cralaw
Under the Senate Bill, the sale of real property utilized for low-
cost and socialized housing as defined by R. A. 7279, is one of
the exempt transactions.
Under the House Bill, also exempt from VAT, is the SALE OF
PROPERTIES OTHER THAN THE TRANSACTIONS MENTIONED IN
THE FOREGOING PARAGRAPHS WITH A GROSS ANNUAL SALES
AND/OR RECEIPTS OF WHICH DOES NOT EXCEED THE AMOUNT
PRESCRIBED IN THE REGULATIONS TO BE PROMULGATED BY
THE SECRETARY OF FINANCE WHICH SHALL NOT BE LESS THAN
P350,000.00 OR HIGHER THAN P600,000.00 Under the Senate
Bill, the amount is P240,000.00. The BCC agreed at the amount
of not less than P480,000.00 or more than P720,000.00 SUBJECT
TO TAX UNDER SEC. 112 OF THIS CODE.

The BCC did not include, as VAT exempt, the sale or transfer of
securities as defined in the Revised Securities Act [B.P. 178]
which was contained in both Senate and House Bills.
V On Section 104
The phrase INCLUDING PACKAGING MATERIALS was included by
the BCC on Section 104 (A) (1) (B), and the phrase ON WHICH A
VALUE-ADDED TAX HAS BEEN ACTUALLY on Section 104 (A)
(2).cralaw
These phrases are not contained in either House and Senate
Bills.cralaw
VI On Section 107
Both House and Senate Bills provide for the payment of P500.00
VAT registration fee. The BCC provides for P1,000.00 VAT
fee.cralaw
VII On Section 112
While both the Senate and House Bills provide that a person
whose sales or receipts and are exempt under Section 103[w] of
the Code, and who are not VAT registered shall pay a tax
equivalent to THREE (3) PERCENT of his gross quarterly sales or
receipts, the BCC inserted the phrase: THREE PERCENT UPON
THE EFFECTIVITY OF THIS ACT AND FOUR PERCENT (4%) TWO
YEARS THEREAFTER.cralaw
VIII On Section 115
Sec. 17 of S.B. 1630 Sec. 12 of House Bill 11197 amends this
Section by clarifying that common carriers by land, air or water
FOR THE TRANSPORT OF PASSENGERS are subject to Percentage
Tax equivalent to 3% of their quarterly gross sales.cralaw
The BCC adopted this and the House Bill's provision that the
GROSS RECEIPTS OF COMMON CARRIERS DERIVED FROM THEIR
INCOMING AND OUTGOING FREIGHT SHALL NOT BE SUBJECTED
TO THE LOCAL TAXES IMPOSED UNDER RA 7160. The Senate Bill
has no similar provision.cralaw
IX On Section 117
This Section has not been touched by either Senate and House
Bills. But the BCC amended it by subjecting franchises on
ELECTRIC, GAS and WATER UTILITIES A TAX OF TWO PERCENT
(2%) ON GROSS RECEIPTS DERIVED
X On Section 121
The BCC adopted the Senate Bills' amendment to this section by
subjecting to 5% premium tax on life insurance business. The
House Bill does not contain this provision.cralaw
XI Others
(A) The House Bill does not contain any provision on the
deferment of VAT collection on Certain Goods and Services as
does the Senate Bill [Section 19, S.B. 1630]. But although the
Senate Bill authorizes the deferment on certain goods and
services for no longer than 3 years, there is no specific provision
that authorizes the President to EXCLUDE from VAT any of these.
The BCC uses the word EXCLUDE.cralaw
(B) Moreover, the Senate Bill defers the VAT on services of actors
and actresses etc. for 3 years but the BCC defers it for only 2
years.cralaw
(C) Section 18 of the BCC Bill [R.A. 7716] is an entirely new
provision not contained in the House/Senate Bills.cralaw
(D) The period within which to promulgate the implementing
rules and regulations is within 60 days under S.B. 1630; No
specific period under the House Bill, within 90 days under R. A.
7716 [BCC].cralaw
(E) The House Bill provides for a general repealing clause i.e., all
inconsistent laws etc. are repealed. Section 16 of the Senate Bill
expressly repeals Sections 113, 114, 116, 119 and 120 of the
Code. The same Senate Bill, however, contains a general
repealing clause in Sec. 21 thereof.cralaw
R. A. 7716 [BCC's Bill] expressly repeals Sections 113, 114 and
116 of the NIRC; Article 39 [c] [d] and [e] of E. O. 226 and
provides the repeal of Sec. 119 and 120 of the NIRC upon the
expiration of two [2] years unless otherwise excluded by the
President.cralaw
The charge that the Bicameral Conference Committee added new
provisions in the bills of the two chambers is hardly disputed by
respondents. Instead, respondents justify them. According to
respondents: [1] the Bicameral Conference Committee has an ex
post veto power or a veto after the fact of approval of the bill by
both Houses; [2] the bill prepared by the Bicameral Conference
Committee, with its additions and deletions, was anyway
approved by both Houses; [3] it was the practice in past
Congresses for conference committees to insert in bills approved
by the two Houses new provisions that were not originally
contemplated by them; and [4] the enrolled bill doctrine
precludes inquiry into the regularity of the proceedings that led to
the enactment of R. A. 7716.cralaw
With due respect, I reject these contentions which will cave in on
closer examination.cralaw
First. There is absolutely no legal warrant for the bold submission
that a Bicameral Conference Committee possesses the power to
add/delete provisions in bills already approved on third reading
by both Houses or an ex post vetopower. To support this
postulate that can enfeeble Congress itself, respondents cite no
constitutional provision, no law, not even any rule or
regulation. [3]Worse, their stance is categorically repudiated by
the rules of both the Senate and the House of Representatives
which define with precision, the parameters of power of a
Bicameral Conference Committee. Thus, Section 209, Rule XII of
the Rules of the Senate provides:
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 days after their composition.
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 the
conferees. [Emphasis supplied].
The counterpart rule of the House of Representatives is cast in
near identical language. Section 85 of the Rules of the House of
Representatives pertinently provides:
In the event that the House does not agree with the Senate on
the amendments to any bill or joint resolution, the differences
may be settled by a conference committee of both chambers.
Each report shall contain a detailed, sufficiently explicit statement
of the changes in or amendments to the subject
measure. [Emphasis supplied].
The Jefferson's Manual has been adopted [4] as a supplement to
our parliamentary rules and practice. Section 456 of Jefferson's
Manual similarly confines the powers of a conference
committee, viz: [5]
The managers of a conference must confine themselves to the
differences committed to them and may not include subjects not
within the disagreements, even though germane to a question in
issue.

This rule of antiquity has been honed and honored in practice by


the Congress of the United States. Thus, it is chronicled by Floyd
Biddick, Parliamentarian Emeritus of the United States
Senate, viz: [6]
Committees of conference are appointed for the sole purpose of
compromising and adjusting the differing and conflicting opinions
of the two Houses and the committees of conference alone can
grant compromises and modify propositions of either Houses
within the limits of the disagreement. Conferees are limited to the
consideration of differences between the two Houses.
Conferees shall not insert in their report matters not committed
to them by either House, nor shall they strike from the bill
matters agreed to by both Houses. No matter on which there is
nothing in either the Senate or House passed versions of a bill
may be included in the conference report and actions to the
contrary would subject the report to a point of order. [Emphasis
ours].
In fine, there is neither a sound nor a syllable in the Rules of the
Senate and the House of Representative to support the thesis of
the respondents that a bicameral conference committee is clothed
with an ex post veto power.
But the thesis that a Bicameral Conference Committee can
wield ex post vetopower does not only contravene the rules of
both the Senate and the House. It wages war against our settled
ideals of representative democracy. For the inevitable,
catastrophic effect of the thesis is to install a Bicameral
Conference Committee as the Third Chamber of our Congress,
similarly vested with the power to make laws but with the
dissimilarity that its laws are not the subject of a free and full
discussion of both Houses of Congress. With such a vagrant
power, a Bicameral Conference Committee acting as a Third
Chamber will be a constitutional monstrosity.cralaw
It needs no omniscience to perceive that our Constitution did not
provide for a Congress composed of three chambers. On the
contrary, section 1, Article VI of the Constitution provides in clear
and certain language: "The legislative power shall be vested in
the Congress of the Philippines which shall consist of a Senate
and a House of Representatives." Note that in vesting legislative
power exclusively to the Senate and the House, the Constitution
used the word "shall." Its command for a Congress of two houses
is mandatory. It is not mandatory sometimes.cralaw
In vesting legislative power to the Senate, the Constitution
means the Senate "composed of twenty-four Senators elected at
large by the qualified voters of the Philippines." [7] Similarly,
when the Constitution vested the legislative power to the House,
it means the House "composed of not more than two hundred and
fifty members who shall be elected from legislative districts and
those who.shall be elected through a party-list system of
registered national, regional, and sectoral parties or
organizations." [8] The Constitution thus, did not vest on a
Bicameral Conference Committee with an ad hoc membership the
power to legislate for it exclusively vested legislative power to the
Senate and the House as co-equal bodies. To be sure, the
Constitution does not mention the Bicameral Conference
Committees of Congress. No constitutional status is accorded to
them. They are not even statutory creations. They owe their
existence from the internal rules of the two Houses of Congress.
Yet, respondents peddle the disconcerting idea that they should
be recognized as a Third Chamber of Congress and with ex post
veto power at that.cralaw
The thesis that a Bicameral Conference Committee can exercise
law-making power with ex post veto power is freighted with
mischief. Law-making is a power that can be used for good or for
ill, hence, our Constitution carefully laid out a plan and a
procedure for its exercise. Firstly, it vouchsafed that the power to
make laws should be exercised by no other body except the
Senate and the House. It ought to be indubitable that what is
contemplated is the Senate acting as a full Senate and the House
acting as a full House. It is only when the Senate and the House
act as whole bodies that they truly represent the people. And it is
only when they represent the people that they can legitimately
pass laws. Laws that are not enacted by the people's rightful
representatives subvert the people's sovereignty. Bicameral
Conference Committees, with their ad hoc character and limited
membership, cannot pass laws for they do not represent the
people. The Constitution does not allow the tyranny of the
majority. Yet, the respondents will impose the worst kind of
tyranny the tyranny of the minority over the majority. Secondly,
the Constitution delineated in deft strokes the steps to be
followed in making laws. The overriding purpose of these
procedural rules is to assure that only bills that successfully
survive the searching scrutiny of the proper committees of
Congress and the full and unfettered deliberations of both Houses
can become laws. For this reason, a bill has to undergo three (3)
mandatory separate readings in each House. In the case at
bench, the additions and deletions made by the Bicameral
Conference Committee did not enjoy the enlightened studies of
appropriate committees. It is meet to note that the complexities
of modern day legislations have made our committee system a
significant part of the legislative process. Thomas Reed called the
committee system as "the eye, the ear, the hand, and very often
the brain of the house." President Woodrow Wilson of the United
States once referred to the government of the United States as "a
government by the Chairman of the Standing Committees of
Congress." [9] Neither did these additions and deletions of the
Bicameral Conference Committee pass through the coils of
collective deliberation of the members of the two Houses acting
separately. Due to this shortcircuiting of the constitutional
procedure of making laws, confusion shrouds the enactment of R.
A. No. 7716. Who inserted the additions and deletions remains a
mystery. Why they were inserted is a riddle. To use a Churchillian
phrase, lawmaking should not be a riddle wrapped in an enigma.
It cannot be, for Article II, Section 28 of the Constitution
mandates the State to adopt and implement a "policy of full
public disclosure of all its transactions involving public interest."
The Constitution could not have contemplated a Congress of
invisible and unaccountable John and Mary Does. A law whose
rationale is a riddle and whose authorship is obscure cannot bind
the people.cralaw
All these notwithstanding, respondents resort to the legal
cosmetology that these additions and deletions should govern the
people as laws because the Bicameral Conference Committee
Report was anyway submitted to and approved by the Senate and
the House of Representatives. The submission may have some
merit with respect to provisions agreed upon by the Committee in
the process of reconciling conflicts between S.B. No. 1630 and
H.B. No. 11197. In these instances, the conflicting provisions had
been previously screened by the proper committees, deliberated
upon by both Houses and approved by them. It is, however, a
different matter with respect to additions and deletions which
were entirely new and which were made not to reconcile
inconsistencies between S.B. No. 1630 and H.B. No. 11197. The
members of the Bicameral Conference Committee did not have
any authority to add new provisions or delete provisions already
approved by both Houses as it was not necessary to discharge
their limited task of reconciling differences in bills. At that late
stage of law-making, the Conference Committee cannot
add/delete provisions which can become laws without undergoing
the study and deliberation of both chambers given to bills on 1st,
2nd, and 3rd readings. Even the Senate and the House cannot
enact a law which will not undergo these mandatory three [3]
readings required by the Constitution. If the Senate and the
House cannot enact such a law, neither can the lesser Bicameral
Conference Committee.cralaw
Moreover, the so-called choice given to the members of both
Houses to either approve or disapprove the said additions and
deletions is more of an optical illusion. These additions and
deletions are not submitted separately for approval. They are
tucked to the entire bill. The vote is on the bill as a package,i.e.,
together with the insertions and deletions. And the vote is either
"aye" or "nay," without any further debate and deliberation. Quite
often, legislators vote "yes" because they approve of the bill as a
whole although they may object to its amendments by the
Conference Committee. This lack of real choice is well observed
by Robert Luce: [10]
Their power lies chiefly in the fact that reports of conference
committees must be accepted without amendment or else
rejected in toto. The impulse is to get done with the matter and
so the motion to accept has undue advantage, for some members
are sure to prefer swallowing unpalatable provisions rather than
prolong controversy. This is the more likely if the report comes in
the rush of business toward the end of a session, when to seek
further conference might result in the loss of the measure
altogether. At any time in the session there is some risk of such a
result following the rejection of a conference report, for it may
not be possible to secure a second conference, or delay may give
opposition to the main proposal chance to develop more strength.

In a similar vein, Prof. Jack Davies commented that "conference


reports are returned to assembly and Senate on a take-it or
leave-it-basis, and the bodies are generally placed in the position
that to leave-it is a practical impossibility."[11] Thus, he
concludes that "conference committee action is the most
undemocratic procedure in the legislative process." [12]
The respondents also contend that the additions and deletions
made by the Bicameral Conference Committee were in accord
with legislative customs and usages. The argument does not
persuade for it misappreciates the value of customs and usages
in the hierarchy of sources of legislative rules of procedure. To be
sure, every legislative assembly has the inherent right to
promulgate its own internal rules. In our jurisdiction, Article VI,
Section 16[3] of the Constitution provides that "Each House may
determine the rules of its proceedings." But it is hornbook law
that the sources of Rules of Procedure are many and hierarchical
in character. Mason laid them down as follows: [13]
xxx xxx xxx

1. Rules of Procedure are derived from several sources. The


principal sources are as follows:

a. Constitutional rules.
b. Statutory rules or charter provisions.
c. Adopted rules.
d. Judicial decisions.
e. Adopted parliamentary authority.
f. Parliamentary law.
g. Customs and usages.

2. The rules from the different sources take precedence in the


order listed above except that judicial decisions, since they are
interpretations of rules from one of the other sources, take the
same precedence as the source interpreted. Thus, for example,
an interpretation of a constitutional provision takes precedence
over a statute.
3. Whenever there is conflict between rules from these sources
the rule from the source listed earlier prevails over the rule from
the source listed, later. Thus, where the Constitution requires
three readings of bills, this provision controls over any provision
of statute, adopted rules, adopted manual, or of parliamentary
law, and a rule of parliamentary law controls over a local usage
but must give way to any rule from a higher source of
authority. [Emphasis ours].

As discussed above, the unauthorized additions and deletions


made by the Bicameral Conference Committee violated the
procedure fixed by the Constitution in the making of laws. It is
reasonless for respondents therefore to justify these insertions as
sanctioned by customs and usages.
Finally, respondents seek sanctuary in the conclusiveness of an
enrolled bill to bar any judicial inquiry on whether Congress
observed our constitutional procedure in the passage of R. A. No.
7716. The enrolled bill theory is a historical relic that should not
continuously rule us from the fossilized past. It should be
immediately emphasized that the enrolled bill theory originated in
England where there is no written constitution and where
Parliament issupreme.[14] In this jurisdiction, We have a written
constitution and the legislature is a body of limited powers.
Likewise, it must be pointed out that starting from the decade of
the 40's, even American courts have veered away from the
rigidity and unrealism of the conclusiveness of an enrolled bill.
Prof. Sutherland observed:[15]
xxx xxx xxx.
Where the failure of constitutional compliance in the enactment of
statutes is not discoverable from the face of the act itself but may
be demonstrated by recourse to the legislative journals, debates,
committee reports or papers of the governor, courts have used
several conflicting theories with which to dispose of the issue.
They have held: [1] that the enrolled bill is conclusive and like
the sheriff's return cannot be attacked; [2] that the enrolled bill is
prima facie correct and only in case the legislative journal shows
affirmative contradiction of the constitutional requirement will the
bill be held invalid, [3] that although the enrolled bill is prima
facie correct, evidence from the journals, or other extrinsic
sources is admissible to strike the bill down; [4] that the
legislative journal is conclusive and the enrolled bill is valid only if
it accords with the recital in the journal and the constitutional
procedure.
Various jurisdictions have adopted these alternative approaches
in view of strong dissent and dissatisfaction against the
philosophical underpinnings of the conclusiveness of an enrolled
bill. Prof. Sutherland further observed:
Numerous reasons have been given for this rule. Traditionally, an
enrolled bill was "a record" and as such was not subject to attack
at common law. Likewise, the rule of conclusiveness was similar
to the common law rule of the inviolability of the sheriff's return.
Indeed, they had the same origin, that is, the sheriff was an
officer of the king and likewise the parliamentary act was a regal
act and no official might dispute the king's word. Transposed to
our democratic system of government, courts held that as the
legislature was an official branch of government the court must
indulge every presumption that the legislative act was valid. The
doctrine of separation of powers was advanced as a strong reason
why the court should treat the acts of a co-ordinate branch of
government with the same respect as it treats the action of its
own officers; indeed, it was thought that it was entitled to even
greater respect, else the court might be in the position of
reviewing the work of a supposedly equal branch of government.
When these arguments failed, as they frequently did, the doctrine
of convenience was advanced, that is, that it was not only an
undue burden upon the legislature to preserve its records to meet
the attack of persons not affected by the procedure of enactment,
but also that it unnecessarily complicated litigation and confused
the trial of substantive issues.
Although many of these arguments are persuasive and are indeed
the basis for the rule in many states today, they are not
invulnerable to attack. The rule most relied on the sheriff's
return or sworn official rule did not in civil litigation deprive the
injured party of an action, for always he could sue the sheriff
upon his official bond. Likewise, although collateral attack was not
permitted, direct attack permitted raising the issue of fraud, and
at a later date attack in equity was also available; and that the
evidence of the sheriff was not of unusual weight was
demonstrated by the fact that in an action against the sheriff no
presumption of its authenticity prevailed.
The argument that the enrolled bill is a "record" and therefore
unimpeachable is likewise misleading, for the correction of
records is a matter of established judicial procedure. Apparently,
the justification is either the historical one that the king's word
could not be questioned or the separation of powers principle that
one branch of the government must treat as valid the acts of
another. Persuasive as these arguments are, the tendency today
is to avoid reaching results by artificial presumptions and thus it
would seem desirable to insist that the enrolled bill stand or fall
on the basis of the relevant evidence which may be submitted for
or against it. [Emphasis ours].
Thus, as far back as the 1940's, Prof. Sutherland confirmed that
"the tendency seems to be toward the abandonment of the
conclusive presumption rule and the adoption of the third rule
leaving only a prima facie presumption of validity which may be
attacked by any authoritative source of information." [16]
I am not unaware that this Court has subscribed to the
conclusiveness of an enrolled bill as enunciated in the 1947 lead
case of Mabanag v. Lopez Vito, and reiterated in subsequent
cases. [17]
With due respect, I submit that these rulings are no longer good
law. Part of the ratiocination in Mabanag states:
xxx xxx xxx
If for no other reason than that it conforms to the expressed
policy of our law making body, we choose to follow the rule.
Section 313 of the old Code of Civil Procedure, as amended by
Act No. 2210, provides: "Official documents" may be proved as
follows: xxx (2) the proceedings of the Philippine Commission, or
of any legislative body that may be provided for in the Philippine
Islands, or of Congress, by the journals of those bodies or of
either house thereof, or by published statutes or resolutions, or
by copies certified by the clerk or secretary, or printed by their
order; Provided, That in the case of Acts of the Philippine
Commission or the Philippine Legislature, when there is an
existence of a copy signed by the presiding officers and
secretaries of said bodies, it shall be conclusive proof of the
provisions of such Acts and of the due enactment thereof.
Suffice to state that Section 313 of the Old Code of Civil
Procedure as amended by Act No. 2210 is no longer in our statute
books. It has long been repealed by the Rules of Court. Mabanag
also relied on jurisprudence and authorities in the United States
which are under severe criticisms by modern scholars. Hence,
even in the United States the conclusiveness of an enrolled bill
has been junked by most of the States. It is also true that as late
as last year, in the case of Philippine Judges Association v.
Prado, op. cit., this Court still relied on the conclusiveness of an
enrolled bill as it refused to invalidate a provision of law on the
ground that it was merely inserted by the bicameral conference
committee of both Houses. Prado, however, is distinguishable. In
Prado, the alleged insertion of the second paragraph of section 35
of R. A. No. 7354 repealing the franking privilege of the judiciary
does not appear to be an uncontested fact. In the case at bench,
the numerous additions/deletions made by the Bicameral
Conference Committee as detailed by petitioners Tolentino and
Salonga are not disputed by the respondents. In Prado, the Court
was not also confronted with the argument that it can no longer
rely on the conclusiveness of an enrolled bill in light of the new
provision in the Constitution defining judicial power. More
specifically, Section 1 of Article VIII now provides:
Sec. 1. The judicial power shall 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. [Emphasis supplied].
Former Chief Justice Roberto R. Concepcion, the sponsor of this
provision in the Constitutional Commission explained the sense
and the reach of judicial power as follows: [18]
xxx xxx xxx
In other words, the judiciary is the final arbiter on the question of
whether or not a branch of government or any of its officials has
acted without jurisdiction or in excess of jurisdiction, or so
capriciously as to constitute an abuse of discretion amounting to
excess of jurisdiction. This is not only a judicial power but a duty
to pass judgment on matters of this nature.
This is the background of paragraph 2 of Section 1, which means
that the courts cannot hereafter evade the duty to settle matters
of this nature, by claiming that such matters constitute political
question. [Emphasis ours].

The Constitution cannot be any clearer. What it granted to this


Court is not a mere power which it can decline to exercise.
Precisely to deter this disinclination, the Constitution imposed it
as a duty of this Court to strike down any act of a branch or
instrumentality of government or any of its officials done with
grave abuse of discretion amounting to lack or excess of
jurisdiction. Rightly or wrongly, the Constitution has elongated
the checking powers of this Court against the other branches of
government despite their more democratic character, the
President and the legislators being elected by the people.
It is, however, theorized that this provision is nothing
new. [19] I beg to disagree for the view misses the significant
changes made in our constitutional canvass to cure the legal
deficiencies we discovered during martial law. One of the areas
radically changed by the framers of the 1987 Constitution is the
imbalance of power between and among the three great branches
of our government the Executive, the Legislative and the
Judiciary. To upgrade the powers of the Judiciary, the
Constitutional Commission strengthened some more the
independence of courts. Thus, it further protected the security of
tenure of the members of the Judiciary by providing "No law shall
be passed reorganizing the Judiciary when it undermines the
security of tenure of its Members." [20] It also guaranteed fiscal
autonomy to the Judiciary. [21]
More, it depoliticalized appointments in the judiciary by creating
the Judicial and Bar Council which was tasked with screening the
list of prospective appointees to the judiciary. [22] The power of
confirming appointments to the judiciary was also taken away
from Congress. [23] The President was likewise given a specific
time to fill up vacancies in the judiciary ninety [90] days from
the occurrence of the vacancy in case of the Supreme
Court [24] and ninety [90] days from the submission of the list
of recommendees by the Judicial and Bar Council in case of
vacancies in the lower courts. [25] To further insulate
appointments in the judiciary from the virus of politics, the
Supreme Court was given the power to "appoint all officials and
employees of the Judiciary in accordance with the Civil Service
Law." [26] And to make the separation of the judiciary from the
other branches of government more watertight, it prohibited
members of the judiciary to be "designated to any agency
performing quasi-judicial or administrative functions." [27] While
the Constitution strengthened the sinews of the Supreme Court, it
reduced the powers of the two other branches of government,
especially the Executive. Notable of the powers of the President
clipped by the Constitution is his power to suspend the writ of
habeas corpus and to proclaim martial law. The exercise of this
power is now subject to revocation by Congress. Likewise, the
sufficiency of the factual basis for the exercise of said power may
be reviewed by this Court in an appropriate proceeding filed by
any citizen. [28]
The provision defining judicial power as including the "duty of the
courts of justice 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" constitutes the capstone of the efforts of the
Constitutional Commission to upgrade the powers of this
Court vis-a-vis the other branches of government. This provision
was dictated by our experience under martial law which taught us
that a stronger and more independent judiciary is needed to
abort abuses in government. As sharply stressed by petitioner
Salonga, this provision is distinctly Filipino and its interpretation
should not be depreciated by undue reliance on inapplicable
foreign jurisprudence. It is thus crystal clear that unlike other
Supreme Courts, this Court has been mandated by our new
Constitution to be a more active agent in annulling acts of grave
abuse of discretion committed by a branch of government or any
of its officials. This new role, however, will not compel the Court,
appropriately defined by Prof. A. Bickel as the least dangerous
branch of government, to assume imperial powers and run
roughshod over the principle of separation of power for that is
judicial tyranny by any language. But while respecting the
essential of the principle of separation of power, the Court is not
to be restricted by its non-essentials. Applied to the case at
bench, by voiding R. A. No. 7716 on the ground that its
enactment violated the procedure imposed by the Constitution in
lawmaking, the Court is not by any means wrecking the wall
separating the powers between the legislature and the judiciary.
For in so doing, the Court is not engaging in lawmaking which is
the essence of legislative power. But the Court's interposition of
power should not be defeated by the conclusiveness of the
enrolled bill. A resort to this fiction will result in the enactment of
laws not properly deliberated upon and passed by Congress.
Certainly, the enrolled bill theory was not conceived to cover up
violations of the constitutional procedure in law making, a
procedure intended to assure the passage of good laws. The
conclusiveness of the enrolled bill can, therefore, be disregarded
for it is not necessary to preserve the principle of separation of
powers.cralaw
In sum, I submit that in imposing to this Court the duty to annul
acts of government committed with grave abuse of discretion, the
new Constitution transformed this Court from passivity to
activism. This transformation, dictated by our distinct experience
as a nation, is not merely evolutionary but revolutionary. Under
the 1935 and 1973 Constitutions, this Court approached
constitutional violations by initially determining what it cannot do;
under the 1987 Constitution, there is a shift in stress this Court
is mandated to approach constitutional violations not by finding
out what it should not do but what it must do. The Court must
discharge this solemn duty by not resuscitating a past that
petrifies the present.cralaw
I vote to declare R. A. No. 7716 unconstitutional.

BELLOSILLO, J.:

With a consensus already reached after due deliberations, silence


perhaps should be the better part of discretion, except to vote.
The different views and opinions expressed are so persuasive and
convincing; they are more than enough to sway the pendulum for
or against the subject petitions. The penetrating and scholarly
dissertations of my brethren should dispense with further
arguments which may only confound and confuse even the most
learned of men.
But there is a crucial point, a constitutional issue which, I submit,
has been belittled, treated lightly, if not almost considered
insignificant and purposeless. It is elementary, as much as it is
fundamental. I am referring to the word "exclusively" appearing
in Sec. 24, Art. VI of our 1987 Constitution. This is regrettable, to
say the least, as it involves a constitutional mandate which,
wittingly or unwittingly, has been cast aside as trivial and
meaningless.cralaw
A comparison of the particular provision on the enactment of
revenue bills in the U.S. Constitution with its counterpart in the
Philippine Constitution will help explain my position.cralaw
Under the U.S. Constitution, "all bills for raising revenue shall
originate in the House of Representatives; but the Senate may
propose or concur with amendments as on other bills" [Sec. 7,
par. (1), Art. I]. In contrast, our 1987 Constitution reads: "All
appropriation, revenue or tariff bills, bills authorizing increase of
the public debt, bills of local application, and private bills shall
originate exclusively in the House of Representatives, but the
Senate may propose or concur with amendments" [Sec. 24, Art.
VI; Emphasis supplied].cralaw
As may be gleaned from the pertinent provision of our
Constitution, all revenue bills are required to originate
"exclusively" in the House of Representatives. On the other hand,
the U.S. Constitution does not use the word "exclusively;" it
merely says, "[a]ll bills for raising revenue shall originate in the
House of Representatives."
Since the term "exclusively" has already been adequately defined
in the various opinions, as to which there seems to be no dispute,
I shall no longer offer my own definition.cralaw
Verily, the provision in our Constitution requiring that all revenue
bills shall originate exclusively from the Lower House is
mandatory. The word "exclusively" is an "exclusive word," which
is indicative of an intent that the provision is
mandatory. [1] Hence, all American authorities expounding on
the meaning and application of Sec. 7, par. (1), Art. I, of the U.S.
Constitution cannot be used in the interpretation of Sec. 24, Art.
VI, of our 1987 Constitution which has a distinct feature of
"exclusiveness" all its own. Thus, when our Constitution
absolutely requires as it is mandatory that a particular bill
should exclusively emanate from the Lower House, there is no
alternative to the requirement that the bill to become valid law
must originate exclusively from that House.cralaw
In the interpretation of constitutions, questions frequently arise
as to whether particular sections are mandatory or directory. The
courts usually hesitate to declare that a constitutional provision is
directory merely in view of the tendency of the legislature to
disregard provisions which are not said to be mandatory.
Accordingly, it is the general rule to regard constitutional
provisions as mandatory, and not to leave any discretion to the
will of the legislature to obey or disregard them. This presumption
as to mandatory quality is usually followed unless it is
unmistakably manifest that the provisions are intended to be
merely directory. So strong is the inclination in favor of giving
obligatory force to the terms of the organic law that it has even
been said that neither by the courts nor by any other department
of the government may any provision of the Constitution be
regarded as merely directory, but that each and everyone of its
provisions should be treated as imperative and mandatory,
without reference to the rules and distinguishing between the
directory and the mandatory statutes.[1]
The framers of our 1987 Constitution could not have used the
term "exclusively" if they only meant to replicate and adopt in
toto the U.S. version. By inserting "exclusively" in Sec. 24, Art.
VI, of our Constitution, their message is clear: they wanted it
different, strong, stringent. There must be a compelling reason
for the inclusion of the word "exclusively," which cannot be an act
of retrogression but progression, an improvement on its
precursor. Thus, "exclusively" must be given its true meaning, its
purpose observed and virtue recognized, for it could not have
been conceived to be of minor consequence. That construction is
to be sought which gives effect to the whole of the statute its
every word. Ut magis valeat quam pereat.cralaw
Consequently, any reference to American authorities, decisions
and opinions, however wisely and delicately put, can only mislead
in the interpretation of our own Constitution. To refer to them in
defending the constitutionality of R.A. 7716, subject of the
present petitions, is to argue on a false premise, i.e., that Sec.
24, Art. VI, of our 1987 Constitution is, or means exactly, the
same as Sec. 7, par. [1], Art. I, of the U.S. Constitution, which is
not correct. Hence, only a wrong conclusion can be drawn from a
wrong premise.cralaw
For example, it is argued that in the United States, from where
our own legislature is patterned, the Senate can practically
substitute its own tax measure for that of the Lower House. Thus,
according to the Majority, citing an American case, "the validity of
Sec. 37 which the Senate had inserted in the Tariff Act of 1909 by
imposing an ad valorem tax based on the weight of vessels, was
upheld against the claim that the revenue bill originated in the
Senate in contravention of Art. I, Sec. 7, of the U.S.
Constitution." [3] In an effort to be more convincing, the Majority
even quotes the footnote in Introduction to American Government
by F.A. Ogg and P.O. Ray which reads:
Thus in 1883 the upper house struck out everything after the
enacting clause of a tariff bill and wrote its own measure, which
the House eventually felt obliged to accept. It likewise added 847
amendments to the Payne-Aldrich tariff act of 1909, dictated the
schedules of the emergency tariff act of 1921, rewrote an
extensive tax revision bill in the same year, and recast most of
the permanent tariff bill of 1922. [4]

which in fact suggests, very clearly, that the subject revenue bill
actually originated from the Lower House and was only amended,
perhaps considerably, by the Senate after it was passed by the
former and transmitted to the latter.
In the cases cited, where the statutes passed by the U.S.
Congress were upheld, the revenue bills did not actually originate
from the Senate but, in fact, from the Lower House. Thus, the
Supreme Court of the United States, speaking through Chief
Justice White in Rainey v. United States [5] upheld the revenue
bill passed by Congress and adopted the ruling of the lower court
that:
The section in question is not void as a bill for raising revenue
originating in the Senate and not in the House of Representatives.
It appears that the section was proposed by the Senate as an
amendment to a bill for raising revenue which originated in the
House. That is sufficient.

Flint v. Stone Tracy Co., [6] on which the Solicitor General


heavily leans in his Consolidated Comment as well as in his
Memorandum, does not support the thesis of the Majority since
the subject bill therein actually originated from the Lower House
and not from the Senate, and the amendment merely covered a
certain provision in the House bill.
In fine, in the cases cited which were lifted from American
authorities, it appears that the revenue bills in question actually
originated from the House of Representatives and were amended
by the Senate only after they were transmitted to it. Perhaps, if
the factual circumstances in those cases were exactly the same
as the ones at bench, then the subject revenue or tariff bill may
be upheld in this jurisdiction on the principle of substantial
compliance, as they were in the United States, except possibly in
instances where the House bill undergoes what is now referred to
as "amendment by substitution," for that would be in derogation
of our Constitution which vests solely in the House of
Representatives the power to initiate revenue bills. A Senate
amendment by substitution simply means that the bill in question
did not in effect originate from the lower chamber but from the
upper chamber and not disguises itself as a mere amendment of
the House version.cralaw
It is also theorized that in the U.S., amendment by substitution is
recognized. That may be true. But the process may be validly
effective only under the U.S. Constitution. The cases before us
present a totally different factual backdrop. Several months
before the Lower House could even pass H.B. No. 11197, P.S.
Res. No. 734 and S.B. No. 1129 had already been filed in the
Senate. Worse, the Senate subsequently approved S.B. No. 1630
"in substitution of S.B. No. 1129, taking into consideration P.S.
Res. No. 734 and H.B. No. 11197," and not H.B. No. 11197 itself
"as amended." Here, the Senate could not have proposed or
concurred with amendments because there was nothing to concur
with or amend except its own bill. It must be stressed that the
process of concurring or amending presupposes that there exists
a bill upon which concurrence may be based or amendments
introduced. The Senate should have reported out H.B. No. 11197,
as amended, even if in the amendment it took into consideration
S.B. No. 1630. It should not have submitted to the Bicameral
Conference Committee S.B. No. 1630 which, admittedly, did not
originate exclusively from the Lower House.cralaw
But even assuming that in our jurisdiction a revenue bill of the
Lower House may be amended by substitution by the Senate
although I am not prepared to accept it in view of Sec. 24, Art.
VI, of our Constitution still R. A. 7716 could not have been the
result of amendment by substitution since the Senate had no
House bill to speak of that it could amend when the Senate
started deliberating on its own version.cralaw
Be that as it may, I cannot rest easy on the proposition that a
constitutional mandate calling for the exclusive power and
prerogative of the House of Representatives may just be
discarded and ignored by the Senate. Since the Constitution is for
the observance of all the judiciary as well as the other
departments of government and the judges are sworn to support
its provisions, the courts are not at liberty to overlook or
disregard its commands. And it is not fair and just to impute to
them undue interference if they look into the validity of legislative
enactments to determine whether the fundamental law has been
faithfully observed in the process. It is their duty to give effect to
the existing Constitution and to obey all constitutional provisions
irrespective of their opinion as to the wisdom of such
provisions.cralaw
The rule is fixed that the duty in a proper case to declare a law
unconstitutional cannot be declined and must be performed in
accordance with the deliberate judgment of the tribunal before
which the validity of the enactment is directly drawn into
question. When it is clear that a statute transgresses the
authority vested in the legislature by the Constitution, it is the
duty of the courts to declare the act unconstitutional because
they cannot shirk from it without violating their oaths of office.
This duty of the courts to maintain the Constitution as the
fundamental law of the state is imperative and unceasing; and,
as Chief Justice Marshal said, whenever a statute is in violation of
the fundamental law, the courts must so adjudge and thereby
give effect to the Constitution. Any other course would lead to the
destruction of the Constitution. Since the question as to the
constitutionality of a statute is a judicial matter, the courts will
not decline the exercise of jurisdiction upon the suggestion that
action might be taken by political agencies in disregard of the
judgment of the judicial tribunals. [7]
It is my submission that the power and authority to originate
revenue bills under our Constitution is vested exclusively in the
House of Representatives. Its members being more numerous
than those of the Senate, elected more frequently, and more
directly represent the people, are therefore considered better
aware of the economic life of their individual constituencies. It is
just proper that revenue bills originate exclusively from
them.cralaw
In this regard, we do not have to devote much time delving into
American decisions and opinions and invoke them in the
interpretation of our own Constitution which is different from the
American version, particularly on the enactment of revenue bills.
We have our own Constitution couched in a language our own
legislators thought best. Insofar as revenue bills are concerned,
our Constitution is not American; it is distinctively Filipino. And no
amplitude of legerdemain can detract from our constitutional
requirement that 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, although the Senate may propose or concur with
amendments.cralaw
In this milieu, I am left no option but to vote to grant the
petitions and strike down R. A. 7716 as unconstitutional.

TAX CASE ON UNIFORMITY OF TAXATION

G.R. No. 81311 June 30, 1988

KAPATIRAN NG MGA NAGLILINGKOD SA PAMAHALAAN NG


PILIPINAS, INC., HERMINIGILDO C. DUMLAO, GERONIMO Q.
QUADRA, and MARIO C. VILLANUEVA, petitioners,
vs.
HON. BIENVENIDO TAN, as Commissioner of Internal
Revenue, respondent.

G.R. No. 81820 June 30, 1988

KILUSANG MAYO UNO LABOR CENTER (KMU), its officers and


affiliated labor federations and alliances,petitioners,
vs.
THE EXECUTIVE SECRETARY, SECRETARY OF FINANCE, THE
COMMISSIONER OF INTERNAL REVENUE, and SECRETARY OF
BUDGET, respondents.
G.R. No. 81921 June 30, 1988

INTEGRATED CUSTOMS BROKERS ASSOCIATION OF THE


PHILIPPINES and JESUS B. BANAL, petitioners,
vs.
The HON. COMMISSIONER, BUREAU OF INTERNAL
REVENUE, respondent.

G.R. No. 82152 June 30, 1988

RICARDO C. VALMONTE, petitioner,


vs.
THE EXECUTIVE SECRETARY, SECRETARY OF FINANCE,
COMMISSIONER OF INTERNAL REVENUE and SECRETARY OF
BUDGET, respondent.

PADILLA, J.:

These four (4) petitions, which have been consolidated because of


the similarity of the main issues involved therein, seek to nullify Executive
Order No. 273 (EO 273, for short), issued by the President of the
Philippines on 25 July 1987, to take effect on 1 January 1988, and which
amended certain sections of the National Internal Revenue Code and
adopted the value-added tax (VAT, for short), for being unconstitutional in
that its enactment is not alledgedly within the powers of the President; that
the VAT is oppressive, discriminatory, regressive, and violates the due
process and equal protection clauses and other provisions of the 1987
Constitution.

The Solicitor General prays for the dismissal of the petitions on the ground
that the petitioners have failed to show justification for the exercise of its
judicial powers, viz. (1) the existence of an appropriate case; (2) an
interest, personal and substantial, of the party raising the constitutional
questions; (3) the constitutional question should be raised at the earliest
opportunity; and (4) the question of constitutionality is directly and
necessarily involved in a justiciable controversy and its resolution is
essential to the protection of the rights of the parties. According to the
Solicitor General, only the third requisite that the constitutional question
should be raised at the earliest opportunity has been complied with. He
also questions the legal standing of the petitioners who, he contends, are
merely asking for an advisory opinion from the Court, there being no
justiciable controversy for resolution.
Objections to taxpayers' suit for lack of sufficient personality standing, or
interest are, however, in the main procedural matters. Considering the
importance to the public of the cases at bar, and in keeping with the Court's
duty, under the 1987 Constitution, to determine wether or not the other
branches of government have kept themselves within the limits of the
Constitution and the laws and that they have not abused the discretion
given to them, the Court has brushed aside technicalities of procedure and
has taken cognizance of these petitions.

But, before resolving the issues raised, a brief look into the tax law in
question is in order.

The VAT is a tax levied on a wide range of goods and services. It is a tax
on the value, added by every seller, with aggregate gross annual sales of
articles and/or services, exceeding P200,00.00, to his purchase of goods
and services, unless exempt. VAT is computed at the rate of 0% or 10% of
the gross selling price of goods or gross receipts realized from the sale of
services.

The VAT is said to have eliminated privilege taxes, multiple rated sales tax
on manufacturers and producers, advance sales tax, and compensating tax
on importations. The framers of EO 273 that it is principally aimed to
rationalize the system of taxing goods and services; simplify tax
administration; and make the tax system more equitable, to enable the
country to attain economic recovery.

The VAT is not entirely new. It was already in force, in a modified form,
before EO 273 was issued. As pointed out by the Solicitor General, the
Philippine sales tax system, prior to the issuance of EO 273, was
essentially a single stage value added tax system computed under the
"cost subtraction method" or "cost deduction method" and was imposed
only on original sale, barter or exchange of articles by manufacturers,
producers, or importers. Subsequent sales of such articles were not subject
to sales tax. However, with the issuance of PD 1991 on 31 October 1985, a
3% tax was imposed on a second sale, which was reduced to 1.5% upon
the issuance of PD 2006 on 31 December 1985, to take effect 1 January
1986. Reduced sales taxes were imposed not only on the second sale, but
on every subsequent sale, as well. EO 273 merely increased the VAT
on every sale to 10%, unless zero-rated or exempt.

Petitioners first contend that EO 273 is unconstitutional on the Ground that


the President had no authority to issue EO 273 on 25 July 1987.
The contention is without merit.

It should be recalled that under Proclamation No. 3, which decreed a


Provisional Constitution, sole legislative authority was vested upon the
President. Art. II, sec. 1 of the Provisional Constitution states:

Sec. 1. Until a legislature is elected and convened under a new


Constitution, the President shall continue to exercise legislative
powers.

On 15 October 1986, the Constitutional Commission of 1986 adopted a


new Constitution for the Republic of the Philippines which was ratified in a
plebiscite conducted on 2 February 1987. Article XVIII, sec. 6 of said
Constitution, hereafter referred to as the 1987 Constitution, provides:

Sec. 6. The incumbent President shall continue to exercise


legislative powers until the first Congress is convened.

It should be noted that, under both the Provisional and the 1987
Constitutions, the President is vested with legislative powers until a
legislature under a new Constitution is convened. The first Congress,
created and elected under the 1987 Constitution, was convened on 27 July
1987. Hence, the enactment of EO 273 on 25 July 1987, two (2) days
before Congress convened on 27 July 1987, was within the President's
constitutional power and authority to legislate.

Petitioner Valmonte claims, additionally, that Congress was really


convened on 30 June 1987 (not 27 July 1987). He contends that the word
"convene" is synonymous with "the date when the elected members of
Congress assumed office."

The contention is without merit. The word "convene" which has been
interpreted to mean "to call together, cause to assemble, or convoke," 1 is
clearly different from assumption of office by the individual members of
Congress or their taking the oath of office. As an example, we call to mind
the interim National Assembly created under the 1973 Constitution, which
had not been "convened" but some members of the body, more particularly
the delegates to the 1971 Constitutional Convention who had opted to
serve therein by voting affirmatively for the approval of said Constitution,
had taken their oath of office.
To uphold the submission of petitioner Valmonte would stretch the
definition of the word "convene" a bit too far. It would also defeat the
purpose of the framers of the 1987 Constitutional and render meaningless
some other provisions of said Constitution. For example, the provisions of
Art. VI, sec. 15, requiring Congress to convene once every year on the
fourth Monday of July for its regular session would be a contrariety, since
Congress would already be deemed to be in session after the individual
members have taken their oath of office. A portion of the provisions of Art.
VII, sec. 10, requiring Congress to convene for the purpose of enacting a
law calling for a special election to elect a President and Vice-President in
case a vacancy occurs in said offices, would also be a surplusage. The
portion of Art. VII, sec. 11, third paragraph, requiring Congress to convene,
if not in session, to decide a conflict between the President and the Cabinet
as to whether or not the President and the Cabinet as to whether or not the
President can re-assume the powers and duties of his office, would also be
redundant. The same is true with the portion of Art. VII, sec. 18, which
requires Congress to convene within twenty-four (24) hours following the
declaration of martial law or the suspension of the privilage of the writ of
habeas corpus.

The 1987 Constitution mentions a specific date when the President loses
her power to legislate. If the framers of said Constitution had intended to
terminate the exercise of legislative powers by the President at the
beginning of the term of office of the members of Congress, they should
have so stated (but did not) in clear and unequivocal terms. The Court has
not power to re-write the Constitution and give it a meaning different from
that intended.

The Court also finds no merit in the petitioners' claim that EO 273 was
issued by the President in grave abuse of discretion amounting to lack or
excess of jurisdiction. "Grave abuse of discretion" has been defined, as
follows:

Grave abuse of discretion" implies such capricious and


whimsical exercise of judgment as is equivalent to lack of
jurisdiction (Abad Santos vs. Province of Tarlac, 38 Off. Gaz.
834), or, in other words, where the power is exercised in an
arbitrary or despotic manner by reason of passion or personal
hostility, and it must be so patent and gross as to amount to an
evasion of positive duty or to a virtual refusal to perform the
duty enjoined or to act at all in contemplation of law. (Tavera-
Luna, Inc. vs. Nable, 38 Off. Gaz. 62). 2
Petitioners have failed to show that EO 273 was issued capriciously and
whimsically or in an arbitrary or despotic manner by reason of passion or
personal hostility. It appears that a comprehensive study of the VAT had
been extensively discussed by this framers and other government agencies
involved in its implementation, even under the past administration. As the
Solicitor General correctly sated. "The signing of E.O. 273 was merely the
last stage in the exercise of her legislative powers. The legislative process
started long before the signing when the data were gathered, proposals
were weighed and the final wordings of the measure were drafted, revised
and finalized. Certainly, it cannot be said that the President made a jump,
so to speak, on the Congress, two days before it convened." 3

Next, the petitioners claim that EO 273 is oppressive, discriminatory, unjust


and regressive, in violation of the provisions of Art. VI, sec. 28(1) of the
1987 Constitution, which states:

Sec. 28 (1) The rule of taxation shall be uniform and equitable.


The Congress shall evolve a progressive system of taxation.

The petitioners" assertions in this regard are not supported by facts and
circumstances to warrant their conclusions. They have failed to adequately
show that the VAT is oppressive, discriminatory or unjust. Petitioners
merely rely upon newspaper articles which are actually hearsay and have
evidentiary value. To justify the nullification of a law. there must be a clear
and unequivocal breach of the Constitution, not a doubtful and
argumentative implication. 4

As the Court sees it, EO 273 satisfies all the requirements of a valid tax. It
is uniform. The court, in City of Baguio vs. De Leon, 5 said:

... In Philippine Trust Company v. Yatco (69 Phil. 420), Justice


Laurel, speaking for the Court, stated: "A tax is considered
uniform when it operates with the same force and effect in
every place where the subject may be found."

There was no occasion in that case to consider the possible


effect on such a constitutional requirement where there is a
classification. The opportunity came in Eastern Theatrical Co. v.
Alfonso (83 Phil. 852, 862). Thus: "Equality and uniformity in
taxation means that all taxable articles or kinds of property of
the same class shall be taxed at the same rate. The taxing
power has the authority to make reasonable and natural
classifications for purposes of taxation; . . ." About two years
later, Justice Tuason, speaking for this Court in Manila Race
Horses Trainers Assn. v. de la Fuente (88 Phil. 60, 65)
incorporated the above excerpt in his opinion and continued;
"Taking everything into account, the differentiation against
which the plaintiffs complain conforms to the practical dictates
of justice and equity and is not discriminatory within the
meaning of the Constitution."

To satisfy this requirement then, all that is needed as held in


another case decided two years later, (Uy Matias v. City of
Cebu, 93 Phil. 300) is that the statute or ordinance in question
"applies equally to all persons, firms and corporations placed in
similar situation." This Court is on record as accepting the view
in a leading American case (Carmichael v. Southern Coal and
Coke Co., 301 US 495) that "inequalities which result from a
singling out of one particular class for taxation or exemption
infringe no constitutional limitation." (Lutz v. Araneta, 98 Phil.
148, 153).

The sales tax adopted in EO 273 is applied similarly on all goods and
services sold to the public, which are not exempt, at the constant rate of
0% or 10%.

The disputed sales tax is also equitable. It is imposed only on sales of


goods or services by persons engage in business with an aggregate gross
annual sales exceeding P200,000.00. Small corner sari-sari stores are
consequently exempt from its application. Likewise exempt from the tax are
sales of farm and marine products, spared as they are from the incidence
of the VAT, are expected to be relatively lower and within the reach of the
general public. 6

The Court likewise finds no merit in the contention of the petitioner


Integrated Customs Brokers Association of the Philippines that EO 273,
more particularly the new Sec. 103 (r) of the National Internal Revenue
Code, unduly discriminates against customs brokers. The contested
provision states:

Sec. 103. Exempt transactions. The following shall be


exempt from the value-added tax:

xxx xxx xxx


(r) Service performed in the exercise of profession or calling
(except customs brokers) subject to the occupation tax under
the Local Tax Code, and professional services performed by
registered general professional partnerships;

The phrase "except customs brokers" is not meant to discriminate against


customs brokers. It was inserted in Sec. 103(r) to complement the
provisions of Sec. 102 of the Code, which makes the services of customs
brokers subject to the payment of the VAT and to distinguish customs
brokers from other professionals who are subject to the payment of an
occupation tax under the Local Tax Code. Pertinent provisions of Sec. 102
read:

Sec. 102. Value-added tax on sale of services. There shall


be levied, assessed and collected, a value-added tax
equivalent to 10% percent of gross receipts derived by any
person engaged in the sale of services. The phrase sale of
services" means the performance of all kinds of services for
others for a fee, remuneration or consideration, including those
performed or rendered by construction and service contractors;
stock, real estate, commercial, customs and immigration
brokers; lessors of personal property; lessors or distributors of
cinematographic films; persons engaged in milling, processing,
manufacturing or repacking goods for others; and similar
services regardless of whether or not the performance thereof
call for the exercise or use of the physical or mental faculties: ...

With the insertion of the clarificatory phrase "except customs brokers" in


Sec. 103(r), a potential conflict between the two sections, (Secs. 102 and
103), insofar as customs brokers are concerned, is averted.

At any rate, the distinction of the customs brokers from the other
professionals who are subject to occupation tax under the Local Tax Code
is based upon material differences, in that the activities of customs brokers
(like those of stock, real estate and immigration brokers) partake more of a
business, rather than a profession and were thus subjected to the
percentage tax under Sec. 174 of the National Internal Revenue Code prior
to its amendment by EO 273. EO 273 abolished the percentage tax and
replaced it with the VAT. If the petitioner Association did not protest the
classification of customs brokers then, the Court sees no reason why it
should protest now.
The Court takes note that EO 273 has been in effect for more than five (5)
months now, so that the fears expressed by the petitioners that the
adoption of the VAT will trigger skyrocketing of prices of basic commodities
and services, as well as mass actions and demonstrations against the VAT
should by now be evident. The fact that nothing of the sort has happened
shows that the fears and apprehensions of the petitioners appear to be
more imagined than real. It would seem that the VAT is not as bad as we
are made to believe.

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

WHEREFORE, the petitions are DISMISSED. Without pronouncement as


to costs.

SO ORDERED.

TAX CASES ON NON-IMPAIRMENT CLAUSE


CASE NO. 1

March 22, 1907


G.R. No. 3473
J. CASANOVAS, plaintiff-appellant,
vs.
JNO. S. HORD, defendant-appellee.
WILLARD, J.:
The plaintiff brought this action against the defendant, the
Collector of Internal Revenue, to recover the sum of P9,600, paid
by him under protest as taxes on certain mining claims owned by
him in the Province of Ambos Camarines. Judgment was rendered
in the court below in favor of the defendant, and from that
judgment the plaintiff appealed.
There is no dispute about the facts.
In January, 1897, the Spanish Government, in accordance with
the provisions of the royal decree of the 14th of May, 1867,
granted to the plaintiff certain mines in the said Province of
Ambos Camarines, of which mines the plaintiff is now the owner.
That there were valid perfected mining concessions granted prior
to the 11th of April, 1899, is conceded. They were so considered
by the Collector of Internal Revenue and were by him said to fall
within the provisions of section 134 of Act No. 1189, known as the
Internal Revenue Act. That section is as follows:
SEC. 134. On all valid perfected mining concessions granted prior to April
eleventh, eighteen hundred and ninety-nine, there shall be levied and collected on
the after January first, nineteen hundred and five, the following taxes:
2. (a) On each claim containing an area of sixty thousand square meters, an
annual tax of one hundred pesos; (b) and at the same rate proportionately on each
claim containing an area in excess of, or less than, sixty thousand square meters.
3. On the gross output of each an ad valorem tax equal to three per centum of the
actual market value of such output.
The defendant accordingly imposed upon these properties the tax
mentioned in section 134, which tax, as has before been stated,
plaintiff paid under protest.
The only question in the case is whether this section 134 is void
or valid.
I. It is claimed by the plaintiff that it is void because it comes
within the provision of section 5 of the act of Congress of July 1,
1902[[1]] (32 U.S. Stat. L., 691), which provides that no law
impairing the obligation of contracts shall be enacted. The royal
decree of the 14th of May, 1867, provided, among other things,
as follows:
ART. 76. On each pertenencia minera (mining claim) of the area prescribed in the
first paragraph of article 13 (sixty thousand square meters) there shall be paid
annually a fixed tax of forty escudos(about P20.00). The pertenencia referred to in
the second paragraph of the same article, though of greater area than the others
(one hundred and fifty thousand square meters), shall pay only
twentyescudos (about P10.00).
ART. 78. Pertenencia of iron mines and mines of combustible minerals shall be
exempt from the annual tax for a period of thirty years from the date of publication
of this decree.
ART. 80. A further tax of three per centum on the gross earnings shall be paid
without deduction of costs of any kind whatsoever. All substances enumerated in
section one shall be exempt from said tax of three per centum for a period of thirty
years.
ART. 81. No other taxes than those herein mentioned shall be imposed upon
mining and metallurgical industries.
The royal decree and regulation for its enforcement provided that
the deeds granted by the Government should be in a particular
form, which form was inserted in the regulations. It must be
presumed that the deeds granted to the plaintiff were made as
provided by law, and, in fact, one of such concessions was
exhibited during the argument in this court, and was found to be
in exact conformity with the form prescribed by law. The deed is
as follows:
Don Camilo Garcia de Polavieja, Marquez de Polavieja, Teniente General de los
Ejercitos Nacionales, Caballero Gran Cruz de la Real y Militar Orden de San
Hermenegildo, de la Real y distinguida de Isabel la Catolica, de la del Merito
Militar Roja, de la de la Corona de Italia, Comendador de Carlos Tercero,
Bennemerito de la Patria en grado eminente, condecorado con varias cruses de
distincion por meritos de guerra, Capitan General y Gobernador General de
Filipinas.
Whereas I have granted to Don Joaquin Casanovas y Llovet and to Don Martin
Buck the concession of a gold mine entitled Nueva California Segunda in the
jurisdiction of Paracale, Province of Ambos Camarines: Now, therefore, in the
name of His Majesty the King (whom God preserve), and pursuant to the
provisions of article 37 of the royal decree of May 14, 1867, regulating mining in
these Islands, I issue, this fifth day of November, eighteen hundred and ninety-six,
this title deed to fourpertenencias, comprising an area of two hundred and forty
thousand square meters, as shown in the attached sketch map drafted by the
engineer Don Enrique Abella y Casariego, and dated at Manila December
sixteenth of the said year, subject to the following general terms and conditions:
1. That the mine shall be worked in conformity with the rules in mining, the
grantee and his laborers to be governed by the police rules established by existing
regulations.
2. That the grantee shall be liable for all damages to third parties that may be
caused by his operations.
3. That the grantee shall likewise indemnify his neighbors for any damage they
may suffer by reason of water accumulated on his works, if, upon being requested,
he fail to drain the same within the time indicated.
4. That he shall contribute for the drainage of the adjacent mines and for the
general galleries for drainage or haulage in proportion to the benefit he derives
therefrom, whenever, by authority of the Governor-General, such works shall be
opened for a group of pertenencias or for the entire mining locality in which the
mine is situated.
5. That he shall commence work on the mine immediately upon receipt of this
concession unless prevented by force majeure.
6. That he shall keep the mine in active operation by employing at the rate of at
least four laborers for each pertenencia for at least six months of each year.
7. That he shall strengthen the walls of the mine within the time indicated
whenever, by reason of mismanagement of the work, it threatens to cave in, unless
he be prevented by force majeure.
8. That he shall not render further profitable development of the mine difficult or
impossible by avaricious operation.
9. That he shall not suspend the operation of the mine with the intention of
abandoning the same without first informing the Governor of his intention, in
which case he must leave the mine in a good state of timbering.
10. That he shall pay taxes on the mine and its output as prescribed in the royal
decree.
11. Finally, that he shall comply with all the requirements contained in the royal
decree and in the regulations for concessions of the same nature as the present.
Without special conditions.
Now, therefore, by virtue of this title deed, I grant to Don Joaquin Casanovas y
Llovet and to Don Martin Buck the ownership of the said mine for an unlimited
period of time so long as they shall comply with the foregoing terms and
conditions, to the end that they may develop the same and make free use and
disposition of the output thereof, with the right to alienate the said mine subject to
the provisions of existing laws, and to enjoy all the rights and benefits conceded to
such grantees by the royal decree and by the mining regulations. And for the
prompt fulfillment and observance of the said conditions, both on the part of the
said grantees and by all authorities, courts, corporations, and private persons
whom it may concern, I have ordered this title deed to be issued given under my
hand and the proper seal and countersigned by the undersigned Director-General
of Civil Administration.
It seems very clear to us that this deed constituted a contract
between the Spanish Government and the plaintiff, the obligation
of which contract was impaired by the enactment of section 134
of the Internal Revenue Law above cited, thereby infringing the
provisions above quoted from section 5 of the act of Congress of
July 1, 1902. This conclusion seems necessarily to result from the
decisions of the Supreme Court of the United States in similar
cases. In the case of McGee vs. Mathis (4 Wallace, 143), it
appeared that the State of Arkansas, by an act of the legislature
of 1851, provided for the sale of certain swamp lands granted to
it by the United States; for the issue of transferable scrip
receivable for any lands not already taken up at the time of
selection by the holder; for contracts for the making of levees
and drains, and for the payment of contractors in scrip and
otherwise. In the fourteenth section of this act it was provided
that -
To encourage by all just means the progress and completion of the reclaiming of
such lands by offering inducements to purchasers and contractors to take up said
lands, all said swamp and overflowed lands shall be exempt from taxation for the
term of ten years or until they shall be reclaimed.
In 1855 this section was repealed and provision was made by law
for the taxation of swamp and overflowed lands, sold or to be
sold, precisely as other lands. McGee, before this appeal, had
become the owner by transfer from contractors of a large amount
of scrip issued under the Act of 1851, and with this scrip, after
the repeal, took up and paid for many sections and parts of
sections of the granted lands. Taxes were levied by the State on
the lands so taken up by McGee. The Supreme Court held that
these taxes could not be collected. The Court said at page 156:
It seems quite clear that the Act of 1851 authorizing the issue of land scrip
constituted a contract between the State and the holders of the land scrip issued
under the act.
In the case of the Home of the Friendless vs. Rouse (8 Wallace, 430), it
appeared that on the 3d day of February, 1853, the legislature of
Missouri passed on act to incorporate the Home of the Friendless
in the city of St. Louis. Section 1 of the act provided that -
All property of said corporation shall be exempt from taxation.
The court held that the State had no power afterwards to pass
laws providing for the levying of taxes upon this institution. The
Court said among other things at page 438:
The validity of this contract is questioned at the bar on the ground that the
legislature had no authority to grant away the power of taxation. The answer to
this position is, that the question is no longer open for argument here, for it is
settled by the repeated adjudications of this court, that a State may be contract
based on a consideration exempt the property of an individual or corporation from
taxation, either for a specified period or permanently. And it is equally well settled
that the exemption is presumed to be on sufficient consideration, and binds the
State if the charter containing it is accepted.
In the case of The Asylum vs. The City of New Orleans (105 U.S., 362), it
appears that St. Arivas Asylum was incorporated by an act of the
legislature of Louisiana, approved April 29, 1853. The law
incorporating it provided that it should enjoy the same exemption
from taxation which was enjoyed by the Orphan Boys Asylum of
New Orleans. The law relating to the last named institution
provided (page 364):
That, from and after the passage of this act, all the property, real
and personal, belonging to the Orphan Boys Asylum of New
Orleans be, and the same is hereby exempted from all taxation,
either by the State, parish, or city in which it is situated, any law
to the contrary notwithstanding.
It was held that the State had no power by subsequent legislation
to impose taxes upon the property of this institution.
That the doctrine announced in these cases is still maintained in
that court is apparent from the case of Powers vs. The Detroit,
Grand Haven and Milwaukee Railway which was decided on the
16th of April, 1906, and reported in 201 U. S., 543. Section 9 of
the act of the legislature of Michigan, incorporating the railway
company, provided:
Said company shall, on or before the 1st day of July, pay to the
State treasurer, an annual tax of one per cent on the capital
stock of said company, pain in, which tax shall be in lieu of all
other taxation.
The court said at page 556:
It has often been decided by this court, so often that a citation on authorities in
unnecessary, that the legislature of a State may, in the absence of special
restrictions in its constitution, make a valid contract with a corporation in respect
to taxation, and that such contract can be enforced against the State at the instance
of the corporation.
The case at bar falls within the cases hereinbefore cited. It is to
be distinguished from the case of the Metropolitan Street Railway
Company vs. The New York State Board of Tax Commissioners
(199 U.S., 1). In that case it was provided by various acts of the
legislature, that the companies therein referred to, should pay
annually to the city of New York, a fixed amount or percentage,
varying from 2 to 8 per cent of their gross earnings additional
taxes was sustained by the court. It was sustained on the ground
that the prior legislation did not expressly say that the taxes thus
provided for should be in lieu of all other taxes. The court said at
page 37:
Applying these well-established rules to the several contracts, it
will be perceived that there was no express relinquishment of the
right of taxation. The plaintiff in error must rely upon some
implication, and not upon any direct stipulation. In each contract
there was a grant of privileges, but the grant was specifically or
privileges in respect to the construction, operation and
maintenance of the street railroad. These were all that in terms
were granted. As consideration for this grant, the grantees were
to pay something, and such payment is nowhere said to be in lieu
of, or as an equivalent or substitute of taxes. All that can be
extracted from the language used, was a grant of privileges and a
payment therefor. Other words must be written into the contract
before there can be found any relinquishment of the power of
taxation.
But in the case at bar, there is found not only the provisions for
the payment of certain taxes annually, but there is also found the
provision contained in article 81, above quoted, which expressly
declares that no other taxes shall be imposed upon these mines.
The present case is to be distinguished also from that class of
cases of which Grands Lodge vs. The City of New Orleans (166
U.S., 143) is a type, and which includes Salt Company vs. East
Saginaw (13 Wall., 373) and Welch vs. Cook (97 U.S., 541). In
these cases the exemption was a mere bounty and did not form a
part of any contract.
The fact that this concession was made by the Government of
Spain, and not by the Government of the United States, is not
important. (Trustees of Dartmouth College vs. Woodward, 4
Wheaton, 518.)
Our conclusion is that the concessions granted by the
Government of Spain to the plaintiff, constitute contracts between
the parties; that section 134 of the Internal Revenue Law impairs
the obligation of these contracts, and is therefore void as to
them.
II. We think that this section is also void because in conflict with
section 60 of the act of Congress of July 1, 1902. This section is
as follows:
That nothing in this Act shall be construed to effect the rights of
any person, partnership, or corporation, having a valid, perfected
mining concession granted prior to April eleventh, eighteen
hundred and ninety-nine, but all such concessions shall be
conducted under the provisions of the law in force at the time
they were granted, subject at all times to cancellation by reason
of illegality in the procedure by which they were obtained, or for
failure to comply with the conditions prescribed as requisite to
their retention in the laws under which they were
granted: Provided, That the owner or owners of every such
concession shall cause the corners made by its boundaries to be
distinctly marked with permanent monuments within six months
after this act has been promulgated in the Philippine Islands, and
that any concessions, the boundaries of which are not so marked
within this period shall be free and open to explorations and
purchase under the provisions of this act.2
This section seems to indicate that concessions, like those in
question, can be canceled only by reason of illegality in the
procedure by which they were obtained, or for failure to comply
with the conditions prescribed as requisite for their retention in
the laws under which they were granted. There is nothing in the
section which indicates that they can be canceled for failure to
comply with the conditions prescribed by subsequent legislation.
In fact, the real intention of the act seems to be that such
concession should be subject to the former legislation and not to
any subsequent legislation. There is no claim in this case that
there was any illegality in the procedure by which these
concessions were obtained, nor is there any claim that the
plaintiff has not complied with the conditions prescribed in the
said royal decree of 1867.
III. In view of the result at which we have arrived, it is not
necessary to consider the further claim made by the plaintiff that
the taxes imposed by article 134 above quoted, are in violation of
the part of section 5 of the act of July 1, 1902, which declares
that the rule of taxation in said Islands shall be uniform.
The judgment of the court below is reversed, and judgment is
ordered in favor of the plaintiff and against the defendant for
P9,600, with interest thereon, at 6 per cent, from the 21st day of
February, 1906, and the costs of the Court of First Instance. No
costs will be allowed to either party in this court.
After the expiration of twenty days let judgment be entered in
accordance herewith and ten days thereafter let the case be
remanded to the court from whence it came for proper action. So
ordered.
Case no. 2

Tolentino versus sec of finance ( idem:


previous case)

Case no. 3

G.R. No. L-60126 September 25, 1985

CAGAYAN ELECTRIC POWER & LIGHT CO., INC., petitioner,


vs.
COMMISSIONER OF INTERNAL REVENUE and COURT OF
APPEALS, respondents.

AQUINO, J.:

This is about the liability of petitioner Cagayan Electric Power & Light Co.,
Inc. for income tax amounting to P75,149.73 for the more than seven-
month period of the year 1969 in addition to franchise tax.

The petitioner is the holder of a legislative franchise, Republic Act No.


3247, under which its payment of 3% tax on its gross earnings from the
sale of electric current is "in lieu of all taxes and assessments of whatever
authority upon privileges, earnings, income, franchise, and poles, wires,
transformers, and insulators of the grantee, from which taxes and
assessments the grantee is hereby expressly exempted" (Sec. 3).

On June 27, 1968, Republic Act No. 5431 amended section 24 of the Tax
Code by making liable for income tax all corporate taxpayers not
specifically exempt under paragraph (c) (1) of said section and section 27
of the Tax Code notwithstanding the "provisions of existing special or
general laws to the contrary". Thus, franchise companies were subjected
to income tax in addition to franchise tax.

However, in petitioner's case, its franchise was amended by Republic Act


No. 6020, effective August 4, 1969, by authorizing the petitioner to furnish
electricity to the municipalities of Villanueva and Jasaan, Misamis Oriental
in addition to Cagayan de Oro City and the municipalities of Tagoloan and
Opol. The amendment reenacted the tax exemption in its original charter or
neutralized the modification made by Republic Act No. 5431 more than a
year before.

By reason of the amendment to section 24 of the Tax Code, the


Commissioner of Internal Revenue in a demand letter dated February 15,
1973 required the petitioner to pay deficiency income taxes for 1968-to
1971. The petitioner contested the assessments. The Commissioner
cancelled the assessments for 1970 and 1971 but insisted on those for
1968 and 1969.

The petitioner filed a petition for review with the Tax Court, which on
February 26, 1982 held the petitioner liable only for the income tax for the
period from January 1 to August 3, 1969 or before the passage of Republic
Act No. 6020 which reiterated its tax exemption. The petitioner appealed to
this Court.

It contends that the Tax Court erred (1) in not holding that the franchise tax
paid by the petitioner is a commutative tax which already includes the
income tax; (2) in holding that Republic Act No. 5431 as amended, altered
or repealed petitioner's franchise; (3) in holding that petitioner's franchise is
a contract which can be impaired by an implied repeal and (4) in not
holding that section 24(d) of the Tax Code should be construed strictly
against the Government.

We hold that Congress could impair petitioner's legislative franchise by


making it liable for income tax from which heretofore it was exempted by
virtue of the exemption provided for in section 3 of its franchise.

The Constitution provides that a franchise is subject to amendment,


alteration or repeal by the Congress when the public interest so requires
(Sec. 8, Art. XIV, 1935 Constitution; Sec. 5, Art. XIV, 1973 Constitution),

Section 1 of petitioner's franchise, Republic Act No. 3247, provides that it is


subject to the provisions of the Constitution and to the terms and conditions
established in Act No. 3636 whose section 12 provides that the franchise is
subject to amendment, alteration or repeal by Congress.

Republic Act No. 5431, in amending section 24 of the Tax Code by


subjecting to income tax all corporate taxpayers not expressly exempted
therein and in section 27 of the Code, had the effect of withdrawing
petitioner's exemption from income tax.

The Tax Court acted correctly in holding that the exemption was restored
by the subsequent enactment on August 4, 1969 of Republic Act No. 6020
which reenacted the said tax exemption. Hence, the petitioner is liable only
for the income tax for the period from January 1 to August 3, 1969 when its
tax exemption was modified by Republic Act No. 5431.

It is relevant to note that franchise companies, like the Philippine Long


Distance Telephone Company, have been paying income tax in addition to
the franchise tax.

However, it cannot be denied that the said 1969 assessment appears to be


highly controversial. The Commissioner at the outset was not certain as to
petitioner's income tax liability. It had reason not to pay income tax
because of the tax exemption in its franchise.

For this reason, it should be liable only for tax proper and should not be
held liable for the surcharge and interest. (Advertising Associates, Inc. vs.
Commissioner of Internal Revenue and Court of Tax Appeals, G. R. No.
59758, December 26, 1984,133 SCRA 765; Imus Electric Co., Inc. vs.
Commissioner of Internal Revenue, 125 Phil. 1024; C.M. Hoskins & Co.,
Inc. vs. Commissioner of Internal Revenue, L-28383, June 22, 1976, 71
SCRA 511.)

WHEREFORE, the judgment of the Tax Court is affirmed with the


modification that the petitioner is liable only for the tax proper and that it
should not pay the delinquency penalties. No costs.

SO ORDERED.

CASE NO. 4
PHIL POWER AND DEVELOPMENT CO VS
COMMISSIONER, CTA CTA CASE NO. 1152, OCT 31,
1965- NO FT.

G.R. No. L-25501 July 29, 1977

COMMISSIONER OF INTERNAL REVENUE, petitioner,


vs.
PHILIPPINE POWER AND DEVELOPMENT CO., INC, and THE COURT
OF TAX APPEALS, respondents.

G.R. No. L-25507 July 29, 1977

PHILIPPINE POWER AND DEVELOPMENT CO., INC., and petitioner,

vs .

COMMISSIONER OF INTERNAL REVENUE, respondent.

TEEHANKEE, J:

On July 14, 1977 the parties and their respective counsels filed the
following:

JOINT MANIFESTATION AND MOTION

COME NOW Commissioner of Internal Revenue, and the


Philippine Power and Development Co., Inc., by their respective
counsel, and to this Honorable Court respectfully manifest:

1. That on October 31, 1965, the Court of Tax Appeals


rendered a decision in CTA Case No. 1152, the dispositive
portion of which is quoted as follows:

WHEREFORE, the assessment appealed from is


hereby modified. -Petitioner is hereby ordered to
pay respondent Commissioner, within 30 days from
the date this decision becomes final, deficiency
franchise tax for the period from October 1, 1955 to
June 30, 1960 in the amount of ?138,175.52. If the
said amount is not paid within 30 days from the date
this decision becomes final, the same shall be
subject to the surcharge of 25% for delinquency
pursuant to Section 259 of the Revenue Code.

2. That the said decision was appealed by the Commissioner of


Internal Revenue and the Philippine Power and Development
Co., Inc., to this Honorable Court, which appeals, docketed as
G.R. No. L-25501 and G.R. No. L-25507, are pending
resolution;

3. That the Philippine Power and Development Co., Inc. had


availed of the privileges of Letter of Instructions No. 308 and in
the letter dated December 17, 1976, the Commissioner of
Internal Revenue informed the taxpayer herein that its offer to
pay 15% of its deficiency franchise tax from October 1, 1955 to
June 30, 1960 was increased to 30% of P133,175.52 (the
amount adjudged by the Court of Tax Appeals and on appeal to
the Supreme Court) or P33,952.66, in full and complete
settlement of the tax liabilities in question, a xerox copy of
which letter is hereto attached as Annex 'A' and made an
integral part hereof;

4. That the Philippine Power and Development Co., Inc. applied


its tax credit of P79,229.06 against the said amount of
P33,952.66 and accordingly, the Commissioner of Internal
Revenue issued Tax Debit memo dated January 17, 1977, a
xerox copy of which is hereto attached as Annex 'B' and made
an integral part hereof;

5. That in view of the aforesaid application of the taxpayer's tax


credit liability of P33,952.66, the appeals of the Commissioner
of Internal Revenue and the Philippine Power and Development
Co., Inc. have become moot and academic.

WHEREFORE, it is respectfully prayed that the aforesaid


appeals be dismiss without costs.

Manila, June 14, 1977.

(Sgd.) EFREN I. PLANA ESTELITO P. MENDOZA

Acting Commissioner of Solicitor General


Internal Revenue

(Sgd.) REYNATO S. PUNO

Assistant Solicitor General

PHILIPPINE POWER & (Sgd.) LOLITA O. GAL-LANG

DEVELOPMENT CO., Solicitor

INC.

By:

(Sgd.) RAMON A. AGULLANA

Special Attorney

(Sgd.) PELAGIO M. ACHACOSO

Vice-Pres. & Gen. Mgr.

POBLADOR, NAZARENO, AZADA,

TOMACRUZ & PAREDES

COUNSEL FOR PHILIPPINE POWER

& DEVELOPMENT CO., INC.

575 ATLANTA, PORT AREA, MANILA

By: (Sgd.) RUSTICO V. NAZARENO

ACCORDINGLY, as the herein appeals have become moot and as prayed


for by the parties, the cases at bar are dismissed without costs.
TAX CASES ON TAX EXEMPTIONS

CASE NO. 1

G.R. No. L-39086 June 15, 1988

ABRA VALLEY COLLEGE, INC., represented by PEDRO V.


BORGONIA, petitioner,
vs.
HON. JUAN P. AQUINO, Judge, Court of First Instance, Abra; ARMIN
M. CARIAGA, Provincial Treasurer, Abra; GASPAR V. BOSQUE,
Municipal Treasurer, Bangued, Abra; HEIRS OF PATERNO
MILLARE,respondents.

PARAS, J.:

This is a petition for review on certiorari of the decision * of the defunct


Court of First Instance of Abra, Branch I, dated June 14, 1974, rendered in
Civil Case No. 656, entitled "Abra Valley Junior College, Inc., represented
by Pedro V. Borgonia, plaintiff vs. Armin M. Cariaga as Provincial Treasurer
of Abra, Gaspar V. Bosque as Municipal Treasurer of Bangued, Abra and
Paterno Millare, defendants," the decretal portion of which reads:

IN VIEW OF ALL THE FOREGOING, the Court hereby


declares:

That the distraint seizure and sale by the Municipal Treasurer of


Bangued, Abra, the Provincial Treasurer of said province
against the lot and building of the Abra Valley Junior College,
Inc., represented by Director Pedro Borgonia located at
Bangued, Abra, is valid;

That since the school is not exempt from paying taxes, it should
therefore pay all back taxes in the amount of P5,140.31 and
back taxes and penalties from the promulgation of this decision;
That the amount deposited by the plaintaff him the sum of
P60,000.00 before the trial, be confiscated to apply for the
payment of the back taxes and for the redemption of the
property in question, if the amount is less than P6,000.00, the
remainder must be returned to the Director of Pedro Borgonia,
who represents the plaintiff herein;

That the deposit of the Municipal Treasurer in the amount of


P6,000.00 also before the trial must be returned to said
Municipal Treasurer of Bangued, Abra;

And finally the case is hereby ordered dismissed with costs


against the plaintiff.

SO ORDERED. (Rollo, pp. 22-23)

Petitioner, an educational corporation and institution of higher learning duly


incorporated with the Securities and Exchange Commission in 1948, filed a
complaint (Annex "1" of Answer by the respondents Heirs of Paterno
Millare; Rollo, pp. 95-97) on July 10, 1972 in the court a quo to annul and
declare void the "Notice of Seizure' and the "Notice of Sale" of its lot and
building located at Bangued, Abra, for non-payment of real estate taxes
and penalties amounting to P5,140.31. Said "Notice of Seizure" of the
college lot and building covered by Original Certificate of Title No. Q-83
duly registered in the name of petitioner, plaintiff below, on July 6, 1972, by
respondents Municipal Treasurer and Provincial Treasurer, defendants
below, was issued for the satisfaction of the said taxes thereon. The
"Notice of Sale" was caused to be served upon the petitioner by the
respondent treasurers on July 8, 1972 for the sale at public auction of said
college lot and building, which sale was held on the same date. Dr. Paterno
Millare, then Municipal Mayor of Bangued, Abra, offered the highest bid of
P6,000.00 which was duly accepted. The certificate of sale was
correspondingly issued to him.

On August 10, 1972, the respondent Paterno Millare (now deceased) filed
through counstel a motion to dismiss the complaint.

On August 23, 1972, the respondent Provincial Treasurer and Municipal


Treasurer, through then Provincial Fiscal Loreto C. Roldan, filed their
answer (Annex "2" of Answer by the respondents Heirs of Patemo Millare;
Rollo, pp. 98-100) to the complaint. This was followed by an amended
answer (Annex "3," ibid, Rollo, pp. 101-103) on August 31, 1972.
On September 1, 1972 the respondent Paterno Millare filed his answer
(Annex "5," ibid; Rollo, pp. 106-108).

On October 12, 1972, with the aforesaid sale of the school premises at
public auction, the respondent Judge, Hon. Juan P. Aquino of the Court of
First Instance of Abra, Branch I, ordered (Annex "6," ibid; Rollo, pp. 109-
110) the respondents provincial and municipal treasurers to deliver to the
Clerk of Court the proceeds of the auction sale. Hence, on December 14,
1972, petitioner, through Director Borgonia, deposited with the trial court
the sum of P6,000.00 evidenced by PNB Check No. 904369.

On April 12, 1973, the parties entered into a stipulation of facts adopted
and embodied by the trial court in its questioned decision. Said Stipulations
reads:

STIPULATION OF FACTS

COME NOW the parties, assisted by counsels, and to this


Honorable Court respectfully enter into the following agreed
stipulation of facts:

1. That the personal circumstances of the parties as stated in


paragraph 1 of the complaint is admitted; but the particular
person of Mr. Armin M. Cariaga is to be substituted, however,
by anyone who is actually holding the position of Provincial
Treasurer of the Province of Abra;

2. That the plaintiff Abra Valley Junior College, Inc. is the owner
of the lot and buildings thereon located in Bangued, Abra under
Original Certificate of Title No. 0-83;

3. That the defendant Gaspar V. Bosque, as Municipal


treasurer of Bangued, Abra caused to be served upon the Abra
Valley Junior College, Inc. a Notice of Seizure on the property
of said school under Original Certificate of Title No. 0-83 for the
satisfaction of real property taxes thereon, amounting to
P5,140.31; the Notice of Seizure being the one attached to the
complaint as Exhibit A;

4. That on June 8, 1972 the above properties of the Abra Valley


Junior College, Inc. was sold at public auction for the
satisfaction of the unpaid real property taxes thereon and the
same was sold to defendant Paterno Millare who offered the
highest bid of P6,000.00 and a Certificate of Sale in his favor
was issued by the defendant Municipal Treasurer.

5. That all other matters not particularly and specially covered


by this stipulation of facts will be the subject of evidence by the
parties.

WHEREFORE, it is respectfully prayed of the Honorable Court


to consider and admit this stipulation of facts on the point
agreed upon by the parties.

Bangued, Abra, April 12, 1973.

Sgd.
Agripi
no
Brilla
ntes
Typ
AGRI
PINO
BRIL
LANT
ES
Attor
ney
for
Plaint
iff

Sgd.
Loret
o
Rold
an
Typ
LOR
ETO
ROL
DAN
Provi
ncial
Fisca
l
Coun
sel
for
Defe
ndant
s
Provi
ncial
Treas
urer
of
Abra
and
the
Muni
cipal
Treas
urer
of
Bang
ued,
Abra

Sgd.
Dem
etrio
V.
Pre
Typ.
DEM
ETRI
O V.
PRE
Attor
ney
for
Defe
ndant
Pater
no
Millar
e
(Roll
o, pp.
17-
18)

Aside from the Stipulation of Facts, the trial court among others, found the
following: (a) that the school is recognized by the government and is
offering Primary, High School and College Courses, and has a school
population of more than one thousand students all in all; (b) that it is
located right in the heart of the town of Bangued, a few meters from the
plaza and about 120 meters from the Court of First Instance building; (c)
that the elementary pupils are housed in a two-storey building across the
street; (d) that the high school and college students are housed in the main
building; (e) that the Director with his family is in the second floor of the
main building; and (f) that the annual gross income of the school reaches
more than one hundred thousand pesos.

From all the foregoing, the only issue left for the Court to determine and as
agreed by the parties, is whether or not the lot and building in question
are used exclusively for educational purposes. (Rollo, p. 20)

The succeeding Provincial Fiscal, Hon. Jose A. Solomon and his Assistant,
Hon. Eustaquio Z. Montero, filed a Memorandum for the Government on
March 25, 1974, and a Supplemental Memorandum on May 7, 1974,
wherein they opined "that based on the evidence, the laws applicable, court
decisions and jurisprudence, the school building and school lot used for
educational purposes of the Abra Valley College, Inc., are exempted from
the payment of taxes." (Annexes "B," "B-1" of Petition; Rollo, pp. 24-49; 44
and 49).

Nonetheless, the trial court disagreed because of the use of the second
floor by the Director of petitioner school for residential purposes. He thus
ruled for the government and rendered the assailed decision.

After having been granted by the trial court ten (10) days from August 6,
1974 within which to perfect its appeal (Per Order dated August 6, 1974;
Annex "G" of Petition; Rollo, p. 57) petitioner instead availed of the instant
petition for review on certiorari with prayer for preliminary injunction before
this Court, which petition was filed on August 17, 1974 (Rollo, p.2).

In the resolution dated August 16, 1974, this Court resolved to give DUE
COURSE to the petition (Rollo, p. 58). Respondents were required to
answer said petition (Rollo, p. 74).

Petitioner raised the following assignments of error:

THE COURT A QUO ERRED IN SUSTAINING AS VALID THE SEIZURE


AND SALE OF THE COLLEGE LOT AND BUILDING USED FOR
EDUCATIONAL PURPOSES OF THE PETITIONER.

II

THE COURT A QUO ERRED IN DECLARING THAT THE COLLEGE LOT


AND BUILDING OF THE PETITIONER ARE NOT USED EXCLUSIVELY
FOR EDUCATIONAL PURPOSES MERELY BECAUSE THE COLLEGE
PRESIDENT RESIDES IN ONE ROOM OF THE COLLEGE BUILDING.

III

THE COURT A QUO ERRED IN DECLARING THAT THE COLLEGE LOT


AND BUILDING OF THE PETITIONER ARE NOT EXEMPT FROM
PROPERTY TAXES AND IN ORDERING PETITIONER TO PAY
P5,140.31 AS REALTY TAXES.

IV

THE COURT A QUO ERRED IN ORDERING THE CONFISCATION OF


THE P6,000.00 DEPOSIT MADE IN THE COURT BY PETITIONER AS
PAYMENT OF THE P5,140.31 REALTY TAXES. (See Brief for the
Petitioner, pp. 1-2)

The main issue in this case is the proper interpretation of the phrase "used
exclusively for educational purposes."

Petitioner contends that the primary use of the lot and building for
educational purposes, and not the incidental use thereof, determines and
exemption from property taxes under Section 22 (3), Article VI of the 1935
Constitution. Hence, the seizure and sale of subject college lot and
building, which are contrary thereto as well as to the provision of
Commonwealth Act No. 470, otherwise known as the Assessment Law, are
without legal basis and therefore void.

On the other hand, private respondents maintain that the college lot and
building in question which were subjected to seizure and sale to answer for
the unpaid tax are used: (1) for the educational purposes of the college; (2)
as the permanent residence of the President and Director thereof, Mr.
Pedro V. Borgonia, and his family including the in-laws and grandchildren;
and (3) for commercial purposes because the ground floor of the college
building is being used and rented by a commercial establishment, the
Northern Marketing Corporation (See photograph attached as Annex "8"
(Comment; Rollo, p. 90]).

Due to its time frame, the constitutional provision which finds application in
the case at bar is Section 22, paragraph 3, Article VI, of the then 1935
Philippine Constitution, which expressly grants exemption from realty taxes
for "Cemeteries, churches and parsonages or convents appurtenant
thereto, and all lands, buildings, and improvements used exclusively for
religious, charitable or educational purposes ...

Relative thereto, Section 54, paragraph c, Commonwealth Act No. 470 as


amended by Republic Act No. 409, otherwise known as the Assessment
Law, provides:

The following are exempted from real property tax under the
Assessment Law:

xxx xxx xxx

(c) churches and parsonages or convents appurtenant thereto,


and all lands, buildings, and improvements used exclusively for
religious, charitable, scientific or educational purposes.

xxx xxx xxx

In this regard petitioner argues that the primary use of the school lot and
building is the basic and controlling guide, norm and standard to determine
tax exemption, and not the mere incidental use thereof.

As early as 1916 in YMCA of Manila vs. Collector of lnternal Revenue, 33


Phil. 217 [1916], this Court ruled that while it may be true that the YMCA
keeps a lodging and a boarding house and maintains a restaurant for its
members, still these do not constitute business in the ordinary acceptance
of the word, but an institution used exclusively for religious, charitable and
educational purposes, and as such, it is entitled to be exempted from
taxation.

In the case of Bishop of Nueva Segovia v. Provincial Board of Ilocos Norte,


51 Phil. 352 [1972], this Court included in the exemption a vegetable
garden in an adjacent lot and another lot formerly used as a cemetery. It
was clarified that the term "used exclusively" considers incidental use also.
Thus, the exemption from payment of land tax in favor of the convent
includes, not only the land actually occupied by the building but also the
adjacent garden devoted to the incidental use of the parish priest. The lot
which is not used for commercial purposes but serves solely as a sort of
lodging place, also qualifies for exemption because this constitutes
incidental use in religious functions.

The phrase "exclusively used for educational purposes" was further


clarified by this Court in the cases of Herrera vs. Quezon City Board of
assessment Appeals, 3 SCRA 186 [1961] and Commissioner of Internal
Revenue vs. Bishop of the Missionary District, 14 SCRA 991 [1965], thus

Moreover, the exemption in favor of property used exclusively


for charitable or educational purposes is 'not limited to property
actually indispensable' therefor (Cooley on Taxation, Vol. 2, p.
1430), but extends to facilities which are incidental to and
reasonably necessary for the accomplishment of said purposes,
such as in the case of hospitals, "a school for training nurses, a
nurses' home, property use to provide housing facilities for
interns, resident doctors, superintendents, and other members
of the hospital staff, and recreational facilities for student
nurses, interns, and residents' (84 CJS 6621), such as "Athletic
fields" including "a firm used for the inmates of the institution.
(Cooley on Taxation, Vol. 2, p. 1430).

The test of exemption from taxation is the use of the property for purposes
mentioned in the Constitution (Apostolic Prefect v. City Treasurer of
Baguio, 71 Phil, 547 [1941]).

It must be stressed however, that while this Court allows a more liberal and
non-restrictive interpretation of the phrase "exclusively used for educational
purposes" as provided for in Article VI, Section 22, paragraph 3 of the 1935
Philippine Constitution, reasonable emphasis has always been made that
exemption extends to facilities which are incidental to and reasonably
necessary for the accomplishment of the main purposes. Otherwise stated,
the use of the school building or lot for commercial purposes is neither
contemplated by law, nor by jurisprudence. Thus, while the use of the
second floor of the main building in the case at bar for residential purposes
of the Director and his family, may find justification under the concept of
incidental use, which is complimentary to the main or primary purpose
educational, the lease of the first floor thereof to the Northern Marketing
Corporation cannot by any stretch of the imagination be considered
incidental to the purpose of education.

It will be noted however that the aforementioned lease appears to have


been raised for the first time in this Court. That the matter was not taken up
in the to court is really apparent in the decision of respondent Judge. No
mention thereof was made in the stipulation of facts, not even in the
description of the school building by the trial judge, both embodied in the
decision nor as one of the issues to resolve in order to determine whether
or not said properly may be exempted from payment of real estate taxes
(Rollo, pp. 17-23). On the other hand, it is noteworthy that such fact was
not disputed even after it was raised in this Court.

Indeed, it is axiomatic that facts not raised in the lower court cannot be
taken up for the first time on appeal. Nonetheless, as an exception to the
rule, this Court has held that although a factual issue is not squarely raised
below, still in the interest of substantial justice, this Court is not prevented
from considering a pivotal factual matter. "The Supreme Court is clothed
with ample authority to review palpable errors not assigned as such if it
finds that their consideration is necessary in arriving at a just decision."
(Perez vs. Court of Appeals, 127 SCRA 645 [1984]).

Under the 1935 Constitution, the trial court correctly arrived at the
conclusion that the school building as well as the lot where it is built, should
be taxed, not because the second floor of the same is being used by the
Director and his family for residential purposes, but because the first floor
thereof is being used for commercial purposes. However, since only a
portion is used for purposes of commerce, it is only fair that half of the
assessed tax be returned to the school involved.

PREMISES CONSIDERED, the decision of the Court of First Instance of


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

CASE NO. 2

G.R. No. L-19201 June 16, 1965

REV. FR. CASIMIRO LLADOC, petitioner,


vs.
The COMMISSIONER OF INTERNAL REVENUE and The COURT of
TAX APPEALS, respondents.

PAREDES, J.:

Sometime in 1957, the M.B. Estate, Inc., of Bacolod City, donated


P10,000.00 in cash to Rev. Fr. Crispin Ruiz, then parish priest of Victorias,
Negros Occidental, and predecessor of herein petitioner, for the
construction of a new Catholic Church in the locality. The total amount was
actually spent for the purpose intended.

On March 3, 1958, the donor M.B. Estate, Inc., filed the donor's gift tax
return. Under date of April 29, 1960, the respondent Commissioner of
Internal Revenue issued an assessment for donee's gift tax against the
Catholic Parish of Victorias, Negros Occidental, of which petitioner was the
priest. The tax amounted to P1,370.00 including surcharges, interests of
1% monthly from May 15, 1958 to June 15, 1960, and the compromise for
the late filing of the return.

Petitioner lodged a protest to the assessment and requested the withdrawal


thereof. The protest and the motion for reconsideration presented to the
Commissioner of Internal Revenue were denied. The petitioner appealed to
the Court of Tax Appeals on November 2, 1960. In the petition for review,
the Rev. Fr. Casimiro Lladoc claimed, among others, that at the time of the
donation, he was not the parish priest in Victorias; that there is no legal
entity or juridical person known as the "Catholic Parish Priest of Victorias,"
and, therefore, he should not be liable for the donee's gift tax. It was also
asserted that the assessment of the gift tax, even against the Roman
Catholic Church, would not be valid, for such would be a clear violation of
the provisions of the Constitution.

After hearing, the CTA rendered judgment, the pertinent portions of which
are quoted below:
... . Parish priests of the Roman Catholic Church under canon laws
are similarly situated as its Archbishops and Bishops with respect to
the properties of the church within their parish. They are the
guardians, superintendents or administrators of these properties, with
the right of succession and may sue and be sued.

xxx xxx xxx

The petitioner impugns the, fairness of the assessment with the


argument that he should not be held liable for gift taxes on donation
which he did not receive personally since he was not yet the parish
priest of Victorias in the year 1957 when said donation was given. It is
intimated that if someone has to pay at all, it should be petitioner's
predecessor, the Rev. Fr. Crispin Ruiz, who received the donation in
behalf of the Catholic parish of Victorias or the Roman Catholic
Church. Following petitioner's line of thinking, we should be equally
unfair to hold that the assessment now in question should have been
addressed to, and collected from, the Rev. Fr. Crispin Ruiz to be paid
from income derived from his present parish where ever it may be. It
does not seem right to indirectly burden the present parishioners of
Rev. Fr. Ruiz for donee's gift tax on a donation to which they were not
benefited.

xxx xxx xxx

We saw no legal basis then as we see none now, to include within


the Constitutional exemption, taxes which partake of the nature of an
excise upon the use made of the properties or upon the exercise of
the privilege of receiving the properties. (Phipps vs. Commissioner of
Internal Revenue, 91 F [2d] 627; 1938, 302 U.S. 742.)

It is a cardinal rule in taxation that exemptions from payment thereof


are highly disfavored by law, and the party claiming exemption must
justify his claim by a clear, positive, or express grant of such privilege
by law. (Collector vs. Manila Jockey Club, G.R. No. L-8755, March
23, 1956; 53 O.G. 3762.)

The phrase "exempt from taxation" as employed in Section 22(3),


Article VI of the Constitution of the Philippines, should not be
interpreted to mean exemption from all kinds of taxes. Statutes
exempting charitable and religious property from taxation should be
construed fairly though strictly and in such manner as to give effect to
the main intent of the lawmakers. (Roman Catholic Church vs.
Hastrings 5 Phil. 701.)

xxx xxx xxx

WHEREFORE, in view of the foregoing considerations, the decision


of the respondent Commissioner of Internal Revenue appealed from,
is hereby affirmed except with regard to the imposition of the
compromise penalty in the amount of P20.00 (Collector of Internal
Revenue v. U.S.T., G.R. No. L-11274, Nov. 28, 1958); ..., and the
petitioner, the Rev. Fr. Casimiro Lladoc is hereby ordered to pay to
the respondent the amount of P900.00 as donee's gift tax, plus the
surcharge of five per centum (5%) as ad valorem penalty under
Section 119 (c) of the Tax Code, and one per centum (1%) monthly
interest from May 15, 1958 to the date of actual payment. The
surcharge of 25% provided in Section 120 for failure to file a return
may not be imposed as the failure to file a return was not due to
willful neglect.( ... ) No costs.

The above judgment is now before us on appeal, petitioner assigning two


(2) errors allegedly committed by the Tax Court, all of which converge on
the singular issue of whether or not petitioner should be liable for the
assessed donee's gift tax on the P10,000.00 donated for the construction
of the Victorias Parish Church.

Section 22 (3), Art. VI of the Constitution of the Philippines, exempts from


taxation cemeteries, churches and parsonages or convents, appurtenant
thereto, and all lands, buildings, and improvements used exclusively for
religious purposes. The exemption is only from the payment of taxes
assessed on such properties enumerated, as property taxes, as contra
distinguished from excise taxes. In the present case, what the Collector
assessed was a donee's gift tax; the assessment was not on the properties
themselves. It did not rest upon general ownership; it was an excise upon
the use made of the properties, upon the exercise of the privilege of
receiving the properties (Phipps vs. Com. of Int. Rec. 91 F 2d 627).
Manifestly, gift tax is not within the exempting provisions of the section just
mentioned. A gift tax is not a property tax, but an excise tax imposed on the
transfer of property by way of giftinter vivos, the imposition of which on
property used exclusively for religious purposes, does not constitute an
impairment of the Constitution. As well observed by the learned respondent
Court, the phrase "exempt from taxation," as employed in the Constitution
(supra) should not be interpreted to mean exemption from all kinds of
taxes. And there being no clear, positive or express grant of such privilege
by law, in favor of petitioner, the exemption herein must be denied.

The next issue which readily presents itself, in view of petitioner's thesis,
and Our finding that a tax liability exists, is, who should be called upon to
pay the gift tax? Petitioner postulates that he should not be liable, because
at the time of the donation he was not the priest of Victorias. We note the
merit of the above claim, and in order to put things in their proper light, this
Court, in its Resolution of March 15, 1965, ordered the parties to show
cause why the Head of the Diocese to which the parish of Victorias
pertains, should not be substituted in lieu of petitioner Rev. Fr. Casimiro
Lladoc it appearing that the Head of such Diocese is the real party in
interest. The Solicitor General, in representation of the Commissioner of
Internal Revenue, interposed no objection to such a substitution. Counsel
for the petitioner did not also offer objection thereto.

On April 30, 1965, in a resolution, We ordered the Head of the Diocese to


present whatever legal issues and/or defenses he might wish to raise, to
which resolution counsel for petitioner, who also appeared as counsel for
the Head of the Diocese, the Roman Catholic Bishop of Bacolod,
manifested that it was submitting itself to the jurisdiction and orders of this
Court and that it was presenting, by reference, the brief of petitioner Rev.
Fr. Casimiro Lladoc as its own and for all purposes.

In view here of and considering that as heretofore stated, the assessment


at bar had been properly made and the imposition of the tax is not a
violation of the constitutional provision exempting churches, parsonages or
convents, etc. (Art VI, sec. 22 [3], Constitution), the Head of the Diocese, to
which the parish Victorias Pertains, is liable for the payment thereof.

The decision appealed from should be, as it is hereby affirmed insofar as


tax liability is concerned; it is modified, in the sense that petitioner herein is
not personally liable for the said gift tax, and that the Head of the Diocese,
herein substitute petitioner, should pay, as he is presently ordered to pay,
the said gift tax, without special, pronouncement as to costs.

CASE NO. 3
G.R. No. L-7988 January 19, 1916

THE YOUNG MEN'S CHRISTIAN ASSOCIATION OF MANILA, plaintiff-


appellant,
vs.
THE COLLECTOR OF INTERNAL REVENUE, defendant-appellee.

MORELAND, J.:

The question at issue in this case is whether or not the building and
grounds of the Young Men's Christian Association of Manila are subject to
taxation, under section 48 of the charter of the city of Manila quoted in the
footnote [syllabus].

The city of Manila, contending that the property is taxable, assessed it and
levied a tax thereon. It was paid under protest and this action begun to
recover it on the ground that the property was exempt from taxation under
the charter of the city of Manila. The decision was for the city and the
association appealed.

The Young Men's Christian Association came to the Philippine with the
army of occupation in 1898. When the large body of troops in Manila was
removed to permanent quarters at Fort William McKinley in February, 1905,
an independent association for Manila was organized under the direction of
the Army and navy departments. Shortly after the organization of the
association the directors made a formal request to the international
committee of the Young Men's Christian Association in New York City for
the assistance and cooperation of its foreign department. I response to this
request Mr. John R. Mott, general secretary of the foreign department,
visited Manila in January 1907. After a conference with the directors and
interested friends it was decided to conduct a campaign to secure funds for
an adequate and permanent association. In the name of the international
committee and friends in America Mr. Mott guaranteed P170,000 for the
construction of a building on condition that friend in the Philippines secure
the site and adequately furnish the building. The campaign for funds was
begun here on February 15, 1907, and, by the 15th of March following,
P83,000 was subscribed, nearly one thousand different persons
contributing. Thereupon the Young Men's Christian Association of Manila
was incorporated under the law of the Philippine Islands and received its
character in June, 1907.
A site for the new building was selected on Calle Concepcion, Ermita, and
the building contract was let on the 8th of January following. The
cornerstone was laid with appropriate ceremonies on July 10, 1908, and
the building was formally dedicated on October 20, 1909.

The building is composed of three parts. The main structure, located in the
center, is three stories high and includes a reception hall, social hall and
game rooms, lecture room, library, reading room and rooming apartments.
The small building lying to the left of the principal structure, as one faces
the front from Called Concepcion, is the kitchen and servant's quarters.
The large wing to the right is known as the athletic building, where the
bowling alleys, swimming pool, locker rooms and gymnasium-auditorium
are located. The construction is of reinforced concrete with steel trussed
roof covered with interlocking red tiles.

The main or central portion of the building is 150 by 45 feet and stands 20
meters back from the sidewalk. An iron canopy, suspended by brackets,
projects over the driveway which lies in front and shelters the main
entrance. A wide arched doorway opens into a large reception room, on the
left of which is the public office and the secretary's private office, while on
the right is the reading and writing rooms, and beyond that the library, each
about 30 feet square. From the reception room, on the left, a broad
concrete stairway leads to the second floor.

Passing out of the rear of the reception hall one enters upon a veranda
some 15 feet in width running the full length of the main structure which
looks out on the tennis courts and affords an excellent place for lounging,
games and general social purposes. To the left of the entrance hall and
also opening upon the veranda are two large rooms of about the same size
as those on the right of the reception hall, the first being the billiard room
and the other the restaurant. The athletic building is entered from the rear
veranda. It is a two story wing 68 by 85 feet. Passing from the veranda into
the athletic hall one finds first, on the left, the toilet room, and beyond this,
to the rear, the shower baths and locker rooms. The swimming pool is in
the center of the athletic wing and is 60 by 19 feet in size, lined with
cement. To the right of the swimming pool are the bowling alleys. A wide
stairways leads to the second floor. Above the swimming-pool and bowling
alley is a large room 50 by 85 feet which is the gymnasium and also the
auditorium when occasion requires. About one-third of the roof converting
the athletic wing is used as a roof garden.
The second and third floors of the main building are given over almost
wholly to rooming apartments and baths. On the second floor over the
entrance hall is a members' parlor, from which a small balcony projects
over the main entrance. The remainder of the second floor and all to the
third are composed of the living rooms. These apartments, of which there
are 14 on the second and 20 on the third floor are approximately 18 by 14
feet each. They provide accommodations for 64 men.

The purposes of the association, as set forth in its charter and constitution,
are:

To develop the Christian character and usefulness of its members, to


improve the spiritual, intellectual, social and physical condition of
young men, and to acquire, hold, mortgage, and dispose of the
necessary lands, buildings and personal property for the use of said
corporation exclusively for religious, charitable and educational
purposes, and not for investment or profit.

The purposes of this association shall be exclusively religious,


charitable and educational, in developing the Christian character and
usefulness of its members and in improving the spiritual, mental,
social and physical condition of young men.

Speaking generally, the association claims exemption from taxation on the


ground that it is a religious, charitable and educational institution combined.
That it has an educational department is not denied. It is undisputed that
the aim of this department is to furnish, at much less than cost, instruction
in subjects that will greatly increase the mental efficiency and wage-earning
capacity of young men, prepare them in special lines of business and offer
them special lines of study. Attention is given to subjects included in civil
service and consular examinations both here and in the United States. The
courses offer commercial subjects, as well as many others, and include
stenography and typewriting, bookkeeping, arithmetic, English composition,
foreign languages, including elementary and advanced Spanish and
Tagalog, special courses in Philippine history, public speaking, surveying,
horticulture, tropical dependencies, and the group of subjects required for
entrance into the consular services, such as political economy, American
and modern history. Courses are also offered in law, social, ethics, political
economy and other subjects.

The institution has also its religious department. In that department there
are, generally speaking, three main lines of work Bible study, religious
meetings and special classes. Course are offered in the Life of Christ and
the Old Testament and in the larger social significance of the teachings of
Jesus. Meetings are held on Sunday afternoons and several times during
the week and courses are offered in the study of missions, in the method of
teaching the Bible and kindred subjects.

The atmosphere of the Young Men's Christian Association is distinctly


religious and there is constant effort on the part of the officials to create a
religious spirit; and to that end there is continuous pressure to induce
members to attend not only the religious services of the association but
also those of one or another of the churches of Manila. While the
association is nonsectarian, it is preeminently religious; and the
fundamental basis and groundwork is the Christian religion. All of the
officials of the association are devoted Christians, members of a church,
and have dedicated their lives to the spread of the Christian principles and
building of Christian character.

The institution also has charitable features. It makes no profit on any of its
activities. The professors and instructors in all departments serve without
pay and freely give of their time and ability to further the purposes of the
institution. The chief secretary and his assistant receive no salary from the
institution. Whatever they are paid comes from the United States. In
estimating the cost of instruction in the various departments, or of the other
things for which pay is received, no account is taken of the interest on the
money invested in the grounds and building, of deterioration in value
resulting from the lapse of time, or of the fact that the professors and
instructors and certain officials receive no pay. We have, then, a building
and grounds, professors and instructors, and certain institution officials,
furnished free of charge, and which makes no profit even on that basis.
This, it would seem, would lend some color to the claim that the association
takes on some of the aspect of a charitable institution. While it appears that
the association is not exclusively religious or charitable or educational, it is
demonstrated that it is a happy combination of all three, giving to its
membership the religious opportunities of the church, the educational
opportunities of the school and the blessings of charity where needed
without the recipient feeling or even knowing that he is the object of charity.

It is claimed, however, that the institution is run as a business in that it


keeps a lodging and boarding house. It may be admitted that there are 64
persons occupying rooms in the main building as lodgers or roomers and
that they take their meals at the restaurant below. These facts, however,
are far from constituting a business in ordinary acceptation of the word. In
the first place, no profit is realized by the association in any sense. In the
second place, it is undoubted, as it is undisputed, that the purpose of the
association is not, primarily, to obtain the money which comes from the
lodgers and boarders. The real purpose is to keep the membership
continually within the sphere of influence of the institution; and thereby to
prevent, as far as possible, the opportunities which vice president to young
men in foreign countries who lack home or other similar influences. We
regard this feature of the institution not as a business or means of making
money, but, rather, as a very efficient means of maintaining the influence of
the institution over its membership. As we held in the case of the Columbia
Club, religious and moral teachings do not always stop with the spoken
word; but to be effective in the highest degree they must follow the young
man through as many moments of his life as possible. To this end the
feature of the Young Men's Christian Association to which objection is
made lends itself with great effect; and we are, accordingly, forced to
regards this activity of the institution not as a business but as a method by
which the institution maintains its influence and conserves the benefits
which its organization was designed to confer.

As we have seen in the description already given of the association


building and grounds, no part is occupied for any but institutional purposes.
From end to end the building and grounds are devoted exclusively to the
purposes stated in the constitution of the association. The library and
reading rooms, the game and lounging halls, the lecture rooms, the
auditorium, the baths, pools, devices for physical development, and the
grounds, are all dedicated exclusively to the objects and purpose of the
association the building of Christian character and the creation of moral
sentiment and fiber in men. It is the belief of the Young Men's Christian
Association that a Christian man, a man of moral sentiment and firm moral
fiber, is yet a better man for being also all-round man one who is sound
not only according to Christian principles and the highest moral
conceptions, but physically and mentally; whose body and mind act in
harmony and within the limits which the rights of others set; who are
gentleman in physical and mental struggles, as well as in religious service;
who have self-respect and self-restraint; who can hit hard and still kindly;
who can lose without envy; who can congratulate his conqueror with
sincerity; who can vie without temper, contend without malice, concede
without regret; who can win and still be generous, in short, one who
fights hard but square. To the production of such men the association lends
all its efforts, husbands all its resources.
We are aware that there are many decisions holding that institutions of this
character are not exempt from taxation; but, on investigation, we find that
the majority of them are based on statutes much narrower than the one
under consider and that in all probability the decisions would have been
otherwise if the court had been passing on a statute similar to ours. On the
other hand, there are many decisions of the courts in the United States
founded on statutes like the Philippine statute which hold that associations
of this class are exempt from taxation. We have examined all of the
decisions, both for and against, with care and deliberation, and we are
convinced that the weight of authority sustains the positions we take in this
case.

There is no doubt about the correctness of the contention that an institution


must devote itself exclusively to one or the other of the purpose mentioned
in the statute before it can be exempt from taxation; but the statute does
not say that it must be devoted exclusively to any one of the purposes
therein mentioned. It may be a combination of two or three or more of those
purposes and still be entitled to exempt. The Young Men's Christian
Association of Manila cannot be said to be an institution
used exclusively for religious purposes, or an institution used exclusively
for charitable purposes, or an institution devoted exclusively to educational
purposes; but we believe it can be truthfully said that it is an institution used
exclusively for all three purposes, and that, as such, it is entitled to be
exempted from taxation.

The judgment appealed from is reversed and the cause remanded with
instructions to enter a judgment against the city of Manila and in favor of
the Young Men's Christian Association of Manila in the sum of P6,221.35.
Without costs in this instance. So ordered.

CASE NO. 4

G.R. No. L-27588 December 31, 1927

THE ROMAN CATHOLIC BISHOP OF NUEVA SEGOVIA, as


representative of the Roman Catholic Apostolic Church, plaintiff-
appellant,
vs.
THE PROVINCIAL BOARD OF ILOCOS NORTE, ET AL., defendants-
appellants.
AVANCEA, J.:

The plaintiff, the Roman Catholic Apostolic Church, represented by the


Bishop of Nueva Segovia, possesses and is the owner of a parcel of land in
the municipality of San Nicolas, Ilocos Norte, all four sides of which face on
public streets. On the south side is a part of the churchyard, the convent
and an adjacent lot used for a vegetable garden, containing an area off
1,624 square meters, in which there is a stable and a well for the use of the
convent. In the center is the remainder of the churchyard and the church.
On the north is an old cemetery with two of its walls still standing, and a
portion where formerly stood a tower, the base of which still be seen,
containing a total area of 8,955 square meters.

As required by the defendants, on July 3, 1925 the plaintiff paid, under


protest, the land tax on the lot adjoining the convent and the lot which
formerly was the cemetery with the portion where the tower stood.

The plaintiff filed this action for the recovery of the sum paid by to the
defendants by way of land tax, alleging that the collection of this tax is
illegal. The lower court absolved the defendants from the complaint in
regard to the lot adjoining convent and declared that the tax collected on
the lot, which formerly was the cemetery and on the portion where the
lower stood, was illegal. Both parties appealed from this judgment.

The exemption in favor of the convent in the payment of the land tax (sec.
344 [c] Administrative Code) refers to the home of the parties who presides
over the church and who has to take care of himself in order to discharge
his duties. In therefore must, in the sense, include not only the land actually
occupied by the church, but also the adjacent ground destined to the
ordinary incidental uses of man. Except in large cities where the density of
the population and the development of commerce require the use of larger
tracts of land for buildings, a vegetable garden belongs to a house and, in
the case of a convent, it use is limited to the necessities of the priest, which
comes under the exemption.lawphi1.net

In regard to the lot which formerly was the cemetery, while it is no longer
used as such, neither is it used for commercial purposes and, according to
the evidence, is now being used as a lodging house by the people who
participate in religious festivities, which constitutes an incidental use in
religious functions, which also comes within the exemption.
The judgment appealed from is reversed in all it parts and it is held that
both lots are exempt from land tax and the defendants are ordered to
refund to plaintiff whatever was paid as such tax, without any special
pronouncement as to costs. So ordered.

Johnson, Street, Villamor, Ostrand, Johns and Villa-Real, JJ., concur.

Separate Opinions

MALCOLM, J., dissenting:

The Assessment Law exempts from taxation "Cemeteries or burial grounds


. . . and all lands, buildings, and improvements use exclusively for religious
. . . purposes, but this exemption shall not extend to property held for
investment, or which produces income, even though the income be
devoted to some one or more of the purposes above specified."
(Administrative Code, sec. 344; Act No. 2749, sec. 1.) That is the
applicable law. The facts may be taken as found by the judge of First
Instance, who made his findings more certain by an ocular inspection of the
property under consideration. The testimony and the inspection disclosed
that the lot Known as "huerta" was not devoted to religious purposes, and
that the old cemetery had long since leased to be used as such and had
been planted to corn. Those are the facts. The test to be applied to the
combined law and facts must be the actual use of the property. The
property legally exempt from the payment of taxes must be devoted to
some purpose specified in the law. A "huerta" not needed or used
exclusively for religious purposes is not thus exempt. A cemetery or burial
ground no longer a cemetery or a burial ground is not thus exempt.
Accordingly, I prefer to vote for the affirmance of Judge Mariano's decision.

CASE NO 5
G.R. No. L-15270 September 30, 1961

JOSE V. HERRERA and ESTER OCHANGCO HERRERA, petitioners,


vs.
THE QUEZON CITY BOARD OF ASSESSMENT APPEALS, respondent.

CONCEPCION, J.:

Appeal, by petitioners Jose V. Herrera and Ester Ochangco Herrera,


from a decision of the Court of Tax Appeals affirming that of the Board of
Assessment Appeals of Quezon City, which held that certain properties of
said petitioners are subject to assessment for purposes of real estate tax.

The facts and the issue are set forth in the aforementioned decision
of the Court of Tax Appeals, from which we quote:

On July 24, 1952, the Director of the Bureau of Hospitals


authorized the petitioners to establish and operate the "St.
Catherine's Hospital", located at 58 D. Tuazon, Sta. Mesa Heights,
Quezon City (Exhibit "F-1", p. 7, BIR rec.). On or about January 3,
1953, the petitioners sent a letter to the Quezon City Assessor
requesting exemption from payment of real estate tax on the lot,
building and other improvements comprising the hospital stating that
the same was established for charitable and humanitarian purposes
and not for commercial gain (Exhibit "F-2", pp. 8-9, BIR rec.). After an
inspection of the premises in question and after a careful study of the
case, the exemption from real property taxes was granted effective
the years 1953, 1954 and 1955.

Subsequently, however, in a letter dated August 10, 1955


(Exhibit "E", p. 65, CTA rec.) the Quezon City Assessor notified the
petitioners that the aforesaid properties were re-classified from
exempt to "taxable" and thus assessed for real property taxes
effective 1956, enclosing therewith copies of Tax Declarations Nos.
19321 to 19322 covering the said properties. The petitioners
appealed the assessment to the Quezon City Board of Assessment
Appeals, which, in a decision dated March 31, 1956 and received by
the former on May 17, 1956, affirmed the decision of the City
Assessor. A motion for reconsideration thereof was denied on March
8, 1957. From this decision, the petitioners instituted the instant
appeal.1awphl.nt
The building involved in this case is principally used as a
hospital. It is mainly a surgical and orthopedic hospital with emphasis
on obstetrical cases, the latter constituting 90% of the total number of
cases registered therein. The hospital has thirty-two (32) beds, of
which twenty (20) are for charity-patients and twelve (12) for pay-
patients. From the evidence presented by petitioners, it is made to
appear that there are two kinds of charity patients (a) those who
come for consultation only ("out-charity patients"); and (b) those who
remain in the hospital for treatment ("lying-in-patients"). The out-
charity patients are given free consultation and prescription, although
sometimes they are furnished with free medicines which are not
costly like aspirin, sulfatiazole, etc. The charity lying-in-patients are
given free medical service and medicine although the food served to
the pay-patients is very much better than that given to the former.
Although no condition is imposed by the hospital on the admission of
charity lying-in-patients, they however, usually give donations to the
hospital. On the other hand, the pay-patients are required to pay for
hospital services ranging from the minimum charge of P5.00 to the
maximum of P40.00 for each day of stay in the hospital. The income
realized from pay-patients is spent for the improvement of the charity
wards. The hospital personnel is composed of three nurses, two
graduate midwives, a resident physician receiving a salary of
P170.00 a month and the petitioner, Dr. Ester Ochangco Herrera, as
directress. As such directress, the latter does not receive any salary.

Petitioners also operate within the premises of the hospital the


"St. Catherine's School of Midwifery" which was granted government
recognition by the Secretary of Education on February 1, 1955
(Exhibit "F-3", p. 10, BIR rec.) This school has an enrollment of about
two hundred students. The students are charged a matriculation fee
of P300.00 for 1- years, plus P50.00 a month for board and lodging,
which includes transportation to the St. Mary's Hospital. The students
practice in the St. Catherine's Hospital, as well as in the St. Mary's
Hospital, which is also owned by the petitioners. A separate set of
accounting books is maintained by the school for midwifery distinct
from that kept by the hospital. The petitioners alleged that the
accounts of the school are not included in Exhibits "A", "A-1", "A-2",
"B", "B-1", "B-2", "C", "C-1" and "C-2" which relate to the hospital
only. However, the petitioners have refused to submit a separate
statement of accounts of the school. A brief tabulation indicating the
amount of income of the hospital for the years 1954, 1955 and 1956,
and its operational expenses, is as follows:
1954
Income Expenses Deficit
P 5,280.04 P1,303.80
Charity
P10,803.26
Ward P14,779.50
Pay Ward
P16,083.30
(Exhibits "A", "A-1" and "A-2")

1955
Income Expenses Deficit
P 6,859.32
Charity
14,038.92
Ward P17,433.30 P3,464.94
Pay Ward
P20,898.24
(Exhibits "B", "B-1" and "B-2")

1956
Income Expenses Deficit
P 5,559.89 P 341.53
Charity
16,249.04
Ward P21,467.40
Pay Ward
P21,809.93
(Exhibits "C", "C-1" and "C-2")

Aside from the St. Catherine and St. Mary hospitals, the petitioners
declared that they also own lands and coconut plantations in Quezon
Province, and other real estate in the City of Manila consisting of
apartments for rent. The petitioner, Jose V. Herrera, is an architect, actively
engaged in the practice of his profession, with office at Tuason Building,
Escolta, Manila. He was formerly Chairman, Board of Examiners for
Architects and Chairman, Board of Architects connected with the United
Nations. He was also connected with the Allied Technologists which
constructed the Veterans Hospital in Quezon City.
The only issue raised, is whether or not the lot, building and other
improvements occupied by the St. Catherine Hospital are exempt from the
real property tax. The resolution of this question boils down to the corollary
issue as to whether or not the said properties are used exclusively for
charitable or educational purposes. (Petitioners' brief, pp. 24-29).

The Court of Tax Appeals decided the issue in the negative, upon
the ground that the St. Catherine's Hospital "has a pay ward for ... pay-
patients, who are charged for the use of the private rooms, operating room,
laboratory room, delivery room, etc., like other hospitals operated for profit"
and that "petitioners and their family occupy a portion of the building for
their residence." With respect to petitioners' claim for exemption based
upon the operation of the school of midwifery, the Court conceded that "the
proposition might be proper if the property used for the school of midwifery
were separate and distinct from the hospital." It added, however, that, "in
the instant case, the portions of the building used for classrooms of the
school of midwifery have not been shown to be exclusively for school
purposes"; that said portions "rather ... have a dual use, i.e., for classroom
and for hospital use, the latter not being a purpose that renders the
property tax exempt;" that part of the building and lot in question "is used
as a hospital, part as residence of the petitioners, part as garage, part as
dormitory and part as school"; and that "the portion dedicated to
educational and charitable purposes can not be identified from those
destined to other uses; and the building is itself an indivisible unit of
property."

It should be noted, however, that, according to the very statement of


facts made in the decision appealed from, of the thirty-two (32) beds in the
hospital, twenty (20) are for charity-patients; that "the income realized from
pay-patients is spent for improvement of the charity wards;" and that
"petitioners, Dr. Ester Ochangco Herrera, as directress" of said hospital,
"does not receive any salary," although its resident physician gets a
monthly salary of P170.00. It is well settled, in this connection, that the
admission of pay-patients does not detract from the charitable character of
a hospital, if all its funds are devoted "exclusively to the maintenance of the
institution" as a "public charity" (84 C.J.S., 617; see, also, 51 Am. Jur. 607;
Cooley on Taxation, Vol. 2, p. 1562; 144 A.L.R., 1489-1492). "In other
words, where rendering charity is its primary object, and the funds derived
from payments made by patients able to pay are devoted to the benevolent
purposes of the institution, the mere fact that a profit has been made will
not deprive the hospital of its benevolent character" (Prairie Du Chien
Sanitarium Co. vs. City of Prairie Du Chien, 242 Wis. 262, 7 NW [2d] 832,
144 A.L.R. 1480).

Thus, we have held that the U.S.T. Hospital was not established for
profit-making purposes, although it had 140 paying beds maintained only to
partly finance the expenses of the free wards, containing 203 beds for
charity patients (U.S.T. Hospital Employees Association vs. Sto. Tomas
University Hospital, L-6988, May 24, 1954), that St. Paul's Hospital of Iloilo,
a corporation organized for "charitable educational and religious purposes"
can not be considered as engaged in business merely because its
pharmacy department charges paying patients the cost of their medicine,
plus 10% thereof, to partly offset the cost of medicines supplied free of
charge to charity patients (Collector of Internal Revenue vs. St. Paul's
Hospital of Iloilo, L-12127, May 25, 1959), and that the amendment of the
original articles of incorporation of the University of Visayas to convert it
from a non-stock to a stock corporation and the increase of its assets from
P9,000 to P50,000, distributed among the members of the original non-
stock corporation in terms of shares of stock, as well as the subsequent
move of its board of trustees to double the stock dividends of the
corporation, in view of a gain of P200,000.00 in property, besides good-will,
which was not carried out, does not justify the inference that the
corporation has become one for business and profit, none of its profits
having inured to the benefit of any stockholder or individual (Collector of
Internal Revenue vs. University of Visayas, L-13554, February 28, 1961).

Moreover, the exemption in favor of property used exclusively for


charitable or educational purposes is "not limited to property actually
indispensable" therefor (Cooley on Taxation, Vol. 2, p. 1430), but extends
to facilities which are "incidental to and reasonably necessary for" the
accomplishment of said purposes, such as, in the case of hospitals, "a
school for training nurses, a nurses' home, property use to provide housing
facilities for interns, resident doctors, superintendents, and other members
of the hospital staff, and recreational facilities for student nurses, interns
and residents" (84 C.J.S., 621), such as "athletic fields," including "a farm
used for the inmates of the institution" (Cooley on Taxation, Vol. 2, p.
1430).

Within the purview of the Constitutional exemption from taxation, the


St. Catherine's Hospital is, therefore, a charitable institution, and the fact
that it admits pay-patients does not bar it from claiming that it is devoted
exclusively to benevolent purposes, it being admitted that the income
derived from pay-patients is devoted to the improvement of the charity
wards, which represent almost two-thirds (2/3) of the bed capacity of the
hospital, aside from "out-charity patients" who come only for consultation.

Again, the existence of "St. Catherine's School of Midwifery", with an


enrollment of about 200 students, who practice partly in St. Catherine's
Hospital and partly in St. Mary's Hospital, which, likewise, belongs to
petitioners herein, does not, and cannot, affect the exemption to which St.
Catherine's Hospital is entitled under our fundamental law. On the contrary,
it furnishes another ground for exemption. Seemingly, the Court of Tax
Appeals was impressed by the fact that the size of said enrollment and the
matriculation fee charged from the students of midwifery, aside from the
amount they paid for board and lodging, including transportation to St.
Mary's Hospital, warrants the belief that petitioners derive a substantial
profit from the operation of the school aforementioned. Such factor is,
however, immaterial to the issue in the case at bar, for "all lands, building
and improvements used exclusively for religious, charitable or educational
purposes shall be exempt from taxation," pursuant to the Constitution,
regardless of whether or not material profits are derived from the operation
of the institutions in question. In other words, Congress may, if it deems fit
to do so, impose taxes upon such "profits", but said "lands, buildings and
improvements" are beyond its taxing power.

Similarly, the garage in the building above referred to which was


obviously essential to the operation of the school of midwifery, for the
students therein enrolled practiced, not only in St. Catherine's Hospital, but,
also, in St. Mary's Hospital, and were entitled to transportation thereto
for Mrs. Herrera received no compensation as directress of St. Catherine's
Hospital were incidental to the operation of the latter and of said school,
and, accordingly, did not affect the charitable character of said hospital and
the educational nature of said school.

WHEREFORE, the decision of the Court of Tax Appeals, as well as


that of the Assessment Board of Appeals of Quezon City, are hereby
reversed and set aside, and another one entered declaring that the lot,
building and improvements constituting the St. Catherine's Hospital are
exempt from taxation under the provisions of the Constitution, without
special pronouncement as to costs. It is so ordered.

Bengzon, C.J., Padilla, Labrador, Reyes, J.B.L., Paredes and De Leon, JJ.,
concur.
CASE NO. 6

G.R. No. L-19445 August 31, 1965

COMMISSIONER OF INTERNAL REVENUE, petitioner,


vs.
BISHOP OF THE MISSIONARY DISTRICT OF THE PHILIPPINE
ISLANDS OF THE PROTESTANT EPISCOPAL CHURCH IN THE U.S.A.
and THE COURT OF TAX APPEALS, respondents.

REGALA, J.:

This is an appeal taken from the Commissioner of Internal Revenue from a


decision of the Court of Tax Appeals ordering him to refund to the Bishop of
the Missionary District of the Philippines Islands of the Protestant Episcopal
in the U.S.A. the sum of P118,847 which the latter had paid by way of
compensating tax.

Respondent Bishop of the Missionary District of the Philippines Islands of


the Protestant, Episcopal Church in the U.S.A. is a corporation sole duly
registered with the Securities and Exchange Commission. He is in charge
of the administration of the temporalities and the management of the
estates and properties in the Philippines of the Domestic and Foreign
Missionary Society of the Protestant Episcopal Church in the United States
(hereinafter referred to as Missionary Society). On the other hand, the
Missionary District of the Philippine Islands of the Protestant Episcopal
Church the U.S.A. (hereinafter referred to as Missionary District) is a duly
incorporated and established religious society. It owns and operates the St.
Luke's Hospital in Quezon City, the Brent Hospital in Zamboanga City and
the St. Stephen's High School in Manila.

On different dates in 1957, 1958 and 1959, the Missionary District in the
Philippines received from the Missionary Society in the United States
various shipments of materials, supplies, equipment and other articles
intended for use in the construction and operation of the new St. Luke's
Hospital in Quezon City and the Brent Hospital and St. Stephen's High
School. The Missionary District also received from a certain William Minnis
of Canada a stove for the use of the Brent Hospital.

On these shipments, the Commissioner of Internal Revenue levied and


collected the total amount of P118,847 as compensating tax.

The Bishop of the Missionary District filed claims for refund of the amount
he had paid on the ground that under Republic Act No. 1916, the materials
and articles received by him were exempt from the payment of
compensating tax. As the two-year period for recovery of tax was about to
expire, the Bishop of the Missionary District filed a petition for review in the
Court of Tax Appeals, without awaiting action on his claim for refund.
Subsequently, he also filed two supplemental petitions for review covering
other shipments received by him and on which he had paid compensating
taxes.

On August 21, 1959, the petitioner, the Commissioner of Internal Revenue


denied respondent's claim for refund on the ground that St. Luke's Hospital
was not a charitable institution and, therefore, was not exempt under the
law. This is also the position he maintained in his answer to the first
supplemental petition for review in the Tax Court.

After trial, the Tax Court rendered a decision holding the shipments exempt
from taxation ordering the petitioner to refund to the respondent the amount
of P118,847. It denied a motion for reconsideration of its decision,
prompting petitioner to interpose this appeal.

Petitioner makes the following assignment of errors:

1. The shipments cannot be considered donations because the Missionary


District is merely a branch of the Missionary Society. The two hold identical
interests.

2. The Tax Court's holding that the real donors are the people who
contributed money to the Missionary Society in America is based on the
uncorroborated testimony of Robert Meyer, Treasurer of the Missionary
District in the Philippines, who did not have personal knowledge of the
alleged contribution. The alleged contributors were not even identified.

3. The St. Luke's Hospital is not a charitable institution and, therefore, is


not exempt from taxation because its admits pay patients. The Secretary of
Finance states in his Dept. Order No. 18 that hospitals admitting pay
patients and charity patients are not charitable institutions.

This order was issued pursuant to the power given him by the last proviso
of Republic Act No. 1916 which provides:

SECTION 1. The provisions of existing laws to the contrary


notwithstanding, all donations in any form and all articles imported
into the Philippines, consigned to a duly incorporated or established
international civic organization, religious or charitable society or
institution for civic, religious or charitable purposes shall be exempt
from the payment of all taxes and duties upon proof satisfactory to
the Commissioner of Customs and/or Collector of Internal Revenue
that such donations in any form and articles so imported are
donations for its use or for free distribution and not for barter, sale or
hire: Provided, however, That in case such are subsequently
conveyed or transferred to other parties for a consideration, taxes
and duties shall be collected thereon at double the rate provided
under existing laws payable by the transferor: Provided, further, That
rules and regulation, shall be promulgated by the Department of
Finance for the implementation of this Act.

This Court has already held that the following requisites must concur in
order that a taxpayer may claim exemption under the law (1) the imported
articles must have been donated; (2) the donee must be a duly
incorporated or established international civic organization, religious or
charitable society, or institution for civic religious or charitable purposes;
and (3) the articles so imported must have been donated for the use of the
organization, society or institution or for free distribution and not for barter,
sale or hire. (Commissioner v. Church of Jesus Christ "New Jerusalem,"
G.R. No. L-15772, Oct. 31, 1961)

In this appeal, the petitioner contends that the importations in question


cannot be considered "donations" because the Missionary Society, which
made the shipments, and the Missionary District in the Philippines are not
different persons but rather are one and the same, the latter being a mere
branch of the former.

It should be enough to point out that by stipulation of the parties, the


respondent Bishop is admitted to be a corporation sole duly registered with
the Securities and Exchange Commission and that the Missionary District
is a "duly incorporated and established religious society." They are,
therefore, entities separate and distinct from the Missionary Society whose
address is at 281 Fourth South, New York 10, N.Y., U.S.A. The fact that the
Missionary District, of which respondent is the Bishop, is a branch of the
Missionary Society is of no moment. For that matter, so is the Roman
Catholic Church in the Philippines a branch of the Universal Roman
Catholic Apostolic Church, but it is a branch only in religious matters, in
matters of faith and dogma. In other respects, it is independent. (Roman
Catholic Apostolic Administrator v. Land Registration Commissioner, G.R.
No. L-8451, December 20, 1957)

The Tax Court's finding that the materials and supplies were purchased by
the Missionary Society with money obtained from contributions from other
people who should be considered the real donors is also assailed as being
based on the uncorroborated testimony of Robert Meyer, Treasurer of the
Missionary District, who it is said, did not have personal knowledge of the
matter testified to by him. This is not so. As respondent points out, the
various deeds of donation state in paragraph 3 that the "Missionary Society
is a non-profit organization and derives its support from voluntary
contributions."

Petitioner's other point is that St. Luke's Hospital is not a charitable


institution considering that it admits paying patients. Indeed, it was on this
ground that petitioner denied respondent's claim for refund. It is argued that
pursuant to the last proviso of Republic Act No. 1916, the Secretary of
Finance issued Department Order No. 18 on October 20, 1958, stating that

Hospitals that admit pay patients and charity patients ... are not
charitable institutions for purposes of Republic Act No 1916.

Again, it should be enough to point out that the admission of pay patients
does not detract from the charitable character of a hospital, if, as in the
case of St. Luke's Hospital, its funds are devoted exclusively to the
Maintenance of the institution (Cf., e.g., Herrera v. Quezon City Board of
Assessment Appeals, G.R. No. 15270, September 30, 1961). The
Secretary of Finance cannot limit or otherwise qualify the enjoyment of this
exemption granted under Republic Act No. 1916 in implementing the law.

WHEREFORE, the decision appealed from is hereby affirmed with costs.


Bengzon, C.J., Concepcion, Reyes, J.B.L., Dizon, Makalintal, Bengzon,
J.P., and Zaldivar, JJ., concur.
Bautista Angelo, J., took no part.

CASE NO. 7

G.R. No. L-49336 August 31, 1981

THE PROVINCE OF ABRA, represented by LADISLAO ANCHETA,


Provincial Assessor, petitioner,
vs.
HONORABLE HAROLD M. HERNANDO, in his capacity as Presiding
Judge of Branch I, Court of First Instance Abra; THE ROMAN
CATHOLIC BISHOP OF BANGUED, INC., represented by Bishop Odilo
etspueler and Reverend Felipe Flores, respondents.

FERNANDO, C.J.:

On the face of this certiorari and mandamus petition filed by the Province of
Abra, 1 it clearly appears that the actuation of respondent Judge Harold M.
Hernando of the Court of First Instance of Abra left much to be desired.
First, there was a denial of a motion to dismiss 2 an action for declaratory
relief by private respondent Roman Catholic Bishop of Bangued desirous of
being exempted from a real estate tax followed by a summary
judgment 3granting such exemption, without even hearing the side of
petitioner. In the rather vigorous language of the Acting Provincial Fiscal,
as counsel for petitioner, respondent Judge "virtually ignored the pertinent
provisions of the Rules of Court; ... wantonly violated the rights of petitioner
to due process, by giving due course to the petition of private respondent
for declaratory relief, and thereafter without allowing petitioner to answer
and without any hearing, adjudged the case; all in total disregard of basic
laws of procedure and basic provisions of due process in the constitution,
thereby indicating a failure to grasp and understand the law, which goes
into the competence of the Honorable Presiding Judge." 4

It was the submission of counsel that an action for declaratory relief would
be proper only before a breach or violation of any statute, executive order
or regulation. 5 Moreover, there being a tax assessment made by the
Provincial Assessor on the properties of respondent Roman Catholic
Bishop, petitioner failed to exhaust the administrative remedies available
under Presidential Decree No. 464 before filing such court action. Further,
it was pointed out to respondent Judge that he failed to abide by the
pertinent provision of such Presidential Decree which provides as follows:
"No court shall entertain any suit assailing the validity of a tax assessed
under this Code until the taxpayer, shall have paid, under protest, the tax
assessed against him nor shall any court declare any tax invalid by reason
of irregularities or informalities in the proceedings of the officers charged
with the assessment or collection of taxes, or of failure to perform their
duties within this time herein specified for their performance unless such
irregularities, informalities or failure shall have impaired the substantial
rights of the taxpayer; nor shall any court declare any portion of the tax
assessed under the provisions of this Code invalid except upon condition
that the taxpayer shall pay the just amount of the tax, as determined by the
court in the pending proceeding." 6

When asked to comment, respondent Judge began with the allegation that
there "is no question that the real properties sought to be taxed by the
Province of Abra are properties of the respondent Roman Catholic Bishop
of Bangued, Inc." 7 The very next sentence assumed the very point it asked
when he categorically stated: "Likewise, there is no dispute that the
properties including their procedure are actually, directly and exclusively
used by the Roman Catholic Bishop of Bangued, Inc. for religious or
charitable purposes." 8 For him then: "The proper remedy of the petitioner
is appeal and not this special civil action." 9 A more exhaustive comment
was submitted by private respondent Roman Catholic Bishop of Bangued,
Inc. It was, however, unable to lessen the force of the objection raised by
petitioner Province of Abra, especially the due process aspect. it is to be
admitted that his opposition to the petition, pressed with vigor, ostensibly
finds a semblance of support from the authorities cited. It is thus impressed
with a scholarly aspect. It suffers, however, from the grave infirmity of
stating that only a pure question of law is presented when a claim for
exemption is made.

The petition must be granted.

1. Respondent Judge would not have erred so grievously had he merely


compared the provisions of the present Constitution with that appearing in
the 1935 Charter on the tax exemption of "lands, buildings, and
improvements." There is a marked difference. Under the 1935 Constitution:
"Cemeteries, churches, and parsonages or convents appurtenant thereto,
and all lands, buildings, and improvements used exclusively for religious,
charitable, or educational purposes shall be exempt from taxation." 10 The
present Constitution added "charitable institutions, mosques, and non-profit
cemeteries" and required that for the exemption of ":lands, buildings, and
improvements," they should not only be "exclusively" but also "actually and
"directly" used for religious or charitable purposes. 11The Constitution is
worded differently. The change should not be ignored. It must be duly taken
into consideration. Reliance on past decisions would have sufficed were
the words "actually" as well as "directly" not added. There must be proof
therefore of the actual and direct use of the lands, buildings, and
improvements for religious or charitable purposes to be exempt from
taxation. According to Commissioner of Internal Revenue v.
Guerrero: 12"From 1906, in Catholic Church v. Hastings to 1966, in Esso
Standard Eastern, Inc. v. Acting Commissioner of Customs, it has been the
constant and uniform holding that exemption from taxation is not favored
and is never presumed, so that if granted it must be strictly construed
against the taxpayer. Affirmatively put, the law frowns on exemption from
taxation, hence, an exempting provision should be construed strictissimi
juris." 13 In Manila Electric Company v. Vera, 14 a 1975 decision, such
principle was reiterated, reference being made to Republic Flour Mills, Inc.
v. Commissioner of Internal Revenue; 15 Commissioner of Customs v.
Philippine Acetylene Co. & CTA; 16 andDavao Light and Power Co., Inc. v.
Commissioner of Customs. 17

2. Petitioner Province of Abra is therefore fully justified in invoking the


protection of procedural due process. If there is any case where proof is
necessary to demonstrate that there is compliance with the constitutional
provision that allows an exemption, this is it. Instead, respondent Judge
accepted at its face the allegation of private respondent. All that was
alleged in the petition for declaratory relief filed by private respondents,
after mentioning certain parcels of land owned by it, are that they are used
"actually, directly and exclusively" as sources of support of the parish priest
and his helpers and also of private respondent Bishop. 18 In the motion to
dismiss filed on behalf of petitioner Province of Abra, the objection was
based primarily on the lack of jurisdiction, as the validity of a tax
assessment may be questioned before the Local Board of Assessment
Appeals and not with a court. There was also mention of a lack of a cause
of action, but only because, in its view, declaratory relief is not proper, as
there had been breach or violation of the right of government to assess and
collect taxes on such property. It clearly appears, therefore, that in failing to
accord a hearing to petitioner Province of Abra and deciding the case
immediately in favor of private respondent, respondent Judge failed to
abide by the constitutional command of procedural due process.

WHEREFORE, the petition is granted and the resolution of June 19, 1978
is set aside. Respondent Judge, or who ever is acting on his behalf, is
ordered to hear the case on the merit. No costs.

TAX CASES ON LOCAL TAXATION

CASE NO. 1

G.R. No. L-26521 December 28, 1968

EUSEBIO VILLANUEVA, ET AL., plaintiff-appellee,


vs.
CITY OF ILOILO, defendants-appellants.

CASTRO, J.:

Appeal by the defendant City of Iloilo from the decision of the Court of First
Instance of Iloilo declaring illegal Ordinance 11, series of 1960, entitled,
"An Ordinance Imposing Municipal License Tax On Persons Engaged In
The Business Of Operating Tenement Houses," and ordering the City to
refund to the plaintiffs-appellees the sums of collected from them under the
said ordinance.

On September 30, 1946 the municipal board of Iloilo City enacted


Ordinance 86, imposing license tax fees as follows: (1) tenement house
(casa de vecindad), P25.00 annually; (2) tenement house, partly or wholly
engaged in or dedicated to business in the streets of J.M. Basa, Iznart and
Aldeguer, P24.00 per apartment; (3) tenement house, partly or wholly
engaged in business in any other streets, P12.00 per apartment. The
validity and constitutionality of this ordinance were challenged by the
spouses Eusebio Villanueva and Remedies Sian Villanueva, owners of four
tenement houses containing 34 apartments. This Court, in City of Iloilo vs.
Remedios Sian Villanueva and Eusebio Villanueva, L-12695, March 23,
1959, declared the ordinance ultra vires, "it not appearing that the power to
tax owners of tenement houses is one among those clearly and expressly
granted to the City of Iloilo by its Charter."
On January 15, 1960 the municipal board of Iloilo City, believing, obviously,
that with the passage of Republic Act 2264, otherwise known as the Local
Autonomy Act, it had acquired the authority or power to enact an ordinance
similar to that previously declared by this Court as ultra vires, enacted
Ordinance 11, series of 1960, hereunder quoted in full:

AN ORDINANCE IMPOSING MUNICIPAL LICENSE TAX ON


PERSONS ENGAGED IN THE BUSINESS OF OPERATING
TENEMENT HOUSES

Be it ordained by the Municipal Board of the City of Iloilo, pursuant to


the provisions of Republic Act No. 2264, otherwise known as the
Autonomy Law of Local Government, that:

Section 1. A municipal license tax is hereby imposed on tenement


houses in accordance with the schedule of payment herein provided.

Section 2. Tenement house as contemplated in this ordinance


shall mean any building or dwelling for renting space divided into
separate apartments or accessorias.

Section 3. The municipal license tax provided in Section 1 hereof


shall be as follows:

I. Tenement houses:
P20.00 per door
(a) Apartment house made of strong materials p.a.
P10.00 per door
(b) Apartment house made of mixed materials p.a.
P10.00 per door
II Rooming house of strong materials p.a.
P5.00 per door
Rooming house of mixed materials p.a.
III. Tenement house partly or wholly engaged in
or dedicated to business in the following streets:
J.M. Basa, Iznart, Aldeguer, Guanco and P30.00 per door
Ledesma from Plazoleto Gay to Valeria. St. p.a.
IV. Tenement house partly or wholly engaged in P12.00 per door
or dedicated to business in any other street p.a.
V. Tenement houses at the streets surrounding
the super market as soon as said place is P24.00 per door
declared commercial p.a.

Section 4. All ordinances or parts thereof inconsistent herewith are


hereby amended.

Section 5. Any person found violating this ordinance shall be


punished with a fine note exceeding Two Hundred Pesos (P200.00)
or an imprisonment of not more than six (6) months or both at the
discretion of the Court.

Section 6 This ordinance shall take effect upon approval.


ENACTED, January 15, 1960.

In Iloilo City, the appellees Eusebio Villanueva and Remedios S. Villanueva


are owners of five tenement houses, aggregately containing 43 apartments,
while the other appellees and the same Remedios S. Villanueva are
owners of ten apartments. Each of the appellees' apartments has a door
leading to a street and is rented by either a Filipino or Chinese merchant.
The first floor is utilized as a store, while the second floor is used as a
dwelling of the owner of the store. Eusebio Villanueva owns, likewise,
apartment buildings for rent in Bacolod, Dumaguete City, Baguio City and
Quezon City, which cities, according to him, do not impose tenement or
apartment taxes.

By virtue of the ordinance in question, the appellant City collected from


spouses Eusebio Villanueva and Remedios S. Villanueva, for the years
1960-1964, the sum of P5,824.30, and from the appellees Pio Sian Melliza,
Teresita S. Topacio, and Remedios S. Villanueva, for the years 1960-1964,
the sum of P1,317.00. Eusebio Villanueva has likewise been paying real
estate taxes on his property.

On July 11, 1962 and April 24, 1964, the plaintiffs-appellees filed a
complaint, and an amended complaint, respectively, against the City of
Iloilo, in the aforementioned court, praying that Ordinance 11, series of
1960, be declared "invalid for being beyond the powers of the Municipal
Council of the City of Iloilo to enact, and unconstitutional for being violative
of the rule as to uniformity of taxation and for depriving said plaintiffs of the
equal protection clause of the Constitution," and that the City be ordered to
refund the amounts collected from them under the said ordinance.

On March 30, 1966,1 the lower court rendered judgment declaring the
ordinance illegal on the grounds that (a) "Republic Act 2264 does not
empower cities to impose apartment taxes," (b) the same is "oppressive
and unreasonable," for the reason that it penalizes owners of tenement
houses who fail to pay the tax, (c) it constitutes not only double taxation,
but treble at that and (d) it violates the rule of uniformity of taxation.

The issues posed in this appeal are:

1. Is Ordinance 11, series of 1960, of the City of Iloilo, illegal because


it imposes double taxation?

2. Is the City of Iloilo empowered by the Local Autonomy Act to


impose tenement taxes?

3. Is Ordinance 11, series of 1960, oppressive and unreasonable


because it carries a penal clause?

4. Does Ordinance 11, series of 1960, violate the rule of uniformity of


taxation?

1. The pertinent provisions of the Local Autonomy Act are hereunder


quoted:

SEC. 2. Any provision of law to the contrary notwithstanding, all


chartered cities, municipalities and municipal districts shall have
authority to impose municipal license taxes or fees upon persons
engaged in any occupation or business, or exercising privileges in
chartered cities, municipalities or municipal districts by requiring them
to secure licences at rates fixed by the municipal board or city council
of the city, the municipal council of the municipality, or the municipal
district council of the municipal district; to collect fees and charges for
services rendered by the city, municipality or municipal district; to
regulate and impose reasonable fees for services rendered in
connection with any business, profession or occupation being
conducted within the city, municipality or municipal district and
otherwise to levy for public purposes, just and uniform taxes, licenses
or fees; Provided, That municipalities and municipal districts shall, in
no case, impose any percentage tax on sales or other taxes in any
form based thereon nor impose taxes on articles subject to specific
tax, except gasoline, under the provisions of the National Internal
Revenue Code;Provided, however, That no city, municipality or
municipal district may levy or impose any of the following:

(a) Residence tax;

(b) Documentary stamp tax;

(c) Taxes on the business of persons engaged in the printing and


publication of any newspaper, magazine, review or bulletin appearing
at regular intervals and having fixed prices for for subscription and
sale, and which is not published primarily for the purpose of
publishing advertisements;

(d) Taxes on persons operating waterworks, irrigation and other


public utilities except electric light, heat and power;

(e) Taxes on forest products and forest concessions;

(f) Taxes on estates, inheritance, gifts, legacies, and other


acquisitions mortis causa;

(g) Taxes on income of any kind whatsoever;

(h) Taxes or fees for the registration of motor vehicles and for the
issuance of all kinds of licenses or permits for the driving thereof;

(i) Customs duties registration, wharfage dues on wharves owned by


the national government, tonnage, and all other kinds of customs
fees, charges and duties;

(j) Taxes of any kind on banks, insurance companies, and persons


paying franchise tax; and

(k) Taxes on premiums paid by owners of property who obtain


insurance directly with foreign insurance companies.

A tax ordinance shall go into effect on the fifteenth day after its
passage, unless the ordinance shall provide otherwise: Provided,
however, That the Secretary of Finance shall have authority to
suspend the effectivity of any ordinance within one hundred and
twenty days after its passage, if, in his opinion, the tax or fee therein
levied or imposed is unjust, excessive, oppressive, or confiscatory,
and when the said Secretary exercises this authority the effectivity of
such ordinance shall be suspended.

In such event, the municipal board or city council in the case of cities
and the municipal council or municipal district council in the case of
municipalities or municipal districts may appeal the decision of the
Secretary of Finance to the court during the pendency of which case
the tax levied shall be considered as paid under protest.

It is now settled that the aforequoted provisions of Republic Act 2264


confer on local governments broad taxing authority which extends to almost
"everything, excepting those which are mentioned therein," provided that
the tax so levied is "for public purposes, just and uniform," and does not
transgress any constitutional provision or is not repugnant to a controlling
statute.2 Thus, when a tax, levied under the authority of a city or municipal
ordinance, is not within the exceptions and limitations aforementioned, the
same comes within the ambit of the general rule, pursuant to the rules
of expressio unius est exclusio alterius, and exceptio firmat regulum in
casibus non excepti.

Does the tax imposed by the ordinance in question fall within any of the
exceptions provided for in section 2 of the Local Autonomy Act? For this
purpose, it is necessary to determine the true nature of the tax. The
appellees strongly maintain that it is a "property tax" or "real estate
tax,"3 and not a "tax on persons engaged in any occupation or business or
exercising privileges," or a license tax, or a privilege tax, or an excise
tax.4 Indeed, the title of the ordinance designates it as a "municipal license
tax on persons engaged in the business of operating tenement houses,"
while section 1 thereof states that a "municipal license tax is
hereby imposed on tenement houses." It is the phraseology of section 1 on
which the appellees base their contention that the tax involved is a real
estate tax which, according to them, makes the ordinance ultra vires as it
imposes a levy "in excess of the one per centum real estate tax allowable
under Sec. 38 of the Iloilo City Charter, Com. Act 158."5.

It is our view, contrary to the appellees' contention, that the tax in question
is not a real estate tax. Obviously, the appellees confuse the tax with the
real estate tax within the meaning of the Assessment Law,6 which, although
not applicable to the City of Iloilo, has counterpart provisions in the Iloilo
City Charter.7 A real estate tax is a direct tax on the ownership of lands and
buildings or other improvements thereon, not specially exempted,8 and is
payable regardless of whether the property is used or not, although the
value may vary in accordance with such factor.9The tax is usually single or
indivisible, although the land and building or improvements erected thereon
are assessed separately, except when the land and building or
improvements belong to separate owners.10 It is a fixed proportion11 of the
assessed value of the property taxed, and requires, therefore, the
intervention of assessors.12 It is collected or payable at appointed
times,13 and it constitutes a superior lien on and is enforceable against the
property14 subject to such taxation, and not by imprisonment of the owner.

The tax imposed by the ordinance in question does not possess the
aforestated attributes. It is not a tax on the land on which the tenement
houses are erected, although both land and tenement houses may belong
to the same owner. The tax is not a fixed proportion of the assessed value
of the tenement houses, and does not require the intervention of assessors
or appraisers. It is not payable at a designated time or date, and is not
enforceable against the tenement houses either by sale or distraint.
Clearly, therefore, the tax in question is not a real estate tax.

"The spirit, rather than the letter, or an ordinance determines the


construction thereof, and the court looks less to its words and more to the
context, subject-matter, consequence and effect. Accordingly, what is
within the spirit is within the ordinance although it is not within the letter
thereof, while that which is in the letter, although not within the spirit, is not
within the ordinance."15 It is within neither the letter nor the spirit of the
ordinance that an additional real estate tax is being imposed, otherwise the
subject-matter would have been not merely tenement houses. On the
contrary, it is plain from the context of the ordinance that the intention is to
impose a license tax on the operation of tenement houses, which is a form
of business or calling. The ordinance, in both its title and body, particularly
sections 1 and 3 thereof, designates the tax imposed as a "municipal
license tax" which, by itself, means an "imposition or exaction on the right
to use or dispose of property, to pursue a business, occupation, or calling,
or to exercise a privilege."16.

"The character of a tax is not to be fixed by any isolated words that


may beemployed in the statute creating it, but such words must be
taken in the connection in which they are used and the true character
is to be deduced from the nature and essence of the subject."17 The
subject-matter of the ordinance is tenement houses whose nature
and essence are expressly set forth in section 2 which defines a
tenement house as "any building or dwelling for renting space divided
into separate apartments or accessorias." The Supreme Court, in City
of Iloilo vs. Remedios Sian Villanueva, et al., L-12695, March 23,
1959, adopted the definition of a tenement house18 as "any house or
building, or portion thereof, which is rented, leased, or hired out to be
occupied, or is occupied, as the home or residence of three families
or more living independently of each other and doing their cooking in
the premises or by more than two families upon any floor, so living
and cooking, but having a common right in the halls, stairways, yards,
water-closets, or privies, or some of them." Tenement houses, being
necessarily offered for rent or lease by their very nature and essence,
therefore constitute a distinct form of business or calling, similar to
the hotel or motel business, or the operation of lodging houses or
boarding houses. This is precisely one of the reasons why this Court,
in the said case of City of Iloilo vs. Remedios Sian Villanueva, et
al., supra, declared Ordinance 86 ultra vires, because, although the
municipal board of Iloilo City is empowered, under sec. 21, par. j of its
Charter, "to tax, fix the license fee for, and regulate hotels,
restaurants, refreshment parlors, cafes, lodging houses, boarding
houses, livery garages, public warehouses, pawnshops, theaters,
cinematographs," tenement houses, which constitute a different
business enterprise,19 are not mentioned in the aforestated section of
the City Charter of Iloilo. Thus, in the aforesaid case, this Court
explicitly said:.

"And it not appearing that the power to tax owners of tenement


houses is one among those clearly and expressly granted to the City
of Iloilo by its Charter, the exercise of such power cannot be assumed
and hence the ordinance in question is ultra vires insofar as it taxes a
tenement house such as those belonging to defendants." .

The lower court has interchangeably denominated the tax in question as a


tenement tax or an apartment tax. Called by either name, it is not among
the exceptions listed in section 2 of the Local Autonomy Act. On the other
hand, the imposition by the ordinance of a license tax on persons engaged
in the business of operating tenement houses finds authority in section 2 of
the Local Autonomy Act which provides that chartered cities have the
authority to impose municipal license taxes or fees upon persons engaged
in any occupation or business, or exercising privileges within their
respective territories, and "otherwise to levy for public purposes, just and
uniform taxes, licenses, or fees." .
2. The trial court condemned the ordinance as constituting "not only double
taxation but treble at that," because "buildings pay real estate taxes and
also income taxes as provided for in Sec. 182 (A) (3) (s) of the National
Internal Revenue Code, besides the tenement tax under the said
ordinance." Obviously, what the trial court refers to as "income taxes" are
the fixed taxes on business and occupation provided for in section 182,
Title V, of the National Internal Revenue Code, by virtue of which persons
engaged in "leasing or renting property, whether on their account as
principals or as owners of rental property or properties," are considered
"real estate dealers" and are taxed according to the amount of their annual
income.20.

While it is true that the plaintiffs-appellees are taxable under the aforesaid
provisions of the National Internal Revenue Code as real estate dealers,
and still taxable under the ordinance in question, the argument against
double taxation may not be invoked. The same tax may be imposed by the
national government as well as by the local government. There is nothing
inherently obnoxious in the exaction of license fees or taxes with respect to
the same occupation, calling or activity by both the State and a political
subdivision thereof.21.

The contention that the plaintiffs-appellees are doubly taxed because they
are paying the real estate taxes and the tenement tax imposed by the
ordinance in question, is also devoid of merit. It is a well-settled rule that a
license tax may be levied upon a business or occupation although the land
or property used in connection therewith is subject to property tax. The
State may collect an ad valorem tax on property used in a calling, and at
the same time impose a license tax on that calling, the imposition of the
latter kind of tax being in no sensea double tax.22.

"In order to constitute double taxation in the objectionable or


prohibited sense the same property must be taxed twice when it
should be taxed but once; both taxes must be imposed on the same
property or subject-matter, for the same purpose, by the same State,
Government, or taxing authority, within the same jurisdiction or taxing
district, during the same taxing period, and they must be the same
kind or character of tax."23 It has been shown that a real estate tax
and the tenement tax imposed by the ordinance, although imposed
by the sametaxing authority, are not of the same kind or character.

At all events, there is no constitutional prohibition against double taxation in


the Philippines.24 It is something not favored, but is permissible, provided
some other constitutional requirement is not thereby violated, such as the
requirement that taxes must be uniform."25.

3. The appellant City takes exception to the conclusion of the lower court
that the ordinance is not only oppressive because it "carries a penal clause
of a fine of P200.00 or imprisonment of 6 months or both, if the owner or
owners of the tenement buildings divided into apartments do not pay the
tenement or apartment tax fixed in said ordinance," but also
unconstitutional as it subjects the owners of tenement houses to criminal
prosecution for non-payment of an obligation which is purely sum of
money." The lower court apparently had in mind, when it made the above
ruling, the provision of the Constitution that "no person shall be imprisoned
for a debt or non-payment of a poll tax."26 It is elementary, however, that "a
tax is not a debt in the sense of an obligation incurred by contract, express
or implied, and therefore is not within the meaning of constitutional or
statutory provisions abolishing or prohibiting imprisonment for debt, and a
statute or ordinance which punishes the non-payment thereof by fine or
imprisonment is not, in conflict with that prohibition."27 Nor is the tax in
question a poll tax, for the latter is a tax of a fixed amount upon all persons,
or upon all persons of a certain class, resident within a specified territory,
without regard to their property or the occupations in which they may be
engaged.28 Therefore, the tax in question is not oppressive in the manner
the lower court puts it. On the other hand, the charter of Iloilo
City29 empowers its municipal board to "fix penalties for violations of
ordinances, which shall not exceed a fine of two hundred pesos or six
months' imprisonment, or both such fine and imprisonment for each
offense." In Punsalan, et al. vs. Mun. Board of Manila, supra, this Court
overruled the pronouncement of the lower court declaring illegal and void
an ordinance imposing an occupation tax on persons exercising various
professions in the City of Manilabecause it imposed a penalty of fine and
imprisonment for its violation.30.

4. The trial court brands the ordinance as violative of the rule of uniformity
of taxation.

"... because while the owners of the other buildings only pay real
estate tax and income taxes the ordinance imposes aside from these
two taxes an apartment or tenement tax. It should be noted that in the
assessment of real estate tax all parts of the building or buildings are
included so that the corresponding real estate tax could be properly
imposed. If aside from the real estate tax the owner or owners of the
tenement buildings should pay apartment taxes as required in the
ordinance then it will violate the rule of uniformity of taxation.".

Complementing the above ruling of the lower court, the appellees argue
that there is "lack of uniformity" and "relative inequality," because "only the
taxpayers of the City of Iloilo are singled out to pay taxes on their tenement
houses, while citizens of other cities, where their councils do not enact a
similar tax ordinance, are permitted to escape such imposition." .

It is our view that both assertions are undeserving of extended attention.


This Court has already ruled that tenement houses constitute a distinct
class of property. It has likewise ruled that "taxes are uniform and equal
when imposed upon all property of the same class or character within the
taxing authority."31 The fact, therefore, that the owners of other classes of
buildings in the City of Iloilo do not pay the taxes imposed by the ordinance
in question is no argument at all against uniformity and equality of the tax
imposition. Neither is the rule of equality and uniformity violated by the fact
that tenement taxesare not imposed in other cities, for the same rule does
not require that taxes for the same purpose should be imposed in different
territorial subdivisions at the same time.32So long as the burden of the tax
falls equally and impartially on all owners or operators of tenement houses
similarly classified or situated, equality and uniformity of taxation is
accomplished.33 The plaintiffs-appellees, as owners of tenement houses in
the City of Iloilo, have not shown that the tax burden is not equally or
uniformly distributed among them, to overthrow the presumption that tax
statutes are intended to operate uniformly and equally.34.

5. The last important issue posed by the appellees is that since the
ordinance in the case at bar is a mere reproduction of Ordinance 86 of the
City of Iloilo which was declared by this Court in L-12695, supra, as ultra
vires, the decision in that case should be accorded the effect of res
judicata in the present case or should constitute estoppel by judgment. To
dispose of this contention, it suffices to say that there is no identity of
subject-matter in that case andthis case because the subject-matter in L-
12695 was an ordinance which dealt not only with tenement houses but
also warehouses, and the said ordinance was enacted pursuant to the
provisions of the City charter, while the ordinance in the case at bar was
enacted pursuant to the provisions of the Local Autonomy Act. There is
likewise no identity of cause of action in the two cases because the main
issue in L-12695 was whether the City of Iloilo had the power under its
charter to impose the tax levied by Ordinance 11, series of 1960, under the
Local Autonomy Act which took effect on June 19, 1959, and therefore was
not available for consideration in the decision in L-12695 which was
promulgated on March 23, 1959. Moreover, under the provisions of section
2 of the Local Autonomy Act, local governments may now tax any taxable
subject-matter or object not included in the enumeration of matters
removed from the taxing power of local governments.Prior to the enactment
of the Local Autonomy Act the taxes that could be legally levied by local
governments were only those specifically authorized by law, and their
power to tax was construed in strictissimi juris. 35.

ACCORDINGLY, the judgment a quo is reversed, and, the ordinance in


questionbeing valid, the complaint is hereby dismissed. No pronouncement
as to costs..

OTHER CASES: IDEM: PREVIOUS CASES.

PEPSI V. TANAUAN

PEPSI V. BUTUAN

TAX CASE ON TAX EVASION AND TAX AVOIDANCE

[G.R. No. 128315. June 29, 1999]

COMMISSIONER OF INTERNAL REVENUE, petitioner, vs. PASCOR


REALTY AND DEVELOPMENT CORPORATION, ROGELIO A.
DIO and VIRGINIA S. DIO, respondents.

DECISION
PANGANIBAN, J.:

An assessment contains not only a computation of tax liabilities, but also a


demand for payment within a prescribed period. It also signals the time when
penalties and interests begin to accrue against the taxpayer. To enable the taxpayer
to determine his remedies thereon, due process requires that it must be served on
and received by the taxpayer. Accordingly, an affidavit, which was executed by
revenue officers stating the tax liabilities of a taxpayer and attached to a criminal
complaint for tax evasion, cannot be deemed an assessment that can be questioned
before the Court of Tax Appeals.

Statement of the Case

Before this Court is a Petition for Review on Certiorari under Rule 45 of the
Rules of Court praying for the nullification of the October 30, 1996 Decision[1] of
the Court of Appeals[2] in CA-GR SP No. 40853, which effectively affirmed the
January 25, 1996 Resolution[3] of the Court of Tax Appeals[4] in CTA Case No.
5271. The CTA disposed as follows:

WHEREFORE, finding [the herein petitioners] Motion to Dismiss as


UNMERITORIOUS, the same is hereby DENIED. [The CIR] is hereby given a
period of thirty (30) days from receipt hereof to file her answer.

Petitioner also seeks to nullify the February 13, 1997 Resolution[5] of the Court
of Appeals denying reconsideration.

The Facts

As found by the Court of Appeals, the undisputed facts of the case are as
follows:

It appears that by virtue of Letter of Authority No. 001198, then BIR


Commissioner Jose U. Ong authorized Revenue Officers Thomas T. Que, Sonia T.
Estorco and Emmanuel M. Savellano to examine the books of accounts and other
accounting records of Pascor Realty and Development Corporation. (PRDC) for
the years ending 1986, 1987 and 1988. The said examination resulted in a
recommendation for the issuance of an assessment in the amounts of
P7,498,434.65 and P3,015,236.35 for the years 1986 and 1987, respectively.

On March 1, 1995, the Commissioner of Internal Revenue filed a criminal


complaint before the Department of Justice against the PRDC, its President
Rogelio A. Dio, and its Treasurer Virginia S. Dio, alleging evasion of taxes in the
total amount of P10,513,671.00. Private respondents PRDC, et. al. filed an Urgent
Request for Reconsideration/Reinvestigation disputing the tax assessment and tax
liability.
On March 23, 1995, private respondents received a subpoena from the DOJ in
connection with the criminal complaint filed by the Commissioner of Internal
Revenue (BIR) against them.

In a letter dated May 17, 1995, the CIR denied the urgent request for
reconsideration/reinvestigation of the private respondents on the ground that no
formal assessment has as yet been issued by the Commissioner.

Private respondents then elevated the Decision of the CIR dated May 17, 1995 to
the Court of Tax Appeals on a petition for review docketed as CTA Case No. 5271
on July 21, 1995. On September 6, 1995, the CIR filed a Motion to Dismiss the
petition on the ground that the CTA has no jurisdiction over the subject matter of
the petition, as there was no formal assessment issued against the petitioners. The
CTA denied the said motion to dismiss in a Resolution dated January 25, 1996 and
ordered the CIR to file an answer within thirty (30) days from receipt of said
resolution. The CIR received the resolution on January 31, 1996 but did not file an
answer nor did she move to reconsider the resolution.

Instead, the CIR filed this petition on June 7, 1996, alleging as grounds that:

Respondent Court of Tax Appeals acted with grave abuse of discretion and
without jurisdiction in considering the affidavit/report of the revenue officer and
the indorsement of said report to the secretary of justice as assessment which may
be appealed to the Court of Tax Appeals;

Respondent Court of Tax Appeals acted with grave abuse of discretion in


considering the denial by petitioner of private respondents Motion for
Reconsideration as [a] final decision which may be appealed to the Court of Tax
Appeals.

In denying the motion to dismiss filed by the CIR, the Court of Tax Appeals
stated:

We agree with petitioners contentions, that the criminal complaint for tax evasion
is the assessment issued, and that the letter denial of May 17, 1995 is the decision
properly appealable to [u]s. Respondents ground of denial, therefore, that there
was no formal assessment issued, is untenable.

It is the Courts honest belief, that the criminal case for tax evasion is already an
assessment. The complaint, more particularly, the Joint Affidavit of Revenue
Examiners Lagmay and Savellano attached thereto, contains the details of the
assessment like the kind and amount of tax due, and the period covered.
Petitioners are right, in claiming that the provisions of Republic Act No. 1125,
relating to exclusive appellate jurisdiction of this Court, do not, make any mention
of formal assessment. The law merely states, that this Court has exclusive
appellate jurisdiction over decisions of the Commissioner of Internal Revenue
on disputed assessments, andother matters arising under the National Internal
Revenue Code, other law or part administered by the Bureau of Internal Revenue
Code.

As far as this Court is concerned, the amount and kind of tax due, and the period
covered, are sufficient details needed for an assessment. These details are more
than complete, compared to the following definitions of the term as quoted
hereunder. Thus:

Assessment is laying a tax. Johnson City v. Clinchfield R. Co., 43 S.W. (2d) 386,
387, 163 Tenn. 332. (Words and Phrases, Permanent Edition, Vol. 4, p. 446)

The word assessment when used in connection with taxation, may have more than
one meaning. The ultimate purpose of an assessment to such a connection is to
ascertain the amount that each taxpayer is to pay. More commonly, the word
assessment means the official valuation of a taxpayers property for purpose of
taxation. State v. New York, N.H. and H.R. Co. 22 A. 765, 768, 60 Conn. 326,
325. (Ibid. p. 445)

From the above, it can be gleaned that an assessment simply states how much tax
is due from a taxpayer. Thus, based on these definitions, the details of the tax as
given in the Joint Affidavit of respondents examiners, which was attached to the
tax evasion complaint, more than suffice to qualify as an assessment. Therefore,
this assessment having been disputed by petitioners, and there being a denial of
their letter disputing such assessment, this Court unquestionably acquired
jurisdiction over the instant petition for review.[6]

As earlier observed, the Court of Appeals sustained the CTA and dismissed the
petition.
Hence, this recourse to this Court.[7]

Ruling of the Court of Appeals

The Court of Appeals held that the tax court committed no grave abuse of
discretion in ruling that the Criminal Complaint for tax evasion filed by the
Commissioner of Internal Revenue with the Department of Justice constituted an
assessment of the tax due, and that the said assessment could be the subject of a
protest. By definition, an assessment is simply the statement of the details and the
amount of tax due from a taxpayer. Based on this definition, the details of the tax
contained in the BIR examiners Joint Affidavit,[8] which was attached to the
criminal Complaint, constituted an assessment. Since the assailed Order of the
CTA was merely interlocutory and devoid of grave abuse of discretion, a petition
for certiorari did not lie.

Issues

Petitioners submit for the consideration of this Court the following issues:

(1) Whether or not the criminal complaint for tax evasion can be construed
as an assessment.

(2) Whether or not an assessment is necessary before criminal charges for tax
evasion may be instituted.

(3) Whether or not the CTA can take cognizance of the case in the absence of an
assessment.[9]

In the main, the Court will resolve whether the revenue officers Affidavit-
Report, which was attached to the criminal Complaint filed with the Department of
Justice, constituted an assessment that could be questioned before the Court of Tax
Appeals.

The Courts Ruling

The petition is meritorious.

Main Issue: Assessment

Petitioner argues that the filing of the criminal complaint with the Department
of Justice cannot in any way be construed as a formal assessment of private
respondents tax liabilities. This position is based on Section 205 of the National
Internal Revenue Code[10] (NIRC), which provides that remedies for the collection
of deficient taxes may be by either civil or criminal action. Likewise, petitioner
cites Section 223(a) of the same Code, which states that in case of failure to file a
return, the tax may be assessed or a proceeding in court may be begun without
assessment.
Respondents, on the other hand, maintain that an assessment is not an action or
proceeding for the collection of taxes, but merely a notice that the amount stated
therein is due as tax and that the taxpayer is required to pay the same. Thus,
qualifying as an assessment was the BIR examiners Joint Affidavit, which
contained the details of the supposed taxes due from respondent for taxable years
ending 1987 and 1988, and which was attached to the tax evasion Complaint filed
with the DOJ. Consequently, the denial by the BIR of private respondents request
for reinvestigation of the disputed assessment is properly appealable to the CTA.
We agree with petitioner. Neither the NIRC nor the revenue regulations
governing the protest of assessments[11] provide a specific definition or form of an
assessment. However, the NIRC defines the specific functions and effects of an
assessment. To consider the affidavit attached to the Complaint as a proper
assessment is to subvert the nature of an assessment and to set a bad precedent that
will prejudice innocent taxpayers.
True, as pointed out by the private respondents, an assessment informs the
taxpayer that he or she has tax liabilities. But not all documents coming from the
BIR containing a computation of the tax liability can be deemed assessments.
To start with, an assessment must be sent to and received by a taxpayer, and
must demand payment of the taxes described therein within a specific
period. Thus, the NIRC imposes a 25 percent penalty, in addition to the tax due, in
case the taxpayer fails to pay the deficiency tax within the time prescribed for its
payment in the notice of assessment. Likewise, an interest of 20 percent per
annum, or such higher rate as may be prescribed by rules and regulations, is to be
collected from the date prescribed for its payment until the full payment.[12]
The issuance of an assessment is vital in determining the period of limitation
regarding its proper issuance and the period within which to protest it. Section
203[13]of the NIRC provides that internal revenue taxes must be assessed within
three years from the last day within which to file the return. Section 222,[14] on the
other hand, specifies a period of ten years in case a fraudulent return with intent to
evade was submitted or in case of failure to file a return. Also, Section 228[15] of
the same law states that said assessment may be protested only within thirty days
from receipt thereof. Necessarily, the taxpayer must be certain that a specific
document constitutes an assessment. Otherwise, confusion would arise regarding
the period within which to make an assessment or to protest the same, or whether
interest and penalty may accrue thereon.
It should also be stressed that the said document is a notice duly sent to the
taxpayer. Indeed, an assessment is deemed made only when the collector of
internal revenue releases, mails or sends such notice to the taxpayer.[16]
In the present case, the revenue officers Affidavit merely contained a
computation of respondents tax liability. It did not state a demand or a period for
payment. Worse, it was addressed to the justice secretary, not to the taxpayers.
Respondents maintain that an assessment, in relation to taxation, is simply
understood to mean:

A notice to the effect that the amount therein stated is due as tax and a demand for
payment thereof.[17]

Fixes the liability of the taxpayer and ascertains the facts and furnishes the data
for the proper presentation of tax rolls.[18]

Even these definitions fail to advance private respondents case. That the BIR
examiners Joint Affidavit attached to the Criminal Complaint contained some
details of the tax liabilities of private respondents does not ipso facto make it an
assessment. The purpose of the Joint Affidavit was merely to support and
substantiate the Criminal Complaint for tax evasion. Clearly, it was not meant to
be a notice of the tax due and a demand to the private respondents for payment
thereof.
The fact that the Complaint itself was specifically directed and sent to the
Department of Justice and not to private respondents shows that the intent of the
commissioner was to file a criminal complaint for tax evasion, not to issue an
assessment. Although the revenue officers recommended the issuance of an
assessment, the commissioner opted instead to file a criminal case for tax
evasion. What private respondents received was a notice from the DOJ that a
criminal case for tax evasion had been filed against them, not a notice that the
Bureau of Internal Revenue had made an assessment.
In addition, what private respondents sent to the commissioner was a motion
for a reconsideration of the tax evasion charges filed, not of an assessment, as
shown thus:

This is to request for reconsideration of the tax evasion charges against my client,
PASCOR Realty and Development Corporation and for the same to be referred to
the Appellate Division in order to give my client the opportunity of a fair and
objective hearing[19]

Additional Issues: Assessment Not Necessary Before Filing of Criminal


Complaint
Private respondents maintain that the filing of a criminal complaint must be
preceded by an assessment. This is incorrect, because Section 222 of the NIRC
specifically states that in cases where a false or fraudulent return is submitted or in
cases of failure to file a return such as this case, proceedings in court may be
commenced without an assessment. Furthermore, Section 205 of the same Code
clearly mandates that the civil and criminal aspects of the case may be pursued
simultaneously. In Ungab v. Cusi,[20] petitioner therein sought the dismissal of the
criminal Complaints for being premature, since his protest to the CTA had not yet
been resolved. The Court held that such protests could not stop or suspend the
criminal action which was independent of the resolution of the protest in the
CTA. This was because the commissioner of internal revenue had, in such tax
evasion cases, discretion on whether to issue an assessment or to file a criminal
case against the taxpayer or to do both.
Private respondents insist that Section 222 should be read in relation to Section
255 of the NIRC,[21] which penalizes failure to file a return. They add that a tax
assessment should precede a criminal indictment. We disagree. To reiterate, said
Section 222 states that an assessment is not necessary before a criminal charge can
be filed. This is the general rule. Private respondents failed to show that they are
entitled to an exception. Moreover, the criminal charge need only be supported by
a prima facie showing of failure to file a required return. This fact need not be
proven by an assessment.
The issuance of an assessment must be distinguished from the filing of a
complaint. Before an assessment is issued, there is, by practice, a pre-assessment
notice sent to the taxpayer. The taxpayer is then given a chance to submit position
papers and documents to prove that the assessment is unwarranted. If the
commissioner is unsatisfied, an assessment signed by him or her is then sent to the
taxpayer informing the latter specifically and clearly that an assessment has been
made against him or her. In contrast, the criminal charge need not go through all
these. The criminal charge is filed directly with the DOJ. Thereafter, the taxpayer
is notified that a criminal case had been filed against him, not that the
commissioner has issued an assessment. It must be stressed that a criminal
complaint is instituted not to demand payment, but to penalize the taxpayer for
violation of the Tax Code.
WHEREFORE, the petition is hereby GRANTED. The assailed Decision
is REVERSED and SET ASIDE. CTA Case No. 5271 is likewise DISMISSED. No
costs.
SO ORDERED.
G.R. No. L-41919-24 May 30, 1980

QUIRICO P. UNGAB, petitioner,


vs.
HON. VICENTE N. CUSI, JR., in his capacity as Judge of the Court of
First Instance, Branch 1, 16TH Judicial District, Davao City, THE
COMMISSIONER OF INTERNAL REVENUE, and JESUS N. ACEBES, in
his capacity as State Prosecutor, respondents.

CONCEPCION JR., J:

Petition for certiorari and prohibition with preliminary injunction and


restraining order to annul and set aside the informations filed in Criminal
Case Nos. 1960, 1961, 1962, 1963, 1964, and 1965 of the Court of First
Instance of Davao, all entitled: "People of the Philippines, plaintiff, versus
Quirico Ungab, accused;" and to restrain the respondent Judge from further
proceeding with the hearing and trial of the said cases.

It is not disputed that sometime in July, 1974, BIR Examiner Ben Garcia
examined the income tax returns filed by the herein petitioner, Quirico P.
Ungab, for the calendar year ending December 31, 1973. In the course of
his examination, he discovered that the petitioner failed to report his
income derived from sales of banana saplings. As a result, the BIR District
Revenue Officer at Davao City sent a "Notice of Taxpayer" to the petitioner
informing him that there is due from him (petitioner) the amount of
P104,980.81, representing income, business tax and forest charges for the
year 1973 and inviting petitioner to an informal conference where the
petitioner, duly assisted by counsel, may present his objections to the
findings of the BIR Examiner. 1 Upon receipt of the notice, the petitioner
wrote the BIR District Revenue Officer protesting the assessment, claiming
that he was only a dealer or agent on commission basis in the banana
sapling business and that his income, as reported in his income tax returns
for the said year, was accurately stated. BIR Examiner Ben Garcia,
however, was fully convinced that the petitioner had filed a fraudulent
income tax return so that he submitted a "Fraud Referral Report," to the
Tax Fraud Unit of the Bureau of Internal Revenue. After examining the
records of the case, the Special Investigation Division of the Bureau of
Internal Revenue found sufficient proof that the herein petitioner is guilty of
tax evasion for the taxable year 1973 and recommended his
prosecution: t.hqw
(1) For having filed a false or fraudulent income tax return for
1973 with intent to evade his just taxes due the government
under Section 45 in relation to Section 72 of the National
Internal Revenue Code;

(2) For failure to pay a fixed annual tax of P50.00 a year in


1973 and 1974, or a total of unpaid fixed taxes of P100.00 plus
penalties of 175.00 or a total of P175.00, in accordance with
Section 183 of the National Internal Revenue Code;

(3) For failure to pay the 7% percentage tax, as a producer of


banana poles or saplings, on the total sales of P129,580.35 to
the Davao Fruit Corporation, depriving thereby the government
of its due revenue in the amount of P15,872.59, inclusive of
surcharge. 2

In a second indorsement to the Chief of the Prosecution Division, dated


December 12, 1974, the Commissioner of Internal Revenue approved the
prosecution of the petitioner. 3

Thereafter, State Prosecutor Jesus Acebes who had been designated to


assist all Provincial and City Fiscals throughout the Philippines in the
investigation and prosecution, if the evidence warrants, of all violations of
the National Internal Revenue Code, as amended, and other related laws,
in Administrative Order No. 116 dated December 5, 1974, and to whom the
case was assigned, conducted a preliminary investigation of the case, and
finding probable cause, filed six (6) informations against the petitioner with
the Court of First Instance of Davao City, to wit: t.hqw

(1) Criminal Case No. 1960 Violation of Sec. 45, in relation


to Sec. 72 of the National Internal-Revenue Code, for filing a
fraudulent income tax return for the calendar year ending
December 31, 1973; 4

(2) Criminal Case No. 1961 Violation of Sec. 182 (a), in


relation to Secs. 178, 186, and 208 of the National Internal
Revenue Code, for engaging in business as producer of
saplings, from January, 1973 to December, 1973, without first
paying the annual fixed or privilege tax thereof; 5

(3) Criminal Case No. 1962 Violation of Sec. 183 (a), in


relation to Secs. 186 and 209 of the National Internal Revenue
Code, for failure to render a true and complete return on the
gross quarterly sales, receipts and earnings in his business as
producer of banana saplings and to pay the percentage tax due
thereon, for the quarter ending December 31, 1973; 6

(4) Criminal Case No. 1963 Violation of Sec. 183 (a), in


relation to Secs. 186 and 209 of the National Internal Revenue
Code, for failure to render a true and complete return on the
gross quarterly sales receipts and earnings in his business as
producer of saplings, and to pay the percentage tax due
thereon, for the quarter ending on March 31, 1973; 7

(5) Criminal Case No. 1964 Violation of Sec. 183 (a), in


relation to Secs. 186 and 209 of the National Internal Revenue
Code, for failure to render a true and complete return on the
gross quarterly sales, receipts and earnings in his business as
producer of banana saplings for the quarter ending on June 30,
1973, and to pay the percentage tax due thereon; 8

(6) Criminal Case No. 1965 Violation of Sec. 183 (a), in


relation to Secs. 186 and 209 of the National Internal Revenue
Code, for failure to render a true and complete return on the
gross quarterly sales, receipts and earnings as producer of
banana saplings, for the quarter ending on September 30,
1973, and to pay the percentage tax due thereon. 9

On September 16, 1975, the petitioner filed a motion to quash the


informations upon the grounds that: (1) the informations are null and void
for want of authority on the part of the State Prosecutor to initiate and
prosecute the said cases; and (2) the trial court has no jurisdiction to take
cognizance of the above-entitled cases in view of his pending protest
against the assessment made by the BIR Examiner. 10 However, the trial
court denied the motion on October 22, 1975. 11 Whereupon, the petitioner
filed the instant recourse. As prayed for, a temporary restraining order was
issued by the Court, ordering the respondent Judge from further
proceeding with the trial and hearing of Criminal Case Nos. 1960, 1961,
1962, 1963, 1964, and 1965 of the Court of First Instance of Davao, all
entitled: "People of the Philippines, plaintiff, versus Quirico Ungab,
accused."

The petitioner seeks the annulment of the informations filed against him on
the ground that the respondent State Prosecutor is allegedly without
authority to do so. The petitioner argues that while the respondent State
Prosecutor may initiate the investigation of and prosecute crimes and
violations of penal laws when duly authorized, certain requisites,
enumerated by this Court in its decision in the case of Estrella vs.
Orendain, 12should be observed before such authority may be exercised;
otherwise, the provisions of the Charter of Davao City on the functions and
powers of the City Fiscal will be meaningless because according to said
charter he has charge of the prosecution of all crimes committed within his
jurisdiction; and since "appropriate circumstances are not extant to warrant
the intervention of the State Prosecution to initiate the investigation, sign
the informations and prosecute these cases, said informations are null and
void." The ruling adverted to by the petitioner reads, as
follows: t.hqw

In view of all the foregoing considerations, it is the ruling of this


Court that under Sections 1679 and 1686 of the Revised
Administrative Code, in any instance where a provincial or city
fiscal fails, refuses or is unable, for any reason, to investigate or
prosecute a case and, in the opinion of the Secretary of Justice
it is advisable in the public interest to take a different course of
action, the Secretary of Justice may either appoint as acting
provincial or city fiscal to handle the investigation or prosecution
exclusively and only of such case, any practicing attorney or
some competent officer of the Department of Justice or office of
any city or provincial fiscal, with complete authority to act
therein in all respects as if he were the provincial or city fiscal
himself, or appoint any lawyer in the government service,
temporarily to assist such city of provincial fiscal in the
discharge of his duties, with the same complete authority to act
independently of and for such city or provincial fiscal provided
that no such appointment may be made without first hearing the
fiscal concerned and never after the corresponding information
has already been filed with the court by the corresponding city
or provincial fiscal without the conformity of the latter, except
when it can be patently shown to the court having cognizance
of the case that said fiscal is intent on prejudicing the interests
of justice. The same sphere of authority is true with the
prosecutor directed and authorized under Section 3 of Republic
Act 3783, as amended and/or inserted by Republic Act 5184.
The observation in Salcedo vs. Liwag, supra, regarding the
nature of the power of the Secretary of Justice over fiscals as
being purely over administrative matters only was not really
necessary, as indicated in the above relation of the facts and
discussion of the legal issues of said case, for the resolution
thereof. In any event, to any extent that the opinion therein may
be inconsistent herewith the same is hereby modified.

The contention is without merit. Contrary to the petitioner's claim, the rule
therein established had not been violated. The respondent State
Prosecutor, although believing that he can proceed independently of the
City Fiscal in the investigation and prosecution of these cases, first sought
permission from the City Fiscal of Davao City before he started the
preliminary investigation of these cases, and the City Fiscal, after being
shown Administrative Order No. 116, dated December 5, 1974, designating
the said State Prosecutor to assist all Provincial and City fiscals throughout
the Philippines in the investigation and prosecution of all violations of the
National Internal Revenue Code, as amended, and other related laws,
graciously allowed the respondent State Prosecutor to conduct the
investigation of said cases, and in fact, said investigation was conducted in
the office of the City Fiscal. 13

The petitioner also claims that the filing of the informations was precipitate
and premature since the Commissioner of Internal Revenue has not yet
resolved his protests against the assessment of the Revenue District
Officer; and that he was denied recourse to the Court of Tax Appeals.

The contention is without merit. What is involved here is not the collection
of taxes where the assessment of the Commissioner of Internal Revenue
may be reviewed by the Court of Tax Appeals, but a criminal prosecution
for violations of the National Internal Revenue Code which is within the
cognizance of courts of first instance. While there can be no civil action to
enforce collection before the assessment procedures provided in the Code
have been followed, there is no requirement for the precise computation
and assessment of the tax before there can be a criminal prosecution
under the Code. t.hqw

The contention is made, and is here rejected, that an


assessment of the deficiency tax due is necessary before the
taxpayer can be prosecuted criminally for the charges
preferred. The crime is complete when the violator has, as in
this case, knowingly and willfully filed fraudulent returns with
intent to evade and defeat a part or all of the tax. 14
An assessment of a deficiency is not necessary to a criminal
prosecution for willful attempt to defeat and evade the income
tax. A crime is complete when the violator has knowingly and
willfuly filed a fraudulent return with intent to evade and defeat
the tax. The perpetration of the crime is grounded upon
knowledge on the part of the taxpayer that he has made an
inaccurate return, and the government's failure to discover the
error and promptly to assess has no connections with the
commission of the crime. 15

Besides, it has been ruled that a petition for reconsideration of an


assessment may affect the suspension of the prescriptive period for the
collection of taxes, but not the prescriptive period of a criminal action for
violation of law.16 Obviously, the protest of the petitioner against the
assessment of the District Revenue Officer cannot stop his prosecution for
violation of the National Internal Revenue Code. Accordingly, the
respondent Judge did not abuse his discretion in denying the motion to
quash filed by the petitioner.

WHEREFORE, the petition should be, as it is hereby dismissed. The


temporary restraining order heretofore issued is hereby set aside. With
costs against the petitioner.

SO ORDERED.

CHAPTER II

IN RE: TAX REMEDIES

TAX CASES ON ASSESSMENT AND COLLECTION

CASE NO. 1

G.R. No. 104151 March 10, 1995


COMMISSIONER OF INTERNAL REVENUE, petitioner,
vs.
COURT OF APPEALS, ATLAS CONSOLIDATED MINING AND
DEVELOPMENT CORPORATION and COURT OF TAX
APPEALS, respondents.

G.R No. 105563 March 10, 1995

ATLAS CONSOLIDATED MINING AND DEVELOPMENT


CORPORATION, petitioner,
vs.
COURT OF APPEALS COMMISSIONER OF INTERNAL REVENUE and
COURT OF TAX APPEALS,respondents.

REGALADO, J.:

Before us for joint adjudication are two petitions for review


on certiorari separately filed by the Commissioner of Internal Revenue in
G.R. No. 104151, and by Atlas Consolidated Mining and Development
Corporation in G.R. No. 105563, which respectively seek the aside of the
judgments of respondent Court of Appeals in CA-G.R. SP No. 25945
promulgated on February 12, 1992 1 and in CA-G.R. SP No. 26087
promulgated on May 22, 1992. 2

Atlas Consolidated Mining and Development Corporation (herein also


referred to as ACMDC) is a domestic corporation which owns and operates
a mining concession at Toledo City, Cebu, the products of which are
exported to Japan and other foreign countries. On April 9, 1980, the
Commissioner of Internal Revenue (also Commissioner, for brevity), acting
on the basis of the report of the examiners of the Bureau of Internal
Revenue (BIR), caused the service of an assessment notice and demand
for payment of the amount of P12,391,070.51 representing deficiency ad
valorem percentage and fixed taxes, including increments, for the taxable
year 1975 against ACMDC. 3

Likewise, on the basis. of the BIR examiner's report in another investigation


separately conducted, the Commissioner had another assessment notice,
with a demand for payment of the amount of P13,531,466.80 representing
the 1976 deficiency ad valorem and business taxes with P5,000.00
compromise penalty, served on ACMDC on September 23, 1980. 4
ACMDC protested both assessments but the. same were denied, hence it
filed two separate petitions for review in the Court of Tax Appeals (also, tax
court) where they were docketed as C.T.A. Cases Nos. 3467 and 3825.
These two cases, being substantially identical in most respects except for
the taxable periods and the amounts involved, were eventually
consolidated.

On May 31, 1991, the Court of Tax Appeals rendered a consolidated


decision holding, inter alia, that ACMDC was not liable for deficiency ad
valorem taxes on copper and silver for 1975 and 1976 in the respective
amounts of P11,276,540.79 and P12,882,760.80 thereby effectively
sustaining the theory of ACMDC that in computing the ad valorem tax on
copper mineral, the refining and smelting charges should be deducted, in
addition to freight and insurance charges, from the London Metal Exchange
(LME) price of manufactured copper.

However, the tax court held ACMDC liable for the amount of
P1,572,637.48, exclusive of interest, consisting of 25% surcharge for late
payment of the ad valorem tax and late filing of notice of removal of silver,
gold and pyrite extracted during certain periods, and for alleged deficiency
manufacturer's sales tax and contractor's tax.

The particulars of the reduced amount of said tax obligation is enumerated


in detail in the dispositive portion of the questioned judgment of the tax
court, thus:

WHEREFORE, petitioner should and is hereby ORDERED to


pay the total amount of the following:

a) P297,900.39 as 25% surcharge on silver


extracted during the period November 1, 1974 to
December 31, 1975.

b) P161,027.53 as 25% surcharge on silver


extracted for the taxable year 1976.

c) P315,027.30 as 25% surcharge on gold extracted


during the period November 1, 1974 to December
31, 1975.

d) P260,180.55 as 25% surcharge on gold during


the taxable year 1976.
e) P53,585.30 as 25% surcharge on pyrite extracted
during the period November 1, 1974 to December
31, 1975.

f) P53,283.69 as 25% surcharge on pyrite extracted


during the taxable year 1976.

g) P316,117.53 as deficiency manufacturer's sales


tax and surcharge during the taxable year 1975;
plus 14% interest from January 21, 1976 until fully
paid as provided under Section 183 of P.D. No. 69.

h) P23,631.44 as deficiency contractor's tax and


surcharge on the lease of personal property during
the taxable year 1975; plus 14% interest from
January 21, 1976 until fully paid as provided under
Section 183 of P.D. 69.

i) P91,883.75 as deficiency contractor's tax and


surcharge on the lease of personal property during
the taxable year 1976, plus 14% interest from April
21, 1976 until fully paid as provided under. Section
183 of P.D. No. 69.

With costs against petitioner. 5

As a consequence, both parties elevated their respective contentions to


respondent Court of Appeals in two separate petitions for review. The
petition filed by the Commissioner, which was docketed as CA-G.R. SP No.
25945, questioned the portion of the judgment of the tax court deleting
the ad valoremtax on copper and silver, while the appeal filed by ACMDC
and docketed as CA-G.R. SP No. 26087 assailed that part of the decision
ordering it to pay P1,572,637.48 representing alleged deficiency
assessment.

On February 12, 1992, judgment was rendered by respondent Court of


Appeals in CA-G.R. SP No. 25945, dismissing the petition and affirming the
tax court's decision on the manner of computing the ad valorem
tax. 6 Hence, the Commissioner of Internal Revenue filed a petition before-
us in G.R. No. 104151, raising the sole issue of whether or not, in
computing the ad valorem tax on copper, charges for smelting and refining
should also be deducted, in addition to freight and insurance costs, from
the price of copper concentrates.

On May 22, 1992, judgment was likewise rendered by the same


respondent court in CA-G.R. SP No. 26087, modifying the judgment of the
tax court and further reducing the tax liability of ACMDC by deleting
therefrom the following items:

(1) the award under paragraph (a) of P297,900.39 as 25%


surcharge on silver extracted during the period November 1,
1974 to December 31, 1975;

(2) the award under paragraph (c) thereof of P315,027.30 as


25% surcharge on gold extracted during the period November
1, 1974 to December 31, 1975; and

(3) the award under paragraph (e) thereof of P53,585.30 as


24% (sic, 25%) surcharge on pyrite extracted during the period
November 1, 1974 to December 31, 1975. 7

Still not satisfied with the said judgment which had reduced its tax liability to
P906,124.49, as a final recourse ACMDC came to this Court on a petition
for review on certiorari in G.R. No. 105563, claiming that it is not liable at all
for any deficiency. tax assessments for 1975 and 1976. In our resolution of
September 1, 1993, G.R. No. 104151 was ordered consolidated with G.R.
No. 105563. 8

I. G.R No. 104151

The Commissioner of Internal Revenue claims that the Court of Appeals


and the tax court erred in allowing the deduction of refining and smelting
charges from the price of copper concentrates. It is the contention of the
Commissioner that the actual market value of the mineral products should
be the gross sales realized from copper concentrates, deducting therefrom
mining, milling, refining, transporting, handling, marketing or any other
expenses. He submits that the phrase "or any other expenses" includes
smelting and refining charges and that the law allows deductions for actual
cost of ocean freight and insurance only in instances where the minerals or
mineral products are sold or consigned abroad by the lessees or owner of
the mine under C.I.F. terms, hence it is error to allow smelting and refining
charges as deductions.
We are not persuaded by his postulation and find the arguments adduced
in support thereof untenable.

The pertinent provisions of the National Internal Revenue Code (tax code,
for facility) at the time material to this controversy, read as follows:

Sec. 243. Ad valorem taxes on output of mineral lands not


covered by lease. There is hereby imposed on the actual
market value of the annual gross output of the minerals mineral
products extracted or produced from all mineral lands not
covered by lease, an ad valorem tax in the amount of two per
centum of the value of the output except gold which shall pay
one and one-half per centum.

Before the minerals or mineral products are removed from the


mines, the Commissioner of Internal Revenue or his
representatives shall first be notified of such removal on a form
prescribed for the purpose. (As amended by Rep. Act No.
6110.)

Sec. 246. Definitions of the terms "gross output," "minerals" and


"mineral products." Disposition of royalties and ad
valorem taxes. The term "gross output" shall be interpreted as
the actual market value of minerals or mineral products, or of
bullion from each mine or mineral lands operated as a separate
entity without any deduction from mining, milling, refining,
transporting, handling, marketing, or any other
expenses: Provided, however, That if the minerals or mineral
products are sold or consigned. abroad by the lessee or owner
of the mine under C.I.F. terms, the actual cost of ocean freight
and insurance shall be deducted. The output of any group of
contiguous mining claim shall not be subdivided. The word
"minerals" shall mean all inorganic substances found in nature
whether in solid, liquid, gaseous, or any intermediate state. The
term "mineral products" shall mean things produced by the
lessee, concessionaire or owner of mineral lands, at least
eighty per cent of which things must be minerals extracted by
such lessee, concessionaire, or owner of mineral lands.
Ten per centum of the royalties and ad valorem taxes herein
provided shall accrue to the municipality and ten per centum to
the province where the-mines are situated, and eighty per
centum to the National Treasury. (As amended by Rep. Acts
Nos. 834, 1299, and by Rep. Act No. 1510, approved June 16,
1956)."

To rephrase, under the aforequoted provisions, the ad valorem tax of 2% is


imposed on the actual market value of the annual gross output of the
minerals or mineral products extracted or produced from all mineral lands
not covered by lease. In computing the tax, the term "gross output" shall be
the actual market value of minerals or mineral products, or of bullion from
each mine or mineral lands operated as a separate entity, without any
deduction for mining, milling, refining, transporting, handling, marketing or
any other expenses. If the minerals or mineral products are sold or
consigned abroad by the lessee or owner of the mine under C.I.F. terms,
the actual cost of ocean freight and insurance shall be deducted.

In other words, the assessment shall be based, not upon the cost of
production or extraction of said minerals or mineral products, but on the
price which the same before or without undergoing a process of
manufacture would command in the ordinary course of business. 9

In the instant case, the allowance by the tax court of smelting and refining
charges as deductions is not contrary to the above-mentioned provisions of
the tax code which ostensibly prohibit any form of deduction except freight
and insurance charges. A review of the records will show that it was the
London Metal Exchange price on wire bar which was used as tax base by
ACMDC for purposes of the 2%ad valorem tax on copper concentrates
since there was no available market price quotation in the commodity
exchange or markets of the world for copper concentrates nor was there
any market quotation locally obtainable. 10 Hence, the charges for smelting
and refining were assessed not on the basis of the price of the copper
extracted at the mine site which is prohibited by law, but on the basis of the
actual market value of the manufactured copper which in this case is the
price quoted for copper wire bar by the London Metal Exchange.

The issue of whether the ad valorem tax should be based upon the value of
the finished product, or the value upon extraction of the raw materials or
minerals used in the manufacture of said finished products, has been
passed upon by us in several cases wherein we held that the ad
valorem tax is to be computed on the basis of the market value of the
mineral in its condition at the time of such removal and before it undergoes
a chemical change through manufacturing process, as distinguished from a
purely physical process which does not necessarily involve the change or
transformation of the raw material into a composite distinct product. 11
Thus, in the case of Cebu Portland Cement Co. vs. Commissioner of
Internal Revenue, 12 this Court ruled:

. . . ad valorem tax is a tax not on the minerals, but upon the


privilege of severing or extracting the same from the earth, the
government's right to exact the said impost springing from the
Regalian theory of State ownership of its natural resources.

. . . While cement is composed of 80% minerals, it is not merely


an admixture or blending of raw materials, as lime, silica, shale
and others. It is the result of a definite the crushing of minerals,
grinding, mixing, calcining, cooling, adding of retarder or raw
gypsum. In short, before cement reaches its saleable form, the
minerals had already undergone a chemical change through
manufacturing process, This could not have been the state of
mineral products' that the law contemplates for purposes of
imposing the ad valorem tax. . . . this tax is imposed on the
privilege of extracting or severing the minerals from the mines.
To our minds, therefore the inclusion of the term mineral
products is intended to comprehend cases where the mined or
quarried elements may not be usable in its original state without
application of simple treatments . . . which process does not
necessarily involve the change or transformation of the raw
materials into a composite, distinct product. . . . While the
selling price of cement may reflect the actual market value of
cement, said selling price cannot be taken as the market value
also of the minerals composing the cement. And it was not the
cement that was mined, only the minerals composing the
finished product.

This view was subsequently affirmed in the resolution of the Court denying
the motion for reconsideration of its aforesaid decision, 13 reiterated that
the pertinent part of which reiterated that

. . . the ad valorem tax in question should be based on the


actual market value of the quarried minerals used in producing
cement, . . . the law intended to impose the ad valoremtax upon
the market value of the component mineral products in their
original state before processing into cement. . . . the law does
not impose a tax on cement qua cement, but on mineral
products at least 80% of which must be minerals extracted by
the lessee, concessionaire or owner of mineral lands.
The Court did not, and could not, rule that cement is a
manufactured product subject to sales tax, for the reason that
such liability had never been litigated by the parties. What it did
declare is that, while cement is a mineral product, it is no longer
in the state or condition contemplated by the law; hence the
market value of the cement could not be the basis for
computing the ad valorem tax, since the ad valorem tax is a
severance tax i.e., a charge upon the privilege of severing or
extracting minerals from the earth, (Dec. p. 4) and is due and
payable upon removal of the mineral product from its bed or
mine (Tax Code s. 245).

Therefore, the imposable ad valorem tax should be based on the selling


price of the quarried minerals, which is its actual market value, and not on
the price of the manufactured product. If the market value chosen for the
reckoning is the value of the manufactured. or finished product, as in the
case at bar, then all expenses of processing or manufacturing should be
deducted in order to approximate as closely as is humanly possible the
actual market value of the raw mineral at the mine site.

It was copper ore that was extracted by ACMDC from its mine site which,
through a simple physical process of removing impurities therefrom, was
converted into copper concentrate In turn, this copper concentrate
underwent the process of smelting and refining, and the finished product is
called copper cathode or copper wire bar.

The copper wire bar is the manufactured copper. It is not the mineral
extracted from the mine site nor can it be considered a mineral product
since it has undergone a manufacturing process, to wit:

I. The physical process involved in the production of copper


concentrate are the following (p. 19, BIR records; Exh. H, p.
43, Folder I of Exhibits.)

A Mining Process

(1) Blasting The ore body is broken


up by blasting.

(2) Loading The ore averaging about


1/2 percent
copper is loaded into ore trucks by
electric shovels.

(3) Hauling The trucks of ore are


hauled to the mill.

B Milling Process

(1) Crushing The ore is crushed to


pieces the size of peanuts.

(2) Grinding The crushed ore is


ground to powder form.

(3) Concentrating The mineral


bearing particles in the powdered ore
are concentrated.

The ores or rocks, transported by conveyors, are crushed


repeatedly by steel balls into size of peanuts, when they are
ground and pulverized. The powder is fed into concentrators
where it is mixed with water and other reagents. This is known
in the industry as a flotation phase. The copper-bearing
materials float while the non-copper materials in the rock sink.
The material that floats is scooped and dried and piled. This is
known as copper concentrate. The material at the bottom is
waste, and is known in the industry as tailings. In Toledo City,
tailings are disposed of through metal pipes from the flotation
mills to the open sea. Copper concentrate of petitioner contains
28-31% copper. The concentrate is loaded in ocean vessels
and shipped to Mitsubishi Metal Corporation mills in Japan,
where the smelting, refining and fabricating processes are
done. (Memorandum of petitioner, p. 71, CTA records.)

II. The chemical or manufacturing process in the production of


wire bar is as follows: (Exh. 'H', p. 43, Folder I of exhibits.)

A. Smelting

(1) Drying The copper concentrates (averaging


about 30 percent copper) are dried.
1. Flash Furnace The dried concentrate is smelted
autogenously and a matte containing 65 percent is
produced.
2. Converter The matte is converted to blister copper with
a purity of about 99 per cent.

B. Refining

(1) Casting Wheel Blister copper is treated in an


anode furnace where. copper requiring further
treatment is sent to the casting wheel to produce
cathode copper.

(2) Electrolytic Refining Anode copper is further


refined by electrolytic refining to produce cathode
copper.

C. Fabricating

(1) Rolling Fire refined or electroly-tic copper-


and/or brass (a mixture Of copper and zinc) is made
into tubes, sheets, rods and wire.

(2) Extruding Sheet tubes, rods and wire are


further fabricated into the copper articles in
everyday use.

The records show that cathodes, with purity of 99.985% are


cast or fabricated into various shapes, depending on their
industrial destination. Cathodes are metal sheets of copper 1
meter x 1 meter x 16-16 millimeter thick and 160 kilograms in
weight, although this thickness is not uniform for all the sheets.
Cathodes sheets are not suitable for direct fabrication, hence,
are further fabricated into the desired shape, like wire bar,
billets and cakes. (p. 1, deposition, London,) Wire bars are
rectangular pieces, 100 millimeter x 100 millimeter x 1.37
meters long and weigh some 125 kilos. They are suited for
copper wires and copper rods. Billets are fabricated into tubes
and heavy electric sections. Cakes are in the form of thick
sheets and strips. (pp. 13, 18-21, deposition, Japan, Exhs. "C"
& "G", Japan, pp. 1-2, deposition, London, see pp. 70-72, CTA
records.) 14
Significantly, the finding that copper wire bar is a product of a
manufacturing process finds support in the definition of a "manufacturer" in
Section 194 (x) of the aforesaid tax code which provides:

"Manufacturer" includes every person who by physical or


chemical process alters the exterior texture or form or inner
substance of any raw material or manufactured or partially
manufactured product in such a manner as to prepare it for a
special use or uses to which it could not have been put in its
original condition, or who by any such process alters the quality
of any such raw material or manufactured or partially
manufactured product so as to reduce it to marketable shape or
prepare it for any of the uses of industry, or who by any such
process combines any such raw material or manufactured or
partially manufactured products with other materials: or
products of the same or different kinds and in such manner that
the finished product of such process or manufacture can be put
to a special use or uses to which such raw material or
manufactured or partially manufactured products, or combines
the same to produce such finished products for the purpose of
their sale or distribution to others and not for his own use or
consumption.

Moreover, it is also worth noting at this point that the decision of the tax
court was based on its previous ruling in the case of Atlas Consolidated
Mining and Development Corporation vs. Commissioner of Internal
Revenue, 15 dated January 23, 1981, which we quote with approval:

. . . The controlling law is clear and specific; it should therefore


be applied as Since the mineral or mineral product removed
from its bed or mine at Toledo City by petitioner is copper
concentrate as admitted by respondent himself, not copper wire
bar, the actual market value of such copper concentrate in its
condition at the time of such removal without any deduction
from mining, milling, refining, transporting, handling, marketing,
or any other expenses should be the basis of the 2% ad
valorem tax.

The conclusion reached is rendered clearer when it is taken


into consideration that the ad valorem tax is a severance tax, a
charge upon the privilege of severing or extracting minerals
from the earth, and is due and payable upon removal of the
mineral product from its bed or mine, the tax being computed
on the basis of the market value of the mineral in its condition at
the time of such removal and before its being substantially
changed by chemical or manufacturing (as distinguished from
purely physical) processing. (Cebu Portland Cement Co. vs.
Commissioner of Internal Revenue, supra.) Copper wire bars,
as discussed above,, have already undergone chemical or
manufacturing processing in Japan, they are not extracted or
produced from the earth by petitioner in its mine site at Toledo
City. Since the ad valorem tax is computed on the basis of the
actual market value of the mineral in its condition at the time of
its removal from the earth, which in this case is copper
concentrate, there is no basis therefore for an assertion that
such tax should be measured on the basis of the London Metal
Exchange price quotation of the manufactured wire bars without
any deduction of smelting and refining charges.

In resume:

1. The mineral or mineral product of petitioner the


extraction or severance from the soil. of which
the ad valorem tax is directed is copper
concentrate.

2. The ad valorem tax is computed on the basis of


the actual market value of the copper concentrate in
its condition at the time of removal from the earth
and before substantially changed by chemical or
manufacturing process without any deduction
milling, refining, from mining, transporting, handling,
marketing, or any other expenses. However, since
the copper concentrate is sold abroad by petitioner
under C.I.F. terms, the actual cost of ocean freight
and insurance is deductible.

3. There being no market price quotation of copper


concentrate locally or in the commodity exchanges
or markets of the world, the London Metal
Exchange price quotation of copper wire bar, which
is used by petitioner and Mitsubishi Metal
Corporation as reference to determine the selling
price of copper concentrate, may likewise be
employed in this case as reference point in
ascertaining the actual market value of copper
concentrate for ad valorem tax purposes. By
deducting from the London Metal Exchange price
quotation of copper wire bar all charges and costs
incurred after the copper concentrate has been
shipped from Toledo City to the time the same has
been manufactured into wire bar, namely, smelting,
electrolytic refining and fabricating, the remainder
represents to a reasonable degree the actual
market value of the copper concentrate in its
condition at the time of extraction or removal from
its bed in Toledo City for the purposes of the ad
valorem tax.

The Commissioner of Internal Revenue argues that the ruling in the case
above stated is not binding, considering that the incumbent Commissioner
of Internal Revenue is not bound by decisions or rulings of his predecessor
when he finds that a different construction of the law should be adopted,
invoking therefor the doctrine enunciated in Hilado vs. Collector of internal
Revenue, et a1, 16 This trenches on specious reasoning. What was
involved in the Hilado case was a previous ruling of a former Commissioner
of Internal Revenue. In the case at bar, the Commissioner based his
findings on a previous decision rendered by the Court of Tax Appeals itself.

The Court of Tax Appeals is not a mere superior administrative agency or


tribunal but is a part of the judicial system of the Philippines. 17 It was
created by Congress pursuant to Republic Act No. 1125, effective June 16,
1954, as a centralized court specializing in tax cases. It is a regular court
vested with exclusive appellate jurisdiction over cases arising under the
National Internal Revenue Code, the Tariff and Customs Code, and the
Assessment Law. 18

Although only the decisions of the Supreme Court establish jurisprudence


or doctrines in this jurisdiction, nonetheless the decisions of subordinate
courts have a persuasive effect and may serve as judicial guides. It is even
possible that such a conclusion or pronouncement can be raised to the
status of a doctrine if, after it has been subjected to test in the crucible of
analysis and revision the Supreme Court should find that it has merits and
qualities sufficient for its consecration as a rule of jurisprudence. 19
Furthermore, as a matter of practice and principle, the Supreme Court will
not set aside the conclusion reached by an agency such as the Court of
Tax Appeals, which is, by the very nature of its function, dedicated
exclusively to the study and consideration of tax problems and has
necessarily developed an expertise on the subject, unless there has been
an abuse or improvident exercise of authority on its part. 20

II. G.R. No. 105563

The petition herein raises the following issues for resolution:

A. Whether or not petitioner is liable for payment, of


the 25% surcharge for alleged late filing of notice of
removal/late payment of the ad valorem tax on
silver, gold and pyrite extracted during the taxable
year 1976.

B. Whether or not petitioner is liable for payment of


the manufacturer' s sales tax and surcharge during
the taxable year 1975, plus interest, on grinding
steel balls borrowed by its competitor; and

C. 'Whether or not petitioner is liable for payment of


the contractor's tax and surcharge on the alleged
lease of personal property during the taxable years
1975 and 1976 plus interest. 21

A. Surcharge on Silver, Gold and Pyrite

ACMDC argues that the Court of Appeals erred in holding it liable to pay
25% surcharge on silver, gold and pyrite extracted by it during tax year
1976.

Sec. 245 of the then tax code states:

Sec. 245. Time and manner of payment of royalties or ad


valorem taxes. The royalties or ad valorem taxes as the case
may be, shall be due and payable upon the removal of the
mineral products from the locality where mined. However, the
output of the mine may be removed from such locality without
the pre-payment of such royalties or ad valorem taxes if the
lessee, owner, or operator shall file a bond in the form and
amount and with such sureties as the Commissioner of Internal
Revenue may require,. conditioned upon the payment of such
royalties or ad valorem taxes, in which case it shall be the duty
of every lessee, owner, or operator of a mine to make a true
and complete return in duplicate under oath setting forth the
quantity and the actual market value of the output of his mine
removed during each calendar quarter and pay the royalties
or ad valorem taxes due thereon within twenty days after the
close of said quarter.

In case the royalties or ad valorem taxes are not paid within the
period prescribed above, there shall be added thereto a
surcharge of twenty-five per centum. Where a false or
fraudulent return is made, there shall be added to the royalties
or ad valorem taxes a surcharge of fifty per centum of their
amount. The surcharge So, added: shall be collected in the
same manner and as part of the royalties or ad valorem taxes,
as the case may be.

Under the aforesaid provision, the payment of the ad valorem tax shall be
made upon removal of the mineral products from the mine site or if
payment cannot be made, by filing a bond in the form and amount to be
approved by the Commissioner conditioned upon the payment of the said
tax.

In the instant case, the records show that the payment of the ad
valorem tax on gold, silver and pyrite was belatedly made. ACMDC,
however, maintains that it should not be required to pay the 25% surcharge
because the correct quantity of gold and silver could be determined only
after the copper concentrates had gone through the process of smelting
and refining in Japan while the amount of pyrite cannot be determined until
after the flotation process separating the copper mineral from the waste
material was finished.

Prefatorily, it must not be lost sight of that bad faith is ; not essential for the
imposition of the 25% surcharge for late payment of the ad valorem tax.
Hence,

MISSING PAGE 19

Q. Now, what do you do with the result of your


analysis?
A. These are tabulated and then averaged out to
represent one shipment.

Q. Will you tell this Honorable Court whether in that


laboratory testing you physically separate the gold,
you physically separate the silver and you physically
separate the copper content of that 40 to 50 kilos?

A. No, no, we analyze this in one sample. This


sample is analyzed for gold, silver, and copper, but
there is no recovery made.

Q. You mean there is no physical separation?

A. No, no physical separation.

Q. So these three minerals copper, gold and


silver are in that same powder that you have
tested?

A Yes, it is in the same powder.

Q. Now how do you reflect the results of the


testing?

A. You mean in analysis?

Q. In the analysis, yes.

A. Copper is reported in percent.

Q. Percentage?

A. Yes.

Q. How about gold?

A. Gold and silver part is represented as grams per


dmt or parts per million.

Q. Based on the results of your data gathered in the


laboratory?

A. Yes.
Q. Now where do you submit the results of the
laboratory testing?

A When a shipment is made we prepare a


certificate of analysis signed by me and then which
(sic) is sent to Manila.

Q. Now, as far as you know in connection with your


duty do you know what Manila what do you say,
Manila, ACMDC?

A. Makati.

Q. Makati. What does Makati ACMDC do with your


assay report?

A. As far as I know it is used as the basis for the


payment of ad valorem tax. 24

The above-quoted testimony accordingly supports these findings of the tax


court in its decision in this case:

We see it (sic) that even if the silver and gold cannot as yet be
physically separated from the copper concentrate until the
process of smelting and refining was completed, the estimated
commercial quantity of the silver and gold could have been
determined in much the same way that petitioner is able to
estimate the commercial quantity of copper during the assay. If,
as stated by petitioner, it is able to estimate the grade of the
copper ore, and it has determined the grade not only of the
copper but also those of the gold and silver during the assay
(Petitioner's Memorandum, p. 207, Record), ergo, the estimated
commercial quantity of the silver and gold subject to ad
valorem tax could have also been determined and provisionally
paid as for copper. 25

The other allegation of ACMDC is that there was no removal of pyrite from
the mine site because the pyrite was delivered to its sister company, Atlas
Fertilizer Corporation, whose plant is located inside the mineral concession
of ACMDC in Sangi, Toledo City. ACMDC, however, is already barred by
estoppel in pais from putting that matter in issue.
An ad valorem tax on pyrite for the same tax year was already declared
and paid by ACMDC. In fact, that payment was used as the basis for
computing the 25% surcharge. It was only when ACMDC was assessed for
the 25% surcharge that said issue was raised by it. Also, the evidence
shows that deliveries of pyrite were not exclusively made to its sister
company, Atlas Fertilizer Corporation. There were shipments of pyrite to
other companies located outside of its mine site, in addition to those
delivered to its aforesaid sister company. 26

B. Manufacturer's Tax and Contractor's Tax

The manufacturer's tax is imposed under Section 186 of the tax code then
in force which provides:

Sec. 186. Percentage tax on sales of other articles. There


shall be levied, assessed and collected once only on every
original sale, barter, exchange, or similar transaction either for
nominal or valuable consideration, intended to transfer
ownership of, or title to, the articles not enumerated in sections
one hundred and eighty-four-A, one hundred and eighty five,
one hundred and eighty-five-A, one hundred eighty-five-B, and
one hundred eighty-six-B, a tax equivalent to seven per
centum of the gross selling price or gross value in money of the
articles so sold, bartered, exchanged, or transferred, such tax
to be paid by the manufacturer or producer: Provided, That
where the articles subject to tax under this Section are
manufactured out of materials likewise subject to tax under this
section and section one hundred eighty-nine, the total cost of
such materials, as duly established, shall be deductible from
the gross selling price or gross value in money of such
manufactured articles. (As amended by Rep. Act No. 6110 and
by Pres. Decree No. 69.)

On the other hand, the contractor's tax is provided for under Section 191 of
the same code, paragraph 17 of which declares that lessors of personal
property shall be subject to a contractor's tax of 3% of the gross receipts.

Sections 186 and 191 fall under Title V of the tax code, entitled "Privilege
Taxes on Business and Occupation." These "privilege taxes on business"
are taxes imposed upon the privilege of engaging in business. They are
essentially excise taxes. 27 To be held liable for the payment of a privilege
tax, the person or entity must be engaged in business, as shown by the fact
that the drafters of the tax code had purposely grouped said provisions
under the general heading adverted to above.

"To engage" is to embark on a business or to employ oneself therein. The


word "engaged" connotes more than a single act or a single transaction; it
involves some continuity of action. "To engage in business" is uniformly
construed as signifying an employment or occupation which occupies one's
time, attention, and labor for the purpose of a livelihood or profit. The
expressions "engage in business," "carrying on business" or "doing
business" do not have different meanings, but separately or connectedly
convey the idea of progression, continuity, or sustained activity. "Engaged
in business" means occupied or employed in business; carrying on
business" does not mean the performance of a single disconnected act, but
means conducting, prosecuting, and continuing business by performing
progressively all the acts normally incident thereto; while "doing business"
conveys the idea of business being done, not from time to time, but all the
time. 28

The foregoing notwithstanding, it has likewise been ruled that one act may
be sufficient to constitute carrying on a business according to the intent
with which the act is done. A single sale of liquor by one who intends to
continue selling is sufficient to render him liable for "engaging in or carrying
on" the business of a liquor dealer. 29

There may be a business without any sequence of acts, for if an isolated


transaction, which if repeated would be a transaction in a business, is
proved to have been undertaken with the intent that it should be the first of
several transactions, that is, with the intent of carrying on a business, then
it is a first transaction in an existing business. 30

Thus, where the end sought is to make a profit, the act constitutes "doing-
business." This is not without basis. The term "business," as used in the
law imposing a license tax on business, trades, and so forth, ordinarily
means business in the trade or commercial sense only, carried on with a
view to profit or livelihood; 31 It is thus restricted to activities or affairs
where profit is the purpose, or livelihood is the motive. Since the term
"business" is being used without any qualification in our aforesaid tax code,
it should therefore be therefore be construed in its plain and ordinary
meaning, restricted to activities for profit or livelihood. 32

In the case at bar, ACMDC claims exemptions from the payment of


manufacturer's tax. It asserts that it is not engaged in the business of
selling grinding steel balls, but it only produces grinding steel balls solely
for its own use or consumption, However, it admits having lent its grinding
steel balls to other entities but only in very isolated cases.

After a careful review of the records and on the basis of the legal concept
of "engaging in business" hereinbefore discussed, we are inclined to agree
with ACMDC that it should not and cannot be held liable for the payment of
the manufacturer's tax.

First, under the tax code then in force, the 7% manufacturer's sales tax is
imposed on the manufacturer for every original sale, barter, exchange and
other similar transaction intended to transfer ownership of articles. As
hereinbefore quoted, and we repeat the same for facility of reference, the
term "manufacturer" is defined in the tax code as including "every person
who by physical or chemical process alters the exterior texture or form or
inner substance of any raw material or manufactured or partially
manufactured product in such manner as to prepare it for a special use or
uses to which it could not have been put in its original condition, or who by
any such process alters the quality of any such raw material or
manufactured or partially manufactured product so as to reduce it to
marketable shape or prepare it for any of the uses of industry, or who by
any such process combines any such raw material or manufactured or
partially manufactured products with other materials or products of the
same or of different kinds and in such manner that the finished product of
such process or manufacture can be put to a special use or uses to which
such raw materials or manufactured or partially manufactured products in
their original condition could not have been put, and who in addition alters
such raw material or manufactured or partially manufactured products, or
combines the same to produce such finished products for the purpose of
their sale or distribution to others and not for his own use or
consumption. 33

Thus, a manufacturer, in order to be subjected to the necessity of paying


the percentage tax imposed by Section 186 of the tax code, must be
'engaged' in the sale, barter or exchange of; personal property. Under a
statute which imposes a tax on persons engaged in the sale, barter or
exchange of merchandise, a person must be occupied or employed in the
sale, barter or exchange of personal property. A person can hardly be
considered as occupied or employed in the sale, barter or exchange of
personal property when he has made one purchase and sale only. 34
Second, it cannot be legally asserted, for purposes of this particular
assessment only, that ACMDC was engaged in the business of selling
grinding steel balls on the basis of the isolated transaction entered into by it
in 1975. There is no showing that said transaction was undertaken by
ACMDC with a view to gaining profit. therefrom and with the intent of
carrying on a business therein. On the contrary, what is clear for us is that
the sale was more of an accommodation to the other mining companies,
and that ACMDC was subsequently replaced by other suppliers shortly
thereafter.

This finding is strengthened by the investigation report, dated March 11,


1980, of the B.I.R. Investigation Team itself which found that

ACMDC has a foundry shop located at Sangi, Toledo City, and


manufactures grinding steel balls for use in its ball mills in
pulverizing the minerals before they go to the concentrators,
For the grinding steel balls manufactured by ACMDC and used
in its operation, we found it not subject to any business tax. But
there were times in 1975 when other mining companies were
short of grinding steel balls and ACMDC supplied them with
these materials manufactured in its foundry shop. According to
the informant, these were merely accommodations and they
were replaced by the other suppliers. 35

At most, whatever profit ACMDC may have realized from that single
transaction was just incidental to its primordial purpose of accommodating
other mining companies. Well-settled is the rule that anything done as a
mere incident to, or as a necessary consequence of, the principal business
is not ordinarily taxed as an independent business in itself. 36 Where a
person or corporation is engaged in a distinct business and, as a feature
thereof, in an activity merely incidental which serves no other person or
business, the incidental and restricted activity is not considered as intended
to be separately taxed. 37

In fine, on this particular aspect, we are consequently of the considered


opinion and so hold that ACMDC was not a manufacturer subject to the
percentage tax imposed by Section 186 of the tax code.

The same conclusion; however, cannot be made with respect to the


contractor's tax being imposed on ACMDC. It cannot validly claim that the
leasing out of its personal properties was merely an isolated transaction. Its
book of accounts shows that several distinct payments were made for the
use of its personal properties such as its plane, motor boat and dump
truck. 38 The series of transactions engaged in by ACMDC for the lease of
its aforesaid properties could also be deduced from the fact that for the tax
years 1975 and 1976 there were profits earned and reported therefor. It
received a rental income of P630,171.56 for tax year 39 and P2,450,218.62
for tax year 1976. 40

Considering that there was a series of transactions involved, plus the fact
that there was an apparent and protracted intention to profit from such
activities, it can be safely concluded that ACMDC was habitually engaged
in the leasing out of its plane, motor boat and dump truck, and is perforce
subject to the contractor's tax.

The allegation of ACMDC that it did not realize any profit from the leasing
out of its said personal properties, since its income therefrom covered only
the costs of operation such as salaries and fuel, is not supported by any
documentary or substantial evidence. We are not, therefore, convinced by
such disavowal.

Assessments are prima facie presumed correct and made in good faith.
Contrary to the theory of ACMDC, it is the taxpayer and not the Bureau of
Internal Revenue who has the duty of proving otherwise. It is an elementary
rule that in the absence of proof of any irregularities in the performance of
official duties, an assessment will not be disturbed. All presumptions are in
favor of tax assessments. 41 Verily, failure to present proof of error in
assessments will justify judicial affirmance of said assessment. 42

Finally, we deem it opportune to emphasize the oft-repeated rule that tax


statutes are to receive a reasonable construction with a view to carrying out
their purposes and intent. 43 They should not be construed as to permit the
taxpayer to easily evade the payment of the tax. 44 On this note, and under
the confluence of the weighty. considerations and authorities earlier
discussed, the challenged assessment against ACMDC for contractor's tax
must be upheld.

WHEREFORE, the impugned judgment of respondent Court of Appeals in


CA-G.R. SP No. 25945, subject of the present petition in G.R. No. 104151
is hereby AFFIRMED; and its assailed judgment in CA-G.R SP No. 26087
is hereby MODIFIED by exempting Atlas Consolidated Mining and
Development Corporation, petitioner in G.R. No. 105563 of this Court, from
the payment of manufacturer's sales tax, surcharge and interest during the
taxable year 1975.
SO ORDERED.

CASE NO. 2

G.R. No. L-38540 April 30, 1987

REPUBLIC OF THE PHILIPPINES, petitioner,


vs.
THE COURT OF APPEALS, and NIELSON & COMPANY,
INC., respondents.

PADILLA, J.:

This is a petition for review on certiorari of the decision of the respondent


Court of Appeals 1 in CA G.R. No. 37417-R, dated 3 April 1974, reversing
the decision of the then Court of First Instance of Manila which ordered
private respondent Nielson & Co., Inc. to pay the Government the amount
of P11,496.00 as ad valorem tax, occupation fees, additional residence tax
and 25% surcharge for late payment, for the years 1949 to 1952, and costs
of suit, and of the resolution of the respondent Court, dated 31 May 1974,
denying petitioner's motion for reconsideration of said decision of 3 April
1974.

In a demand letter, dated 16 July 1955 (Exhibit A), the Commissioner of


Internal Revenue assessed private respondent deficiency taxes for the
years 1949 to 1952, totalling P14,449.00, computed as follows:

1-1/2% ad valorem tax on


P448,000.00..........................P7,320.00

25% surcharge for late


payment......................................1,830.00

Occupation fees for the years 1949

to 1952 at P1.00 per ha. per

year on 1, 230
hectares.....................................4,920.00

Additional residence tax on P79,000.00


at P1.00 per every P5,000.00

per year or P75.00 x 4


years................................303.20

25% surcharge for late payment.........................................75.00

TOTAL AMOUNT
DUE............................ P14,449.00 2

Petitioner reiterated its demand upon private respondent for payment of


said amount, per letters dated 24 April 1956 (Exhibit D), 19 September
1956 (Exhibit E) and 9 February 1960 (Exhibit F). Private respondent did
not contest the assessment in the Court of Tax Appeals. On the theory that
the assessment had become final and executory, petitioner filed a
complaint for collection of the said amount against private respondent with
the Court of First Instance of Manila, where it was docketed as Civil Case
No. 42911. However, for failure to serve summons upon private
respondent, the complaint was dismissed, without prejudice, in the Court's
order dated 30 June 1961. On motion, the order of dismissal was set aside,
at the same time giving petitioner sixty (60) days within which to serve
summons upon private respondent.

For failure anew to serve summons, the Court of First Instance of Manila
issued an order dated 4 October 1962 dismissing Civil Case No. 42911
without prejudice. The order of dismissal became final on 5 November
1962.

On 15 November 1962, the complaint against private respondent for


collection of the same tax was refiled, but the same was erroneously
docketed as Civil Case No. 42911, the same case previously dismissed
without prejudice. Without correcting this error, another complaint was filed
on 26 November 1963, docketed as Civil Case No. 55817, the subject
matter of the present appeal.

As herein earlier stated, the Court a quo rendered a decision against the
private respondent. On appeal to the respondent Court of Appeals, the
decision was reversed. Petitioner, Republic of the Philippines, filed a
motion for reconsideration which was likewise denied by said Court in a
resolution dated 31 May 1974. Hence, this petition, with the following
assignment of errors:
I

THE COURT OF APPEALS ERRED IN NOT HOLDING THAT THE


LETTER OF ASSESSMENT DATED JULY 16, 1955, EXHIBIT "A," WAS
RECEIVED BY PRIVATE RESPONDENT IN THE ORDINARY COURSE
OF THE MAIL PURSUANT TO SECTION 8, RULE 13 OF THE REVISED
RULES OF COURT.

II

THE COURT OF APPEALS ERRED IN NOT HOLDING THAT PRIVATE


RESPONDENT FAILED TO REBUT THE PRESUMPTION THAT THE
LETTER ASSESSMENT DATED JULY 16, 1955, HAVING BEEN DULY
DIRECTED AND MAILED WAS RECEIVED IN THE REGULAR COURSE
OF THE MAIL AND THAT OFFICIAL DUTY HAS BEEN REGULARLY
PERFORMED.

III

THAT, ASSUMING, WITHOUT ADMITTING, THAT THE LETTER DATED


JULY 16, 1955 (EXHIBIT "A") CANNOT BE CONSIDERED AS AN
ASSESSMENT, ON THE THEORY THAT THE SAME HAS NOT BEEN
RECEIVED BY PRIVATE RESPONDENT, THE COURT OF APPEALS
ERRED IN NOT HOLDING THAT THE LETTER OF THE DEPUTY
COLLECTOR (NOW DEPUTY COMMISSIONER) OF INTERNAL
REVENUE DATED SEPTEMBER 19, 1956 (EXHIBIT "E") IS ITSELF AN
ASSESSMENT WHICH WAS DULY RECEIVED BY PRIVATE
RESPONDENT.

Relying on the provisions of Section 8, Rule 13 and Section 5, paragraphs


m & v. Rule 131 of the Revised Rules of Court, petitioner claims that the
demand letter of 16 July 1955 showed an imprint indicating that the original
thereof was released and mailed on 4 August 1955 by the Chief, Records
Section of the Bureau of Internal Revenue, and that the original letter was
not returned to said Bureau; thus, said demand letter must be considered
to have been received by the private respondent. 3 According to petitioner,
if service is made by ordinary mail, unless the actual date of receipt is
shown, service is deemed complete and effective upon the expiration of
five (5) days after mailing. 4 As the letter of demand dated 16 July 1955
was actually mailed to private respondent, there arises the presumption
that the letter was received by private respondent in the absence of
evidence to the contrary. 5 More so, where private respondent did not offer
any evidence, except the self-serving testimony of its witness, that it had
not received the original copy of the demand letter dated 16 July 1955. 6

We do not agree with petitioner's above contentions. As correctly observed


by the respondent court in its appealed decision, while the contention of
petitioner is correct that a mailed letter is deemed received by the
addressee in the ordinary course of mail, stilt this is merely a disputable
presumption, subject to controversion, and a direct denial of the receipt
thereof shifts the burden upon the party favored by the presumption to
prove that the mailed letter was indeed received by the addressee. Thus:

Appellee contends that per Exhibit A, the notice was released


and mailed to the appellant by the BIR on Aug. 4, 1955 under
the signature of the Chief, Records Section, Office; that since
the original thereof was not returned to the appellee, the
presumption is that the appellant received the mailed notice.
This is correct, but this being merely a mere disputable
presumption, the same is subject to controversion, and a direct
denial of the receipt thereof shifts the burden upon the party
favored by the presumption to prove that the mailed letter was
received by the addressee. The appellee, however, argues that
since notice was rc-,Ieased and mailed and the fact of its
release was admitted by the appellant the admission is proof
that he received the mailed notice of assessment. We do not
think so. It is true the Court a quo made such a finding of fact,
but as pointed out by the appehant in its brief, and as borne out
by the records, no such admission was ever made by the
appellant in the answer or in any other pleading, or in any
declaration, oral or documentary before the trial court. We note
that the appellee has not met this challenge, and after a review
of the records, we find appeflant's assertion well-taken. 7

Since petitioner has not adduced proof that private respondent had in fact
received the demand letter of 16 July 1955, it can not be assumed that
private respondent received said letter. Records, however, show that
petitioner wrote private respondent a follow-up letter dated 19 September
1956, reiterating its demand for the payment of taxes as originally
demanded in petitioner's letter dated 16 July 1955. This follow-up letter is
considered a notice of assessment in itself which was duly received by
private respondent in accordance with its own admission. 8 The aforesaid
letter reads:
Sept
embe
r 19,
1956

Nielson and Company, Inc.

Ayala Boulevard, Manila

Gentlemen:

In reply to you (sic) letter dated June 1, 1956 relative to your


pending internal revenue tax liability involving the amount of
P15,649.00 as annual occupation fees, ad valorem and
additional residence taxes, surcharges and penalty, originally
demanded of you on July 16, 1955, I have the honor to inform
you that investigation conducted by an agent of this office show
that you and the Hixbar Gold Mining Co., Inc. entered into an
agreement in 1938 whereby you were given full exclusive and
irrevocable control of all the operations, development,
processing and marketing of mineral products from the latter's
mines and that au the assessments, taxes and fees of any
nature in connection with the said operation, development,
proceeding and marketing of these products shall be paid by
you. In view thereof, and it appearing that the aforesaid tax
liabilities accrued when your contract was in fun force and
effect, you are therefore, the party hable for the payment
thereof, notwithstanding the alleged contract subsequently
entered into by you and the Hixbar Gold Mining Co., Inc. on
September 9, 1954.

It is therefore, again requested that payment of the aforesaid


amount of P15,649.00 be made to the City Treasurer, Manila
within five (5) days from your receipt hereof so that this case
may be closed.

You are further requested to pay the sum of P150.00 as


compromise suggested in our letter to you dated February 24,
1955, it appearing that the same has not as yet been paid up to
the present.
Very respectfully
yours,

JOS
E
ARA
NAS

Deputy Collector
of Internal
9
Revenue

Under Section 7 of Republic Act No. 1125, the assessment is appealable to


the Court of Tax Appeals within thirty (30) days from receipt of the letter.
The taxpayer's failure to appeal in due time, as in the case at bar, makes
the assessment in question final, executory and demandable. Thus, private
respondent is now barred from disputing the correctness of the assessment
or from invoking any defense that would reopen the question of its liability
on the merits. 10

In Mamburao Lumber Co. vs. Republic, 11 this Court further said:

In a suit for collection of internal revenue taxes, as in this case, where the
assessment has already become final and executory, the action to collect is
akin to an action to enforce a judgment. No inquiry can be made therein as
to the merits of the original case or the justness of the judgment relied
upon. ...

ACCORDINGLY, the appealed decision is hereby reversed. The decision


of the Court a quo is hereby reinstated. No costs.

SO ORDERED.
TAX CASES ON DISTRAINT AND LEVY

CASE NO. 1- NO FT- COLLECTOR VS FLORES VDA DE CHURVA

CASE NO. 2

G.R. No. 502 January 29, 1946

BASILIA CABRERA, plaintiff-appellee,


vs.
THE PROVINCIAL TREASURER OF TAYABAS and PEDRO J.
CATIGBAC, defendants-appellants.

PARAS, J.:

On October 30, 1940, the provincial treasurer of Tayabas issued a notice


for the sale at public auction of numerous, real properties forfeited for tax
delinquency, including a certain parcel of land located in the barrio of
Buenavista, municipality of Candelaria, Province of Tayabas, and assessed
in the name of Nemesio Cabrera, said sale to be held "on December 15,
1940 at 8 a.m. and every day thereafter at the same place and hour until all
the properties shall have been sold to the highest bidder." Copy of the
notice was sent by registered mail to Nemesio Cabrera, but the envelope
containing the same was returned with the remark "Unclaimed,"
undoubtedly because Nemesio Cabrera had already died in 1935. The land
was actually sold on May 12, 1941, for the sum of P74.34 to the appellant
Pedro J. Catigbac, in whose favor the final bill of sale was executed on
September 23, 1942. Thereafter the appellee, Basilia Cabrera, filed a
complaint in the Court of First Instance of Tayabas against the provincial
treasurer and the appellant, attacking the validity of the tax sale on the
grounds that she was not notified therefore and that although the land had
remained in the assessment book in the name of Nemesio Cabrera, a
former owner, she has become its registered owner, since 1934 when a
Torrens title (No. 8167) was issued to her by the register of deeds of
Tayabas. From a judgment favorable to the appellee, the present appeal
was taken by Pedro J. Catigbac.

Under the law (Commonwealth Act No. 470, section 35), the provincial
treasurer is enjoined to set forth in the notice, among other particulars, the
date of the tax sale. We are of the opinion that this mandatory requirement
was not satisfied in the present case, because the announcement that the
sale would take place on December 15, 1940 and every day thereafter, is
as general and indefinite as a notice for the sale "within this or next year" or
"some time within the month of December." In order to enable a taxpayer to
protect his rights, he should at least appraised of the exact date of the
proceeding by which he is to lose his property. When we consider the fact
that the sale in favor of the appellant was executed on May 12, 1941, or
nearly five months after December 15, 1940, the violation of the mandatory
requirement becomes more obvious. Indeed, in his motion for
reconsideration (seeRecord on Appeal, pp. 33-41), the appellant had
admitted, unknowingly perhaps, that when he went to the office of the
municipal treasurer after reading the notice of sale in December, 1940, to
inquire about the advertised land, he was told to return on May 12, 1941.
The implication that follows is that the tax officials had really adopted the
view that they could sell any of the numerous forfeited lots on any date
subsequent to December 15, 1940, without new notice, thereby making the
resulting sale more private than public, likewise in violation of the law. It
may be observed that as regards tax sales, unlike ordinary execution sales,
the statute does not expressly authorize adjournment from day to day. The
reminder may, however, be given that the tax officials will greatly be
inconvenienced by following the law strictly, especially when numerous
properties are, as in the present case (132 parcels), to be disposed of for
tax delinquency. We will not venture to disagree, but it is believed that the
officials who are ever solicitous in protecting private proprietary rights, shall
have helped, to the same extent, in maintaining the solid foundation of the
Government which they seek to serve and of which they themselves are a
part.

What has been said is sufficient to decide this appeal, although it will not
altogether be amiss to refer to details that further support the judgment of
the lower court. The appellee was admittedly not notified of the auction
sale, and this also vitiates the proceeding. She is the registered owner of
the land and, since 1934, has become liable for the taxes thereon. For all
purposes, she is the delinquent taxpayer "against whom the taxes were
assessed," referred to in section 34 of Commonwealth Act No. 470. It
cannot be Nemesio Cabrera for the latter's obligation to pay taxes ended
where the appellee's liability began. Neither the alleged receipt by the
appellee of a copy of certificate of sale dated May 12, 1941, nor her failure
to redeem thereafter, had the effect of validating the prior tax proceeding.
The sale in favor of the appellant cannot bind the appellee, since the land
purportedly conveyed was owned by Nemesio Cabrera, not by the
appellee; and, at the time of the sale, Nemesio Cabrera had no interest
whatsoever in the land in question that could have passed to the appellant.
The appellee may be criticized for her failure to have the land transferred to
her name in the assessment record. The circumstance, nevertheless,
cannot supplant the absence of notice. Of course, it is the duty of any
person acquiring at the time real property to prepare and submit a tax
declaration within sixty days (Commonwealth Act No. 470, section 12), but
it is no less true that when the owner refuses or fails to make the required
declaration, the provincial assessor should himself declare the property in
the name of the defaulting owner (Commonwealth Act No. 470, section 14).
In this case there is absolutely no showing that the appellee had
deliberately failed to make the declaration to defraud the tax officials; and it
may be remarked that there can be no reason why her Torrens title, which
binds the whole world, cannot at least charge the Government which had
issued it, with notice thereof. A little synchronization between the offices of
the register of deeds and of the provincial assessor, with perhaps very
negligible additional clerical work on the part of both, will surely result in a
more efficient enforcement of the tax laws.

Not having appealed, the appellee cannot now pretend that the judgement
of the lower court is erroneous in so far as it failed to award damages in her
favor for the sum of P500. While an appellee can on appeal make a
counter-assignment of error, it must be with a view merely to sustaining the
judgement, not to obtaining other affirmative relief.

The appealed judgment is affirmed, with costs of both instances against the
appellant. So ordered.
CASE NO 3

G.R. No. L-4406 October 23, 1908

ANTONIA VALENCIA Y ORUS, plaintiff-appellee,


vs.
JUAN JIMENEZ Y MIJARES and GABRIEL FUSTER Y
FUSTER, defendants-appellants.

TRACEY, J.:

MEMORANDUM ON MOTION TO DISCONTINUE.

After this case had been finally submitted to this court, and was
awaiting decision, a petition was presented in behalf of the plaintiff, not
through her attorneys of record but through a new attorney, in the following
words:

The plaintiff, Doa Antonia Valencia y Orus, through her


advocate, appears and respectfully shows:

For weighty reasons now known to the plaintiff, but whereof


she was ignorant when this action was begun, she can not continue
claiming either ownership or possession of the lands in question in
this suit.

Wherefore this plaintiff asks this honorable court to revoke the


judgment appealed from in all its parts, absolving the defendants fully
from the demands in this suit, without making any award of costs.

By the judgment of the court below the plaintiff had been awarded
the real property in suit, together with damages for its detention.

This motion must be denied, for several reasons.

First. The plaintiff is a resident of Barcelona, Spain, ad she originally


authorized the bringing of this action in correspondence direct between
herself and her attorneys, Coudert Brothers of Manila, at whose request
she gave a power of management thereof to one of the assistants in their
office, Jose Moreno Lacalle. As a foundation for the present motion there
was filed a later power of attorney from her to Buenaventura Guamis,
revoking the earlier power to Jose Moreno Lacalle, which it fully recited,
and empowering Guamis to revoke in her name the aforesaid antecedent
power, and secondly, "himself or through his substitutes, whom he may
name, to appear in legal from before the Supreme Court of the city of
Manila, or any other tribunal which may have cognizance of the case, and
present a fitting instrument in writing discontinuing the action brought nullify
the sale of the lands aforesaid of Manila against Don Juan Jimenez y
Mijares and Don Gabriel Fuster y Fuster, with the power of ratification in
the said petition making manifest his wishes to renounce the continuance
of the said suit."

The affidavit of Buenaventura Guamis says:

(4) As appears from the aforesaid document "A," at the foot of


the sixth page (the power of attorney to him), it is the intention and
desire of the said Doa Antonia Valencia y Orus to discontinue this
action and renounce the continuation of the same. . . .

(6) By virtue of the powers conferred by the said document "A,"


this dependent hereby confers power on Mr. C. W. Ney, practicing
lawyer in this capital city, to make in the name and representation of
the said Doa Antonia Valencia y Orus proceedings necessary to
procure the final discontinuance of this action.

It is obvious that the motion does not comply with the power granted
by the plaintiff nor fall within its terms. The notice of motion does not ask for
the discontinuance or cessation or abandonment of the suit, but on the
contrary prays for a judgment absolving the defendants of the claim set up
in the complaint, without any costs. Such a judgment would be one upon
the merits and would preclude the plaintiff from any claim which she might
hereafter, on fuller devices, see fit to make against these defendants. Such
action, possibly so prejudicial to her interests, her power attorney has not
authorized any person to take in her behalf. The two things, a
discontinuance and a judgment of absolution on the merits, are not only
different in degree but in kind, and in the opinion of the majority of this court
the one does not include the other.

Second. If, however, it might be that the motion for a judgment upon
the merits could be considered as including the other kind of relief, that is, a
mere discontinuance, on the principle that the greater includes the less,
then the relief asked for can not be granted, because it is tied up with the
condition that there shall be no award of costs. The award of costs is at the
disposal of the court, not of the parties, especially to the prejudice of the
defendants, who are third persons, not before us on this motion and whom
we can not presume to accept terms to unfavorable to them in their
character as innocent purchasers.

Third. By the affidavit of Charles C. Cohn, one of the plaintiffs'


original attorneys, it appears that, after the entry of judgment in this action,
the said attorneys caused to be entered upon the records of the Court of
First Instance in which the judgment was rendered a statement of their
claim to a lien thereon, with lawful fees and disbursements in this action,
and caused written notice thereof to be delivered to the adverse party.
Under section 37 of the Code of Civil Procedure this sufficed to give them a
lien upon the judgment, inasmuch as the decree was one, in part, for the
payment of money. Their further claim thereon is expressed in that section
in the following words:

. . . and shall have the same right and power over such
judgments, decrees, and executions to enforce his client as his client
had or may have to the extent that may be necessary for the payment
of his just fees and disbursements.

Under the American practice this clause gives the attorneys an


interest in the judgment and power over it and to enforce it to that of their
clients. It must therefore entitle them to carry on the action for the purpose
of securing their proper compensation.

Without passing on the particular steps required to enable the


attorneys to carry their lien into effect or on the reasonableness of the fees
claimed by them, or of the contract providing thereof, we only hold that their
lien is alleged to have been properly created so as to give them a right and
standing in the action which prevents its discontinuance against their
protest and without a suitable provision for their protection.

Fourth. The motion is not made by one of the attorneys of record.


Certain motions, of their very nature, maybe made by an attorney who has
not appeared in the case, where the interest of the client is adverse to that
of the attorney of record. Of that character is a motion for substitution of
attorneys, but not such a motion as the present one, which go to the merits
and final disposition of the cause and which no one is entitled to make
other than the attorney who duly appears of record in this court. By section
32 of the Code of Civil Procedure the rights is secured to a party to change
attorneys. The method of such change is not indicated. The proper practice
in this case on the part of the plaintiff would have been a motion for a
substitution of attorneys, on which the question of their compensation
would naturally have risen and on the determination of which the attorney
finally appearing on record could have moved a discontinuance.

The justice sitting in this case do not all agree on each of the
aforesaid grounds, but they are not unanimously of the opinion that the
motion must be denied.

DECISION.

This action was brought in the Court of First Instance of the city of
Manila to set aside a sale of real estate valued at P95,697.10 for unpaid
taxes amounting to P2,934.76 to the defendant Jimenez, and also the
transfer of a one-half interest therein by him to the defendant Fuster, on
two grounds, first, that the defendants had secured title under the tax sale
by conspiracy with one Vicente Ablaza, plaintiff's agent, who allowed the
property to go to sale while having in his hands ample funds for the
payment of taxes; and, second, that the tax sale was invalid by reason of
defects in the proceedings to impose the tax.

The first cause of action was opened up, but was not persisted in at
the trial and the case comes before us on the questions only of the
irregularity of the proceedings for the sale. The most serious of these are
the following:

(1) The statement of the owner, filed by Ablaza, as her agent, gave
her name as "Doa Antonia Valencia y Orus." In the assessment roll for the
year 1901 the name given was "Valencia, Antonio." In the roll of 1902 it
was "Valencia, Antonia," while the tax deed had it "Antonia Valencia."

(2) The correct description given in the owner's filed statement read:

Bounded in front, on entering, 280.55 meters, by Calle de


Lemery; on the right, on entering, 142.40 meters, by the property of
Don Nicolas del Rosario; on the left on entering, 65.10 meters, by
Calle Corcuera, and at the rear, 288.70 meters, by the estuary and
canal de le Reina.

In the roll of 1901 it is stated as


A piece of land improvements, situated blocks 24, 25, 26, and
28 fronting Calle Lemery, solar deNicolas del Rosario, izquierda Calle
Corcuera and espalda Canal de la Reina.

In the roll 1902:

A piece of land improvements, known as blocks 24, 25, 26, and


28 fronting izquierda Calle Corcueraespalda Calle de la Reina, Calle
Lemery, solar de Nicolas del Rosario.

In the notice of sale under "Description," "Kind of property land


and improvement;" "Street and number," it reads, "Read of Canal de la
Reina, left of Corcuera;" "Lots, 24, 25, 26 28;" "Block, ."

The description in the final deed is correct, whereas in the tax


certificate it was copied from that in the notice of sale, and is defective.

The words "Lots" and "Blocks" were proved to refer to a plan made
by the assessor and collector and kept in his office for his own use, but to
which individuals might have access, on which it was shown as lots 24, 25,
16, and part of 28 in block 1. This plan was made after the filing of the
declaration by the property owners but before the assessment.

(3) The amount of the taxes in these several document is set down in
columns, the cents being divided from the dollars, but without any dollar-
mark.

(4) That only proof of the fixing of the notices of sale was a recital in
the certificate of the city assessor and collector that the notice was posted
"at the main entrance of said municipal building and at five other public
places in the city of Manila," without specifying the places, and also a
recital in the deed that a copy was posted in the proper barrio.

(5) The tax certificate did not fully recite the proceedings and give the
details required by sections 78 and 80 of Act No. 82, but, on the contrary,
showed the defects n the description and notice of sale, whereas the final
deed substantially complied with the statute.

The American law does not create a presumption of the regularity of


any administrative action which results in depriving a citizen or taxpayer of
his property, but, on the contrary, the due process of law to be followed in
tax proceedings must be established by proof and the general rule is that
the purchaser of a tax title is bound to take upon himself the burden of
showing the regularity of all proceedings leading up to the sale. The
difficulty of supplying such proof has frequently lead to the efforts on the
part of legislatures to avoid it by providing by statute that a tax deed shall
be deemed either conclusive or presumptive proof of such regularity.

Those statutes attributing to it a conclusive effect have been held


invalid as operating to deprive the owner of his property without due
process of law. But those creating a presumption only have been sustained
as affecting a rule of evidence, changing but the burden of proof.
(Turpin vs. Lemon, 187 U.S., 51.)

The tax law applicable to Manila does not attempt to give any special
probative effect to the deed of the assessor and collector, and therefore
leaves the purchaser to establish the regularity of all vital steps in the
assessment and sale. By section 84 and 86 of Act No. 82 it is enacted that
no tax shall be declared invalid for irregularities unless they "shall have
impaired the substantial rights of the taxpayer."

The first apparent defect in this assessment is the error in the name
of the owner.

In Marx vs. Hanthorn (148 U.S., 172), where it does not even appear
that under the law of the State of Oregon the tax was a personal one, the
tax was held bad because the owner's name had been written in the roll as
"Ida F. Hawthorn" instead of "Ida J. Hanthorn."

Under the Municipal Law of the Philippines, sections 74 to 78, the tax
is primarily a personal one and is enforcible against realty only in the event
of a deficiency of personality, whereas in the City of Manila its character is
somewhat qualified by the provisions in section 47 of the charter only.
Nevertheless, the requirement of the statute in so imperative that the rule of
the Hanthorn case is manifestly applicable here.

But we deem it unnecessary to take up in detail the several


irregularities and to determine the effect of each one upon the validity of the
tax sale. The most vital requisite of such an assessment is that the property
shall be so described as to be easily identified both by the owner and by
the persona desiring to bid therefor. The description prior to those in the
deed are all more or less defective, but those in the assessment roll for
1902 and in the final notice of the tax sale are so confused and inadequate
as not only to fail to give notice to a stranger of the location of the property,
but as to the incapable of verification by a person familiar with it. This is
especially true of the description in the notice of sale, which of all the steps
in the procedure is the one calling for a most definite and intelligible
description. It is settled doctrine that, where one sale embraces two
different taxes, a vital defect in either tax invalidates the whole sale, so that,
considered apart from the notice of sale, the rather understandable
description in the roll of 1901 does not cure the vice in that of 1902. We are
satisfied that the failure to adequately describe the property both in the
substantials rights of the taxpayer, "within the meaning of sections 84 and
86 of the Municipal Code, and upon this failure we are content to rest our
judgment, affirming the part of the judgment of the Court of First Instance of
the city of Manila to Juan Jimenez y Mijares, and the deed of the latter to
Gabriel Fuster y Fuster, invalid and awarding to the plaintiff the possession
of the property described in the complaint.

The judgment of the Court of First Instance not only awarded the
plaintiff the real estate, but also the rents and profits thereon, both from the
time the defendants took possession until the commencement of the action,
and those accrued during the pendency of the action which have been
collected by the defendant Gabriel Fuster y Fuster as receiver. This part of
the judgment should be modified.

By article 451 of the Civil Code, the possessor of property in good


faith is entitled to the profits thereof until his possession is legally
interrupted. By article 448, the possessor under claim of ownership is
presumed to have a just title. By article 434, good faith is always presumed,
while bad faith must be affirmatively proved. By article 435, possession
acquired in good faith does not lose that character until the occurrence of
something showing that the possessor is not ignorant of the weakness of
his title.

That portion of the present action having been abandoned which


involved the direct charge of conspiracy on the part of the defendants, they
are entitled, as the case stands, to the benefit of these articles of the code
unless they can be charged with actual bad faith. Applying the standard of
the Spanish law expressed in these articles, there is not sufficient in the
case to establish such a charge although it is somewhat indicated in the
evidence. It may be urged, however, that the tax deed derives its force from
the law under which it is given and must take us an incident its quality and
effects from that law, so that the holder thereof acquires no other status in
respect of good faith than such as the American law attributes to him in that
character. The rule of that law is usually stated to good faith (Cooley on
Taxation, pp. 218, 220), qualified, however, in this important particular, that
in respect of improvements he who, without actual knowledge of defects,
holds a deed regular on its face, is considered in good faith and is entitled
to rely upon that deed without an investigation of the proceedings upon
which it is founded. But if the deed itself exposes an irregularity, he must
take notice of it. (Madland vs. Benland, 24 Min., 372; O'Mulcahy vs. Florer,
27 Min., 499; Bedell vs. Shaw, 59 N.Y., 46; Lynch vs. Brudie, 63 Pa., 206.)
We have to seek the meaning of the term "good faith" in the cases on the
subject of improvements because, in the American system, it can not arise
in connection with rents and profits, which are recoverable by the
successful plaintiff in any event without regard to it.

In the present instance, the final deed is regular on its face, and in
the opinion of the majority of the court, in the absence of actual notice,
sufficed to protect the holders thereof, although the preliminary certificate of
sale which they had held and surrendered showed in its recital that the sale
was irregular. Therefore, applying either the Spanish or the American
criterions as to good faith, the plaintiff may not recover the rents and profits
down to the time when it is plain that the defendants were advised of the
vice of their title.lawphil.net

This limit is fixed at the date on which, after being informed by the
beginning of an action, they voluntarily appear therein and assert their
claim. (Judgments of the supreme court of Spain of November 23, 1900,
and October 12, 1901.)

The defendants' first pleading in this case, the demurrer, was served
on the 16th of May, 1906, and the plaintiff is entitled to recover the rents
and profits from that date until the termination of the action, and the
receiver must account to her therefor.

In conclusion, so much of the judgment of the Court of First Instance


as awards to the plaintiff the possession of the property in suit, declaring
void the deed from the city assessor and collector to Juan Jimenez y
Mijares, together with the deed of the latter to the defendant Gabriel Fuster
y Fuster, and also so much thereof as directs the payment to the plaintiff of
the rents and profits of the property from the 16th of May, 1906, and also
awards to the defendants the sum of P2,934.76, with interest from the 17th
of December , 1904, to the 26th o f April, 1906, being the amount of the tax
with interest deposited under the statute as a condition to maintain the
action, but thereafter withdrawn under stipulation, is affirmed; but so much
of said judgments as directs payment to the plaintiff of the rents and profits
of the real estate prior to the 16th of day of May, 1906, amounting to
P4,337.73, is revoked.

This action is hereby remanded to the Court of First Instance for the
purpose of taking such accounts and conducting such other proceedings
herein as may be necessary to carry out the aforesaid judgment, but
without costs of this instance. So ordered.

TAX CASE ON TAX EVASION

G.R. No. L-41919-24 May 30, 1980

QUIRICO P. UNGAB, petitioner,


vs.
HON. VICENTE N. CUSI, JR., in his capacity as Judge of the Court of
First Instance, Branch 1, 16TH Judicial District, Davao City, THE
COMMISSIONER OF INTERNAL REVENUE, and JESUS N. ACEBES, in
his capacity as State Prosecutor, respondents.

CONCEPCION JR., J:

Petition for certiorari and prohibition with preliminary injunction and


restraining order to annul and set aside the informations filed in Criminal
Case Nos. 1960, 1961, 1962, 1963, 1964, and 1965 of the Court of First
Instance of Davao, all entitled: "People of the Philippines, plaintiff, versus
Quirico Ungab, accused;" and to restrain the respondent Judge from further
proceeding with the hearing and trial of the said cases.

It is not disputed that sometime in July, 1974, BIR Examiner Ben Garcia
examined the income tax returns filed by the herein petitioner, Quirico P.
Ungab, for the calendar year ending December 31, 1973. In the course of
his examination, he discovered that the petitioner failed to report his
income derived from sales of banana saplings. As a result, the BIR District
Revenue Officer at Davao City sent a "Notice of Taxpayer" to the petitioner
informing him that there is due from him (petitioner) the amount of
P104,980.81, representing income, business tax and forest charges for the
year 1973 and inviting petitioner to an informal conference where the
petitioner, duly assisted by counsel, may present his objections to the
findings of the BIR Examiner. 1 Upon receipt of the notice, the petitioner
wrote the BIR District Revenue Officer protesting the assessment, claiming
that he was only a dealer or agent on commission basis in the banana
sapling business and that his income, as reported in his income tax returns
for the said year, was accurately stated. BIR Examiner Ben Garcia,
however, was fully convinced that the petitioner had filed a fraudulent
income tax return so that he submitted a "Fraud Referral Report," to the
Tax Fraud Unit of the Bureau of Internal Revenue. After examining the
records of the case, the Special Investigation Division of the Bureau of
Internal Revenue found sufficient proof that the herein petitioner is guilty of
tax evasion for the taxable year 1973 and recommended his
prosecution: t.hqw

(1) For having filed a false or fraudulent income tax return for
1973 with intent to evade his just taxes due the government
under Section 45 in relation to Section 72 of the National
Internal Revenue Code;

(2) For failure to pay a fixed annual tax of P50.00 a year in


1973 and 1974, or a total of unpaid fixed taxes of P100.00 plus
penalties of 175.00 or a total of P175.00, in accordance with
Section 183 of the National Internal Revenue Code;

(3) For failure to pay the 7% percentage tax, as a producer of


banana poles or saplings, on the total sales of P129,580.35 to
the Davao Fruit Corporation, depriving thereby the government
of its due revenue in the amount of P15,872.59, inclusive of
surcharge. 2

In a second indorsement to the Chief of the Prosecution Division, dated


December 12, 1974, the Commissioner of Internal Revenue approved the
prosecution of the petitioner. 3

Thereafter, State Prosecutor Jesus Acebes who had been designated to


assist all Provincial and City Fiscals throughout the Philippines in the
investigation and prosecution, if the evidence warrants, of all violations of
the National Internal Revenue Code, as amended, and other related laws,
in Administrative Order No. 116 dated December 5, 1974, and to whom the
case was assigned, conducted a preliminary investigation of the case, and
finding probable cause, filed six (6) informations against the petitioner with
the Court of First Instance of Davao City, to wit: t.hqw
(1) Criminal Case No. 1960 Violation of Sec. 45, in relation
to Sec. 72 of the National Internal-Revenue Code, for filing a
fraudulent income tax return for the calendar year ending
December 31, 1973; 4

(2) Criminal Case No. 1961 Violation of Sec. 182 (a), in


relation to Secs. 178, 186, and 208 of the National Internal
Revenue Code, for engaging in business as producer of
saplings, from January, 1973 to December, 1973, without first
paying the annual fixed or privilege tax thereof; 5

(3) Criminal Case No. 1962 Violation of Sec. 183 (a), in


relation to Secs. 186 and 209 of the National Internal Revenue
Code, for failure to render a true and complete return on the
gross quarterly sales, receipts and earnings in his business as
producer of banana saplings and to pay the percentage tax due
thereon, for the quarter ending December 31, 1973; 6

(4) Criminal Case No. 1963 Violation of Sec. 183 (a), in


relation to Secs. 186 and 209 of the National Internal Revenue
Code, for failure to render a true and complete return on the
gross quarterly sales receipts and earnings in his business as
producer of saplings, and to pay the percentage tax due
thereon, for the quarter ending on March 31, 1973; 7

(5) Criminal Case No. 1964 Violation of Sec. 183 (a), in


relation to Secs. 186 and 209 of the National Internal Revenue
Code, for failure to render a true and complete return on the
gross quarterly sales, receipts and earnings in his business as
producer of banana saplings for the quarter ending on June 30,
1973, and to pay the percentage tax due thereon; 8

(6) Criminal Case No. 1965 Violation of Sec. 183 (a), in


relation to Secs. 186 and 209 of the National Internal Revenue
Code, for failure to render a true and complete return on the
gross quarterly sales, receipts and earnings as producer of
banana saplings, for the quarter ending on September 30,
1973, and to pay the percentage tax due thereon. 9

On September 16, 1975, the petitioner filed a motion to quash the


informations upon the grounds that: (1) the informations are null and void
for want of authority on the part of the State Prosecutor to initiate and
prosecute the said cases; and (2) the trial court has no jurisdiction to take
cognizance of the above-entitled cases in view of his pending protest
against the assessment made by the BIR Examiner. 10 However, the trial
court denied the motion on October 22, 1975. 11 Whereupon, the petitioner
filed the instant recourse. As prayed for, a temporary restraining order was
issued by the Court, ordering the respondent Judge from further
proceeding with the trial and hearing of Criminal Case Nos. 1960, 1961,
1962, 1963, 1964, and 1965 of the Court of First Instance of Davao, all
entitled: "People of the Philippines, plaintiff, versus Quirico Ungab,
accused."

The petitioner seeks the annulment of the informations filed against him on
the ground that the respondent State Prosecutor is allegedly without
authority to do so. The petitioner argues that while the respondent State
Prosecutor may initiate the investigation of and prosecute crimes and
violations of penal laws when duly authorized, certain requisites,
enumerated by this Court in its decision in the case of Estrella vs.
Orendain, 12should be observed before such authority may be exercised;
otherwise, the provisions of the Charter of Davao City on the functions and
powers of the City Fiscal will be meaningless because according to said
charter he has charge of the prosecution of all crimes committed within his
jurisdiction; and since "appropriate circumstances are not extant to warrant
the intervention of the State Prosecution to initiate the investigation, sign
the informations and prosecute these cases, said informations are null and
void." The ruling adverted to by the petitioner reads, as
follows: t.hqw

In view of all the foregoing considerations, it is the ruling of this


Court that under Sections 1679 and 1686 of the Revised
Administrative Code, in any instance where a provincial or city
fiscal fails, refuses or is unable, for any reason, to investigate or
prosecute a case and, in the opinion of the Secretary of Justice
it is advisable in the public interest to take a different course of
action, the Secretary of Justice may either appoint as acting
provincial or city fiscal to handle the investigation or prosecution
exclusively and only of such case, any practicing attorney or
some competent officer of the Department of Justice or office of
any city or provincial fiscal, with complete authority to act
therein in all respects as if he were the provincial or city fiscal
himself, or appoint any lawyer in the government service,
temporarily to assist such city of provincial fiscal in the
discharge of his duties, with the same complete authority to act
independently of and for such city or provincial fiscal provided
that no such appointment may be made without first hearing the
fiscal concerned and never after the corresponding information
has already been filed with the court by the corresponding city
or provincial fiscal without the conformity of the latter, except
when it can be patently shown to the court having cognizance
of the case that said fiscal is intent on prejudicing the interests
of justice. The same sphere of authority is true with the
prosecutor directed and authorized under Section 3 of Republic
Act 3783, as amended and/or inserted by Republic Act 5184.
The observation in Salcedo vs. Liwag, supra, regarding the
nature of the power of the Secretary of Justice over fiscals as
being purely over administrative matters only was not really
necessary, as indicated in the above relation of the facts and
discussion of the legal issues of said case, for the resolution
thereof. In any event, to any extent that the opinion therein may
be inconsistent herewith the same is hereby modified.

The contention is without merit. Contrary to the petitioner's claim, the rule
therein established had not been violated. The respondent State
Prosecutor, although believing that he can proceed independently of the
City Fiscal in the investigation and prosecution of these cases, first sought
permission from the City Fiscal of Davao City before he started the
preliminary investigation of these cases, and the City Fiscal, after being
shown Administrative Order No. 116, dated December 5, 1974, designating
the said State Prosecutor to assist all Provincial and City fiscals throughout
the Philippines in the investigation and prosecution of all violations of the
National Internal Revenue Code, as amended, and other related laws,
graciously allowed the respondent State Prosecutor to conduct the
investigation of said cases, and in fact, said investigation was conducted in
the office of the City Fiscal. 13

The petitioner also claims that the filing of the informations was precipitate
and premature since the Commissioner of Internal Revenue has not yet
resolved his protests against the assessment of the Revenue District
Officer; and that he was denied recourse to the Court of Tax Appeals.

The contention is without merit. What is involved here is not the collection
of taxes where the assessment of the Commissioner of Internal Revenue
may be reviewed by the Court of Tax Appeals, but a criminal prosecution
for violations of the National Internal Revenue Code which is within the
cognizance of courts of first instance. While there can be no civil action to
enforce collection before the assessment procedures provided in the Code
have been followed, there is no requirement for the precise computation
and assessment of the tax before there can be a criminal prosecution
under the Code. t.hqw

The contention is made, and is here rejected, that an


assessment of the deficiency tax due is necessary before the
taxpayer can be prosecuted criminally for the charges
preferred. The crime is complete when the violator has, as in
this case, knowingly and willfully filed fraudulent returns with
intent to evade and defeat a part or all of the tax. 14

An assessment of a deficiency is not necessary to a criminal


prosecution for willful attempt to defeat and evade the income
tax. A crime is complete when the violator has knowingly and
willfuly filed a fraudulent return with intent to evade and defeat
the tax. The perpetration of the crime is grounded upon
knowledge on the part of the taxpayer that he has made an
inaccurate return, and the government's failure to discover the
error and promptly to assess has no connections with the
commission of the crime. 15

Besides, it has been ruled that a petition for reconsideration of an


assessment may affect the suspension of the prescriptive period for the
collection of taxes, but not the prescriptive period of a criminal action for
violation of law.16 Obviously, the protest of the petitioner against the
assessment of the District Revenue Officer cannot stop his prosecution for
violation of the National Internal Revenue Code. Accordingly, the
respondent Judge did not abuse his discretion in denying the motion to
quash filed by the petitioner.

WHEREFORE, the petition should be, as it is hereby dismissed. The


temporary restraining order heretofore issued is hereby set aside. With
costs against the petitioner.

SO ORDERED.
TAX CASE ON ASSESSMENT OF LIABILITY

GR. No. L-37061 September 5, 1984

MAMBULAO LUMBER COMPANY, petitioner,


vs.
REPUBLIC OF THE PHILIPPINES, respondent.

CUEVAS, J.:

Petitioner in this appeal by certiorari, seeks the reversal of the decision of


the defunct Court of Appeals which affirmed the judgment of the then Court
of First Instance of Manila ordering petitioner to pay respondent the amount
of P15,739.80 representing its tax liability not secured by any bond, with
legal interest thereon from August 25, 1961 until fully paid.

Sometime in 1957 Agent Nestor Banzuela of the Bureau of Internal


Revenue, Regional District No. 6, Bicol Region, Naga City, conducted an
examination of the books of accounts of herein petitioner Mambulao
number Company for the purpose of determining said taxpayer's forest
charges and percentage tax liabilities.

On July 31, 1957, Agent Banzuela submitted his report wherein it was
stated among others that

xxx xxx xxx

xxx xxx xxx

xxx xxx xxx

It can be stated in this connection that sometime in the early


part of 1949, the personnel of the local office of the Bureau of
Forestry in Daet, Camarines Norte, manifested under the name
of the subject taxpayer 2,052.48 cubic meters of timber, with
the corresponding forest charges in the total amount of
P15,443.65 including surcharges. The Bureau of Forestry then
demanded for the payment of said forest charges on January
15, 1949. However, the subject taxpayer, for one reason or the
other, contested this assessment until this case reached the
hands of the Secretary of Agriculture and Natural Resources,
the undersigned cannot therefore include in his assessment this
amount in question, hence, due course is given, recommending
that this bureau take proper action regarding this case.

Consequently, on August 29, 1958, the Acting Commissioner of Internal


Revenue addressed a letter to petitioner, the pertinent portion of which
reads-

Mambulao Lumber Company


R-406 Samanillo Building
Escolta, Manila

Gentlemen:

xxx xxx xxx

It was also ascertained that in 1949 you manifested 2,052.48


cubic meters of timber, the forest charges and surcharges of
which in the total amount of P15,443.55 was demanded of you
by the Bureau of Forestry on January 15, 1949. ...

In view thereof there is due from you the amount of P33,595.26


as deficiency sales tax, forest charges and surcharges,
committed as follows:

Sales Tax x x x

Forest Charges

Forest charges and surcharges for the year 1949 appealed to


the Secretary of Agriculture and Natural Resources P15,443.55

xxx xxx xxx

Total amount due & payable P33,595.26

Demand is hereby made upon you to pay the aforesaid amount


of P 33,595.26 to the City Treasurer of Manila or this office
within ten (10) days from receipt hereof so that this case may
be closed.

xxx xxx xxx

Sgd.
Mele
ncio
Domi
ngo
Actin
g
Com
missi
oner
of
Intern
al
Reve
nue

The aforesaid letter was acknowledged to have been received by petitioner


on September 19, 1958. 3 On October 18, 1958, petitioner requested for a
reinvestigation of its tax liability. Subsequently, in a letter dated July 8,
1959, respondent Commissioner of Internal Revenue give petitioner a
period of twenty (20) days from receipt thereof to submit the results of its
verification of payments with a warning that failure to comply therewith
would be construed as an abandonment of the request for reinvestigation.

For failure of petitioner to comply with the above letter-request and/or to


pay its tax liability despite demands for the payment thereof, respondent
Commissioner of Internal Revenue filed. a complaint for collection in the
Court of First Instance of Manila on August 25, 1961. 4

After trial, judgment was rendered by the trial court, the dispositive portion
of which reads

WHEREFORE, judgment is rendered

(a) Ordering both defendants, jointly and severally, to pay


plaintiff the amount of P1,219.95 plus legal interest thereon
from August 25, 1961, the date of the filing of the original
complaint until fully paid, or in case of failure to Pay the said
amount, ordering the forfeiture of GISCOR Bond No. 35 to the
amount of P1,219.95; and

(b) Ordering defendant Mambulao Lumber Company to pay the


plaintiff the amount of P15,739.80 representing its tax liability
not secured by any bond, with legal interest thereon from
August 25, 1961, until paid.

With costs against defendants.

From the aforesaid decision, petitioner appealed to the Court of


Appeals 5 that portion of the trial court's decision ordering it to pay the
amount of P15,443.55 representing forest charges and surcharges due for
the year 1949.

As herein earlier stated, the then Court of Appeals affirmed the decision of
the trial court. Petitioner filed a motion for reconsideration which was
denied by the said court in its Resolution dated June 7, 1973. Hence, the
instant appeal, petitioner presenting the lone issue of whether or not the
right of plaintiff (respondent herein) to file a judicial action for the collection
of the amount of P15,443.55 as forest charges and surcharges due from
the petitioner Mambulao Lumber Company for the year 1949 has already
prescribed.

Relying on the provisions of Section 332 of the National Internal Revenue


Code which reads-

Section 332. Exemptions as to period of limitation of


assessment and collection of taxes

xxx xxx xxx

(c) Where the assessment of any internal revenue tax has been
made within the period of limitation above prescribed such tax
may be collected by distraint or levy or by a proceeding in court,
but only if begun (1) within five years after the assessment of
the tax, or (2) prior to the expiration of any period for collection
agreed upon in writing by the Collector of Internal Revenue and
the taxpayer before the expiration of such five-year period. The
period so agreed upon may be extended by subsequent
agreements in writing made before the expiration of the period
previously agreed upon.

petitioner argues that counting from January 15, 1949 when the Bureau of
Forestry in Daet, Camarines Norte made an assessment and demand for
payment of the amount of P15,443.55 as forest charges and surcharges for
the year 1949, up to the filing of the complaint for collection before the
lower court on August 25, 196 1, more than five (5) years had already
elapsed, hence, the action had clearly prescribed.

Petitioner's aforesaid argument lacks merit. As correctly observed by the


trial court and the Court of Appeals in the appealed decision, the letter of
demand of the Acting Commissioner of Internal Revenue dated August 29,
1958 was the basis of respondent's complaint filed in this case and not the
demand letter of the Bureau of Forestry dated January 15, 1949. This must
be so because forest charges are internal revenue taxes 6 and the sole
power and duty to collect the same is lodged with the Bureau of Internal
Revenue 7 and not with the Bureau of Forestry. The computation and/or
assessment of forest charges made by the Bureau of Forestry may or may
not be adopted by the Commissioner of Internal Revenue and such
computation made by the Bureau of Forestry is not appealable to the Court
of Tax Appeals. 8 Therefore, for the purpose of computing the five-year
period within which to file a complaint for collection, the demand or even
the assessment made by the Bureau of Forestry is immaterial.

In the case at bar, the commencement of the five-year period should be


counted from August 29, 1958, the date of the letter of demand of the
Acting Commissioner of Internal Revenue 9 to petitioner Mambulao Lumber
Company. It is this demand or assessment that is appealable to the Court
of Tax Appeals. The complaint for collection was filed in the Court of First
Instance of Manila on August 25, 1961, very much within the five-year
period prescribed by Section 332 (c) of the Tax Code. Consequently, the
right of the Commissioner of Internal Revenue to collect the forest charges
and surcharges in the amount of P15,443.55 has not prescribed.

Furthermore, it is not disputed that on October 18, 1958, petitioner


requested for a reinvestigation of its tax liability. In reply thereto,
respondent in a letter dated July 8, 1959, gave petitioner a period of twenty
(20) days from receipt thereof to submit the results of its verification of
payments and failure to comply therewith would be construed as
abandonment of the request for reinvestigation. Petitioner failed to comply
with this requirement. Neither did it appeal to the Court of Tax Appeals
within thirty (30) days from receipt of the letter dated July 8, 1959, as
prescribed under Section 11 of Republic Act No. 1125, thus making the
assessment final and executory.

Taxpayer's failure to appeal to the Court of Tax Appeals in due


time made the assessment in question final, executory and
demandable. And when the action was instituted on September
2, 1958 to enforce the deficiency assessment in question, it
was already barred from disputing the correctness of the
assessment or invoking any defense that would reopen the
question of its tax liability. Otherwise, the period of thirty days
for appeal to the Court of Tax Appeals would make little sense.

In a proceeding like this the taxpayer's defenses are similar to


those of the defendant in a case for the enforcement of a
judgment by judicial action under Section 6 of Rule 39 of the
Rules of Court. No inquiry can be made therein as to the merits
of the original case or the justness of the judgment relied upon,
other than by evidence of want of jurisdiction, of collusion
between the parties, or of fraud in the party offering the record
with respect to the proceedings. As held by this Court in Insular
Government vs. Nico the taxpayer may raise only the questions
whether or not the Collector of Internal Revenue had jurisdiction
to do the particular act, and whether any fraud was committed
in the doing of the act. In that case, Doroteo Nico was fined by
the Collector of Internal Revenue for violation of sub-
paragraphs (d), (e) and (g) of Section 28 as well as Sections
36, 101 and 107 of Act 1189. Under Section 54 of the same
Act, the taxpayer was given the right to appeal from the
decision of the Collector of Internal Revenue to the Court of
First Instance within a period of ten days from notice of
imposition of the fine. Nico did not appeal, neither did he pay
the fine. Pursuant to Section 33 of the Act, the Collector of
Internal Revenue filed an action in the Court of First Instance to
enforce his decision and collect the fine. The decision of the
Collector of Internal Revenue having become final, this Court,
on appeal, allowed no further inquiry into the merits of the
same. 10

In a suit for collection of internal revenue taxes, as in this case, where the
assessment has already become final and executory, the action to collect is
akin to an action to enforce a judgment. No inquiry can be made therein as
to the merits of the original case or the justness of the judgment relied
upon. Petitioner is thus already precluded from raising the defense of
prescription.

Where the taxpayer did not contest the deficiency income tax
assessed against him, the same became final and properly
collectible by means of an ordinary court action. The taxpayer
cannot dispute an assessment which is being enforced by
judicial action, He should have disputed it before it was brought
to court. 11

WHEREFORE, the decision appealed from is hereby AFFIRMED and the


petition DISMISSED. No costs.

TAX CASES ON THE COLLECTION OF TAX

CASE NO. 1

G.R. No. L-21551 September 30, 1969

FERNANDEZ HERMANOS, INC., petitioner,


vs.
COMMISSIONER OF INTERNAL REVENUE and COURT OF TAX
APPEALS, respondents.

-----------------------------

G.R. No. L-21557 September 30, 1969

COMMISSIONER OF INTERNAL REVENUE, petitioner,


vs.
FERNANDEZ HERMANOS, INC., and COURT OF TAX
APPEALS, respondents.

-----------------------------

G.R. No. L-24972 September 30, 1969


COMMISSIONER OF INTERNAL REVENUE, petitioner,
vs.
FERNANDEZ HERMANOS INC., and the COURT OF TAX
APPEALS, respondents.

-----------------------------

G.R. No. L-24978 September 30, 1969

FERNANDEZ HERMANOS, INC., petitioner,


vs.
THE COMMISSIONER OF INTERNAL REVENUE, and HON. ROMAN A.
UMALI, COURT OF TAX APPEALS,respondents.

L-21551:

Rafael Dinglasan for petitioner.


Office of the Solicitor General Arturo A. Alafriz, Solicitor Alejandro B.
Afurong and Special Attorney Virgilio G. Saldajeno for respondent.

L-21557:

Office of the Solicitor General for petitioner.


Rafael Dinglasan for respondent Fernandez Hermanos, Inc.

L-24972:

Office of the Solicitor General Antonio P. Barredo, Assistant Solicitor


General Felicisimo R. Rosete and Special Attorney Virgilio G. Saldajeno for
petitioner.
Rafael Dinglasan for respondent Fernandez Hermanos, Inc.

L-24978:

Rafael Dinglasan for petitioner.


Office of the Solicitor General Antonio P. Barredo, Assistant Solicitor
General Antonio G. Ibarra and Special Attorney Virgilio G. Saldajeno for
respondent.

TEEHANKEE, J.:
These four appears involve two decisions of the Court of Tax
Appeals determining the taxpayer's income tax liability for the years 1950
to 1954 and for the year 1957. Both the taxpayer and the Commissioner of
Internal Revenue, as petitioner and respondent in the cases a quo
respectively, appealed from the Tax Court's decisions, insofar as their
respective contentions on particular tax items were therein resolved against
them. Since the issues raised are interrelated, the Court resolves the four
appeals in this joint decision.

Cases L-21551 and L-21557

The taxpayer, Fernandez Hermanos, Inc., is a domestic corporation


organized for the principal purpose of engaging in business as an
"investment company" with main office at Manila. Upon verification of the
taxpayer's income tax returns for the period in question, the Commissioner
of Internal Revenue assessed against the taxpayer the sums of
P13,414.00, P119,613.00, P11,698.00, P6,887.00 and P14,451.00 as
alleged deficiency income taxes for the years 1950, 1951, 1952, 1953 and
1954, respectively. Said assessments were the result of alleged
discrepancies found upon the examination and verification of the taxpayer's
income tax returns for the said years, summarized by the Tax Court in its
decision of June 10, 1963 in CTA Case No. 787, as follows:

1. Losses

a. Losses in Mati Lumber Co. (1950) P 8,050.00

b. Losses in or bad debts of Palawan Manganese Mines, Inc.


(1951) 353,134.25

c. Losses in Balamban Coal Mines

1950 8,989.76
1951 27,732.66

d. Losses in Hacienda Dalupiri

1950 17,418.95
1951 29,125.82
1952 26,744.81
1953 21,932.62
1954 42,938.56

e. Losses in Hacienda Samal

1951 8,380.25
1952 7,621.73

2. Excessive depreciation of Houses

1950 P 8,180.40
1951 8,768.11
1952 18,002.16
1953 13,655.25
1954 29,314.98

3. Taxable increase in net worth

P
1950
30,050.00
1951 1,382.85

4. Gain realized from sale of real property in 1950 P


11,147.2611

The Tax Court sustained the Commissioner's disallowances of


Item 1, sub-items (b) and (e) and Item 2 of the above summary, but
overruled the Commissioner's disallowances of all the remaining
items. It therefore modified the deficiency assessments accordingly,
found the total deficiency income taxes due from the taxpayer for the
years under review to amount to P123,436.00 instead of P166,063.00
as originally assessed by the Commissioner, and rendered the
following judgment:

RESUME

1950 P2,748.00
1951 108,724.00
1952 3,600.00
1953 2,501.00
1954 5,863.00
Total P123,436.00

WHEREFORE, the decision appealed from is hereby modified,


and petitioner is ordered to pay the sum of P123,436.00 within 30
days from the date this decision becomes final. If the said amount, or
any part thereof, is not paid within said period, there shall be added to
the unpaid amount as surcharge of 5%, plus interest as provided in
Section 51 of the National Internal Revenue Code, as amended. With
costs against petitioner. (Pp. 75, 76, Taxpayer's Brief as appellant)

Both parties have appealed from the respective adverse rulings


against them in the Tax Court's decision. Two main issues are raised by
the parties: first, the correctness of the Tax Court's rulings with respect to
the disputed items of disallowances enumerated in the Tax Court's
summary reproduced above, and second, whether or not the government's
right to collect the deficiency income taxes in question has already
prescribed.

On the first issue, we will discuss the disputed items of


disallowances seriatim.

1. Re allowances/disallowances of losses.

(a) Allowance of losses in Mati Lumber Co. (1950). The


Commissioner of Internal Revenue questions the Tax Court's allowance of
the taxpayer's writing off as worthless securities in its 1950 return the sum
of P8,050.00 representing the cost of shares of stock of Mati Lumber Co.
acquired by the taxpayer on January 1, 1948, on the ground that the
worthlessness of said stock in the year 1950 had not been clearly
established. The Commissioner contends that although the said Company
was no longer in operation in 1950, it still had its sawmill and equipment
which must be of considerable value. The Court, however, found that "the
company ceased operations in 1949 when its Manager and owner, a
certain Mr. Rocamora, left for Spain ,where he subsequently died. When
the company eased to operate, it had no assets, in other words, completely
insolvent. This information as to the insolvency of the Company reached
(the taxpayer) in 1950," when it properly claimed the loss as a deduction in
its 1950 tax return, pursuant to Section 30(d) (4) (b) or Section 30 (e) (3) of
the National Internal Revenue Code. 2
We find no reason to disturb this finding of the Tax Court. There was
adequate basis for the writing off of the stock as worthless securities.
Assuming that the Company would later somehow realize some proceeds
from its sawmill and equipment, which were still existing as claimed by the
Commissioner, and that such proceeds would later be distributed to its
stockholders such as the taxpayer, the amount so received by the taxpayer
would then properly be reportable as income of the taxpayer in the year it is
received.

(b) Disallowance of losses in or bad debts of Palawan Manganese


Mines, Inc. (1951). The taxpayer appeals from the Tax Court's
disallowance of its writing off in 1951 as a loss or bad debt the sum of
P353,134.25, which it had advanced or loaned to Palawan Manganese
Mines, Inc. The Tax Court's findings on this item follow:

Sometime in 1945, Palawan Manganese Mines, Inc., the


controlling stockholders of which are also the controlling stockholders
of petitioner corporation, requested financial help from petitioner to
enable it to resume it mining operations in Coron, Palawan. The
request for financial assistance was readily and unanimously
approved by the Board of Directors of petitioner, and thereafter a
memorandum agreement was executed on August 12, 1945,
embodying the terms and conditions under which the financial
assistance was to be extended, the pertinent provisions of which are
as follows:

"WHEREAS, the FIRST PARTY, by virtue of its resolution


adopted on August 10, 1945, has agreed to extend to the
SECOND PARTY the requested financial help by way of
accommodation advances and for this purpose has authorized
its President, Mr. Ramon J. Fernandez to cause the release of
funds to the SECOND PARTY.

"WHEREAS, to compensate the FIRST PARTY for the


advances that it has agreed to extend to the SECOND PARTY,
the latter has agreed to pay to the former fifteen per centum
(15%) of its net profits.

"NOW THEREFORE, for and in consideration of the


above premises, the parties hereto have agreed and
covenanted that in consideration of the financial help to be
extended by the FIRST PARTY to the SECOND PARTY to
enable the latter to resume its mining operations in Coron,
Palawan, the SECOND PARTY has agreed and undertaken as
it hereby agrees and undertakes to pay to the FIRST PARTY
fifteen per centum (15%) of its net profits." (Exh. H-2)

Pursuant to the agreement mentioned above, petitioner gave to


Palawan Manganese Mines, Inc. yearly advances starting from 1945, which
advances amounted to P587,308.07 by the end of 1951. Despite these
advances and the resumption of operations by Palawan Manganese Mines,
Inc., it continued to suffer losses. By 1951, petitioner became convinced
that those advances could no longer be recovered. While it continued to
give advances, it decided to write off as worthless the sum of P353,134.25.
This amount "was arrived at on the basis of the total of advances made
from 1945 to 1949 in the sum of P438,981.39, from which amount the sum
of P85,647.14 had to be deducted, the latter sum representing its pre-war
assets. (t.s.n., pp. 136-139, Id)." (Page 4, Memorandum for Petitioner.)
Petitioner decided to maintain the advances given in 1950 and 1951 in the
hope that it might be able to recover the same, as in fact it continued to
give advances up to 1952. From these facts, and as admitted by petitioner
itself, Palawan Manganese Mines, Inc., was still in operation when the
advances corresponding to the years 1945 to 1949 were written off the
books of petitioner. Under the circumstances, was the sum of P353,134.25
properly claimed by petitioner as deduction in its income tax return for
1951, either as losses or bad debts?

It will be noted that in giving advances to Palawan Manganese Mine


Inc., petitioner did not expect to be repaid. It is true that some testimonial
evidence was presented to show that there was some agreement that the
advances would be repaid, but no documentary evidence was presented to
this effect. The memorandum agreement signed by the parties appears to
be very clear that the consideration for the advances made by petitioner
was 15% of the net profits of Palawan Manganese Mines, Inc. In other
words, if there were no earnings or profits, there was no obligation to repay
those advances. It has been held that the voluntary advances made without
expectation of repayment do not result in deductible losses. 1955 PH Fed.
Taxes, Par. 13, 329, citing W. F. Young, Inc. v. Comm., 120 F 2d. 159, 27
AFTR 395; George B. Markle, 17 TC. 1593.

Is the said amount deductible as a bad debt? As already stated,


petitioner gave advances to Palawan Manganese Mines, Inc., without
expectation of repayment. Petitioner could not sue for recovery under the
memorandum agreement because the obligation of Palawan Manganese
Mines, Inc. was to pay petitioner 15% of its net profits, not the advances.
No bad debt could arise where there is no valid and subsisting debt.

Again, assuming that in this case there was a valid and subsisting
debt and that the debtor was incapable of paying the debt in 1951, when
petitioner wrote off the advances and deducted the amount in its return for
said year, yet the debt is not deductible in 1951 as a worthless debt. It
appears that the debtor was still in operation in 1951 and 1952, as
petitioner continued to give advances in those years. It has been held that if
the debtor corporation, although losing money or insolvent, was still
operating at the end of the taxable year, the debt is not considered
worthless and therefore not deductible. 3

The Tax Court's disallowance of the write-off was proper. The


Solicitor General has rightly pointed out that the taxpayer has taken an
"ambiguous position " and "has not definitely taken a stand on whether the
amount involved is claimed as losses or as bad debts but insists that it is
either a loss or a bad debt." 4 We sustain the government's position that the
advances made by the taxpayer to its 100% subsidiary, Palawan
Manganese Mines, Inc. amounting to P587,308,07 as of 1951 were
investments and not loans. 5 The evidence on record shows that the board
of directors of the two companies since August, 1945, were identical and
that the only capital of Palawan Manganese Mines, Inc. is the amount of
P100,000.00 entered in the taxpayer's balance sheet as its investment in
its subsidiary company. 6 This fact explains the liberality with which the
taxpayer made such large advances to the subsidiary, despite the latter's
admittedly poor financial condition.

The taxpayer's contention that its advances were loans to its


subsidiary as against the Tax Court's finding that under their memorandum
agreement, the taxpayer did not expect to be repaid, since if the subsidiary
had no earnings, there was no obligation to repay those advances,
becomes immaterial, in the light of our resolution of the question. The Tax
Court correctly held that the subsidiary company was still in operation in
1951 and 1952 and the taxpayer continued to give it advances in those
years, and, therefore, the alleged debt or investment could not properly be
considered worthless and deductible in 1951, as claimed by the taxpayer.
Furthermore, neither under Section 30 (d) (2) of our Tax Code providing for
deduction by corporations of losses actually sustained and charged off
during the taxable year nor under Section 30 (e) (1) thereof providing for
deduction of bad debts actually ascertained to be worthless and charged
off within the taxable year, can there be a partial writing off of a loss or bad
debt, as was sought to be done here by the taxpayer. For such losses or
bad debts must be ascertained to be so and written off during the taxable
year, are therefore deductible in full or not at all, in the absence of any
express provision in the Tax Code authorizing partial deductions.

The Tax Court held that the taxpayer's loss of its investment in its
subsidiary could not be deducted for the year 1951, as the subsidiary was
still in operation in 1951 and 1952. The taxpayer, on the other hand, claims
that its advances were irretrievably lost because of the staggering losses
suffered by its subsidiary in 1951 and that its advances after 1949 were
"only limited to the purpose of salvaging whatever ore was already
available, and for the purpose of paying the wages of the laborers who
needed help." 7 The correctness of the Tax Court's ruling in sustaining the
disallowance of the write-off in 1951 of the taxpayer's claimed losses is
borne out by subsequent events shown in Cases L-24972 and L-24978
involving the taxpayer's 1957 income tax liability. (Infra, paragraph 6.) It will
there be seen that by 1956, the obligation of the taxpayer's subsidiary to it
had been reduced from P587,398.97 in 1951 to P442,885.23 in 1956, and
that it was only on January 1, 1956 that the subsidiary decided to cease
operations. 8

(c) Disallowance of losses in Balamban Coal Mines (1950 and 1951).


The Court sustains the Tax Court's disallowance of the sums of
P8,989.76 and P27,732.66 spent by the taxpayer for the operation of its
Balamban coal mines in Cebu in 1950 and 1951, respectively, and claimed
as losses in the taxpayer's returns for said years. The Tax Court correctly
held that the losses "are deductible in 1952, when the mines were
abandoned, and not in 1950 and 1951, when they were still in
operation." 9 The taxpayer's claim that these expeditions should be allowed
as losses for the corresponding years that they were incurred, because it
made no sales of coal during said years, since the promised road or outlet
through which the coal could be transported from the mines to the
provincial road was not constructed, cannot be sustained. Some definite
event must fix the time when the loss is sustained, and here it was the
event of actual abandonment of the mines in 1952. The Tax Court held that
the losses, totalling P36,722.42 were properly deductible in 1952, but the
appealed judgment does not show that the taxpayer was credited therefor
in the determination of its tax liability for said year. This additional
deduction of P36,722.42 from the taxpayer's taxable income in 1952 would
result in the elimination of the deficiency tax liability for said year in the sum
of P3,600.00 as determined by the Tax Court in the appealed judgment.
(d) and (e) Allowance of losses in Hacienda Dalupiri (1950 to 1954) and
Hacienda Samal (1951-1952). The Tax Court overruled the
Commissioner's disallowance of these items of losses thus:

Petitioner deducted losses in the operation of its Hacienda


Dalupiri the sums of P17,418.95 in 1950, P29,125.82 in 1951,
P26,744.81 in 1952, P21,932.62 in 1953, and P42,938.56 in 1954.
These deductions were disallowed by respondent on the ground that
the farm was operated solely for pleasure or as a hobby and not for
profit. This conclusion is based on the fact that the farm was operated
continuously at a loss.1awphl.nt

From the evidence, we are convinced that the Hacienda


Dalupiri was operated by petitioner for business and not pleasure. It
was mainly a cattle farm, although a few race horses were also
raised. It does not appear that the farm was used by petitioner for
entertainment, social activities, or other non-business purposes.
Therefore, it is entitled to deduct expenses and losses in connection
with the operation of said farm. (See 1955 PH Fed. Taxes, Par. 13,
63, citing G.C.M. 21103, CB 1939-1, p.164)

Section 100 of Revenue Regulations No. 2, otherwise known


as the Income Tax Regulations, authorizes farmers to determine their
gross income on the basis of inventories. Said regulations provide:

"If gross income is ascertained by inventories, no


deduction can be made for livestock or products lost during the
year, whether purchased for resale, produced on the farm, as
such losses will be reflected in the inventory by reducing the
amount of livestock or products on hand at the close of the
year."

Evidently, petitioner determined its income or losses in the


operation of said farm on the basis of inventories. We quote from the
memorandum of counsel for petitioner:

"The Taxpayer deducted from its income tax returns for


the years from 1950 to 1954 inclusive, the corresponding yearly
losses sustained in the operation of Hacienda Dalupiri, which
losses represent the excess of its yearly expenditures over the
receipts; that is, the losses represent the difference between
the sales of livestock and the actual cash disbursements or
expenses." (Pages 21-22, Memorandum for Petitioner.)

As the Hacienda Dalupiri was operated by petitioner for


business and since it sustained losses in its operation, which losses
were determined by means of inventories authorized under Section
100 of Revenue Regulations No. 2, it was error for respondent to
have disallowed the deduction of said losses. The same is true with
respect to loss sustained in the operation of the Hacienda Samal for
the years 1951 and 1952. 10

The Commissioner questions that the losses sustained by the


taxpayer were properly based on the inventory method of accounting. He
concedes, however, "that the regulations referred to does not specify how
the inventories are to be made. The Tax Court, however, felt satisfied with
the evidence presented by the taxpayer ... which merely consisted of an
alleged physical count of the number of the livestock in Hacienda Dalupiri
for the years involved." 11 The Tax Court was satisfied with the method
adopted by the taxpayer as a farmer breeding livestock, reporting on the
basis of receipts and disbursements. We find no Compelling reason to
disturb its findings.

2. Disallowance of excessive depreciation of buildings (1950-1954).


During the years 1950 to 1954, the taxpayer claimed a depreciation
allowance for its buildings at the annual rate of 10%. The Commissioner
claimed that the reasonable depreciation rate is only 3% per annum, and,
hence, disallowed as excessive the amount claimed as depreciation
allowance in excess of 3% annually. We sustain the Tax Court's finding
that the taxpayer did not submit adequate proof of the correctness of the
taxpayer's claim that the depreciable assets or buildings in question had a
useful life only of 10 years so as to justify its 10% depreciation per annum
claim, such finding being supported by the record. The taxpayer's
contention that it has many zero or one-peso assets, 12 representing very
old and fully depreciated assets serves but to support the Commissioner's
position that a 10% annual depreciation rate was excessive.

3. Taxable increase in net worth (1950-1951). The Tax Court set


aside the Commissioner's treatment as taxable income of certain increases
in the taxpayer's net worth. It found that:

For the year 1950, respondent determined that petitioner had


an increase in net worth in the sum of P30,050.00, and for the year
1951, the sum of P1,382.85. These amounts were treated by
respondent as taxable income of petitioner for said years.

It appears that petitioner had an account with the Manila


Insurance Company, the records bearing on which were lost. When
its records were reconstituted the amount of P349,800.00 was set up
as its liability to the Manila Insurance Company. It was discovered
later that the correct liability was only 319,750.00, or a difference of
P30,050.00, so that the records were adjusted so as to show the
correct liability. The correction or adjustment was made in 1950.
Respondent contends that the reduction of petitioner's liability to
Manila Insurance Company resulted in the increase of petitioner's net
worth to the extent of P30,050.00 which is taxable. This is erroneous.
The principle underlying the taxability of an increase in the net worth
of a taxpayer rests on the theory that such an increase in net worth, if
unreported and not explained by the taxpayer, comes from income
derived from a taxable source. (See Perez v. Araneta, G.R. No. L-
9193, May 29, 1957; Coll. vs. Reyes, G.R. Nos. L- 11534 & L-11558,
Nov. 25, 1958.) In this case, the increase in the net worth of petitioner
for 1950 to the extent of P30,050.00 was not the result of the receipt
by it of taxable income. It was merely the outcome of the correction of
an error in the entry in its books relating to its indebtedness to the
Manila Insurance Company. The Income Tax Law imposes a tax on
income; it does not tax any or every increase in net worth whether or
not derived from income. Surely, the said sum of P30,050.00 was not
income to petitioner, and it was error for respondent to assess a
deficiency income tax on said amount.

The same holds true in the case of the alleged increase in net worth
of petitioner for the year 1951 in the sum of P1,382.85. It appears that
certain items (all amounting to P1,382.85) remained in petitioner's books as
outstanding liabilities of trade creditors. These accounts were discovered in
1951 as having been paid in prior years, so that the necessary adjustments
were made to correct the errors. If there was an increase in net worth of the
petitioner, the increase in net worth was not the result of receipt by
petitioner of taxable income." 13 The Commissioner advances no valid
grounds in his brief for contesting the Tax Court's findings. Certainly, these
increases in the taxpayer's net worth were not taxable increases in net
worth, as they were not the result of the receipt by it of unreported or
unexplained taxable income, but were shown to be merely the result of the
correction of errors in its entries in its books relating to its indebtednesses
to certain creditors, which had been erroneously overstated or listed as
outstanding when they had in fact been duly paid. The Tax Court's action
must be affirmed.

4. Gain realized from sale of real property (1950). We likewise


sustain as being in accordance with the evidence the Tax Court's reversal
of the Commissioner's assessment on all alleged unreported gain in the
sum of P11,147.26 in the sale of a certain real property of the taxpayer in
1950. As found by the Tax Court, the evidence shows that this property
was acquired in 1926 for P11,852.74, and was sold in 1950 for P60,000.00,
apparently, resulting in a gain of P48,147.26. 14 The taxpayer reported in its
return a gain of P37,000.00, or a discrepancy of P11,147.26. 15 It was
sufficiently proved from the taxpayer's books that after acquiring the
property, the taxpayer had made improvements totalling
16
P11,147.26, accounting for the apparent discrepancy in the reported
gain. In other words, this figure added to the original acquisition cost of
P11,852.74 results in a total cost of P23,000.00, and the gain derived from
the sale of the property for P60,000.00 was correctly reported by the
taxpayer at P37,000.00.

On the second issue of prescription, the taxpayer's contention that


the Commissioner's action to recover its tax liability should be deemed to
have prescribed for failure on the part of the Commissioner to file a
complaint for collection against it in an appropriate civil action, as
contradistinguished from the answer filed by the Commissioner to its
petition for review of the questioned assessments in the case a quo has
long been rejected by this Court. This Court has consistently held that "a
judicial action for the collection of a tax is begun by the filing of a complaint
with the proper court of first instance, or where the assessment is appealed
to the Court of Tax Appeals, by filing an answer to the taxpayer's petition
for review wherein payment of the tax is prayed for." 17 This is but logical for
where the taxpayer avails of the right to appeal the tax assessment to the
Court of Tax Appeals, the said Court is vested with the authority to
pronounce judgment as to the taxpayer's liability to the exclusion of any
other court. In the present case, regardless of whether the assessments
were made on February 24 and 27, 1956, as claimed by the Commissioner,
or on December 27, 1955 as claimed by the taxpayer, the government's
right to collect the taxes due has clearly not prescribed, as the taxpayer's
appeal or petition for review was filed with the Tax Court on May 4, 1960,
with the Commissioner filing on May 20, 1960 his Answer with a prayer for
payment of the taxes due, long before the expiration of the five-year period
to effect collection by judicial action counted from the date of assessment.
Cases L-24972 and L-24978

These cases refer to the taxpayer's income tax liability for the year
1957. Upon examination of its corresponding income tax return, the
Commissioner assessed it for deficiency income tax in the amount of
P38,918.76, computed as follows:

Net income per return P29,178.70


Add: Unallowable deductions:
(1) Net loss claimed on Ha.
Dalupiri 89,547.33
(2) Amortization of Contractual
right claimed as an expense
under Mines Operations 48,481.62

Net income per investigation P167,297.65


Tax due thereon 38,818.00

Less: Amount already assessed 5,836.00


Balance P32,982.00
Add: 1/2% monthly interest
from 6-20-59 to 6-20-62 5,936.76
TOTAL AMOUNT DUE AND
COLLECTIBLE P38,918.76 18

The Tax Court overruled the Commissioner's disallowance of the


taxpayer's losses in the operation of its Hacienda Dalupiri in the sum of
P89,547.33 but sustained the disallowance of the sum of P48,481.62,
which allegedly represented 1/5 of the cost of the "contractual right" over
the mines of its subsidiary, Palawan Manganese Mines, Inc. which the
taxpayer had acquired. It found the taxpayer liable for deficiency income
tax for the year 1957 in the amount of P9,696.00, instead of P32,982.00 as
originally assessed, and rendered the following judgment:

WHEREFORE, the assessment appealed from is hereby


modified. Petitioner is hereby ordered to pay to respondent the
amount of P9,696.00 as deficiency income tax for the year 1957, plus
the corresponding interest provided in Section 51 of the Revenue
Code. If the deficiency tax is not paid in full within thirty (30) days
from the date this decision becomes final and executory, petitioner
shall pay a surcharge of five per cent (5%) of the unpaid amount, plus
interest at the rate of one per cent (1%) a month, computed from the
date this decision becomes final until paid, provided that the
maximum amount that may be collected as interest shall not exceed
the amount corresponding to a period of three (3) years. Without
pronouncement as to costs. 19

Both parties again appealed from the respective adverse rulings


against them in the Tax Court's decision.

5. Allowance of losses in Hacienda Dalupiri (1957). The Tax Court


cited its previous decision overruling the Commissioner's disallowance of
losses suffered by the taxpayer in the operation of its Hacienda Dalupiri,
since it was convinced that the hacienda was operated for business and
not for pleasure. And in this appeal, the Commissioner cites his arguments
in his appellant's brief in Case No. L-21557. The Tax Court, in setting aside
the Commissioner's principal objections, which were directed to the
accounting method used by the taxpayer found that:

It is true that petitioner followed the cash basis method of


reporting income and expenses in the operation of the Hacienda
Dalupiri and used the accrual method with respect to its mine
operations. This method of accounting, otherwise known as the
hybrid method, followed by petitioner is not without justification.

... A taxpayer may not, ordinarily, combine the cash and


accrual bases. The 1954 Code provisions permit, however, the
use of a hybrid method of accounting, combining a cash and
accrual method, under circumstances and requirements to be
set out in Regulations to be issued. Also, if a taxpayer is
engaged in more than one trade or business he may use a
different method of accounting for each trade or business. And
a taxpayer may report income from a business on accrual basis
and his personal income on the cash basis.' (See Mertens, Law
of Federal Income Taxation, Zimet & Stanley Revision, Vol. 2,
Sec. 12.08, p. 26.) 20

The Tax Court, having satisfied itself with the adequacy of the
taxpayer's accounting method and procedure as properly reflecting
the taxpayer's income or losses, and the Commissioner having failed
to show the contrary, we reiterate our ruling [supra, paragraph 1 (d)
and (e)] that we find no compelling reason to disturb its findings.
6. Disallowance of amortization of alleged "contractual rights." The
reasons for sustaining this disallowance are thus given by the Tax Court:

It appears that the Palawan Manganese Mines, Inc., during a


special meeting of its Board of Directors on January 19, 1956,
approved a resolution, the pertinent portions of which read as follows:

"RESOLVED, as it is hereby resolved, that the


corporation's current assets composed of ores, fuel, and oil,
materials and supplies, spare parts and canteen supplies
appearing in the inventory and balance sheet of the Corporation
as of December 31, 1955, with an aggregate value of
P97,636.98, contractual rights for the operation of various
mining claims in Palawan with a value of P100,000.00, its title
on various mining claims in Palawan with a value of
P142,408.10 or a total value of P340,045.02 be, as they are
hereby ceded and transferred to Fernandez Hermanos, Inc., as
partial settlement of the indebtedness of the corporation to said
Fernandez Hermanos Inc. in the amount of P442,895.23." (Exh.
E, p. 17, CTA rec.)

On March 29, 1956, petitioner's corporation accepted the


above offer of transfer, thus:

"WHEREAS, the Palawan Manganese Mines, Inc., due to


its yearly substantial losses has decided to cease operation on
January 1, 1956 and in order to satisfy at least a part of its
indebtedness to the Corporation, it has proposed to transfer its
current assets in the amount of NINETY SEVEN THOUSAND
SIX HUNDRED THIRTY SIX PESOS & 98/100 (P97,636.98) as
per its balance sheet as of December 31, 1955, its contractual
rights valued at ONE HUNDRED THOUSAND PESOS
(P100,000.00) and its title over various mining claims valued at
ONE HUNDRED FORTY TWO THOUSAND FOUR HUNDRED
EIGHT PESOS & 10/100 (P142,408.10) or a total evaluation of
THREE HUNDRED FORTY THOUSAND FORTY FIVE PESOS
& 08/100 (P340,045.08) which shall be applied in partial
settlement of its obligation to the Corporation in the amount of
FOUR HUNDRED FORTY TWO THOUSAND EIGHT
HUNDRED EIGHTY FIVE PESOS & 23/100 (P442,885.23),"
(Exh. E-1, p. 18, CTA rec.)
Petitioner determined the cost of the mines at P242,408.10 by
adding the value of the contractual rights (P100,000.00) and the
value of its mining claims (P142,408.10). Respondent disallowed the
deduction on the following grounds: (1) that the Palawan Manganese
Mines, Inc. could not transfer P242,408.10 worth of assets to
petitioner because the balance sheet of the said corporation for 1955
shows that it had only current as worth P97,636.96; and (2) that the
alleged amortization of "contractual rights" is not allowed by the
Revenue Code.

The law in point is Section 30(g) (1) (B) of the Revenue Code,
before its amendment by Republic Act No. 2698, which provided in
part:

"(g) Depletion of oil and gas wells and mines.:

"(1) In general. ... (B) in the case of mines, a


reasonable allowance for depletion thereof not to exceed the
market value in the mine of the product thereof, which has been
mined and sold during the year for which the return and
computation are made. The allowances shall be made under
rules and regulations to be prescribed by the Secretary of
Finance: Provided, That when the allowances shall equal the
capital invested, ... no further allowance shall be made."

Assuming, arguendo, that the Palawan Manganese Mines, Inc.


had assets worth P242,408.10 which it actually transferred to the
petitioner in 1956, the latter cannot just deduct one-fifth (1/5) of said
amount from its gross income for the year 1957 because such
deduction in the form of depletion charge was not sanctioned by
Section 30(g) (1) (B) of the Revenue Code, as above-quoted.

xxx xxx xxx

The sole basis of petitioner in claiming the amount of


P48,481.62 as a deduction was the memorandum of its mining
engineer (Exh. 1, pp. 31-32, CTA rec.), who stated that the ore
reserves of the Busuange Mines (Mines transferred by the Palawan
Manganese Mines, Inc. to the petitioner) would be exhausted in five
(5) years, hence, the claim for P48,481.62 or one-fifth (1/5) of the
alleged cost of the mines corresponding to the year 1957 and every
year thereafter for a period of 5 years. The said memorandum merely
showed the estimated ore reserves of the mines and it probable
selling price. No evidence whatsoever was presented to show the
produced mine and for how much they were sold during the year for
which the return and computation were made. This is necessary in
order to determine the amount of depletion that can be legally
deducted from petitioner's gross income. The method employed by
petitioner in making an outright deduction of 1/5 of the cost of the
mines is not authorized under Section 30(g) (1) (B) of the Revenue
Code. Respondent's disallowance of the alleged "contractual rights"
amounting to P48,481.62 must therefore be sustained. 21

The taxpayer insists in this appeal that it could use as a method for
depletion under the pertinent provision of the Tax Code its "capital
investment," representing the alleged value of its contractual rights and
titles to mining claims in the sum of P242,408.10 and thus deduct outright
one-fifth (1/5) of this "capital investment" every year. regardless of whether
it had actually mined the product and sold the products. The very
authorities cited in its brief give the correct concept of depletion charges
that they "allow for the exhaustion of the capital value of the deposits by
production"; thus, "as the cost of the raw materials must be deducted from
the gross income before the net income can be determined, so the
estimated cost of the reserve used up is allowed." 22 The alleged "capital
investment" method invoked by the taxpayer is not a method of depletion,
but the Tax Code provision, prior to its amendment by Section 1, of
Republic Act No. 2698, which took effect on June 18, 1960, expressly
provided that "when the allowances shall equal the capital invested ... no
further allowances shall be made;" in other words, the "capital investment"
was but the limitation of the amount of depletion that could be claimed. The
outright deduction by the taxpayer of 1/5 of the cost of the mines, as if it
were a "straight line" rate of depreciation, was correctly held by the Tax
Court not to be authorized by the Tax Code.

ACCORDINGLY, the judgment of the Court of Tax Appeals, subject


of the appeals in Cases Nos. L-21551 and L-21557, as modified by the
crediting of the losses of P36,722.42 disallowed in 1951 and 1952 to the
taxpayer for the year 1953 as directed in paragraph 1 (c) of this decision, is
hereby affirmed. The judgment of the Court of Tax Appeals appealed from
in Cases Nos. L-24972 and L-24978 is affirmed in toto. No costs. So
ordered.

Concepcion, C.J., Dizon, Makalintal, Zaldivar, Sanchez, Castro, Fernando,


Capistrano and Barredo, JJ., concur.
CASE NO. 2

[ G.R. No. L-14142, May 30, 1961 ]

REPUBLIC OF THE PHILIPPINES, PLAINTIFF AND


APPELLEE, VS. J. AMADO ARANETA, ETC., ET AL. MANILA
SURETY & FIDELITY CO., INC., CROSS PLAINTIFF AND
APPELLANT VS. J. AMADO ARANETA AND J. AMADO
ARANETA & CO., INC. CROSS DEFENDANTS AND
APPELLEES.

DECISION

PADILLA, J.:

On 22 February 1957 in the Court of First Instance of Manila the


Solicitor General, in behalf of the Republic of the Philippines,
brought an action against J. Amado Araneta and J. Amado
Araneta & Company, Inc., as principals, and the Manila Surety &
Fidelity Company, Inc., as surety, to recover from them jointly
and severally the sum of P30, as fixed tax upon business due
from 1946 to 1948, imposed by section 182, in connection with
sections 178 to 180 of the National Internal Revenue Code, as
amended; P5,067.42, as 2% tax on P253,370.84, the gross
receipts from their business as a common carrier during the said
period, pursuant to section 192 of the same Code; and
P1,266.86, as 25% surcharge, or a total sum of P6,364.28, the
payment of which was guaranteed by a bond (Annex B) executed
by the defendant-surety, and 6% interest on the amount of
P6,364.28 from 6 December 1951, when the first extrajudicial
demand was made, until fully paid. On 12 March 1957 the
defendants-principals filed a motion to dismiss the plaintiff's
complaint on the ground that its cause of action is barred by the
statute of limitations and on 20 March 1957 the plaintiff, an
objection thereto. On 23 March 1957 the Court denied the
defendants-principals' motion to dismiss.
On 29 March 1957 the defendants-principals filed their answer
denying that they had operated their vessel as a common carrier,
the truth being that they had used it to ship, goods and cargoes
manufactured and sold by them and allied companies owned
and/or controlled by them; asserting that granting without
admitting that they were liable for common carrier's tax, their
gross receipts during the alleged period was P166,299.67 only
and not P253,370.24; and that the "Bond to Guarantee Payment
of Common Carrier's Tax and Compensating Tax," attached to the
complaint as Annex A or to the stipulation of facts filed on 25
February 1958 as Annex B, is not genuine and had not been duly
executed because the same had not been approved by the
Collector of Internal Revenue; and setting up affirmative defenses
that the five-year period of limitation provided for in section 332,
paragraph (c), of the National Internal Revenue Code, as
amended, already had elapsed, hence the plaintiff's action was
barred; and that granting that the said bond was valid, the
enforcement of the principal obligation having been barred, it
follows that the enforcement of the obligation undertaken in the
said bond was also barred. They set up a counterclaim of P2,000
for expenses of litigation and attorney's fees incurred in
defending their legal rights. On 30 March 1957 the defendant-
surety filed its answer setting up the following affirmative
defenses; that the plaintiff's complaint states no cause of action;
that its liability under the bond (Annex B) was extinguished by its
novation and alteration without its knowledge and consent; that
granting that its liability still subsists, the said bond being merely
secondary or auxiliary to a principal obligation that could no
longer be enforced by reason of prescription, its obligation
thereunder could, likewise, no longer be enforced; and that the
bond (Annex B), not having been approved by the Collector of
Internal Revenue, was void. As counterclaim, it sought from the
plaintiff the sum of P2,500 for expenses of litigation and
attorney's fees incurred for the protection of its rights.

On 10 April 1957 the plaintiff answered the defendants'


respective counterclaims, alleging that it has a valid cause of
action against them and that its complaint was filed pursuant to
its policy of collecting long overdue accounts from delinquent
taxpayers.

After obtaining leave of court, on 25 May 1957 the defendant-


surety filed an amended answer reiterating its denials, affirmative
defenses and counterclaim in its first answer and adding or
including a cross-claim against the defendants-principals for
recovery from the latter of whatever sum of money it might be
ordered to.pay the plaintiff by judgment of the Court, with
interest at the rate of 12% per annum from the date of payment
until the sum it shall have paid be fully reimbursed to it by the
defendants-principals; of the sum of P3,598.20 as premiums due
for the period from 18 September 1949 to 18 March 1957, with
interest at the rate of 12% per annum from 16 March 1957 until
fully paid; of a sum equivalent to 15% of the total amount
claimed as attorney's fees, as agreed upon in the indemnity bond
executed by the cross-defendants on 21 March 1949 and
accepted by the cross-plaintiff (Annex "1-MSFCI") attached to the
amended answer and made a part thereof; and of the costs of the
suit with respect to its cross-claim. It prayed further for any other
just and equitable relief.

On 10 June 1957 the cross-defendants filed an answer to the


cross-complaint of the defendant-surety, denying the truth,
genuineness and correctness of the copy of the bond attached to
the complaint as Annex A and as Annex B of the stipulation of
facts; and claiming that the mere filing of a suit against the
cross-plaintiff did not render it liable to pay the alleged tax
liability of the cross-defendants; that the bond file on 18 March
1949 by the cross-plaintiff (Annex B) was null and void, hence
the same could not be the basis of the cross-plaintiff's cross-claim
against the cross-defendants; that since both of them have
denied liability to the plaintiff for any amount, the cross-plaintiff
has no cause of action against the cross-defendants; and that the
amount of expenses of litigation and attorney's fees claimed by
the cross-plaintiff, should there be any, is to be determined by
the Court in the exercise of its discretion. As counterclaim, they
prayed for recovery from the cross-plaintiff of the sum of P2,000
as expenses of litigation and attorney's fees incurred in defending
their rights on the cross-claim.
On 18 June 1957 the cross-plaintiff filed an answer to the cross-
defendants' counterclaim denying the allegations therein and
setting up a counterclaim to the cross-defendants' counterclaim
in the amount of P1,000 as exemplary damages.

On 3 December 1957 the defendants-principals filed a motion to


dismiss on the ground of lack of jurisdiction because the case
involves a disputed tax assessment; on 9 December 1957 the
plaintiff, an "opposition" thereto. On 12 December 1957 the Court
denied the motion to dismiss.

On 25 February 1957 the cross-plaintiff and the cross-defendants


entered into the following stipulation of facts:

COME NOW, the parties in the cross-complaint represented by


their respective counsel and to this Honorable Court respectfully
submit the following stipulation of facts:

1. That the jurisdictional facts and the capa