COMMISSIONER OF INTERNAL G.R. No.

180006
REVENUE,
Petitioner, Present:

BRION, J.,*
Acting Chairperson,
- versus - DEL CASTILLO,**
PEREZ,
MENDOZA,*** and
SERENO, JJ.

FORTUNE TOBACCO Promulgated:

CORPORATION,
Respondent. September 28, 2011

x------------------------------------------------------------------------------------x

DECISION

BRION, J.:

Before the Court is a petition for review on certiorari filed under Rule 45 of the Rules of
Court by petitioner Commissioner of Internal Revenue (CIR), assailing the decision dated
July 12, 2007[1] and the resolution dated October 4, 2007,[2] both issued by the Court of Tax
Appeals (CTA) en banc in CTA E.B. No. 228.

BACKGROUND FACTS

Under our tax laws, manufacturers of cigarettes are subject to pay excise taxes on their
products. Prior to January 1, 1997, the excises taxes on these products were in the form of ad
valorem taxes, pursuant to Section 142 of the 1977 National Internal Revenue Code (1977
Tax Code).

Beginning January 1, 1997, Republic Act No. (RA) 8240[3] took effect and a shift
from ad valorem to specific taxes was made. Section 142(c) of the 1977 Tax Code, as
amended by RA 8240, reads in part:

Sec. 142. Cigars and cigarettes. 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:

(1) If the net retail price (excluding the excise tax and the value-added tax)
is above Ten pesos (P10.00) per pack, the tax shall be Twelve pesos (P12.00)
per pack;

(2) If the net retail price (excluding the excise tax and the value-added tax)
exceeds Six pesos and fifty centavos (P6.50) but does not exceed Ten pesos
(P10.00) per pack, the tax shall be Eight pesos (P8.00) per pack;

(3) If the net retail price (excluding the excise tax and the value-added tax)
is Five pesos (P5.00) but does not exceed Six pesos and fifty centavos (P6.50)
per pack, the tax shall be Five pesos (P5.00) per pack;

(4) If the net retail price (excluding the excise tax and the [value]-added
tax) is below Five pesos (P5.00) per pack, the tax shall be One peso (P1.00)
per pack.

xxxx

The specific tax from any brand of cigarettes within the next three (3)
years of effectivity of this Act shall not be lower than the tax [which] is
due from each brand on October 1, 1996: Provided, however, That in
cases where the specific tax rates imposed in paragraphs (1), (2), (3) and (4)
hereinabove will result in an increase in excise tax of more than seventy
percent (70%), for a brand of cigarette, the increase shall take effect in two
tranches: fifty percent (50%) of the increase shall be effective in 1997 and
one hundred percent (100%) of the increase shall be effective in 1998.

xxxx

The rates of specific tax on cigars and cigarettes under paragraphs (1),
(2), (3) and (4) hereof, shall be increased by twelve percent (12%) on
January 1, 2000. [emphases ours]

To implement RA 8240 and pursuant to its rule-making powers, the CIR issued
Revenue Regulation No. (RR) 1-97 whose Section 3(c) and (d) echoed the above-quoted
portion of Section 142 of the 1977 Tax Code, as amended. [4]
 The 1977 Tax Code was later repealed by RA 8424, or the National Internal Revenue
Code of 1997 (1997 Tax Code), and Section 142, as amended by RA 8240, was renumbered
as Section 145.

This time, to implement the 12% increase in specific taxes mandated under Section 145
of the 1997 Tax Code and again pursuant to its rule-making powers, the CIR issued RR 17-99,
which reads:

Section 1. New Rates of Specific Tax. The specific tax rates imposed under the
following sections are hereby increased by twelve percent (12%) and the new rates
to be levied, assessed, and collected are as follows:

Section Description of Articles Present New

Specific Tax Specific Tax
Rates (Prior Rates
to January (Effective
1, 2000) January 1,
2000)
145 CIGARS and
CIGARETTES
B) Cigarettes Packed by
Machine
(1) Net Retail Price P12.00/pack P13.44/pack
(excluding VAT &
Excise)
exceeds P10.00 per
pack
(2) Net Retail Price P8.00/pack P8.96/pack
(excluding VAT &
Excise) is P6.51 up
to P10.00 per pack
(3) Net Retail Price P5.00/pack P5.60/pack
(excluding VAT &
Excise) is P5.00
to P6.50 per pack
(4) Net Retail Price P1.00/pack P1.12/pack
(excluding VAT &
Excise) is
below P5.00 per pack

Provided, however, that the new specific tax rate for any existing brand of
cigars [and] cigarettes packed by machine, distilled spirits, wines and
fermented liquors shall not be lower than the excise tax that is actually being
paid prior to January 1, 2000. [emphasis ours]

THE FACTS OF THE CASE

Pursuant to these laws, respondent Fortune Tobacco Corporation (Fortune Tobacco) paid in
advance excise taxes for the year 2003 in the amount of P11.15 billion, and for the period
covering January 1 to May 31, 2004 in the amount of P4.90 billion.[5]

In June 2004, Fortune Tobacco filed an administrative claim for tax refund with the CIR
for erroneously and/or illegally collected taxes in the amount of P491 million.[6] Without
waiting for the CIRs action on its claim, Fortune Tobacco filed with the CTA a judicial claim
for tax refund.[7]

In its decision dated May 26, 2006, the CTA First Division ruled in favor of Fortune Tobacco
and granted its claim for refund.[8] The CTA First Divisions ruling was upheld on appeal by
the CTA en banc in its decision dated July 12, 2007.[9] The CIRs motion for reconsideration
of the CTA en bancs decision was denied in a resolution dated October 4, 2007.[10]

THE ISSUE

Fortune Tobaccos claim for refund of overpaid excise taxes is based primarily on what
it considers as an unauthorized administrative legislation on the part of the
CIR. Specifically, it assails the proviso in Section 1 of RR 17-99 that requires the payment
of the excise tax actually being paid prior to January 1, 2000 if this amount is higher than
the new specific tax rate, i.e., the rates of specific taxes imposed in 1997 for each category
of cigarette, plus 12%. It claimed that by including the proviso, the CIR went beyond the
language of the law and usurped Congress power. As mentioned, the CTA sided with Fortune
Tobacco and allowed the latter to claim the refund.

The CIR disagrees with the CTAs ruling and assails it before this Court through the present
petition for review on certiorari. The CIR posits that the inclusion of the proviso in
Section 1 of RR 17-99 was made to carry into effect the laws intent and is well within the
scope of his delegated legislative authority.[11]He claims that the CTAs strict interpretation
of the law ignored Congress intent to increase the collection of excise taxes by increasing
specific tax rates on sin products.[12] He cites portions of the Senates deliberation on House
Bill No. 7198 (the precursor of RA 8240) that conveyed the legislative intent to increase the
excise taxes being paid.[13]

The CIR points out that Section 145(c) of the 1997 Tax Code categorically declares that [t]he
excise tax from any brand of cigarettes within the [three-year transition period from January 1,
1997 to December 31, 1999] shall not be lower than the tax, which is due from each brand on
October 1, 1996. He posits that there is no plausible reason why the new specific tax rates due
beginning January 1, 2000 should not be subject to the same rule as those due during the
transition period. To the CIR, the adoption of the higher tax rule during the transition period
unmistakably shows the intent of Congress not to lessen the excise tax collection. Thus, the
CTA should have construed the ambiguity or omission in Section 145(c) in a manner that
would uphold the laws policy and intent.

Fortune Tobacco argues otherwise. To it, Section 145(c) of the 1997 Tax Code read and
interpreted as it is written; it imposes a 12% increase on the rates of excise taxes provided
under sub-paragraphs (1), (2), (3), and (4) only; it does not say that the tax due during the
transition period shall continue to be collected if the amount is higher than the new specific
tax rates. It contends that the higher tax rule applies only to the three-year transition period to
offset the burden caused by the shift from ad valorem to specific taxes.

THE COURTS RULING

Except for the tax period and the amounts involved,[14] the case at bar presents the same issue
that the Court already resolved in 2008 in CIR v. Fortune Tobacco Corporation.[15] In the
2008 Fortune Tobacco case, the Court upheld the tax refund claims of Fortune Tobacco after
finding invalid the proviso in Section 1 of RR 17-99. We ruled:

Section 145 states that during the transition period, i.e., within the next three (3)
years from the effectivity of the Tax Code, the excise tax from any brand of
cigarettes shall not be lower than the tax due from each brand on 1 October 1996.
This qualification, however, is conspicuously absent as regards the 12% increase
which is to be applied on cigars and cigarettes packed by machine, among others,
effective on 1 January 2000. Clearly and unmistakably, Section 145 mandates a
new rate of excise tax for cigarettes packed by machine due to the 12% increase
effective on 1 January 2000 without regard to whether the revenue collection
starting from this period may turn out to be lower than that collected prior to this
date.

By adding the qualification that the tax due after the 12% increase becomes
effective shall not be lower than the tax actually paid prior to 1 January 2000,
Revenue Regulation No. 17-99 effectively imposes a tax which is the higher
amount between the ad valorem tax being paid at the end of the three (3)-year
transition period and the specific tax under paragraph C, sub-paragraph (1)-(4), as
increased by 12% a situation not supported by the plain wording of Section 145 of
the Tax Code.[16]
Following the principle of stare decisis,[17] our ruling in the present case should no longer
come as a surprise. The proviso in Section 1 of RR 17-99 clearly went beyond the terms of
the law it was supposed to implement, and therefore entitles Fortune Tobacco to claim a
refund of the overpaid excise taxes collected pursuant to this provision.

The amount involved in the present case and the CIRs firm insistence of its arguments
nonetheless compel us to take a second look at the issue, but our findings ultimately lead us
to the same conclusion. Indeed, we find more reasons to disagree with the CIRs construction
of the law than those stated in our 2008 Fortune Tobacco ruling, which was largely based on
the application of the rules of statutory construction.

Raising government revenue is not the sole objective of RA

8240

That RA 8240 (incorporated as Section 145 of the 1997 Tax Code) was enacted to raise
government revenues is a given fact, but this is not the sole and only objective of the
law.[18] Congressional deliberations show that the shift from ad valorem to specific taxes
introduced by the law was also intended to curb the corruption that became endemic to the
imposition of ad valorem taxes.[19] Since ad valorem taxes were based on the value of the
goods, the prices of the goods were often manipulated to yield lesser taxes. The imposition of
specific taxes, which are based on the volume of goods produced, would prevent price
manipulation and also cure the unequal tax treatment created by the skewed valuation of
similar goods.

Rule of uniformity of taxation violated by the proviso in

Section 1, RR 17-99

The Constitution requires that taxation should be uniform and equitable. [20] Uniformity
in taxation requires that all subjects or objects of taxation, similarly situated, are to be treated
alike both in privileges and liabilities.[21] This requirement, however, is unwittingly violated
when the proviso in Section 1 of RR 17-99 is applied in certain cases. To illustrate this point,
we consider three brands of cigarettes, all classified as lower-priced cigarettes under Section
145(c)(4) of the 1997 Tax Code, since their net retail price is below P5.00 per pack:

Net (A) (B) (C) (D) (E)

Retail
Brand[22] Price Ad Specific Specific New New
per ValoremTax Tax under Tax Due Specific Specific
pack Due prior to Section Jan 1997 to Taximposing Tax Due
 Jan 1997 145(C)(4) Dec 1999 12% by Jan
increase by 2000
Jan 2000 per RR 17-
99
Camel KS 4.71 5.50 1.00/pack 5.50 1.12/pack 5.50
Champion 4.56 3.30 1.00/pack 3.30 1.12/pack 3.30
M 100

Union 4.64 1.09 1.00/pack 1.09 1.12/pack 1.12

American
Blend

Although the brands all belong to the same category, the proviso in Section 1, RR 17-99
authorized the imposition of different (and grossly disproportionate) tax rates (see column
[D]). It effectively extended the qualification stated in the third paragraph of Section
145(c) of the 1997 Tax Code that was supposed to apply only during the transition period:

The excise tax from any brand of cigarettes within the next three (3) years from the
effectivity of R.A. No. 8240 shall not be lower than the tax, which is due from each
brand on October 1, 1996[.]

In the process, the CIR also perpetuated the unequal tax treatment of similar goods that was
supposed to be cured by the shift from ad valorem to specific taxes.

The omission in the law in fact reveals the legislative intent

not to adopt the higher tax rule

The CIR claims that the proviso in Section 1 of RR 17-99 was patterned after the third
paragraph of Section 145(c) of the 1997 Tax Code. Since the laws intent was to increase
revenue, it found no reason not to apply the same higher tax rule to excise taxes due after the
transition period despite the absence of a similar text in the wording of Section 145(c). What
the CIR misses in his argument is that he applied the rule not only for cigarettes, but also for
cigars, distilled spirits, wines and fermented liquors:

Provided, however, that the new specific tax rate for any existing brand of cigars
[and] cigarettes packed by machine, distilled spirits, wines and fermented liquors
shall not be lower than the excise tax that is actually being paid prior to January 1,
2000.
When the pertinent provisions of the 1997 Tax Code imposing excise taxes on these products
are read, however, there is nothing similar to the third paragraph of Section 145(c) that can be
found in the provisions imposing excise taxes on distilled spirits (Section 141[23]) and wines
(Section 142[24]). In fact, the rule will also not apply to cigars as these products fall under
Section 145(a).[25]

Evidently, the 1997 Tax Codes provisions on excise taxes have omitted the adoption of
certain tax measures. To our mind, these omissions are telling indications of the intent of
Congress not to adopt the omitted tax measures; they are not simply unintended lapses in the
laws wording that, as the CIR claims, are nevertheless covered by the spirit of the law. Had
the intention of Congress been solely to increase revenue collection, a provision similar to the
third paragraph of Section 145(c) would have been incorporated in Sections 141 and 142 of
the 1997 Tax Code. This, however, is not the case.

We note that Congress was not unaware that the higher tax rule is a proviso that should
ideally apply to the increase after the transition period (as the CIR embodied in the proviso in
Section 1 of RR 17-99). During the deliberations for the law amending Section 145 of the
1997 Tax Code (RA 9334), Rep. Jesli Lapuz adverted to the higher tax rule after December
31, 1999 when he stated:

This bill serves as a catch-up measure as government attempts to collect

additional revenues due it since 2001. Modifications are necessary indeed to
capture the loss proceeds and prevent further erosion in revenue base. x x x. As it is,
it plugs a major loophole in the ambiguity of the law as evidenced by recent
disputes resulting in the government being ordered by the courts to refund
taxpayers. This bill clarifies that the excise tax due on the products shall not be
lower than the tax due as of the date immediately prior to the effectivity of the act
or the excise tax due as of December 31, 1999.[26]

This remark notwithstanding, the final version of the bill that became RA 9334 contained no
provision similar to the proviso in Section 1 of RR 17-99 that imposed the tax due as of
December 31, 1999 if this tax is higher than the new specific tax rates. Thus, it appears that
despite its awareness of the need to protect the increase of excise taxes to increase
government revenue, Congress ultimately decided against adopting the higher tax rule.
WHEREFORE, in view of the foregoing, the petition is DENIED. The decision dated July
12, 2007 and the resolution dated October 4, 2007 of the Court of Tax Appeals in CTA E.B.
No. 228 are AFFIRMED. No pronouncement as to costs.
SO ORDERED.
 [G.R. No. 158540. August 3, 2005]

SOUTHERN CROSS CEMENT CORPORATION, petitioner, vs. CEMENT

MANUFACTURERS ASSOCIATION OF THE PHILIPPINES, THE
SECRETARY OF THE DEPARTMENT OF TRADE AND INDUSTRY, THE
SECRETARY OF THE DEPARTMENT OF FINANCE and THE
COMMISSIONER OF THE BUREAU OF CUSTOMS, respondents.

RESOLUTION
TINGA, J.:

Cement is hardly an exciting subject for litigation. Still, the parties in this case have
done their best to put up a spirited advocacy of their respective positions, throwing in
everything including the proverbial kitchen sink. At present, the burden of passion, if not
proof, has shifted to public respondents Department of Trade and Industry (DTI) and
private respondent Philippine Cement Manufacturers Corporation (Philcemcor), [1] who
now seek reconsideration of our Decision dated 8 July 2004 (Decision), which granted
the petition of petitioner Southern Cross Cement Corporation (Southern Cross).
This case, of course, is ultimately not just about cement. For respondents, it is about
love of country and the future of the domestic industry in the face of foreign competition.
For this Court, it is about elementary statutory construction, constitutional limitations on
the executive power to impose tariffs and similar measures, and obedience to the law.
Just as much was asserted in the Decision, and the same holds true with this
present Resolution.
An extensive narration of facts can be found in the Decision.[2] As can well be
recalled, the case centers on the interpretation of provisions of Republic Act No. 8800,
the Safeguard Measures Act (SMA), which was one of the laws enacted by Congress
soon after the Philippines ratified the General Agreement on Tariff and Trade (GATT)
and the World Trade Organization (WTO) Agreement.[3] The SMA provides the structure
and mechanics for the imposition of emergency measures, including tariffs, to protect
domestic industries and producers from increased imports which inflict or could inflict
serious injury on them.[4]
A brief summary as to how the present petition came to be filed by Southern Cross.
Philcemcor, an association of at least eighteen (18) domestic cement manufacturers
filed with the DTI a petition seeking the imposition of safeguard measures on gray
Portland cement,[5] in accordance with the SMA. After the DTI issued a provisional
safeguard measure,[6] the application was referred to the Tariff Commission for a formal
investigation pursuant to Section 9 of the SMA and its Implementing Rules and
Regulations, in order to determine whether or not to impose a definitive safeguard
measure on imports of gray Portland cement. The Tariff Commission held public
hearings and conducted its own investigation, then on 13 March 2002, issued its Formal
Investigation Report (Report). The Report determined as follows:
The elements of serious injury and imminent threat of serious injury not having been established,
it is hereby recommended that no definitive general safeguard measure be imposed on the
importation of gray Portland cement.[7]

The DTI sought the opinion of the Secretary of Justice whether it could still impose a
definitive safeguard measure notwithstanding the negative finding of the Tariff
Commission. After the Secretary of Justice opined that the DTI could not do so under
the SMA,[8] the DTI Secretary then promulgated a Decision[9] wherein he expressed the
DTIs disagreement with the conclusions of the Tariff Commission, but at the same time,
ultimately denying Philcemcors application for safeguard measures on the ground that
the he was bound to do so in light of the Tariff Commissions negative findings.[10]
Philcemcor challenged this Decision of the DTI Secretary by filing with the Court of
Appeals a Petition for Certiorari, Prohibition and Mandamus[11] seeking to set aside the
DTI Decision, as well as the Tariff Commissions Report. It prayed that the Court of
Appeals direct the DTI Secretary to disregard the Report and to render judgment
independently of the Report. Philcemcor argued that the DTI Secretary, vested as he is
under the law with the power of review, is not bound to adopt the recommendations of
the Tariff Commission; and, that the Report is void, as it is predicated on a flawed
framework, inconsistent inferences and erroneous methodology.[12]
The Court of Appeals Twelfth Division, in a Decision[13] penned by Court of Appeals
Associate Justice Elvi John Asuncion,[14] partially granted Philcemcors petition. The
appellate court ruled that it had jurisdiction over the petition for certiorari since it alleged
grave abuse of discretion. While it refused to annul the findings of the Tariff
Commission,[15] it also held that the DTI Secretary was not bound by the factual findings
of the Tariff Commission since such findings are merely recommendatory and they fall
within the ambit of the Secretarys discretionary review. It determined that the legislative
intent is to grant the DTI Secretary the power to make a final decision on the Tariff
Commissions recommendation.[16]
On 23 June 2003, Southern Cross filed the present petition, arguing that the Court of
Appeals has no jurisdiction over Philcemcors petition, as the proper remedy is a petition
for review with the CTA conformably with the SMA, and; that the factual findings of the
Tariff Commission on the existence or non-existence of conditions warranting the
imposition of general safeguard measures are binding upon the DTI Secretary.
Despite the fact that the Court of Appeals Decision had not yet become final, its
binding force was cited by the DTI Secretary when he issued a new Decision on 25
June 2003, wherein he ruled that that in light of the appellate courts Decision, there was
no longer any legal impediment to his deciding Philcemcors application for definitive
safeguard measures.[17] He made a determination that, contrary to the findings of the
Tariff Commission, the local cement industry had suffered serious injury as a result of
the import surges.[18] Accordingly, he imposed a definitive safeguard measure on the
importation of gray Portland cement, in the form of a definitive safeguard duty in the
amount of P20.60/40 kg. bag for three years on imported gray Portland Cement.[19]
 On 7 July 2003, Southern Cross filed with the Court a Very Urgent Application for a
Temporary Restraining Order and/or A Writ of Preliminary Injunction (TRO Application),
seeking to enjoin the DTI Secretary from enforcing his Decision of 25 June 2003 in view
of the pending petition before this Court. Philcemcor filed an opposition, claiming,
among others, that it is not this Court but the CTA that has jurisdiction over the
application under the law.
On 1 August 2003, Southern Cross filed with the CTA a Petition for Review,
assailing the DTI Secretarys 25 June 2003 Decision which imposed the definite
safeguard measure. Yet Southern Cross did not promptly inform this Court about this
filing. The first time the Court would learn about this Petition with the CTA was when
Southern Cross mentioned such fact in a pleading dated 11 August 2003 and filed the
next day with this Court.[20]
Philcemcor argued before this Court that Southern Cross had deliberately and
willfully resorted to forum-shopping; that the CTA, being a special court of limited
jurisdiction, could only review the ruling of the DTI Secretary when a safeguard measure
is imposed; and that the factual findings of the Tariff Commission are not binding on the
DTI Secretary.[21]
After giving due course to Southern Crosss Petition, the Court called the case for
oral argument on 18 February 2004.[22] At the oral argument, attended by the counsel for
Philcemcor and Southern Cross and the Office of the Solicitor General, the Court
simplified the issues in this wise: (i) whether the Decision of the DTI Secretary is
appealable to the CTA or the Court of Appeals; (ii) assuming that the Court of Appeals
has jurisdiction, whether its Decision is in accordance with law; and, whether
a Temporary Restraining Order is warranted.[23]
After the parties had filed their respective memoranda, the Courts Second Division,
to which the case had been assigned, promulgated its Decision granting Southern
Crosss Petition.[24]The Decision was unanimous, without any separate or concurring
opinion.
The Court ruled that the Court of Appeals had no jurisdiction over
Philcemcors Petition, the proper remedy under Section 29 of the SMA being a petition
for review with the CTA; and that the Court of Appeals erred in ruling that the DTI
Secretary was not bound by the negative determination of the Tariff Commission and
could therefore impose the general safeguard measures, since Section 5 of the SMA
precisely required that the Tariff Commission make a positive final determination before
the DTI Secretary could impose these measures. Anent the argument that Southern
Cross had committed forum-shopping, the Court concluded that there was no evident
malicious intent to subvert procedural rules so as to match the standard under Section 5,
Rule 7 of the Rules of Court of willful and deliberate forum shopping. Accordingly,
the Decision of the Court of Appeals dated 5 June 2003 was declared null and void.
The Court likewise found it necessary to nullify the Decision of the DTI Secretary
dated 25 June 2003, rendered after the filing of this present Petition. This Decision by
the DTI Secretary had cited the obligatory force of the null and void Court of
Appeals Decision, notwithstanding the fact that the decision of the appellate court was
not yet final and executory. Considering that the decision of the Court of Appeals was a
nullity to begin with, the inescapable conclusion was that the new decision of the DTI
Secretary, prescinding as it did from the imprimatur of the decision of the Court of
Appeals, was a nullity as well.
After the Decision was reported in the media, there was a flurry of newspaper
articles citing alleged negative reactions to the ruling by the counsel for Philcemcor, the
DTI Secretary, and others.[25] Both respondents promptly filed their respective motions
for reconsideration.
On 21 September 2004, the Court En Banc resolved, upon motion of respondents,
to accept the petition and resolve the Motions for Reconsideration.[26] The case was then
reheard[27] on oral argument on 1 March 2005. During the hearing, the Court elicited
from the parties their arguments on the two central issues as discussed in the
assailed Decision, pertaining to the jurisdictional aspect and to the substantive aspect of
whether the DTI Secretary may impose a general safeguard measure despite a
negative determination by the Tariff Commission. The Court chose not to hear
argumentation on the peripheral issue of forum-shopping,[28] although this question shall
be tackled herein shortly. Another point of concern emerged during oral arguments on
the exercise of quasi-judicial powers by the Tariff Commission, and the parties were
required by the Court to discuss in their respective memoranda whether the Tariff
Commission could validly exercise quasi-judicial powers in the exercise of its mandate
under the SMA.
The Court has likewise been notified that subsequent to the rendition of the
Courts Decision, Philcemcor filed a Petition for Extension of the Safeguard
Measure with the DTI, which has been referred to the Tariff Commission.[29] In an Urgent
Motion dated 21 December 2004, Southern Cross prayed that Philcemcor, the DTI, the
Bureau of Customs, and the Tariff Commission be directed to cease and desist from
taking any and all actions pursuant to or under the null and void CA Decision and DTI
Decision, including proceedings to extend the safeguard measure.[30] In a Manifestation
and Motion dated 23 June 2004, the Tariff Commission informed the Court that since no
prohibitory injunction or order of such nature had been issued by any court against the
Tariff Commission, the Commission proceeded to complete its investigation on the
petition for extension, pursuant to Section 9 of the SMA, but opted to defer transmittal of
its report to the DTI Secretary pending guidance from this Court on the propriety of such
a step considering this pending Motion for Reconsideration. In a Resolution dated 5 July
2005, the Court directed the parties to maintain the status quo effective of even date,
and until further orders from this Court. The denial of the pending motions for
reconsideration will obviously render the pending petition for extension academic.

I. Jurisdiction of the Court of Tax Appeals

Under Section 29 of the SMA
 The first core issue resolved in the assailed Decision was whether the Court of
Appeals had jurisdiction over the special civil action for certiorari filed by Philcemcor
assailing the 5 April 2002 Decision of the DTI Secretary. The general jurisdiction of the
Court of Appeals over special civil actions for certiorari is beyond doubt. The
Constitution itself assures that judicial review avails 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. At the same time, the special
civil action of certiorari is available only when there is no plain, speedy and adequate
remedy in the ordinary course of law.[31] Philcemcors recourse of special civil action
before the Court of Appeals to challenge the Decision of the DTI Secretary not to
impose the general safeguard measures is not based on the SMA, but on the general
rule on certiorari. Thus, the Court proceeded to inquire whether indeed there was no
other plain, speedy and adequate remedy in the ordinary course of law that would
warrant the allowance of Philcemcors special civil action.
The answer hinged on the proper interpretation of Section 29 of the SMA, which
reads:

Section 29. Judicial Review. Any interested party who is adversely affected by the ruling of the
Secretary in connection with the imposition of a safeguard measure may file with the CTA, a
petition for review of such ruling within thirty (30) days from receipt thereof.
Provided, however, that the filing of such petition for review shall not in any way stop, suspend
or otherwise toll the imposition or collection of the appropriate tariff duties or the adoption of
other appropriate safeguard measures, as the case may be.

The petition for review shall comply with the same requirements and shall follow the same rules
of procedure and shall be subject to the same disposition as in appeals in connection with adverse
rulings on tax matters to the Court of Appeals.[32] (Emphasis supplied)

The matter is crucial for if the CTA properly had jurisdiction over the petition
challenging the DTI Secretarys ruling not to impose a safeguard measure, then the
special civil action of certiorari resorted to instead by Philcemcor would not avail, owing
to the existence of a plain, speedy and adequate remedy in the ordinary course of
law.[33]The Court of Appeals, in asserting that it had jurisdiction, merely cited the general
rule on certiorari jurisdiction without bothering to refer to, or possibly even study, the
import of Section 29. In contrast, this Court duly considered the meaning and
ramifications of Section 29, concluding that it provided for a plain, speedy and adequate
remedy that Philcemcor could have resorted to instead of filing the special civil action
before the Court of Appeals.
Philcemcor still holds on to its hypothesis that the petition for review allowed under
Section 29 lies only if the DTI Secretarys ruling imposes a safeguard measure. If, on the
other hand, the DTI Secretarys ruling is not to impose a safeguard measure, judicial
review under Section 29 could not be resorted to since the provision refers to rulings in
connection with the imposition of the safeguard measure, as opposed to the non-
imposition. Since the Decision dated 5 April 2002 resolved against imposing a
safeguard measure, Philcemcor claims that the proper remedial recourse is a petition
for certiorari with the Court of Appeals.
Interestingly, Republic Act No. 9282, promulgated on 30 March 2004, expressly
vests unto the CTA jurisdiction over [d]ecisions of the Secretary of Trade and Industry,
in case of nonagricultural product, commodity or article . . . involving . . . safeguard
measures under Republic Act No. 8800, where either party may appeal the
decision to impose or not to impose said duties.[34] It is clear that any future attempts
to advance the literalist position of the respondents would consequently fail. However,
since Republic Act No. 9282 has no retroactive effect, this Court had to decide whether
Section 29 vests jurisdiction on the CTA over rulings of the DTI Secretary not to impose
a safeguard measure. And the Court, in its assailed Decision, ruled that the CTA is
endowed with such jurisdiction.
Both respondents reiterate their fundamentalist reading that Section 29 authorizes
the petition for review before the CTA only when the DTI Secretary decides to impose a
safeguard measure, but not when he decides not to. In doing so, they fail to address
what the Court earlier pointed out would be the absurd consequences if their
interpretation is followed to its logical end. But in affirming, as the Court now does, its
previous holding that the CTA has jurisdiction over petitions for review questioning the
non-imposition of safeguard measures by the DTI Secretary, the Court relies on the
plain reading that Section 29 explicitly vests jurisdiction over such petitions on the CTA.
Under Section 29, there are three requisites to enable the CTA to acquire jurisdiction
over the petition for review contemplated therein: (i) there must be a ruling by the DTI
Secretary; (ii) the petition must be filed by an interested party adversely affected by the
ruling; and (iii) such ruling must be in connection with the imposition of a safeguard
measure. Obviously, there are differences between a ruling for the imposition of a
safeguard measure, and one issued in connection with the imposition of a safeguard
measure. The first adverts to a singular type of ruling, namely one that imposes a
safeguard measure. The second does not contemplate only one kind of ruling, but a
myriad of rulings issued in connection with the imposition of a safeguard measure.
Respondents argue that the Court has given an expansive interpretation to Section
29, contrary to the established rule requiring strict construction against the existence of
jurisdiction in specialized courts.[35] But it is the express provision of Section 29, and
not this Court, that mandates CTA jurisdiction to be broad enough to encompass
more than just a ruling imposing the safeguard measure.
The key phrase remains in connection with. It has connotations that are obvious
even to the layman. A ruling issued in connection with the imposition of a safeguard
measure would be one that bears some relation to the imposition of a safeguard
measure. Obviously, a ruling imposing a safeguard measure is covered by the phrase in
connection with, but such ruling is by no means exclusive. Rulings which modify,
suspend or terminate a safeguard measure are necessarily in connection with the
imposition of a safeguard measure. So does a ruling allowing for a provisional
safeguard measure. So too, a ruling by the DTI Secretary refusing to refer the
application for a safeguard measure to the Tariff Commission. It is clear that there is an
entire subset of rulings that the DTI Secretary may issue in connection with the
imposition of a safeguard measure, including those that are provisional, interlocutory, or
dispositive in character.[36] By the same token, a ruling not to impose a safeguard
measure is also issued in connection with the imposition of a safeguard measure.
In arriving at the proper interpretation of in connection with, the Court referred to the
U.S. Supreme Court cases of Shaw v. Delta Air Lines, Inc.[37] and New York State Blue
Cross Plans v. Travelers Ins.[38] Both cases considered the interpretation of the phrase
relates to as used in a federal statute, the Employee Retirement Security Act of 1974.
Respondents criticize the citations on the premise that the cases are not binding in our
jurisdiction and do not involve safeguard measures. The criticisms are off-tangent
considering that our ruling did not call for the application of the Employee Retirement
Security Act of 1974 in the Philippine milieu. The American cases are not relied upon as
precedents, but as guides of interpretation. Certainly, if there are applicable local
precedents pertaining to the interpretation of the phrase in connection with, then these
certainly would have some binding force. But none avail, and neither do the
respondents demonstrate a countervailing holding in Philippine jurisprudence.
Yet we should consider the claim that an expansive interpretation was favored
in Shaw because the law in question was an employees benefit law that had to be given
an interpretation favorable to its intended beneficiaries.[39] In the next breath, Philcemcor
notes that the U.S. Supreme Court itself was alarmed by the expansive interpretation
in Shaw and thus in Blue Cross, the Shaw ruling was reversed and a more restrictive
interpretation was applied based on congressional intent.[40]
Respondents would like to make it appear that the Court acted rashly in applying a
discarded precedent in Shaw, a non-binding foreign precedent nonetheless. But the
Court did make the following observation in its Decision pertaining to Blue Cross:

Now, let us determine the maximum scope and reach of the phrase in connection with as used in
Section 29 of the SMA. A literalist reading or linguistic survey may not satisfy. Even the U.S.
Supreme Court in New York State Blue Cross Plans v. Travelers Ins.[41] conceded that the phrases
relate to or in connection with may be extended to the farthest stretch of indeterminacy for,
universally, relations or connections are infinite and stop nowhere.[42] Thus, in the case the U.S.
High Court, examining the same phrase of the same provision of law involved in Shaw,
resorted to looking at the statute and its objectives as the alternative to an uncritical
literalism. A similar inquiry into the other provisions of the SMA is in order to determine
the scope of review accorded therein to the CTA.[43]

In the next four paragraphs of the Decision, encompassing four pages, the Court
proceeded to inquire into the SMA and its objectives as a means to determine the scope
of rulings to be deemed as in connection with the imposition of a safeguard measure.
Certainly, this Court did not resort to the broadest interpretation possible of the phrase
in connection with, but instead sought to bring it into the context of the scope and
objectives of the SMA. The ultimate conclusion of the Court was that the phrase
includes all rulings of the DTI Secretary which arise from the time an application or motu
proprio initiation for the imposition of a safeguard measure is taken.[44] This conclusion
was derived from the observation that the imposition of a general safeguard measure is
a process, initiated motu proprio or through application, which undergoes several stages
upon which the DTI Secretary is obliged or may be called upon to issue a ruling.
It should be emphasized again that by utilizing the phrase in connection with, it is the
SMA that expressly vests jurisdiction on the CTA over petitions questioning the non-
imposition by the DTI Secretary of safeguard measures. The Court is simply asserting,
as it should, the clear intent of the legislature in enacting the SMA. Without in
connection with or a synonymous phrase, the Court would be compelled to favor the
respondents position that only rulings imposing safeguard measures may be elevated
on appeal to the CTA. But considering that the statute does make use of the phrase,
there is little sense in delving into alternate scenarios.
Respondents fail to convincingly address the absurd consequences pointed out by
the Decision had their proposed interpretation been adopted. Indeed, suffocated
beneath the respondents legalistic tinsel is the elemental questionwhat sense is there in
vesting jurisdiction on the CTA over a decision to impose a safeguard measure, but not
on one choosing not to impose. Of course, it is not for the Court to inquire into the
wisdom of legislative acts, hence the rule that jurisdiction must be expressly vested and
not presumed. Yet ultimately, respondents muddle the issue by making it appear that
the Decision has uniquely expanded the jurisdictional rules. For the respondents, the
proper statutory interpretation of the crucial phrase in connection with is to pretend that
the phrase did not exist at all in the statute. The Court, in taking the effort to examine
the meaning and extent of the phrase, is merely giving breath to the legislative will.
The Court likewise stated that the respondents position calls for split jurisdiction,
which is judicially abhorred. In rebuttal, the public respondents cite Sections 2313 and
2402 of the Tariff and Customs Code (TCC), which allegedly provide for a splitting of
jurisdiction of the CTA. According to public respondents, under Section 2313 of the TCC,
a decision of the Commissioner of Customs affirming a decision of the Collector of
Customs adverse to the government is elevated for review to the Secretary of Finance.
However, under Section 2402 of the TCC, a ruling of the Commissioner of the Bureau of
Customs against a taxpayer must be appealed to the Court of Tax Appeals, and not to
the Secretary of Finance.
Strictly speaking, the review by the Secretary of Finance of the decision of the
Commissioner of Customs is not judicial review, since the Secretary of Finance holds an
executive and not a judicial office. The contrast is apparent with the situation in this case,
wherein the interpretation favored by the respondents calls for the exercise of judicial
review by two different courts over essentially the same questionwhether the DTI
Secretary should impose general safeguard measures. Moreover, as petitioner points
out, the executive department cannot appeal against itself. The Collector of Customs,
the Commissioner of Customs and the Secretary of Finance are all part of the executive
branch. If the Collector of Customs rules against the government, the executive cannot
very well bring suit in courts against itself. On the other hand, if a private person is
aggrieved by the decision of the Collector of Customs, he can have proper recourse
before the courts, which now would be called upon to exercise judicial review over the
action of the executive branch.
More fundamentally, the situation involving split review of the decision of the
Collector of Customs under the TCC is not apropos to the case at bar. The TCC in that
instance is quite explicit on the divergent reviewing body or official depending on which
party prevailed at the Collector of Customs level. On the other hand, there is no such
explicit expression of bifurcated appeals in Section 29 of the SMA.
Public respondents likewise cite Fabian v. Ombudsman[45] as another instance
wherein the Court purportedly allowed split jurisdiction. It is argued that the Court, in
ruling that it was the Court of Appeals which possessed appellate authority to review
decisions of the Ombudsman in administrative cases while the Court retaining appellate
jurisdiction of decisions of the Ombudsman in non-administrative cases, effectively
sanctioned split jurisdiction between the Court and the Court of Appeals.[46]
Nonetheless, this argument is successfully undercut by Southern Cross, which
points out the essential differences in the power exercised by the Ombudsman in
administrative cases and non-administrative cases relating to criminal complaints. In the
former, the Ombudsman may impose an administrative penalty, while in acting upon a
criminal complaint what the Ombudsman undertakes is a preliminary investigation.
Clearly, the capacity in which the Ombudsman takes on in deciding an administrative
complaint is wholly different from that in conducting a preliminary investigation. In
contrast, in ruling upon a safeguard measure, the DTI Secretary acts in one and the
same role. The variance between an order granting or denying an application for a
safeguard measure is polar though emanating from the same equator, and does not
arise from the distinct character of the putative actions involved.
Philcemcor imputes intelligent design behind the alleged intent of Congress to limit
CTA review only to impositions of the general safeguard measures. It claims that there
is a necessary tax implication in case of an imposition of a tariff where the CTAs
expertise is necessary, but there is no such tax implication, hence no need for the
assumption of jurisdiction by a specialized agency, when the ruling rejects the
imposition of a safeguard measure. But of course, whether the ruling under review calls
for the imposition or non-imposition of the safeguard measure, the common question for
resolution still is whether or not the tariff should be imposed an issue definitely fraught
with a tax dimension. The determination of the question will call upon the same kind of
expertise that a specialized body as the CTA presumably possesses.
In response to the Courts observation that the setup proposed by respondents was
novel, unusual, cumbersome and unwise, public respondents invoke the maxim that
courts should not be concerned with the wisdom and efficacy of legislation.[47] But this
prescinds from the bogus claim that the CTA may not exercise judicial review over a
decision not to impose a safeguard measure, a prohibition that finds no statutory
support. It is likewise settled in statutory construction that an interpretation that would
cause inconvenience and absurdity is not favored. Respondents do not address the
particular illogic that the Court pointed out would ensue if their position on judicial review
were adopted. According to the respondents, while a ruling by the DTI Secretary
imposing a safeguard measure may be elevated on review to the CTA and assailed on
the ground of errors in fact and in law, a ruling denying the imposition of safeguard
measures may be assailed only on the ground that the DTI Secretary committed grave
abuse of discretion. As stressed in the Decision, [c]ertiorari is a remedy narrow in its
scope and inflexible in its character. It is not a general utility tool in the legal workshop.[48]
It is incorrect to say that the Decision bars any effective remedy should the Tariff
Commission act or conclude erroneously in making its determination whether the factual
conditions exist which necessitate the imposition of the general safeguard measure. If
the Tariff Commission makes a negative final determination, the DTI Secretary, bound
as he is by this negative determination, has to render a decision denying the application
for safeguard measures citing the Tariff Commissions findings as basis. Necessarily
then, such negative determination of the Tariff Commission being an integral part of the
DTI Secretarys ruling would be open for review before the CTA, which again is
especially qualified by reason of its expertise to examine the findings of the Tariff
Commission. Moreover, considering that the Tariff Commission is an instrumentality of
the government, its actions (as opposed to those undertaken by the DTI Secretary
under the SMA) are not beyond the pale of certiorari jurisdiction. Unfortunately for
Philcemcor, it hinged its cause on the claim that the DTI Secretarys actions may be
annulled on certiorari, notwithstanding the explicit grant of judicial review over that
cabinet members actions under the SMA to the CTA.
Finally on this point, Philcemcor argues that assuming this Courts interpretation of
Section 29 is correct, such ruling should not be given retroactive effect, otherwise, a
gross violation of the right to due process would be had. This erroneously presumes that
it was this Court, and not Congress, which vested jurisdiction on the CTA over rulings of
non-imposition rendered by the DTI Secretary. We have repeatedly stressed that
Section 29 expressly confers CTA jurisdiction over rulings in connection with the
imposition of the safeguard measure, and the reassertion of this point in
the Decision was a matter of emphasis, not of contrivance. The due process protection
does not shield those who remain purposely blind to the express rules that ensure the
sporting play of procedural law.
Besides, respondents claim would also apply every time this Court is compelled to
settle a novel question of law, or to reverse precedent. In such cases, there would
always be litigants whose causes of action might be vitiated by the application of newly
formulated judicial doctrines. Adopting their claim would unwisely force this Court to
treat its dispositions in unprecedented, sometimes landmark decisions not as
resolutions to the live cases or controversies, but as legal doctrine applicable only to
future litigations.

II. Positive Final Determination

By the Tariff Commission an
Indispensable Requisite to the
Imposition of General Safeguard Measures
 The second core ruling in the Decision was that contrary to the holding of the Court
of Appeals, the DTI Secretary was barred from imposing a general safeguard measure
absent a positive final determination rendered by the Tariff Commission. The
fundamental premise rooted in this ruling is based on the acknowledgment that the
required positive final determination of the Tariff Commission exists as a properly
enacted constitutional limitation imposed on the delegation of the legislative power to
impose tariffs and imposts to the President under Section 28(2), Article VI of the
Constitution.

Congressional Limitations Pursuant

To Constitutional Authority on the
Delegated Power to Impose
Safeguard Measures

The safeguard measures imposable under the SMA generally involve duties on
imported products, tariff rate quotas, or quantitative restrictions on the importation of a
product into the country. Concerning as they do the foreign importation of products into
the Philippines, these safeguard measures fall within the ambit of Section 28(2), Article
VI of the Constitution, which states:

The Congress may, by law, authorize the President to fix within specified limits, and
subject to such limitations and restrictions as it may impose, tariff rates, import and export
quotas, tonnage and wharfage dues, and other duties or imposts within the framework of the
national development program of the Government.[49]

The Court acknowledges the basic postulates ingrained in the provision, and, hence,
governing in this case. They are:
(1) It is Congress which authorizes the President to impose tariff rates, import
and export quotas, tonnage and wharfage dues, and other duties or imposts. Thus,
the authority cannot come from the Finance Department, the National Economic
Development Authority, or the World Trade Organization, no matter how insistent or
persistent these bodies may be.
(2) The authorization granted to the President must be embodied in a law.
Hence, the justification cannot be supplied simply by inherent executive powers. It
cannot arise from administrative or executive orders promulgated by the executive
branch or from the wisdom or whim of the President.
(3) The authorization to the President can be exercised only within the
specified limits set in the law and is further subject to limitations and restrictions
which Congress may impose. Consequently, if Congress specifies that the tariff rates
should not exceed a given amount, the President cannot impose a tariff rate that
exceeds such amount. If Congress stipulates that no duties may be imposed on the
importation of corn, the President cannot impose duties on corn, no matter how actively
the local corn producers lobby the President. Even the most picayune of limits or
restrictions imposed by Congress must be observed by the President.
There is one fundamental principle that animates these constitutional
postulates. These impositions under Section 28(2), Article VI fall within the realm
of the power of taxation, a power which is within the sole province of the
legislature under the Constitution.
Without Section 28(2), Article VI, the executive branch has no authority to
impose tariffs and other similar tax levies involving the importation of foreign
goods. Assuming that Section 28(2) Article VI did not exist, the enactment of the SMA
by Congress would be voided on the ground that it would constitute an undue
delegation of the legislative power to tax. The constitutional provision shields such
delegation from constitutional infirmity, and should be recognized as an exceptional
grant of legislative power to the President, rather than the affirmation of an inherent
executive power.
This being the case, the qualifiers mandated by the Constitution on this presidential
authority attain primordial consideration. First, there must be a law, such as the SMA.
Second, there must be specified limits, a detail which would be filled in by the law. And
further, Congress is further empowered to impose limitations and restrictions on this
presidential authority. On this last power, the provision does not provide for specified
conditions, such as that the limitations and restrictions must conform to prior statutes,
internationally accepted practices, accepted jurisprudence, or the considered opinion of
members of the executive branch.
The Court recognizes that the authority delegated to the President under Section
28(2), Article VI may be exercised, in accordance with legislative sanction, by the alter
egos of the President, such as department secretaries. Indeed, for purposes of the
Presidents exercise of power to impose tariffs under Article VI, Section 28(2), it is
generally the Secretary of Finance who acts as alter ego of the President. The SMA
provides an exceptional instance wherein it is the DTI or Agriculture Secretary who is
tasked by Congress, in their capacities as alter egos of the President, to impose such
measures. Certainly, the DTI Secretary has no inherent power, even as alter ego of the
President, to levy tariffs and imports.
Concurrently, the tasking of the Tariff Commission under the SMA should be
likewise construed within the same context as part and parcel of the legislative
delegation of its inherent power to impose tariffs and imposts to the executive branch,
subject to limitations and restrictions. In that regard, both the Tariff Commission and the
DTI Secretary may be regarded as agents of Congress within their limited respective
spheres, as ordained in the SMA, in the implementation of the said law which
significantly draws its strength from the plenary legislative power of taxation. Indeed,
even the President may be considered as an agent of Congress for the purpose of
imposing safeguard measures. It is Congress, not the President, which
possesses inherent powers to impose tariffs and imposts. Without legislative
authorization through statute, the President has no power, authority or right to
impose such safeguard measures because taxation is inherently legislative, not
executive.
When Congress tasks the President or his/her alter egos to impose safeguard
measures under the delineated conditions, the President or the alter egosmay be
properly deemed as agents of Congress to perform an act that inherently belongs
as a matter of right to the legislature. It is basic agency law that the agent may not
act beyond the specifically delegated powers or disregard the restrictions imposed by
the principal. In short, Congress may establish the procedural framework under which
such safeguard measures may be imposed, and assign the various offices in the
government bureaucracy respective tasks pursuant to the imposition of such measures,
the task assignment including the factual determination of whether the necessary
conditions exists to warrant such impositions. Under the SMA, Congress assigned the
DTI Secretary and the Tariff Commission their respective functions[50] in the legislatures
scheme of things.
There is only one viable ground for challenging the legality of the limitations and
restrictions imposed by Congress under Section 28(2) Article VI, and that is such
limitations and restrictions are themselves violative of the Constitution. Thus, no matter
how distasteful or noxious these limitations and restrictions may seem, the Court has no
choice but to uphold their validity unless their constitutional infirmity can be
demonstrated.
What are these limitations and restrictions that are material to the present case? The
entire SMA provides for a limited framework under which the President, through the DTI
and Agriculture Secretaries, may impose safeguard measures in the form of tariffs and
similar imposts. The limitation most relevant to this case is contained in Section 5 of the
SMA, captioned Conditions for the Application of General Safeguard Measures, and
stating:

The Secretary shall apply a general safeguard measure upon a positive final determination
of the [Tariff] Commission that a product is being imported into the country in increased
quantities, whether absolute or relative to the domestic production, as to be a substantial cause of
serious injury or threat thereof to the domestic industry; however, in the case of non-agricultural
products, the Secretary shall first establish that the application of such safeguard measures will
be in the public interest.[51]

Positive Final Determination

By Tariff Commission Plainly
Required by Section 5 of SMA

There is no question that Section 5 of the SMA operates as a limitation validly

imposed by Congress on the presidential[52] authority under the SMA to impose tariffs
and imposts. That the positive final determination operates as an indispensable
requisite to the imposition of the safeguard measure, and that it is the Tariff Commission
which makes such determination, are legal propositions plainly expressed in Section 5
for the easy comprehension for everyone but respondents.
Philcemcor attributes this Courts conclusion on the indispensability of the positive
final determination to flawed syllogism in that we read the proposition if A then B as if it
stated if A, and only A, then B.[53] Translated in practical terms, our conclusion,
according to Philcemcor, would have only been justified had Section 5 read shall apply
a general safeguard measure upon, and only upon, a positive final determination of the
Tariff Commission.
Statutes are not designed for the easy comprehension of the five-year old child.
Certainly, general propositions laid down in statutes need not be expressly qualified by
clauses denoting exclusivity in order that they gain efficacy. Indeed, applying this
argument, the President would, under the Constitution, be authorized to declare martial
law despite the absence of the invasion, rebellion or public safety requirement just
because the first paragraph of Section 18, Article VII fails to state the magic word only.[54]
But let us for the nonce pursue Philcemcors logic further. It claims that since Section
5 does not allegedly limit the circumstances upon which the DTI Secretary may impose
general safeguard measures, it is a worthy pursuit to determine whether the entire
context of the SMA, as discerned by all the other familiar indicators of legislative intent
supplied by norms of statutory interpretation, would justify safeguard measures absent a
positive final determination by the Tariff Commission.
The first line of attack employed is on Section 5 itself, it allegedly not being as clear
as it sounds. It is advanced that Section 5 does not relate to the legal ability of either the
Tariff Commission or the DTI Secretary to bind or foreclose review and reversal by one
or the other. Such relationship should instead be governed by domestic administrative
law and remedial law. Philcemcor thus would like to cast the proposition in this manner:
Does it run contrary to our legal order to assert, as the Court did in its Decision, that a
body of relative junior competence as the Tariff Commission can bind an administrative
superior and cabinet officer, the DTI Secretary? It is easy to see why Philcemcor would
like to divorce this DTI Secretary-Tariff Commission interaction from the confines of the
SMA. Shorn of context, the notion would seem radical and unjustifiable that the lowly
Tariff Commission can bind the hands and feet of the DTI Secretary.
It can be surmised at once that respondents preferred interpretation is based not on
the express language of the SMA, but from implications derived in a roundabout manner.
Certainly, no provision in the SMA expressly authorizes the DTI Secretary to impose a
general safeguard measure despite the absence of a positive final recommendation of
the Tariff Commission. On the other hand, Section 5 expressly states that the DTI
Secretary shall apply a general safeguard measure upon a positive final determination
of the [Tariff] Commission. The causal connection in Section 5 between the imposition
by the DTI Secretary of the general safeguard measure and the positive final
determination of the Tariff Commission is patent, and even respondents do not dispute
such connection.
 As stated earlier, the Court in its Decision found Section 5 to be clear, plain and free
from ambiguity so as to render unnecessary resort to the congressional records to
ascertain legislative intent. Yet respondents, on the dubitable premise that Section 5 is
not as express as it seems, again latch on to the record of legislative deliberations in
asserting that there was no legislative intent to bar the DTI Secretary from imposing the
general safeguard measure anyway despite the absence of a positive final
determination by the Tariff Commission.
Let us take the bait for a moment, and examine respondents commonly cited portion
of the legislative record. One would presume, given the intense advocacy for the
efficacy of these citations, that they contain a smoking gun express declarations from
the legislators that the DTI Secretary may impose a general safeguard measure even if
the Tariff Commission refuses to render a positive final determination. Such smoking
gun, if it exists, would characterize our Decision as disingenuous for ignoring such
contrary expression of intent from the legislators who enacted the SMA. But as with
many things, the anticipation is more dramatic than the truth.
The excerpts cited by respondents are derived from the interpellation of the late
Congressman Marcial Punzalan Jr., by then (and still is) Congressman Simeon
Datumanong.[55] Nowhere in these records is the view expressed that the DTI Secretary
may impose the general safeguard measures if the Tariff Commission issues a negative
final determination or otherwise is unable to make a positive final determination. Instead,
respondents hitch on the observations of Congressman Punzalan Jr., that the results of
the [Tariff] Commissions findings . . . is subsequently submitted to [the DTI Secretary]
for the [DTI Secretary] to impose or not to impose; and that the [DTI Secretary] here
iswho would make the final decision on the recommendation that is made by a more
technical body [such as the Tariff Commission].[56]
There is nothing in the remarks of Congressman Punzalan which contradict
our Decision. His observations fall in accord with the respective roles of the Tariff
Commission and the DTI Secretary under the SMA. Under the SMA, it is the Tariff
Commission that conducts an investigation as to whether the conditions exist to warrant
the imposition of the safeguard measures. These conditions are enumerated in Section
5, namely; that a product is being imported into the country in increased quantities,
whether absolute or relative to the domestic production, as to be a substantial cause of
serious injury or threat thereof to the domestic industry. After the investigation of the
Tariff Commission, it submits a report to the DTI Secretary which states, among others,
whether the above-stated conditions for the imposition of the general safeguard
measures exist. Upon a positive final determination that these conditions are present,
the Tariff Commission then is mandated to recommend what appropriate safeguard
measures should be undertaken by the DTI Secretary. Section 13 of the SMA gives five
(5) specific options on the type of safeguard measures the Tariff Commission
recommends to the DTI Secretary.
At the same time, nothing in the SMA obliges the DTI Secretary to adopt the
recommendations made by the Tariff Commission. In fact, the SMA requires that the
DTI Secretary establish that the application of such safeguard measures is in the public
interest, notwithstanding the Tariff Commissions recommendation on the appropriate
safeguard measure upon its positive final determination. Thus, even if the Tariff
Commission makes a positive final determination, the DTI Secretary may opt not to
impose a general safeguard measure, or choose a different type of safeguard measure
other than that recommended by the Tariff Commission.
Congressman Punzalan was cited as saying that the DTI Secretary makes the
decision to impose or not to impose, which is correct since the DTI Secretary may
choose not to impose a safeguard measure in spite of a positive final determination by
the Tariff Commission. Congressman Punzalan also correctly stated that it is the DTI
Secretary who makes the final decision on the recommendation that is made [by the
Tariff Commission], since the DTI Secretary may choose to impose a general safeguard
measure different from that recommended by the Tariff Commission or not to impose a
safeguard measure at all. Nowhere in these cited deliberations was Congressman
Punzalan, or any other member of Congress for that matter, quoted as saying that the
DTI Secretary may ignore a negative determination by the Tariff Commission as to the
existence of the conditions warranting the imposition of general safeguard measures,
and thereafter proceed to impose these measures nonetheless. It is too late in the day
to ascertain from the late Congressman Punzalan himself whether he had made these
remarks in order to assure the other legislators that the DTI Secretary may impose the
general safeguard measures notwithstanding a negative determination by the Tariff
Commission. But certainly, the language of Section 5 is more resolutory to that question
than the recorded remarks of Congressman Punzalan.
Respondents employed considerable effort to becloud Section 5 with undeserved
ambiguity in order that a proper resort to the legislative deliberations may be had. Yet
assuming that Section 5 deserves to be clarified through an inquiry into the legislative
record, the excerpts cited by the respondents are far more ambiguous than the
language of the assailed provision regarding the key question of whether the DTI
Secretary may impose safeguard measures in the face of a negative determination by
the Tariff Commission. Moreover, even Southern Cross counters with its own excerpts
of the legislative record in support of their own view.[57]
It will not be difficult, especially as to heavily-debated legislation, for two sides with
contrapuntal interpretations of a statute to highlight their respective citations from the
legislative debate in support of their particular views.[58] A futile exercise of second-
guessing is happily avoided if the meaning of the statute is clear on its face. It is
evident from the text of Section 5 that there must be a positive final determination
by the Tariff Commission that a product is being imported into the country in
increased quantities (whether absolute or relative to domestic production), as to
be a substantial cause of serious injury or threat to the domestic industry. Any
disputation to the contrary is, at best, the product of wishful thinking.
For the same reason that Section 5 is explicit as regards the essentiality of a
positive final determination by the Tariff Commission, there is no need to refer to the
Implementing Rules of the SMA to ascertain a contrary intent. If there is indeed a
provision in the Implementing Rules that allows the DTI Secretary to impose a general
safeguard measure even without the positive final determination by the Tariff
Commission, said rule is void as it cannot supplant the express language of the
legislature. Respondents essentially rehash their previous arguments on this point, and
there is no reason to consider them anew. The Decision made it clear that nothing in
Rule 13.2 of the Implementing Rules, even though captioned Final Determination by the
Secretary, authorizes the DTI Secretary to impose a general safeguard measure in the
absence of a positive final determination by the Tariff Commission. [59] Similarly, the
Rules and Regulations to Govern the Conduct of Investigation by the Tariff Commission
Pursuant to Republic Act No. 8800 now cited by the respondent does not contain any
provision that the DTI Secretary may impose the general safeguard measures in the
absence of a positive final determination by the Tariff Commission.
Section 13 of the SMA further bolsters the interpretation as argued by Southern
Cross and upheld by the Decision. The first paragraph thereof states that [u]pon its
positive determination, the [Tariff] Commission shall recommend to the Secretary an
appropriate definitive measure, clearly referring to the Tariff Commission as the entity
that makes the positive determination. On the other hand, the penultimate paragraph of
the same provision states that [i]n the event of a negative final determination, the DTI
Secretary is to immediately issue through the Secretary of Finance, a written instruction
to the Commissioner of Customs authorizing the return of the cash bonds previously
collected as a provisional safeguard measure. Since the first paragraph of the same
provision states that it is the Tariff Commission which makes the positive determination,
it necessarily follows that it, and not the DTI Secretary, makes the negative final
determination as referred to in the penultimate paragraph of Section 13.[60]
The Separate Opinion considers as highly persuasive of former Tariff Commission
Chairman Abon, who stated that the Commissions findings are merely
recommendatory.[61] Again, the considered opinion of Chairman Abon is of no operative
effect if the statute plainly states otherwise, and Section 5 bluntly does require a positive
final determination by the Tariff Commission before the DTI Secretary may impose a
general safeguard measure.[62]Certainly, the Court cannot give controlling effect to the
statements of any public officer in serious denial of his duties if the law otherwise
imposes the duty on the public office or officer.
Nonetheless, if we are to render persuasive effect on the considered opinion of the
members of the Executive Branch, it bears noting that the Secretary of the Department
of Justice rendered an Opinion wherein he concluded that the DTI Secretary could not
impose a general safeguard measure if the Tariff Commission made a negative final
determination.[63] Unlike Chairman Abons impromptu remarks made during a hearing,
the DOJ Opinion was rendered only after a thorough study of the question after referral
to it by the DTI. The DOJ Secretary is the alter ego of the President with a stated
mandate as the head of the principal law agency of the government. [64] As the DOJ
Secretary has no denominated role in the SMA, he was able to render his Opinion from
the vantage of judicious distance. Should not his Opinion, studied and direct to the point
as it is, carry greater weight than the spontaneous remarks of the Tariff Commissions
Chairman which do not even expressly disavow the binding power of the Commissions
positive final determination?
 III. DTI Secretary has No Power of Review
Over Final Determination of the Tariff Commission

We should reemphasize that it is only because of the SMA, a legislative enactment,

that the executive branch has the power to impose safeguard measures. At the same
time, by constitutional fiat, the exercise of such power is subjected to the limitations and
restrictions similarly enforced by the SMA. In examining the relationship of the DTI and
the Tariff Commission as established in the SMA, it is essential to acknowledge and
consider these predicates.
It is necessary to clarify the paradigm established by the SMA and affirmed by the
Constitution under which the Tariff Commission and the DTI operate, especially in light
of the suggestions that the Courts rulings on the functions of quasi-judicial power find
application in this case. Perhaps the reflexive application of the quasi-judicial doctrine in
this case, rooted as it is in jurisprudence, might allow for some convenience in ruling,
yet doing so ultimately betrays ignorance of the fundamental power of Congress to
reorganize the administrative structure of governance in ways it sees fit.
The Separate Opinion operates from wholly different premises which are incomplete.
Its main stance, similar to that of respondents, is that the DTI Secretary, acting as alter
ego of the President, may modify and alter the findings of the Tariff Commission,
including the latters negative final determination by substituting it with his own negative
final determination to pave the way for his imposition of a safeguard measure.[65] Fatally,
this conclusion is arrived at without considering the fundamental constitutional precept
under Section 28(2), Article VI, on the ability of Congress to impose restrictions and
limitations in its delegation to the President to impose tariffs and imposts, as well as the
express condition of Section 5 of the SMA requiring a positive final determination of the
Tariff Commission.
Absent Section 5 of the SMA, the President has no inherent, constitutional, or
statutory power to impose a general safeguard measure. Tellingly, the Separate
Opinion does not directly confront the inevitable question as to how the DTI Secretary
may get away with imposing a general safeguard measure absent a positive final
determination from the Tariff Commission without violating Section 5 of the SMA, which
along with Section 13 of the same law, stands as the only direct legal authority for the
DTI Secretary to impose such measures. This is a constitutionally guaranteed limitation
of the highest order, considering that the presidential authority exercised under the SMA
is inherently legislative.
Nonetheless, the Separate Opinion brings to fore the issue of whether the DTI
Secretary, acting either as alter ego of the President or in his capacity as head of an
executive department, may review, modify or otherwise alter the final determination of
the Tariff Commission under the SMA. The succeeding discussion shall focus on that
question.
Preliminarily, we should note that none of the parties question the designation of the
DTI or Agriculture secretaries under the SMA as the imposing authorities of the
safeguard measures, even though Section 28(2) Article VI states that it is the President
to whom the power to impose tariffs and imposts may be delegated by Congress. The
validity of such designation under the SMA should not be in doubt. We recognize that
the authorization made by Congress in the SMA to the DTI and Agriculture Secretaries
was made in contemplation of their capacities as alter egos of the President.
Indeed, in Marc Donnelly & Associates v. Agregado[66] the Court upheld the validity
of a Cabinet resolution fixing the schedule of royalty rates on metal exports and
providing for their collection even though Congress, under Commonwealth Act No. 728,
had specifically empowered the President and not any other official of the executive
branch, to regulate and curtail the export of metals. In so ruling, the Court held that the
members of the Cabinet were acting as alter egos of the President.[67] In this case,
Congress itself authorized the DTI Secretary as alter ego of the President to impose the
safeguard measures. If the Court was previously willing to uphold the alter egos tariff
authority despite the absence of explicit legislative grant of such authority on the alter
ego, all the more reason now when Congress itself expressly authorized the alter ego to
exercise these powers to impose safeguard measures.
Notwithstanding, Congress in enacting the SMA and prescribing the roles to be
played therein by the Tariff Commission and the DTI Secretary did not envision that the
President, or his/her alter ego, could exercise supervisory powers over the Tariff
Commission. If truly Congress intended to allow the traditional alter ego principle to
come to fore in the peculiar setup established by the SMA, it would have assigned the
role now played by the DTI Secretary under the law instead to the NEDA. The Tariff
Commission is an attached agency of the National Economic Development
Authority,[68] which in turn is the independent planning agency of the government.[69]
The Tariff Commission does not fall under the administrative supervision of the
DTI.[70] On the other hand, the administrative relationship between the NEDA and the
Tariff Commission is established not only by the Administrative Code, but similarly
affirmed by the Tariff and Customs Code.
Justice Florentino Feliciano, in his ponencia in Garcia v. Executive Secretary[71],
acknowledged the interplay between the NEDA and the Tariff Commission under the
Tariff and Customs Code when he cited the relevant provisions of that law evidencing
such setup. Indeed, under Section 104 of the Tariff and Customs Code, the rates of duty
fixed therein are subject to periodic investigation by the Tariff Commission and may be
revised by the President upon recommendation of the NEDA. [72] Moreover, under
Section 401 of the same law, it is upon periodic investigations by the Tariff Commission
and recommendation of the NEDA that the President may cause a gradual reduction of
protection levels granted under the law.[73]
At the same time, under the Tariff and Customs Code, no similar role or influence is
allocated to the DTI in the matter of imposing tariff duties. In fact, the long-standing
tradition has been for the Tariff Commission and the DTI to proceed independently in
the exercise of their respective functions. Only very recently have our statutes directed
any significant interplay between the Tariff Commission and the DTI, with the enactment
in 1999 of Republic Act No. 8751 on the imposition of countervailing duties and
Republic Act No. 8752 on the imposition of anti-dumping duties, and of course the
promulgation a year later of the SMA. In all these three laws, the Tariff Commission is
tasked, upon referral of the matter by the DTI, to determine whether the factual
conditions exist to warrant the imposition by the DTI of a countervailing duty, an anti-
dumping duty, or a general safeguard measure, respectively. In all three laws, the
determination by the Tariff Commission that these required factual conditions exist is
necessary before the DTI Secretary may impose the corresponding duty or safeguard
measure. And in all three laws, there is no express provision authorizing the DTI
Secretary to reverse the factual determination of the Tariff Commission.[74]
In fact, the SMA indubitably establishes that the Tariff Commission is no mere flunky
of the DTI Secretary when it mandates that the positive final recommendation of the
former be indispensable to the latters imposition of a general safeguard measure. What
the law indicates instead is a relationship of interdependence between two bodies
independent of each other under the Administrative Code and the SMA alike. Indeed,
even the ability of the DTI Secretary to disregard the Tariff Commissions
recommendations as to the particular safeguard measures to be imposed evinces the
independence from each other of these two bodies. This is properly so for two reasons
the DTI and the Tariff Commission are independent of each other under the
Administrative Code; and impropriety is avoided in cases wherein the DTI itself is the
one seeking the imposition of the general safeguard measures, pursuant to Section 6 of
the SMA.
Thus, in ascertaining the appropriate legal milieu governing the relationship between
the DTI and the Tariff Commission, it is imperative to apply foremost, if not exclusively,
the provisions of the SMA. The argument that the usual rules on administrative control
and supervision apply between the Tariff Commission and the DTI as regards safeguard
measures is severely undercut by the plain fact that there is no long-standing tradition of
administrative interplay between these two entities.
Within the administrative apparatus, the Tariff Commission appears to be a lower
rank relative to the DTI. But does this necessarily mean that the DTI has the intrinsic
right, absent statutory authority, to reverse the findings of the Tariff Commission? To
insist that it does, one would have to concede for instance that, applying the same
doctrinal guide, the Secretary of the Department of Science and Technology (DOST)
has the right to reverse the rulings of the Civil Aeronautics Board (CAB) or the
issuances of the Philippine Coconut Authority (PCA). As with the Tariff Commission-DTI,
there is no statutory authority granting the DOST Secretary the right to overrule the CAB
or the PCA, such right presumably arising only from the position of subordinacy of these
bodies to the DOST. To insist on such a right would be to invite department secretaries
to interfere in the exercise of functions by administrative agencies, even in areas
wherein such secretaries are bereft of specialized competencies.
The Separate Opinion notes that notwithstanding above, the Secretary of
Department of Transportation and Communication may review the findings of the CAB,
the Agriculture Secretary may review those of the PCA, and that the Secretary of the
Department of Environment and Natural Resources may pass upon decisions of the
Mines and Geosciences Board.[75] These three officers may be alter egos of the
President, yet their authority to review is limited to those agencies or bureaus which are,
pursuant to statutes such as the Administrative Code of 1987, under the administrative
control and supervision of their respective departments. Thus, under the express
provision of the Administrative Code expressly provides that the CAB is an attached
agency of the DOTC[76], and that the PCA is an attached agency of the Department of
Agriculture.[77] The same law establishes the Mines and Geo-Sciences Bureau as one of
the Sectoral Staff Bureaus[78] that forms part of the organizational structure of the
DENR.[79]
As repeatedly stated, the Tariff Commission does not fall under the administrative
control of the DTI, but under the NEDA, pursuant to the Administrative Code. The
reliance made by the Separate Opinion to those three examples are thus misplaced.
Nonetheless, the Separate Opinion asserts that the SMA created a functional
relationship between the Tariff Commission and the DTI Secretary, sufficient to allow
the DTI Secretary to exercise alter ego powers to reverse the determination of the Tariff
Commission. Again, considering that the power to impose tariffs in the first place is not
inherent in the President but arises only from congressional grant, we should affirm the
congressional prerogative to impose limitations and restrictions on such powers which
do not normally belong to the executive in the first place. Nowhere in the SMA does it
state that the DTI Secretary may impose general safeguard measures without a positive
final determination by the Tariff Commission, or that the DTI Secretary may reverse or
even review the factual determination made by the Tariff Commission.
Congress in enacting the SMA and prescribing the roles to be played therein by the
Tariff Commission and the DTI Secretary did not envision that the President, or
his/her alter ego could exercise supervisory powers over the Tariff Commission. If truly
Congress intended to allow the traditional alter ego principle to come to fore in the
peculiar setup established by the SMA, it would have assigned the role now played by
the DTI Secretary under the law instead to the NEDA, the body to which the Tariff
Commission is attached under the Administrative Code.
The Court has no issue with upholding administrative control and supervision
exercised by the head of an executive department, but only over those subordinate
offices that are attached to the department, or which are, under statute, relegated under
its supervision and control. To declare that a department secretary, even if acting
as alter ego of the President, may exercise such control or supervision over all
executive offices below cabinet rank would lead to absurd results such as those
adverted to above. As applied to this case, there is no legal justification for the DTI
Secretary to exercise control, supervision, review or amendatory powers over the Tariff
Commission and its positive final determination. In passing, we note that there is,
admittedly, a feasible mode by which administrative review of the Tariff Commissions
final determination could be had, but it is not the procedure adopted by respondents and
now suggested for affirmation. This mode shall be discussed in a forthcoming section.
The Separate Opinion asserts that the President, or his/her alter ego cannot be
made a mere rubber stamp of the Tariff Commission since Section 17, Article VII of the
Constitution denominates the Chief Executive exercises control over all executive
departments, bureaus and offices.[80] But let us be clear that such executive control is
not absolute. The definition of the structure of the executive branch of government, and
the corresponding degrees of administrative control and supervision, is not the exclusive
preserve of the executive. It may be effectively be limited by the Constitution, by law, or
by judicial decisions.
The Separate Opinion cites the respected constitutional law authority Fr. Joaquin
Bernas, in support of the proposition that such plenary power of executive control of the
President cannot be restricted by a mere statute passed by Congress. However, the
cited passage from Fr. Bernas actually states, Since the Constitution has given the
President the power of control, with all its awesome implications, it is the Constitution
alone which can curtail such power.[81] Does the President have such tariff powers under
the Constitution in the first place which may be curtailed by the executive power of
control? At the risk of redundancy, we quote Section 28(2), Article VI: The Congress
may, by law, authorize the President to fix within specified limits, and subject to such
limitations and restrictions as it may impose, tariff rates, import and export quotas,
tonnage and wharfage dues, and other duties or imposts within the framework of the
national development program of the Government. Clearly the power to impose tariffs
belongs to Congress and not to the President.
It is within reason to assume the framers of the Constitution deemed it too onerous
to spell out all the possible limitations and restrictions on this presidential authority to
impose tariffs. Hence, the Constitution especially allowed Congress itself to prescribe
such limitations and restrictions itself, a prudent move considering that such authority
inherently belongs to Congress and not the President. Since Congress has no power to
amend the Constitution, it should be taken to mean that such limitations and restrictions
should be provided by mere statute. Then again, even the presidential authority to
impose tariffs arises only by mere statute. Indeed, this presidential privilege is both
contingent in nature and legislative in origin. These characteristics, when
weighed against the aspect of executive control and supervision, cannot militate
against Congresss exercise of its inherent power to tax.
The bare fact is that the administrative superstructure, for all its unwieldiness, is
mere putty in the hands of Congress. The functions and mandates of the particular
executive departments and bureaus are not created by the President, but by the
legislative branch through the Administrative Code. [82] The President is the
administrative head of the executive department, as such obliged to see that every
government office is managed and maintained properly by the persons in charge of it in
accordance with pertinent laws and regulations, and empowered to promulgate rules
and issuances that would ensure a more efficient management of the executive branch,
for so long as such issuances are not contrary to law.[83] Yet the legislature has the
concurrent power to reclassify or redefine the executive bureaucracy, including the
relationship between various administrative agencies, bureaus and departments, and
ultimately, even the power to abolish executive departments and their components,
hamstrung only by constitutional limitations. The DTI itself can be abolished with ease
by Congress through deleting Title X, Book IV of the Administrative Code. The Tariff
Commission can similarly be abolished through legislative enactment. [84]
At the same time, Congress can enact additional tasks or responsibilities on either
the Tariff Commission or the DTI Secretary, such as their respective roles on the
imposition of general safeguard measures under the SMA. In doing so, the same
Congress, which has the putative authority to abolish the Tariff Commission or
the DTI, is similarly empowered to alter or expand its functions through
modalities which do not align with established norms in the bureaucratic
structure. The Court is bound to recognize the legislative prerogative to prescribe such
modalities, no matter how atypical they may be, in affirmation of the legislative power to
restructure the executive branch of government.
There are further limitations on the executive control adverted to by the Separate
Opinion. The President, in the exercise of executive control, cannot order a subordinate
to disobey a final decision of this Court or any courts. If the subordinate chooses to
disobey, invoking sole allegiance to the President, the judicial processes can be utilized
to compel obeisance. Indeed, when public officers of the executive department take
their oath of office, they swear allegiance and obedience not to the President, but to the
Constitution and the laws of the land. The invocation of executive control must yield
when under its subsumption includes an act that violates the law.
The Separate Opinion concedes that the exercise of executive control and
supervision by the President is bound by the Constitution and law.[85] Still, just three
sentences after asserting that the exercise of executive control must be within the
bounds of the Constitution and law, the Separate Opinion asserts, the control power of
the Chief Executive emanates from the Constitution; no act of Congress may validly
curtail it.[86] Laws are acts of Congress, hence valid confusion arises whether
the Separate Opinion truly believes the first proposition that executive control is bound
by law. This is a quagmire for the Separate Opinion to resolve for itself
The Separate Opinion unduly considers executive control as the ne plus
ultra constitutional standard which must govern in this case. But while the President
may generally have the power to control, modify or set aside the actions of a
subordinate, such powers may be constricted by the Constitution, the legislature, and
the judiciary. This is one of the essences of the check-and-balance system in our tri-
partite constitutional democracy. Not one head of a branch of government may operate
as a Caesar within his/her particular fiefdom.
Assuming there is a conflict between the specific limitation in Section 28 (2), Article
VI of the Constitution and the general executive power of control and supervision, the
former prevails in the specific instance of safeguard measures such as tariffs and
imposts, and would thus serve to qualify the general grant to the President of the power
to exercise control and supervision over his/her subalterns.
Thus, if the Congress enacted the law so that the DTI Secretary is bound by the
Tariff Commission in the sense the former cannot impose general safeguard measures
absent a final positive determination from the latter the Court is obliged to respect such
legislative prerogative, no matter how such arrangement deviates from traditional norms
as may have been enshrined in jurisprudence. The only ground under which such
legislative determination as expressed in statute may be successfully challenged is if
such legislation contravenes the Constitution. No such argument is posed by the
respondents, who do not challenge the validity or constitutionality of the SMA.
Given these premises, it is utterly reckless to examine the interrelationship between
the Tariff Commission and the DTI Secretary beyond the context of the SMA, applying
instead traditional precepts on administrative control, review and supervision. For that
reason, the Decision deemed inapplicable respondents previous citations of Cario v.
Commissioner on Human Rights and Lamb v. Phipps, since the executive power
adverted to in those cases had not been limited by constitutional restrictions such as
those imposed under Section 28(2), Article VI.[87]
A similar observation can be made on the case of Sharp International Marketing v.
Court of Appeals,[88] now cited by Philcemcor, wherein the Court asserted that the Land
Bank of the Philippines was required to exercise independent judgment and not merely
rubber-stamp deeds of sale entered into by the Department of Agrarian Reform in
connection with the agrarian reform program. Philcemcor attempts to demonstrate that
the DTI Secretary, as with the Land Bank of the Philippines, is required to exercise
independent discretion and is not expected to just merely accede to DAR-approved
compensation packages. Yet again, such grant of independent discretion is expressly
called for by statute, particularly Section 18 of Rep. Act No. 6657 which specifically
requires the joint concurrence of the landowner and the DAR and the [Land Bank of the
Philippines] on the amount of compensation. Such power of review by the Land Bank is
a consequence of clear statutory language, as is our holding in the Decision that
Section 5 explicitly requires a positive final determination by the Tariff Commission
before a general safeguard measure may be imposed. Moreover, such limitations under
the SMA are coated by the constitutional authority of Section 28(2), Article VI of the
Constitution.
Nonetheless, is this administrative setup, as envisioned by Congress and enshrined
into the SMA, truly noxious to existing legal standards? The Decisionacknowledged the
internal logic of the statutory framework, considering that the DTI cannot exercise
review powers over an agency such as the Tariff Commission which is not within its
administrative jurisdiction; that the mechanism employed establishes a measure of
check and balance involving two government offices with different specializations; and
that safeguard measures are the exception rather than the rule, pursuant to our treaty
obligations.[89]
We see no reason to deviate from these observations, and indeed can add similarly
oriented comments. Corollary to the legislative power to decree policies through
legislation is the ability of the legislature to provide for means in the statute itself to
ensure that the said policy is strictly implemented by the body or office tasked so tasked
with the duty. As earlier stated, our treaty obligations dissuade the State for now from
implementing default protectionist trade measures such as tariffs, and allow the same
only under specified conditions.[90]The conditions enumerated under the GATT
Agreement on Safeguards for the application of safeguard measures by a member
country are the same as the requisites laid down in Section 5 of the SMA. [91] To insulate
the factual determination from political pressure, and to assure that it be conducted by
an entity especially qualified by reason of its general functions to undertake such
investigation, Congress deemed it necessary to delegate to the Tariff Commission the
function of ascertaining whether or not the those factual conditions exist to warrant the
atypical imposition of safeguard measures. After all, the Tariff Commission retains a
degree of relative independence by virtue of its attachment to the National Economic
Development Authority, an independent planning agency of the government,[92] and also
owing to its vaunted expertise and specialization.
The matter of imposing a safeguard measure almost always involves not just one
industry, but the national interest as it encompasses other industries as well. Yet in all
candor, any decision to impose a safeguard measure is susceptible to all sorts of
external pressures, especially if the domestic industry concerned is well-organized.
Unwarranted impositions of safeguard measures may similarly be detrimental to the
national interest. Congress could not be blamed if it desired to insulate the investigatory
process by assigning it to a body with a putative degree of independence and traditional
expertise in ascertaining factual conditions. Affected industries would have cause to
lobby for or against the safeguard measures. The decision-maker is in the unenviable
position of having to bend an ear to listen to all concerned voices, including those which
may speak softly but carry a big stick. Had the law mandated that the decision be made
on the sole discretion of an executive officer, such as the DTI Secretary, it would be
markedly easier for safeguard measures to be imposed or withheld based solely on
political considerations and not on the factual conditions that are supposed to predicate
the decision.
Reference of the binding positive final determination to the Tariff Commission is of
course, not a fail-safe means to ensure a bias-free determination. But at least the
legislated involvement of the Commission in the process assures some measure of
measure of check and balance involving two different governmental agencies with
disparate specializations. There is no legal or constitutional demand for such a setup,
but its wisdom as policy should be acknowledged. As prescribed by Congress, both the
Tariff Commission and the DTI Secretary operate within limited frameworks, under
which nobody acquires an undue advantage over the other.
We recognize that Congress deemed it necessary to insulate the process in
requiring that the factual determination to be made by an ostensibly independent body
of specialized competence, the Tariff Commission. This prescribed framework,
constitutionally sanctioned, is intended to prevent the baseless, whimsical, or
consideration-induced imposition of safeguard measures. It removes from the DTI
Secretary jurisdiction over a matter beyond his putative specialized aptitude, the
compilation and analysis of picayune facts and determination of their limited causal
relations, and instead vests in the Secretary the broad choice on a matter within his
unquestionable competence, the selection of what particular safeguard measure would
assist the duly beleaguered local industry yet at the same time conform to national trade
policy. Indeed, the SMA recognizes, and places primary importance on the DTI
Secretarys mandate to formulate trade policy, in his capacity as the Presidents alter
ego on trade, industry and investment-related matters.
At the same time, the statutory limitations on this authorized power of the DTI
Secretary must prevail since the Constitution itself demands the enforceability of those
limitations and restrictions as imposed by Congress. Policy wisdom will not save a law
from infirmity if the statutory provisions violate the Constitution. But since the
Constitution itself provides that the President shall be constrained by the limits and
restrictions imposed by Congress and since these limits and restrictions are so clear
and categorical, then the Court has no choice but to uphold the reins.
Even assuming that this prescribed setup made little sense, or seemed uncommonly
silly,[93] the Court is bound by propriety not to dispute the wisdom of the legislature as
long as its acts do not violate the Constitution. Since there is no convincing
demonstration that the SMA contravenes the Constitution, the Court is wont to respect
the administrative regimen propounded by the law, even if it allots the Tariff Commission
a higher degree of puissance than normally expected. It is for this reason that the
traditional conceptions of administrative review or quasi-judicial power cannot control in
this case.
Indeed, to apply the latter concept would cause the Court to fall into a linguistic trap
owing to the multi-faceted denotations the term quasi-judicial has come to acquire.
Under the SMA, the Tariff Commission undertakes formal hearings,[94] receives and
evaluates testimony and evidence by interested parties,[95] and renders a decision is
rendered on the basis of the evidence presented, in the form of the final determination.
The final determination requires a conclusion whether the importation of the product
under consideration is causing serious injury or threat to a domestic industry producing
like products or directly competitive products, while evaluating all relevant factors having
a bearing on the situation of the domestic industry.[96] This process aligns conformably
with definition provided by Blacks Law Dictionary of quasi-judicial as the action,
discretion, etc., of public administrative officers or bodies, who are required to
investigate facts, or ascertain the existence of facts, hold hearings, weigh evidence, and
draw conclusions from them, as a basis for their official action, and to exercise
discretion of a judicial nature.[97]
However, the Tariff Commission is not empowered to hear actual cases or
controversies lodged directly before it by private parties. It does not have the power to
issue writs of injunction or enforcement of its determination. These considerations
militate against a finding of quasi-judicial powers attributable to the Tariff Commission,
considering the pronouncement that quasi-judicial adjudication would mean a
determination of rights privileges and duties resulting in a decision or order which
applies to a specific situation.[98]
Indeed, a declaration that the Tariff Commission possesses quasi-judicial powers,
even if ascertained for the limited purpose of exercising its functions under the SMA,
may have the unfortunate effect of expanding the Commissions powers beyond that
contemplated by law. After all, the Tariff Commission is by convention, a fact-finding
body, and its role under the SMA, burdened as it is with factual determination, is but a
mere continuance of this tradition. However, Congress through the SMA offers a
significant deviation from this traditional role by tying the decision by the DTI Secretary
to impose a safeguard measure to the required positive factual determination by the
Tariff Commission. Congress is not bound by past traditions, or even by the
jurisprudence of this Court, in enacting legislation it may deem as suited for the times.
The sole benchmark for judicial substitution of congressional wisdom is constitutional
transgression, a standard which the respondents do not even attempt to match.

Respondents Suggested Interpretation

Of the SMA Transgresses Fair Play

Respondents have belabored the argument that the Decisions interpretation of the
SMA, particularly of the role of the Tariff Commission vis--vis the DTI Secretary, is
noxious to traditional notions of administrative control and supervision. But in doing so,
they have failed to acknowledge the congressional prerogative to redefine
administrative relationships, a license which falls within the plenary province of
Congress under our representative system of democracy. Moreover, respondents own
suggested interpretation falls wayward of expectations of practical fair play.
Adopting respondents suggestion that the DTI Secretary may disregard the factual
findings of the Tariff Commission and investigatory process that preceded it, it would
seem that the elaborate procedure undertaken by the Commission under the SMA, with
all the attendant guarantees of due process, is but an inutile spectacle. As Justice
Garcia noted during the oral arguments, why would the DTI Secretary bother with the
Tariff Commission and instead conduct the investigation himself.[99]
Certainly, nothing in the SMA authorizes the DTI Secretary, after making the
preliminary determination, to personally oversee the investigation, hear out the
interested parties, or receive evidence.[100] In fact, the SMA does not even require the
Tariff Commission, which is tasked with the custody of the submitted evidence, [101] to
turn over to the DTI Secretary such evidence it had evaluated in order to make its
factual determination.[102] Clearly, as Congress tasked it to be, it is the Tariff Commission
and not the DTI Secretary which acquires the necessary intimate acquaintance with the
factual conditions and evidence necessary for the imposition of the general safeguard
measure. Why then favor an interpretation of the SMA that leaves the findings of the
Tariff Commission bereft of operative effect and makes them subservient to the wishes
of the DTI Secretary, a personage with lesser working familiarity with the relevant
factual milieu? In fact, the bare theory of the respondents would effectively allow the DTI
Secretary to adopt, under the subterfuge of his discretion, the factual determination of a
private investigative group hired by the industry concerned, and reject the investigative
findings of the Tariff Commission as mandated by the SMA. It would be highly irregular
to substitute what the law clearly provides for a dubious setup of no statutory basis that
would be readily susceptible to rank chicanery.
 Moreover, the SMA guarantees the right of all concerned parties to be heard, an
elemental requirement of due process, by the Tariff Commission in the context of its
investigation. The DTI Secretary is not similarly empowered or tasked to hear out the
concerns of other interested parties, and if he/she does so, it arises purely out of volition
and not compulsion under law.
Indeed, in this case, it is essential that the position of other than that of the local
cement industry should be given due consideration, cement being an indispensable
need for the operation of other industries such as housing and construction. While the
general safeguard measures may operate to the better interests of the domestic cement
industries, its deprivation of cheaper cement imports may similarly work to the detriment
of these other domestic industries and correspondingly, the national interest. Notably,
the Tariff Commission in this case heard the views on the application of representatives
of other allied industries such as the housing, construction, and cement-bag industries,
and other interested parties such as consumer groups and foreign governments.[103] It is
only before the Tariff Commission that their views had been heard, and this is because
it is only the Tariff Commission which is empowered to hear their positions. Since due
process requires a judicious consideration of all relevant factors, the Tariff Commission,
which is in a better position to hear these parties than the DTI Secretary, is similarly
more capable to render a determination conformably with the due process requirements
than the DTI Secretary.
In a similar vein, Southern Cross aptly notes that in instances when it is the DTI
Secretary who initiates motu proprio the application for the safeguard measure pursuant
to Section 6 of the SMA, respondents suggested interpretation would result in the
awkward situation wherein the DTI Secretary would rule upon his own application after it
had been evaluated by the Tariff Commission. Pertinently cited is our ruling in Corona v.
Court of Appeals[104] that no man can be at once a litigant and judge.[105] Certainly, this
anomalous situation is avoided if it is the Tariff Commission which is tasked with arriving
at the final determination whether the conditions exist to warrant the general safeguard
measures. This is the setup provided for by the express provisions of the SMA, and the
problem would arise only if we adopt the interpretation urged upon by respondents.

The Possibility for Administrative Review

Of the Tariff Commissions Determination

The Court has been emphatic that a positive final determination from the Tariff
Commission is required in order that the DTI Secretary may impose a general safeguard
measure, and that the DTI Secretary has no power to exercise control and supervision
over the Tariff Commission and its final determination. These conclusions are the
necessary consequences of the applicable provisions of the Constitution, the SMA, and
laws such as the Administrative Code. However, the law is silent though on whether this
positive final determination may otherwise be subjected to administrative review.
 There is no evident legislative intent by the authors of the SMA to provide for a
procedure of administrative review. If ever there is a procedure for administrative review
over the final determination of the Tariff Commission, such procedure must be done in a
manner that does not contravene or disregard legislative prerogatives as expressed in
the SMA or the Administrative Code, or fundamental constitutional limitations.
In order that such procedure of administrative review would not contravene the law
and the constitutional scheme provided by Section 28(2), Article VI, it is essential to
assert that the positive final determination by the Tariff Commission is indispensable as
a requisite for the imposition of a general safeguard measure. The submissions of
private respondents and the Separate Opinion cannot be sustained insofar as they hold
that the DTI Secretary can peremptorily ignore or disregard the determinations made by
the Tariff Commission. However, if the mode of administrative review were in such a
manner that the administrative superior of the Tariff Commission were to modify or alter
its determination, then such reversal may still be valid within the confines of Section 5 of
the SMA, for technically it is still the Tariff Commissions determination, administratively
revised as it may be, that would serve as the basis for the DTI Secretarys action.
However, and fatally for the present petitions, such administrative review cannot be
conducted by the DTI Secretary. Even if conceding that the Tariff Commissions findings
may be administratively reviewed, the DTI Secretary has no authority to review or
modify the same. We have been emphatic on the reasons such as that there is no
traditional or statutory basis placing the Commission under the control and supervision
of the DTI; that to allow such would contravene due process, especially if the DTI itself
were to apply for the safeguard measures motu proprio. To hold otherwise would
destroy the administrative hierarchy, contravene constitutional due process, and
disregard the limitations or restrictions provided in the SMA.
Instead, assuming administrative review were available, it is the NEDA that may
conduct such review following the principles of administrative law, and the NEDAs
decision in turn is reviewable by the Office of the President. The decision of the Office of
the President then effectively substitutes as the determination of the Tariff Commission,
which now forms the basis of the DTI Secretarys decision, which now would be ripe for
judicial review by the CTA under Section 29 of the SMA. This is the only way that
administrative review of the Tariff Commissions determination may be sustained without
violating the SMA and its constitutional restrictions and limitations, as well as
administrative law.
In bare theory, the NEDA may review, alter or modify the Tariff Commissions final
determination, the Commission being an attached agency of the NEDA. Admittedly,
there is nothing in the SMA or any other statute that would prevent the NEDA to
exercise such administrative review, and successively, for the President to exercise in
turn review over the NEDAs decision.
Nonetheless, in acknowledging this possibility, the Court, without denigrating the
bare principle that administrative officers may exercise control and supervision over the
acts of the bodies under its jurisdiction, realizes that this comes at the expense of a
speedy resolution to an application for a safeguard measure, an application dependent
on fluctuating factual conditions. The further delay would foster uncertainty and
insecurity within the industry concerned, as well as with all other allied industries, which
in turn may lead to some measure of economic damage. Delay is certain, since judicial
review authorized by law and not administrative review would have the final say. The
fact that the SMA did not expressly prohibit administrative review of the final
determination of the Tariff Commission does not negate the supreme advantages of
engendering exclusive judicial review over questions arising from the imposition of a
general safeguard measure.
In any event, even if we conceded the possibility of administrative review of the
Tariff Commissions final determination by the NEDA, such would not deny merit to the
present petition. It does not change the fact that the Court of Appeals erred in ruling that
the DTI Secretary was not bound by the negative final determination of the Tariff
Commission, or that the DTI Secretary acted without jurisdiction when he imposed
general safeguard measures despite the absence of the statutory positive final
determination of the Commission.

IV. Courts Interpretation of SMA

In Harmony with Other
Constitutional Provisions

In response to our citation of Section 28(2), Article VI, respondents elevate two
arguments grounded in constitutional law. One is based on another constitutional
provision, Section 12, Article XIII, which mandates that [t]he State shall promote the
preferential use of Filipino labor, domestic materials and locally produced goods and
adopt measures that help make them competitive. By no means does this provision
dictate that the Court favor the domestic industry in all competing claims that it may
bring before this Court. If it were so, judicial proceedings in this country would be
rendered a mockery, resolved as they would be, on the basis of the personalities of the
litigants and not their legal positions.
Moreover, the duty imposed on by Section 12, Article XIII falls primarily with
Congress, which in that regard enacted the SMA, a law designed to protect domestic
industries from the possible ill-effects of our accession to the global trade order.
Inconveniently perhaps for respondents, the SMA also happens to provide for a
procedure under which such protective measures may be enacted. The Court cannot
just impose what it deems as the spirit of the law without giving due regard to its letter.
In like-minded manner, the Separate Opinion loosely states that the purpose of the
SMA is to protect or safeguard local industries from increased importation of foreign
products.[106] This inaccurately leaves the impression that the SMA ipso facto unravels a
protective cloak that shelters all local industries and producers, no matter the conditions.
Indeed, our country has knowingly chosen to accede to the world trade regime, as
expressed in the GATT and WTO Agreements, despite the understanding that local
industries might suffer ill-effects, especially with the easier entry of competing foreign
products. At the same time, these international agreements were designed to constrict
protectionist trade policies by its member-countries. Hence, the median, as expressed
by the SMA, does allow for the application of protectionist measures such as tariffs, but
only after an elaborate process of investigation that ensures factual basis and
indispensable need for such measures. More accurately, the purpose of the SMA is to
provide a process for the protection or safeguarding of domestic industries that have
duly established that there is substantial injury or threat thereof directly caused by the
increased imports. In short, domestic industries are not entitled to safeguard measures
as a matter of right or influence.
Respondents also make the astounding argument that the imposition of general
safeguard measures should not be seen as a taxation measure, but instead as an
exercise of police power. The vain hope of respondents in divorcing the safeguard
measures from the concept of taxation is to exclude from consideration Section 28(2),
Article VI of the Constitution.
This argument can be debunked at length, but it deserves little attention. The
motivation behind many taxation measures is the implementation of police power goals.
Progressive income taxes alleviate the margin between rich and poor; the so-called sin
taxes on alcohol and tobacco manufacturers help dissuade the consumers from
excessive intake of these potentially harmful products. Taxation is distinguishable from
police power as to the means employed to implement these public good goals. Those
doctrines that are unique to taxation arose from peculiar considerations such as those
especially punitive effects of taxation,[107] and the belief that taxes are the lifeblood of the
state.[108] These considerations necessitated the evolution of taxation as a distinct legal
concept from police power. Yet at the same time, it has been recognized that taxation
may be made the implement of the states police power.[109]
Even assuming that the SMA should be construed exclusively as a police power
measure, the Court recognizes that police power is lodged primarily in the national
legislature, though it may also be exercised by the executive branch by virtue of a valid
delegation of legislative power.[110] Considering these premises, it is clear that police
power, however illimitable in theory, is still exercised within the confines of implementing
legislation. To declare otherwise is to sanction rule by whim instead of rule of law. The
Congress, in enacting the SMA, has delegated the power to impose general safeguard
measures to the executive branch, but at the same time subjected such imposition to
limitations, such as the requirement of a positive final determination by the Tariff
Commission under Section 5. For the executive branch to ignore these boundaries
imposed by Congress is to set up an ignoble clash between the two co-equal branches
of government. Considering that the exercise of police power emanates from legislative
authority, there is little question that the prerogative of the legislative branch shall prevail
in such a clash.

V. Assailed Decision Consistent

With Ruling in Taada v. Angara
 Public respondents allege that the Decision is contrary to our holding in Taada v.
Angara,[111] since the Court noted therein that the GATT itself provides built-in protection
from unfair foreign competition and trade practices, which according to the public
respondents, was a reason why the Honorable [Court] ruled the way it did. On the other
hand, the Decision eliminates safeguard measures as a mode of defense.
This is balderdash, as with any and all claims that the Decision allows foreign
industries to ride roughshod over our domestic enterprises. The Decision does not
prohibit the imposition of general safeguard measures to protect domestic industries in
need of protection. All it affirms is that the positive final determination of the Tariff
Commission is first required before the general safeguard measures are imposed and
implemented, a neutral proposition that gives no regard to the nationalities of the parties
involved. A positive determination by the Tariff Commission is hardly the
elusive Shangri-la of administrative law. If a particular industry finds it difficult to obtain a
positive final determination from the Tariff Commission, it may be simply because the
industry is still sufficiently competitive even in the face of foreign competition. These
safeguard measures are designed to ensure salvation, not avarice.
Respondents well have the right to drape themselves in the colors of the flag. Yet
these postures hardly advance legal claims, or nationalism for that matter. The fineries
of the costume pageant are no better measure of patriotism than simple obedience to
the laws of the Fatherland. And even assuming that respondents are motivated by
genuine patriotic impulses, it must be remembered that under the setup provided by the
SMA, it is the facts, and not impulse, that determine whether the protective safeguard
measures should be imposed. As once orated, facts are stubborn things; and whatever
may be our wishes, our inclinations, or the dictates of our passions, they cannot alter
the state of facts and evidence.[112]
It is our goal as judges to enforce the law, and not what we might deem as correct
economic policy. Towards this end, we should not construe the SMA to unduly favor or
disfavor domestic industries, simply because the law itself provides for a mechanism by
virtue of which the claims of these industries are thoroughly evaluated before they are
favored or disfavored. What we must do is to simply uphold what the law says. Section
5 says that the DTI Secretary shall impose the general safeguard measures upon the
positive final determination of the Tariff Commission. Nothing in the whereas clauses or
the invisible ink provisions of the SMA can magically delete the words positive final
determination and Tariff Commission from Section 5.

VI. On Forum-Shopping

We remain convinced that there was no willful and deliberate forum-shopping in this
case by Southern Cross. The causes of action that animate this present petition for
review and the petition for review with the CTA are distinct from each other, even
though they relate to similar factual antecedents. Yet it also appears that contrary to the
undertaking signed by the President of Southern Cross, Hironobu Ryu, to inform this
Court of any similar action or proceeding pending before any court, tribunal or agency
within five (5) days from knowledge thereof, Southern Cross informed this Court only on
12 August 2003 of the petition it had filed with the CTA eleven days earlier. An
appropriate sanction is warranted for such failure, but not the dismissal of the petition.

VII. Effects of Courts Resolution

Philcemcor argues that the granting of Southern Crosss Petition should not
necessarily lead to the voiding of the Decision of the DTI Secretary dated 5 August 2003
imposing the general safeguard measures. For Philcemcor, the availability of appeal to
the CTA as an available and adequate remedy would have made the Court of
Appeals Decision merely erroneous or irregular, but not void. Moreover, the
said Decision merely required the DTI Secretary to render a decision, which could have
very well been a decision not to impose a safeguard measure; thus, it could not be said
that the annulled decision resulted from the judgment of the Court of Appeals.
The Court of Appeals Decision was annulled precisely because the appellate court
did not have the power to rule on the petition in the first place. Jurisdiction is necessarily
the power to decide a case, and a court which does not have the power to adjudicate a
case is one that is bereft of jurisdiction. We find no reason to disturb our earlier finding
that the Court of Appeals Decision is null and void.
At the same time, the Court in its Decision paid particular heed to the peculiarities
attaching to the 5 August 2003 Decision of the DTI Secretary. In the DTI
Secretarys Decision, he expressly stated that as a result of the Court of
Appeals Decision, there is no legal impediment for the Secretary to decide on the
application. Yet the truth remained that there was a legal impediment, namely, that the
decision of the appellate court was not yet final and executory. Moreover, it was
declared null and void, and since the DTI Secretary expressly denominated the Court of
Appeals Decision as his basis for deciding to impose the safeguard measures, the latter
decision must be voided as well. Otherwise put, without the Court of Appeals Decision,
the DTI Secretarys Decision of 5 August 2003 would not have been rendered as well.
Accordingly, the Court reaffirms as a nullity the DTI Secretarys Decision dated 5
August 2003. As a necessary consequence, no further action can be taken on
Philcemcors Petition for Extension of the Safeguard Measure. Obviously, if the
imposition of the general safeguard measure is void as we declared it to be, any
extension thereof should likewise be fruitless. The proper remedy instead is to file a new
application for the imposition of safeguard measures, subject to the conditions
prescribed by the SMA. Should this step be eventually availed of, it is only hoped that
the parties involved would content themselves in observing the proper procedure,
instead of making a mockery of the rule of law.
WHEREFORE, respondents Motions for Reconsideration are DENIED WITH
FINALITY.
 Respondent DTI Secretary is hereby ENJOINED from taking any further action on
the pending Petition for Extension of the Safeguard Measure.
Hironobu Ryu, President of petitioner Southern Cross Cement Corporation, and
Angara Abello Concepcion Regala & Cruz, counsel petitioner, are hereby given FIVE (5)
days from receipt of this Resolution to EXPLAIN why they should not be meted
disciplinary sanction for failing to timely inform the Court of the filing of Southern
Crosss Petition for Review with the Court of Tax Appeals, as adverted to earlier in
this Resolution.
SO ORDERED.
G.R. No. 92585 May 8, 1992

CALTEX PHILIPPINES, INC., petitioner,

vs.
THE HONORABLE COMMISSION ON AUDIT, HONORABLE COMMISSIONER BARTOLOME C.
FERNANDEZ and HONORABLE COMMISSIONER ALBERTO P. CRUZ, respondents.

DAVIDE, JR., J.:

This is a petition erroneously brought under Rule 44 of the Rules of Court 1 questioning the authority of the
Commission on Audit (COA) in disallowing petitioner's claims for reimbursement from the Oil Price Stabilization
Fund (OPSF) and seeking the reversal of said Commission's decision denying its claims for recovery of financing
charges from the Fund and reimbursement of underrecovery arising from sales to the National Power
Corporation, Atlas Consolidated Mining and Development Corporation (ATLAS) and Marcopper Mining
Corporation (MAR-COPPER), preventing it from exercising the right to offset its remittances against its
reimbursement vis-a-vis the OPSF and disallowing its claims which are still pending resolution before the Office
of Energy Affairs (OEA) and the Department of Finance (DOF).

Pursuant to the 1987 Constitution, 2 any decision, order or ruling of the Constitutional Commissions 3 may be
brought to this Court on certiorari by the aggrieved party within thirty (30) days from receipt of a copy thereof.
The certiorari referred to is the special civil action for certiorari under Rule 65 of the Rules of Court. 4

Considering, however, that the allegations that the COA acted with:
(a) total lack of jurisdiction in completely ignoring and showing absolutely no respect for the findings and rulings
of the administrator of the fund itself and in disallowing a claim which is still pending resolution at the OEA level,
and (b) "grave abuse of discretion and completely without jurisdiction" 5 in declaring that petitioner cannot avail of
the right to offset any amount that it may be required under the law to remit to the OPSF against any amount that
it may receive by way of reimbursement therefrom are sufficient to bring this petition within Rule 65 of the Rules
of Court, and, considering further the importance of the issues raised, the error in the designation of the remedy
pursued will, in this instance, be excused.

The issues raised revolve around the OPSF created under Section 8 of Presidential Decree (P.D.) No. 1956, as
amended by Executive Order (E.O.) No. 137. As amended, said Section 8 reads as follows:

Sec. 8 . There is hereby created a Trust Account in the books of accounts of the Ministry of
Energy to be designated as Oil Price Stabilization Fund (OPSF) for the purpose of minimizing
frequent price changes brought about by exchange rate adjustments and/or changes in world
market prices of crude oil and imported petroleum products. The Oil Price Stabilization Fund may
be sourced from any of the following:

a) Any increase in the tax collection from ad valorem tax or customs duty imposed
on petroleum products subject to tax under this Decree arising from exchange rate
adjustment, as may be determined by the Minister of Finance in consultation with
the Board of Energy;

b) Any increase in the tax collection as a result of the lifting of tax exemptions of
government corporations, as may be determined by the Minister of Finance in
consultation with the Board of Energy;

c) Any additional amount to be imposed on petroleum products to augment the

resources of the Fund through an appropriate Order that may be issued by the
Board of Energy requiring payment by persons or companies engaged in the
business of importing, manufacturing and/or marketing petroleum products;
 d) Any resulting peso cost differentials in case the actual peso costs paid by oil
companies in the importation of crude oil and petroleum products is less than the
peso costs computed using the reference foreign exchange rate as fixed by the
Board of Energy.

The Fund herein created shall be used for the following:

1) To reimburse the oil companies for cost increases in crude oil and imported
petroleum products resulting from exchange rate adjustment and/or increase in
world market prices of crude oil;

2) To reimburse the oil companies for possible cost under-recovery incurred as a

result of the reduction of domestic prices of petroleum products. The magnitude of
the underrecovery, if any, shall be determined by the Ministry of Finance. "Cost
underrecovery" shall include the following:

i. Reduction in oil company take as directed by the Board of

Energy without the corresponding reduction in the landed cost of
oil inventories in the possession of the oil companies at the time of
the price change;

ii. Reduction in internal ad valorem taxes as a result of foregoing

government mandated price reductions;

iii. Other factors as may be determined by the Ministry of Finance

to result in cost underrecovery.

The Oil Price Stabilization Fund (OPSF) shall be administered by the Ministry of Energy.

The material operative facts of this case, as gathered from the pleadings of the parties, are not disputed.

On 2 February 1989, the COA sent a letter to Caltex Philippines, Inc. (CPI), hereinafter referred to as Petitioner,
directing the latter to remit to the OPSF its collection, excluding that unremitted for the years 1986 and 1988, of
the additional tax on petroleum products authorized under the aforesaid Section 8 of P.D. No. 1956 which, as of
31 December 1987, amounted to P335,037,649.00 and informing it that, pending such remittance, all of its claims
for reimbursement from the OPSF shall be held in abeyance. 6

On 9 March 1989, the COA sent another letter to petitioner informing it that partial verification with the OEA
showed that the grand total of its unremitted collections of the above tax is P1,287,668,820.00, broken down as
follows:

1986 — P233,190,916.00
1987 — 335,065,650.00
1988 — 719,412,254.00;

directing it to remit the same, with interest and surcharges thereon, within sixty (60) days from receipt of the letter;
advising it that the COA will hold in abeyance the audit of all its claims for reimbursement from the OPSF; and
directing it to desist from further offsetting the taxes collected against outstanding claims in 1989 and subsequent
periods. 7

In its letter of 3 May 1989, petitioner requested the COA for an early release of its reimbursement certificates
from the OPSF covering claims with the Office of Energy Affairs since June 1987 up to March 1989, invoking in
support thereof COA Circular No. 89-299 on the lifting of pre-audit of government transactions of national
government agencies and government-owned or controlled corporations. 8
In its Answer dated 8 May 1989, the COA denied petitioner's request for the early release of the reimbursement certificates from the OPSF and repeated its
earlier directive to petitioner to forward payment of the latter's unremitted collections to the OPSF to facilitate COA's audit action on the reimbursement
claims. 9

By way of a reply, petitioner, in a letter dated 31 May 1989, submitted to the COA a proposal for the payment of
the collections and the recovery of claims, since the outright payment of the sum of P1.287 billion to the OEA as
a prerequisite for the processing of said claims against the OPSF will cause a very serious impairment of its cash
position. 10 The proposal reads:

We, therefore, very respectfully propose the following:

(1) Any procedural arrangement acceptable to COA to facilitate monitoring of

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

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

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

(4) The review of current claims (1989) will be conducted expeditiously to preclude
further accumulation of reimbursement from OPSF.

On 7 June 1989, the COA, with the Chairman taking no part, handed down Decision No. 921 accepting the
above-stated proposal but prohibiting petitioner from further offsetting remittances and reimbursements for the
current and ensuing years. 11 Decision No. 921 reads:

This pertains to the within separate requests of Mr. Manuel A. Estrella, President, Petron
Corporation, and Mr. Francis Ablan, President and Managing Director, Caltex (Philippines) Inc.,
for reconsideration of this Commission's adverse action embodied in its letters dated February 2,
1989 and March 9, 1989, the former directing immediate remittance to the Oil Price Stabilization
Fund of collections made by the firms pursuant to P.D. 1956, as amended by E.O. No. 137, S.
1987, and the latter reiterating the same directive but further advising the firms to desist from
offsetting collections against their claims with the notice that "this Commission will hold in
abeyance the audit of all . . . claims for reimbursement from the OPSF."

It appears that under letters of authority issued by the Chairman, Energy Regulatory Board, the
aforenamed oil companies were allowed to offset the amounts due to the Oil Price Stabilization
Fund against their outstanding claims from the said Fund for the calendar years 1987 and 1988,
pending with the then Ministry of Energy, the government entity charged with administering the
OPSF. This Commission, however, expressing serious doubts as to the propriety of the offsetting
of all types of reimbursements from the OPSF against all categories of remittances, advised these
oil companies that such offsetting was bereft of legal basis. Aggrieved thereby, these companies
now seek reconsideration and in support thereof clearly manifest their intent to make
arrangements for the remittance to the Office of Energy Affairs of the amount of collections
equivalent to what has been previously offset, provided that this Commission authorizes the
Office of Energy Affairs to prepare the corresponding checks representing reimbursement from
the OPSF. It is alleged that the implementation of such an arrangement, whereby the remittance
of collections due to the OPSF and the reimbursement of claims from the Fund shall be made
within a period of not more than one week from each other, will benefit the Fund and not unduly
jeopardize the continuing daily cash requirements of these firms.

Upon a circumspect evaluation of the circumstances herein obtaining, this Commission perceives
no further objectionable feature in the proposed arrangement, provided that 15% of whatever
amount is due from the Fund is retained by the Office of Energy Affairs, the same to be
 answerable for suspensions or disallowances, errors or discrepancies which may be noted in the
course of audit and surcharges for late remittances without prejudice to similar future retentions to
answer for any deficiency in such surcharges, and provided further that no offsetting of
remittances and reimbursements for the current and ensuing years shall be allowed.

Pursuant to this decision, the COA, on 18 August 1989, sent the following letter to Executive Director Wenceslao
R. De la Paz of the Office of Energy Affairs: 12

Dear Atty. dela Paz:

Pursuant to the Commission on Audit Decision No. 921 dated June 7, 1989, and based on our
initial verification of documents submitted to us by your Office in support of Caltex (Philippines),
Inc. offsets (sic) for the year 1986 to May 31, 1989, as well as its outstanding claims against the
Oil Price Stabilization Fund (OPSF) as of May 31, 1989, we are pleased to inform your Office that
Caltex (Philippines), Inc. shall be required to remit to OPSF an amount of P1,505,668,906,
representing remittances to the OPSF which were offset against its claims reimbursements (net of
unsubmitted claims). In addition, the Commission hereby authorize (sic) the Office of Energy
Affairs (OEA) to cause payment of P1,959,182,612 to Caltex, representing claims initially allowed
in audit, the details of which are presented hereunder: . . .

As presented in the foregoing computation the disallowances totalled P387,683,535, which

included P130,420,235 representing those claims disallowed by OEA, details of which is (sic)
shown in Schedule 1 as summarized as follows:

Disallowance of COA
Particulars Amount

Recovery of financing charges P162,728,475 /a

Product sales 48,402,398 /b
Inventory losses
Borrow loan arrangement 14,034,786 /c
Sales to Atlas/Marcopper 32,097,083 /d
Sales to NPC 558
——————
P257,263,300

Disallowances of OEA 130,420,235

————————— ——————
Total P387,683,535

The reasons for the disallowances are discussed hereunder:

a. Recovery of Financing Charges

Review of the provisions of P.D. 1596 as amended by E.O. 137 seems to indicate that recovery of
financing charges by oil companies is not among the items for which the OPSF may be utilized.
Therefore, it is our view that recovery of financing charges has no legal basis. The mechanism for
such claims is provided in DOF Circular 1-87.

b. Product Sales –– Sales to International Vessels/Airlines

BOE Resolution No. 87-01 dated February 7, 1987 as implemented by OEA Order No. 87-03-095
indicating that (sic) February 7, 1987 as the effectivity date that (sic) oil companies should pay
OPSF impost on export sales of petroleum products. Effective February 7, 1987 sales to
international vessels/airlines should not be included as part of its domestic sales. Changing the
effectivity date of the resolution from February 7, 1987 to October 20, 1987 as covered by
 subsequent ERB Resolution No. 88-12 dated November 18, 1988 has allowed Caltex to include in
their domestic sales volumes to international vessels/airlines and claim the corresponding
reimbursements from OPSF during the period. It is our opinion that the effectivity of the said
resolution should be February 7, 1987.

c. Inventory losses –– Settlement of Ad Valorem

We reviewed the system of handling Borrow and Loan (BLA) transactions including the related
BLA agreement, as they affect the claims for reimbursements of ad valorem taxes. We observed
that oil companies immediately settle ad valorem taxes for BLA transaction (sic). Loan balances
therefore are not tax paid inventories of Caltex subject to reimbursements but those of the
borrower. Hence, we recommend reduction of the claim for July, August, and November, 1987
amounting to P14,034,786.

d. Sales to Atlas/Marcopper

LOI No. 1416 dated July 17, 1984 provides that "I hereby order and direct the suspension of
payment of all taxes, duties, fees, imposts and other charges whether direct or indirect due and
payable by the copper mining companies in distress to the national and local governments." It is
our opinion that LOI 1416 which implements the exemption from payment of OPSF imposts as
effected by OEA has no legal basis.

Furthermore, we wish to emphasize that payment to Caltex (Phil.) Inc., of the amount as herein
authorized shall be subject to availability of funds of OPSF as of May 31, 1989 and applicable
auditing rules and regulations. With regard to the disallowances, it is further informed that the
aggrieved party has 30 days within which to appeal the decision of the Commission in accordance
with law.

On 8 September 1989, petitioner filed an Omnibus Request for the Reconsideration of the decision based on the
following grounds: 13

A) COA-DISALLOWED CLAIMS ARE AUTHORIZED UNDER EXISTING RULES, ORDERS,

RESOLUTIONS, CIRCULARS ISSUED BY THE DEPARTMENT OF FINANCE AND THE
ENERGY REGULATORY BOARD PURSUANT TO EXECUTIVE ORDER NO. 137.

xxx xxx xxx

B) ADMINISTRATIVE INTERPRETATIONS IN THE COURSE OF EXERCISE OF EXECUTIVE

POWER BY DEPARTMENT OF FINANCE AND ENERGY REGULATORY BOARD ARE LEGAL
AND SHOULD BE RESPECTED AND APPLIED UNLESS DECLARED NULL AND VOID BY
COURTS OR REPEALED BY LEGISLATION.

xxx xxx xxx

C) LEGAL BASIS FOR RETENTION OF OFFSET ARRANGEMENT, AS AUTHORIZED BY THE

EXECUTIVE BRANCH OF GOVERNMENT, REMAINS VALID.

xxx xxx xxx

On 6 November 1989, petitioner filed with the COA a Supplemental Omnibus Request for Reconsideration. 14

On 16 February 1990, the COA, with Chairman Domingo taking no part and with Commissioner Fernandez
dissenting in part, handed down Decision No. 1171 affirming the disallowance for recovery of financing charges,
inventory losses, and sales to MARCOPPER and ATLAS, while allowing the recovery of product sales or those
arising from export sales. 15 Decision No. 1171 reads as follows:
 Anent the recovery of financing charges you contend that Caltex Phil. Inc. has the .authority to
recover financing charges from the OPSF on the basis of Department of Finance (DOF) Circular
1-87, dated February 18, 1987, which allowed oil companies to "recover cost of financing working
capital associated with crude oil shipments," and provided a schedule of reimbursement in terms
of peso per barrel. It appears that on November 6, 1989, the DOF issued a memorandum to the
President of the Philippines explaining the nature of these financing charges and justifying their
reimbursement as follows:

As part of your program to promote economic recovery, . . . oil companies (were

authorized) to refinance their imports of crude oil and petroleum products from the
normal trade credit of 30 days up to 360 days from date of loading . . .
Conformably . . ., the oil companies deferred their foreign exchange remittances
for purchases by refinancing their import bills from the normal 30-day payment
term up to the desired 360 days. This refinancing of importations carried additional
costs (financing charges) which then became, due to government mandate, an
inherent part of the cost of the purchases of our country's oil requirement.

We beg to disagree with such contention. The justification that financing charges increased oil
costs and the schedule of reimbursement rate in peso per barrel (Exhibit 1) used to support
alleged increase (sic) were not validated in our independent inquiry. As manifested in Exhibit 2,
using the same formula which the DOF used in arriving at the reimbursement rate but using
comparable percentages instead of pesos, the ineluctable conclusion is that the oil companies are
actually gaining rather than losing from the extension of credit because such extension enables
them to invest the collections in marketable securities which have much higher rates than those
they incur due to the extension. The Data we used were obtained from CPI (CALTEX)
Management and can easily be verified from our records.

With respect to product sales or those arising from sales to international vessels or airlines, . . ., it
is believed that export sales (product sales) are entitled to claim refund from the OPSF.

As regard your claim for underrecovery arising from inventory losses, . . . It is the considered view
of this Commission that the OPSF is not liable to refund such surtax on inventory losses because
these are paid to BIR and not OPSF, in view of which CPI (CALTEX) should seek refund from
BIR. . . .

Finally, as regards the sales to Atlas and Marcopper, it is represented that you are entitled to
claim recovery from the OPSF pursuant to LOI 1416 issued on July 17, 1984, since these copper
mining companies did not pay CPI (CALTEX) and OPSF imposts which were added to the selling
price.

Upon a circumspect evaluation, this Commission believes and so holds that the CPI (CALTEX)
has no authority to claim reimbursement for this uncollected OPSF impost because LOI 1416
dated July 17, 1984, which exempts distressed mining companies from "all taxes, duties, import
fees and other charges" was issued when OPSF was not yet in existence and could not have
contemplated OPSF imposts at the time of its formulation. Moreover, it is evident that OPSF was
not created to aid distressed mining companies but rather to help the domestic oil industry by
stabilizing oil prices.

Unsatisfied with the decision, petitioner filed on 28 March 1990 the present petition wherein it imputes to the COA
the commission of the following errors: 16

RESPONDENT COMMISSION ERRED IN DISALLOWING RECOVERY OF FINANCING

CHARGES FROM THE OPSF.
 II

RESPONDENT COMMISSION ERRED IN DISALLOWING

CPI's 17 CLAIM FOR REIMBURSEMENT OF UNDERRECOVERY ARISING FROM SALES TO
NPC.

III

RESPONDENT COMMISSION ERRED IN DENYING CPI's CLAIMS FOR REIMBURSEMENT

ON SALES TO ATLAS AND MARCOPPER.

IV

RESPONDENT COMMISSION ERRED IN PREVENTING CPI FROM EXERCISING ITS LEGAL

RIGHT TO OFFSET ITS REMITTANCES AGAINST ITS REIMBURSEMENT VIS-A-VIS THE
OPSF.

RESPONDENT COMMISSION ERRED IN DISALLOWING CPI's CLAIMS WHICH ARE STILL

PENDING RESOLUTION BY (SIC) THE OEA AND THE DOF.

In the Resolution of 5 April 1990, this Court required the respondents to comment on the petition within ten (10)
days from notice. 18

On 6 September 1990, respondents COA and Commissioners Fernandez and Cruz, assisted by the Office of the
Solicitor General, filed their Comment. 19

This Court resolved to give due course to this petition on 30 May 1991 and required the parties to file their
respective Memoranda within twenty (20) days from notice. 20

In a Manifestation dated 18 July 1991, the Office of the Solicitor General prays that the Comment filed on 6
September 1990 be considered as the Memorandum for respondents. 21

Upon the other hand, petitioner filed its Memorandum on 14 August 1991.

I. Petitioner dwells lengthily on its first assigned error contending, in support thereof, that:

(1) In view of the expanded role of the OPSF pursuant to Executive Order No. 137, which added a second
purpose, to wit:

2) To reimburse the oil companies for possible cost underrecovery incurred as a result of the
reduction of domestic prices of petroleum products. The magnitude of the underrecovery, if any,
shall be determined by the Ministry of Finance. "Cost underrecovery" shall include the following:

i. Reduction in oil company take as directed by the Board of Energy without the
corresponding reduction in the landed cost of oil inventories in the possession of
the oil companies at the time of the price change;

ii. Reduction in internal ad valorem taxes as a result of foregoing government

mandated price reductions;

iii. Other factors as may be determined by the Ministry of Finance to result in cost
underrecovery.
the "other factors" mentioned therein that may be determined by the Ministry (now Department) of Finance may
include financing charges for "in essence, financing charges constitute unrecovered cost of acquisition of crude
oil incurred by the oil companies," as explained in the 6 November 1989 Memorandum to the President of the
Department of Finance; they "directly translate to cost underrecovery in cases where the money market
placement rates decline and at the same time the tax on interest income increases. The relationship is such that
the presence of underrecovery or overrecovery is directly dependent on the amount and extent of financing
charges."

(2) The claim for recovery of financing charges has clear legal and factual basis; it was filed on the basis of
Department of Finance Circular No.
1-87, dated 18 February 1987, which provides:

To allow oil companies to recover the costs of financing working capital associated with crude oil
shipments, the following guidelines on the utilization of the Oil Price Stabilization Fund pertaining
to the payment of the foregoing (sic) exchange risk premium and recovery of financing charges
will be implemented:

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

2. In addition, for shipments loaded after January 1987, oil companies shall be
allowed to recover financing charges directly from the OPSF per barrel of crude oil
based on the following schedule:

Financing
Period
Reimburse
ment Rate
Pesos per
Barrel

Less than 180 days None

180 days to 239 days 1.90
241 (sic) days to 299 4.02
300 days to 369 (sic) days 6.16
360 days or more 8.28

The above rates shall be subject to review every sixty

days. 22

Pursuant to this circular, the Department of Finance, in its letter of 18 February 1987, advised the Office of
Energy Affairs as follows:

HON. VICENTE T. PATERNO

Deputy Executive Secretary
For Energy Affairs
Office of the President
Makati, Metro Manila

Dear Sir:

This refers to the letters of the Oil Industry dated December 4, 1986 and February 5, 1987 and
subsequent discussions held by the Price Review committee on February 6, 1987.
 On the basis of the representations made, the Department of Finance recognizes the necessity to
reduce the foreign exchange risk premium accruing to the Oil Price Stabilization Fund (OPSF).
Such a reduction would allow the industry to recover partly associated financing charges on crude
oil imports. Accordingly, the OPSF foreign exchange risk fee shall be reduced to a flat charge of 1%
for the first six (6) months plus 1/32% of 1% per month thereafter up to a maximum period of one
year, effective January 1, 1987. In addition, since the prevailing company take would still leave
unrecovered financing charges, reimbursement may be secured from the OPSF in accordance
with the provisions of the attached Department of Finance circular. 23

Acting on this letter, the OEA issued on 4 May 1987 Order No. 87-05-096 which contains the guidelines for the
computation of the foreign exchange risk fee and the recovery of financing charges from the OPSF, to wit:

B. FINANCE CHARGES

1. Oil companies shall be allowed to recover financing charges directly from the
OPSF for both crude and product shipments loaded after January 1, 1987 based
on the following rates:

Financing
Period
Reimburse
ment Rate
(PBbl.)

Less than 180 days None

180 days to 239 days 1.90
240 days to 229 (sic) days 4.02
300 days to 359 days 6.16
360 days to more 8.28

2. The above rates shall be subject to review every sixty days. 24

Then on 22 November 1988, the Department of Finance issued Circular No. 4-88 imposing further guidelines on
the recoverability of financing charges, to wit:

Following are the supplemental rules to Department of Finance Circular No. 1-87 dated February
18, 1987 which allowed the recovery of financing charges directly from the Oil Price Stabilization
Fund. (OPSF):

1. The Claim for reimbursement shall be on a per shipment basis.

2. The claim shall be filed with the Office of Energy Affairs together with the claim
on peso cost differential for a particular shipment and duly certified supporting
documents providedfor under Ministry of Finance No. 11-85.

3. The reimbursement shall be on the form of reimbursement certificate (Annex A)

to be issued by the Office of Energy Affairs. The said certificate may be used to
offset against amounts payable to the OPSF. The oil companies may also redeem
said certificates in cash if not utilized, subject to availability of funds. 25

The OEA disseminated this Circular to all oil companies in its Memorandum Circular No. 88-12-017. 26

The COA can neither ignore these issuances nor formulate its own interpretation of the laws in the light of the
determination of executive agencies. The determination by the Department of Finance and the OEA that
financing charges are recoverable from the OPSF is entitled to great weight and consideration. 27 The function of
the COA, particularly in the matter of allowing or disallowing certain expenditures, is limited to the promulgation of
accounting and auditing rules for, among others, the disallowance of irregular, unnecessary, excessive,
extravagant, or unconscionable expenditures, or uses of government funds and properties. 28

(3) Denial of petitioner's claim for reimbursement would be inequitable. Additionally, COA's claim that petitioner is
gaining, instead of losing, from the extension of credit, is belatedly raised and not supported by expert analysis.

In impeaching the validity of petitioner's assertions, the respondents argue that:

1. The Constitution gives the COA discretionary power to disapprove irregular or unnecessary
government expenditures and as the monetary claims of petitioner are not allowed by law, the
COA acted within its jurisdiction in denying them;

2. P.D. No. 1956 and E.O. No. 137 do not allow reimbursement of financing charges from the
OPSF;

3. Under the principle of ejusdem generis, the "other factors" mentioned in the second purpose of
the OPSF pursuant to E.O. No. 137 can only include "factors which are of the same nature or
analogous to those enumerated;"

4. In allowing reimbursement of financing charges from OPSF, Circular No. 1-87 of the
Department of Finance violates P.D. No. 1956 and E.O. No. 137; and

5. Department of Finance rules and regulations implementing P.D. No. 1956 do not likewise allow
reimbursement of financing
charges. 29

We find no merit in the first assigned error.

As to the power of the COA, which must first be resolved in view of its primacy, We find the theory of petitioner ––
that such does not extend to the disallowance of irregular, unnecessary, excessive, extravagant, or
unconscionable expenditures, or use of government funds and properties, but only to the promulgation of
accounting and auditing rules for, among others, such disallowance –– to be untenable in the light of the
provisions of the 1987 Constitution and related laws.

Section 2, Subdivision D, Article IX of the 1987 Constitution expressly provides:

Sec. 2(l). The Commission on Audit shall have the power, authority, and duty to examine, audit,
and settle all accounts pertaining to the revenue and receipts of, and expenditures or uses of
funds and property, owned or held in trust by, or pertaining to, the Government, or any of its
subdivisions, agencies, or instrumentalities, including government-owned and controlled
corporations with original charters, and on a post-audit basis: (a) constitutional bodies,
commissions and offices that have been granted fiscal autonomy under this Constitution; (b)
autonomous state colleges and universities; (c) other government-owned or controlled
corporations and their subsidiaries; and (d) such non-governmental entities receiving subsidy or
equity, directly or indirectly, from or through the government, which are required by law or the
granting institution to submit to such audit as a condition of subsidy or equity. However, where the
internal control system of the audited agencies is inadequate, the Commission may adopt such
measures, including temporary or special pre-audit, as are necessary and appropriate to correct
the deficiencies. It shall keep the general accounts, of the Government and, for such period as
may be provided by law, preserve the vouchers and other supporting papers pertaining thereto.

(2) The Commission shall have exclusive authority, subject to the limitations in this Article, to
define the scope of its audit and examination, establish the techniques and methods required
therefor, and promulgate accounting and auditing rules and regulations, including those for the
prevention and disallowance of irregular, unnecessary, excessive, extravagant, or,
unconscionable expenditures, or uses of government funds and properties.
These present powers, consistent with the declared independence of the Commission, 30 are broader and more
extensive than that conferred by the 1973 Constitution. Under the latter, the Commission was empowered to:

Examine, audit, and settle, in accordance with law and regulations, all accounts pertaining to the
revenues, and receipts of, and expenditures or uses of funds and property, owned or held in trust
by, or pertaining to, the Government, or any of its subdivisions, agencies, or instrumentalities
including government-owned or controlled corporations, keep the general accounts of the
Government and, for such period as may be provided by law, preserve the vouchers pertaining
thereto; and promulgate accounting and auditing rules and regulations including those for the
prevention of irregular, unnecessary, excessive, or extravagant expenditures or uses of funds and
property. 31

Upon the other hand, under the 1935 Constitution, the power and authority of the COA's precursor, the General
Auditing Office, were, unfortunately, limited; its very role was markedly passive. Section 2 of Article XI
thereofprovided:

Sec. 2. The Auditor General shall examine, audit, and settle all accounts pertaining to the
revenues and receipts from whatever source, including trust funds derived from bond issues; and
audit, in accordance with law and administrative regulations, all expenditures of funds or property
pertaining to or held in trust by the Government or the provinces or municipalities thereof. He shall
keep the general accounts of the Government and the preserve the vouchers pertaining thereto. It
shall be the duty of the Auditor General to bring to the attention of the proper administrative officer
expenditures of funds or property which, in his opinion, are irregular, unnecessary, excessive, or
extravagant. He shall also perform such other functions as may be prescribed by law.

As clearly shown above, in respect to irregular, unnecessary, excessive or extravagant expenditures or uses of
funds, the 1935 Constitution did not grant the Auditor General the power to issue rules and regulations to prevent
the same. His was merely to bring that matter to the attention of the proper administrative officer.

The ruling on this particular point, quoted by petitioner from the cases of Guevarra vs. Gimenez 32 and Ramos
vs.Aquino, 33 are no longer controlling as the two (2) were decided in the light of the 1935 Constitution.

There can be no doubt, however, that the audit power of the Auditor General under the 1935 Constitution and the
Commission on Audit under the 1973 Constitution authorized them to disallow illegal expenditures of funds or
uses of funds and property. Our present Constitution retains that same power and authority, further strengthened
by the definition of the COA's general jurisdiction in Section 26 of the Government Auditing Code of the
Philippines 34 and Administrative Code of 1987. 35 Pursuant to its power to promulgate accounting and auditing
rules and regulations for the prevention of irregular, unnecessary, excessive or extravagant expenditures or uses
of funds, 36 the COA promulgated on 29 March 1977 COA Circular No. 77-55. Since the COA is responsible for
the enforcement of the rules and regulations, it goes without saying that failure to comply with them is a ground
for disapproving the payment of the proposed expenditure. As observed by one of the Commissioners of the
1986 Constitutional Commission, Fr. Joaquin G. Bernas: 37

It should be noted, however, that whereas under Article XI, Section 2, of the 1935 Constitution the
Auditor General could not correct "irregular, unnecessary, excessive or extravagant" expenditures
of public funds but could only "bring [the matter] to the attention of the proper administrative
officer," under the 1987 Constitution, as also under the 1973 Constitution, the Commission on
Audit can "promulgate accounting and auditing rules and regulations including those for the
prevention and disallowance of irregular, unnecessary, excessive, extravagant, or unconscionable
expenditures or uses of government funds and properties." Hence, since the Commission on
Audit must ultimately be responsible for the enforcement of these rules and regulations, the failure
to comply with these regulations can be a ground for disapproving the payment of a proposed
expenditure.

Indeed, when the framers of the last two (2) Constitutions conferred upon the COA a more active role and
invested it with broader and more extensive powers, they did not intend merely to make the COA a toothless tiger,
but rather envisioned a dynamic, effective, efficient and independent watchdog of the Government.
The issue of the financing charges boils down to the validity of Department of Finance Circular No. 1-87,
Department of Finance Circular No. 4-88 and the implementing circulars of the OEA, issued pursuant to Section
8, P.D. No. 1956, as amended by E.O. No. 137, authorizing it to determine "other factors" which may result in
cost underrecovery and a consequent reimbursement from the OPSF.

The Solicitor General maintains that, following the doctrine of ejusdem generis, financing charges are not
included in "cost underrecovery" and, therefore, cannot be considered as one of the "other factors." Section 8 of
P.D. No. 1956, as amended by E.O. No. 137, does not explicitly define what "cost underrecovery" is. It merely
states what it includes. Thus:

. . . "Cost underrecovery" shall include the following:

i. Reduction in oil company takes as directed by the Board of Energy without the corresponding
reduction in the landed cost of oil inventories in the possession of the oil companies at the time of
the price change;

ii. Reduction in internal ad valorem taxes as a result of foregoing government mandated price
reductions;

iii. Other factors as may be determined by the Ministry of Finance to result in cost underrecovery.

These "other factors" can include only those which are of the same class or nature as the two specifically
enumerated in subparagraphs (i) and (ii). A common characteristic of both is that they are in the nature of
government mandated price reductions. Hence, any other factor which seeks to be a part of the enumeration, or
which could qualify as a cost underrecovery, must be of the same class or nature as those specifically
enumerated.

Petitioner, however, suggests that E.O. No. 137 intended to grant the Department of Finance broad and
unrestricted authority to determine or define "other factors."

Both views are unacceptable to this Court.

The rule of ejusdem generis states that "[w]here general words follow an enumeration of persons or things, by
words of a particular and specific meaning, such general words are not to be construed in their widest extent, but
are held to be as applying only to persons or things of the same kind or class as those specifically mentioned. 38 A
reading of subparagraphs (i) and (ii) easily discloses that they do not have a common characteristic. The first
relates to price reduction as directed by the Board of Energy while the second refers to reduction in internal ad
valoremtaxes. Therefore, subparagraph (iii) cannot be limited by the enumeration in these subparagraphs. What
should be considered for purposes of determining the "other factors" in subparagraph (iii) is the first sentence of
paragraph (2) of the Section which explicitly allows cost underrecovery only if such were incurred as a result of
the reduction of domestic prices of petroleum products.

Although petitioner's financing losses, if indeed incurred, may constitute cost underrecovery in the sense that
such were incurred as a result of the inability to fully offset financing expenses from yields in money market
placements, they do not, however, fall under the foregoing provision of P.D. No. 1956, as amended, because the
same did not result from the reduction of the domestic price of petroleum products. Until paragraph (2), Section 8
of the decree, as amended, is further amended by Congress, this Court can do nothing. The duty of this Court is
not to legislate, but to apply or interpret the law. Be that as it may, this Court wishes to emphasize that as the
facts in this case have shown, it was at the behest of the Government that petitioner refinanced its oil import
payments from the normal 30-day trade credit to a maximum of 360 days. Petitioner could be correct in its
assertion that owing to the extended period for payment, the financial institution which refinanced said payments
charged a higher interest, thereby resulting in higher financing expenses for the petitioner. It would appear then
that equity considerations dictate that petitioner should somehow be allowed to recover its financing losses, if any,
which may have been sustained because it accommodated the request of the Government. Although under
Section 29 of the National Internal Revenue Code such losses may be deducted from gross income, the effect of
that loss would be merely to reduce its taxable income, but not to actually wipe out such losses. The Government
then may consider some positive measures to help petitioner and others similarly situated to obtain substantial
relief. An amendment, as aforestated, may then be in order.

Upon the other hand, to accept petitioner's theory of "unrestricted authority" on the part of the Department of
Finance to determine or define "other factors" is to uphold an undue delegation of legislative power, it clearly
appearing that the subject provision does not provide any standard for the exercise of the authority. It is a
fundamental rule that delegation of legislative power may be sustained only upon the ground that some standard
for its exercise is provided and that the legislature, in making the delegation, has prescribed the manner of the
exercise of the delegated authority. 39

Finally, whether petitioner gained or lost by reason of the extensive credit is rendered irrelevant by reason of the
foregoing disquisitions. It may nevertheless be stated that petitioner failed to disprove COA's claim that it had in
fact gained in the process. Otherwise stated, petitioner failed to sufficiently show that it incurred a loss. Such
being the case, how can petitioner claim for reimbursement? It cannot have its cake and eat it too.

II. Anent the claims arising from sales to the National Power Corporation, We find for the petitioner. The
respondents themselves admit in their Comment that underrecovery arising from sales to NPC are reimbursable
because NPC was granted full exemption from the payment of taxes; to prove this, respondents trace the laws
providing for such exemption. 40 The last law cited is the Fiscal Incentives Regulatory Board's Resolution No. 17-
87 of 24 June 1987 which provides, in part, "that the tax and duty exemption privileges of the National Power
Corporation, including those pertaining to its domestic purchases of petroleum and petroleum products . . . are
restored effective March 10, 1987." In a Memorandum issued on 5 October 1987 by the Office of the President,
NPC's tax exemption was confirmed and approved.

Furthermore, as pointed out by respondents, the intention to exempt sales of petroleum products to the NPC is
evident in the recently passed Republic Act No. 6952 establishing the Petroleum Price Standby Fund to support
the OPSF. 41 The pertinent part of Section 2, Republic Act No. 6952 provides:

Sec. 2. Application of the Fund shall be subject to the following conditions:

(1) That the Fund shall be used to reimburse the oil companies for (a) cost
increases of imported crude oil and finished petroleum products resulting from
foreign exchange rate adjustments and/or increases in world market prices of
crude oil; (b) cost underrecovery incurred as a result of fuel oil sales to the
National Power Corporation (NPC); and (c) other cost underrecoveries incurred as
may be finally decided by the Supreme
Court; . . .

Hence, petitioner can recover its claim arising from sales of petroleum products to the National Power
Corporation.

III. With respect to its claim for reimbursement on sales to ATLAS and MARCOPPER, petitioner relies on Letter
of Instruction (LOI) 1416, dated 17 July 1984, which ordered the suspension of payments of all taxes, duties, fees
and other charges, whether direct or indirect, due and payable by the copper mining companies in distress to the
national government. Pursuant to this LOI, then Minister of Energy, Hon. Geronimo Velasco, issued
Memorandum Circular No. 84-11-22 advising the oil companies that Atlas Consolidated Mining Corporation and
Marcopper Mining Corporation are among those declared to be in distress.

In denying the claims arising from sales to ATLAS and MARCOPPER, the COA, in its 18 August 1989 letter to
Executive Director Wenceslao R. de la Paz, states that "it is our opinion that LOI 1416 which implements the
exemption from payment of OPSF imposts as effected by OEA has no legal basis;" 42 in its Decision No. 1171, it
ruled that "the CPI (CALTEX) (Caltex) has no authority to claim reimbursement for this uncollected impost
because LOI 1416 dated July 17, 1984, . . . was issued when OPSF was not yet in existence and could not have
contemplated OPSF imposts at the time of its formulation." 43 It is further stated that: "Moreover, it is evident that
OPSF was not created to aid distressed mining companies but rather to help the domestic oil industry by
stabilizing oil prices."
In sustaining COA's stand, respondents vigorously maintain that LOI 1416 could not have intended to exempt
said distressed mining companies from the payment of OPSF dues for the following reasons:

a. LOI 1416 granting the alleged exemption was issued on July 17, 1984. P.D. 1956 creating the
OPSF was promulgated on October 10, 1984, while E.O. 137, amending P.D. 1956, was issued
on February 25, 1987.

b. LOI 1416 was issued in 1984 to assist distressed copper mining companies in line with the
government's effort to prevent the collapse of the copper industry. P.D No. 1956, as amended,
was issued for the purpose of minimizing frequent price changes brought about by exchange rate
adjustments and/or changes in world market prices of crude oil and imported petroleum product's;
and

c. LOI 1416 caused the "suspension of all taxes, duties, fees, imposts and other charges, whether
direct or indirect, due and payable by the copper mining companies in distress to the Notional and
Local Governments . . ." On the other hand, OPSF dues are not payable by (sic) distressed
copper companies but by oil companies. It is to be noted that the copper mining companies do not
pay OPSF dues. Rather, such imposts are built in or already incorporated in the prices of oil
products. 44

Lastly, respondents allege that while LOI 1416 suspends the payment of taxes by distressed mining companies,
it does not accord petitioner the same privilege with respect to its obligation to pay OPSF dues.

We concur with the disquisitions of the respondents. Aside from such reasons, however, it is apparent that LOI
1416 was never published in the Official Gazette 45 as required by Article 2 of the Civil Code, which reads:

Laws shall take effect after fifteen days following the completion of their publication in the Official
Gazette, unless it is otherwise provided. . . .

In applying said provision, this Court ruled in the case of Tañada vs. Tuvera: 46

WHEREFORE, the Court hereby orders respondents to publish in the Official Gazette all
unpublished presidential issuances which are of general application, and unless so published they
shall have no binding force and effect.

Resolving the motion for reconsideration of said decision, this Court, in its Resolution promulgated on 29
December 1986, 47 ruled:

We hold therefore that all statutes, including those of local application and private laws, shall be
published as a condition for their effectivity, which shall begin fifteen days after publication unless
a different effectivity date is fixed by the legislature.

Covered by this rule are presidential decrees and executive orders promulgated by the President
in the exercise of legislative powers whenever the same are validly delegated by the legislature or,
at present, directly conferred by the Constitution. Administrative rules and regulations must also
be published if their purpose is to enforce or implement existing laws pursuant also to a valid
delegation.

xxx xxx xxx

WHEREFORE, it is hereby declared that all laws as above defined shall immediately upon their
approval, or as soon thereafter as possible, be published in full in the Official Gazette, to become
effective only after fifteen days from their publication, or on another date specified by the
legislature, in accordance with Article 2 of the Civil Code.
LOI 1416 has, therefore, no binding force or effect as it was never published in the Official Gazette after its
issuance or at any time after the decision in the abovementioned cases.

Article 2 of the Civil Code was, however, later amended by Executive Order No. 200, issued on 18 June 1987. As
amended, the said provision now reads:

Laws shall take effect after fifteen days following the completion of their publication either in the
Official Gazette or in a newspaper of general circulation in the Philippines, unless it is
otherwise provided.

We are not aware of the publication of LOI 1416 in any newspaper of general circulation pursuant to Executive
Order No. 200.

Furthermore, even granting arguendo that LOI 1416 has force and effect, petitioner's claim must still fail. Tax
exemptions as a general rule are construed strictly against the grantee and liberally in favor of the taxing
authority. 48The burden of proof rests upon the party claiming exemption to prove that it is in fact covered by the
exemption so claimed. The party claiming exemption must therefore be expressly mentioned in the exempting
law or at least be within its purview by clear legislative intent.

In the case at bar, petitioner failed to prove that it is entitled, as a consequence of its sales to ATLAS and
MARCOPPER, to claim reimbursement from the OPSF under LOI 1416. Though LOI 1416 may suspend the
payment of taxes by copper mining companies, it does not give petitioner the same privilege with respect to the
payment of OPSF dues.

IV. As to COA's disallowance of the amount of P130,420,235.00, petitioner maintains that the Department of
Finance has still to issue a final and definitive ruling thereon; accordingly, it was premature for COA to disallow it.
By doing so, the latter acted beyond its jurisdiction. 49 Respondents, on the other hand, contend that said amount
was already disallowed by the OEA for failure to substantiate it. 50 In fact, when OEA submitted the claims of
petitioner for pre-audit, the abovementioned amount was already excluded.

An examination of the records of this case shows that petitioner failed to prove or substantiate its contention that
the amount of P130,420,235.00 is still pending before the OEA and the DOF. Additionally, We find no reason to
doubt the submission of respondents that said amount has already been passed upon by the OEA. Hence, the
ruling of respondent COA disapproving said claim must be upheld.

V. The last issue to be resolved in this case is whether or not the amounts due to the OPSF from petitioner may
be offset against petitioner's outstanding claims from said fund. Petitioner contends that it should be allowed to
offset its claims from the OPSF against its contributions to the fund as this has been allowed in the past,
particularly in the years 1987 and 1988. 51

Furthermore, petitioner cites, as bases for offsetting, the provisions of the New Civil Code on compensation and
Section 21, Book V, Title I-B of the Revised Administrative Code which provides for "Retention of Money for
Satisfaction of Indebtedness to Government." 52 Petitioner also mentions communications from the Board of
Energy and the Department of Finance that supposedly authorize compensation.

Respondents, on the other hand, citing Francia vs. IAC and Fernandez, 53 contend that there can be no offsetting
of taxes against the claims that a taxpayer may have against the government, as taxes do not arise from
contracts or depend upon the will of the taxpayer, but are imposed by law. Respondents also allege that
petitioner's reliance on Section 21, Book V, Title I-B of the Revised Administrative Code, is misplaced because
"while this provision empowers the COA to withhold payment of a government indebtedness to a person who is
also indebted to the government and apply the government indebtedness to the satisfaction of the obligation of
the person to the government, like authority or right to make compensation is not given to the private
person." 54 The reason for this, as stated in Commissioner of Internal Revenue vs. Algue, Inc., 55 is that money due
the government, either in the form of taxes or other dues, is its lifeblood and should be collected without
hindrance. Thus, instead of giving petitioner a reason for compensation or set-off, the Revised Administrative
Code makes it the respondents' duty to collect petitioner's indebtedness to the OPSF.
Refuting respondents' contention, petitioner claims that the amounts due from it do not arise as a result of
taxation because "P.D. 1956, amended, did not create a source of taxation; it instead established a special
fund . . .," 56 and that the OPSF contributions do not go to the general fund of the state and are not used for public
purpose, i.e., not for the support of the government, the administration of law, or the payment of public expenses.
This alleged lack of a public purpose behind OPSF exactions distinguishes such from a tax. Hence, the ruling in
the Francia case is inapplicable.

Lastly, petitioner cites R.A. No. 6952 creating the Petroleum Price Standby Fund to support the OPSF; the said
law provides in part that:

Sec. 2. Application of the fund shall be subject to the following conditions:

xxx xxx xxx

(3) That no amount of the Petroleum Price Standby Fund shall be used to pay any
oil company which has an outstanding obligation to the Government without said
obligation being offset first, subject to the requirements of compensation or offset
under the Civil Code.

We find no merit in petitioner's contention that the OPSF contributions are not for a public purpose because they
go to a special fund of the government. Taxation is no longer envisioned as a measure merely to raise revenue to
support the existence of the government; taxes may be levied with a regulatory purpose to provide means for the
rehabilitation and stabilization of a threatened industry which is affected with public interest as to be within the
police power of the state. 57 There can be no doubt that the oil industry is greatly imbued with public interest as it
vitally affects the general welfare. Any unregulated increase in oil prices could hurt the lives of a majority of the
people and cause economic crisis of untold proportions. It would have a chain reaction in terms of, among others,
demands for wage increases and upward spiralling of the cost of basic commodities. The stabilization then of oil
prices is of prime concern which the state, via its police power, may properly address.

Also, P.D. No. 1956, as amended by E.O. No. 137, explicitly provides that the source of OPSF is taxation. No
amount of semantical juggleries could dim this fact.

It is settled that a taxpayer may not offset taxes due from the claims that he may have against the
government. 58Taxes cannot be the subject of compensation because the government and taxpayer are not
mutually creditors and debtors of each other and a claim for taxes is not such a debt, demand, contract or
judgment as is allowed to be set-off. 59

We may even further state that technically, in respect to the taxes for the OPSF, the oil companies merely act as
agents for the Government in the latter's collection since the taxes are, in reality, passed unto the end-users ––
the consuming public. In that capacity, the petitioner, as one of such companies, has the primary obligation to
account for and remit the taxes collected to the administrator of the OPSF. This duty stems from the fiduciary
relationship between the two; petitioner certainly cannot be considered merely as a debtor. In respect, therefore,
to its collection for the OPSF vis-a-vis its claims for reimbursement, no compensation is likewise legally feasible.
Firstly, the Government and the petitioner cannot be said to be mutually debtors and creditors of each other.
Secondly, there is no proof that petitioner's claim is already due and liquidated. Under Article 1279 of the Civil
Code, in order that compensation may be proper, it is necessary that:

(1) each one of the obligors be bound principally, and that he be at the same time a principal
creditor of the other;

(2) both debts consist in a sum of :money, or if the things due are consumable, they be of the
same kind, and also of the same quality if the latter has been stated;

(3) the two (2) debts be due;

(4) they be liquidated and demandable;

 (5) over neither of them there be any retention or controversy, commenced by third persons and
communicated in due time to the debtor.

That compensation had been the practice in the past can set no valid precedent. Such a practice has no legal
basis. Lastly, R.A. No. 6952 does not authorize oil companies to offset their claims against their OPSF
contributions. Instead, it prohibits the government from paying any amount from the Petroleum Price Standby
Fund to oil companies which have outstanding obligations with the government, without said obligation being
offset first subject to the rules on compensation in the Civil Code.

WHEREFORE, in view of the foregoing, judgment is hereby rendered AFFIRMING the challenged decision of the
Commission on Audit, except that portion thereof disallowing petitioner's claim for reimbursement of
underrecovery arising from sales to the National Power Corporation, which is hereby allowed.

With costs against petitioner.

SO ORDERED.
 [G.R. No. 135639. February 27, 2002]

TERMINAL FACILITIES AND SERVICES CORPORATION, petitioner, vs.

PHILIPPINE PORTS AUTHORITY and PORT MANAGER, and PORT
DISTRICT OFFICER OF DAVAO CITY, respondents.

[G.R. No. 135826. February 27, 2002]

PHILIPPINE PORTS AUTHORITY and PORT MANAGER, and PORT DISTRICT

OFFICER OF DAVAO CITY, petitioners, vs. TERMINAL FACILITIES AND
SERVICES CORPORATION, respondent.

DECISION
DE LEON, JR., J.:

Before us are two (2) consolidated petitions for review, one filed by the Terminal
Facilities and Services Corporation (TEFASCO) (G.R. No. 135639) and the other by the
Philippine Ports Authority (PPA) (G.R. No. 135826), of the Amended
Decision dated September 30, 1998 of the former Special Second Division of the Court
[1]

of Appeals in CA-G.R. CV No. 47318 ordering the PPA to pay TEFASCO: (1) Fifteen
Million Eight Hundred Ten Thousand Thirty-Two Pesos and Seven Centavos
(P15,810,032.07) representing fifty percent (50%) wharfage dues and Three Million
Nine Hundred Sixty-One Thousand Nine Hundred Sixty-Four Pesos and Six Centavos
(P3,961,964.06) representing thirty percent (30%) berthing fees from 1977 to 1991,
which amounts TEFASCO could have earned had not PPA illegally imposed one
hundred percent (100%) wharfage and berthing fees, and (2) the sum of Five Hundred
Thousand Pesos (P500,000.00) as attorneys fees. No pronouncement was made as to
costs of suit.
In G.R. No. 135639 TEFASCO assails the declaration of validity of the government
share and prays for reinstatement in toto of the decision of the trial court. In G.R. No.
135826 PPA impugns the Amended Decision for awarding the said two (2) amounts for
loss of private port usage fees as actual damages, plus attorney's fees.
TEFASCO is a domestic corporation organized and existing under the laws of
the Philippines with principal place of business at Barrio Ilang, Davao City. It is engaged
in the business of providing port and terminal facilities as well as arrastre, stevedoring
and other port-related services at its own private port at Barrio Ilang.
Sometime in 1975 TEFASCO submitted to PPA a proposal for the construction of a
specialized terminal complex with port facilities and a provision for port services
in Davao City. To ease the acute congestion in the government ports at Sasa and Sta.
Ana, Davao City, PPA welcomed the proposal and organized an inter-agency committee
to study the plan. The committee recommended approval thereof and its report stated
that -

TEFASCO Terminal is a specialized terminal complex. The specialized matters intended to be

captured are: (a) bananas in consideration of the rate of spoilage; (b) sugar; (c) fertilizers; (d)
specialized movement of beer in pallets containerized handling lumber and plywood.

3.2 Limitations of the government facilities -

The government port facilities are good for general cargoes only. Both ports are not equipped to
handle specialized cargoes like bananas and container cargoes. Besides the present capacity, as
well as the planned improvements, cannot cope with the increasing volume of traffic in the area.
Participation of the private sector, therefore, involving private financing should be encouraged in
the area.

3.3 Project Viability -

3.3.1 Technical Aspect - From the port operations point of view, the project is technically
feasible. It is within a well-protected harbor and it has a sufficient depth of water for berthing the
ships it will service. The lack of back up area can be supplied by the 21-hectare industrial land
which will be established out of the hilly land area which is to be scrapped and leveled to be used
to fill the area for reclamation.

3.3.2 Economic Aspect - The international port of Sasa and the domestic port of Sta. Ana are
general cargo type ports. They are facing serious ship and cargo congestion problems brought
about mainly by the faster growth of shipping industry than the development of the ports. They
do not possess the special cargo handling facilities which TFSC plans to put up at the proposed
terminal.

xxx The proposed project expects to get a 31% market slice. It will service domestic and foreign
vessels. Main products to be handled initially will be bananas in the export trade and beer in the
domestic traffic. Banana exporters in Davao, like Stanfilco and Philippine Packing Corporation
have signified their intentions to use the port. Negotiations between TFSC and banana exporters
on whether the former or the latter should purchase the mechanical loading equipment have not
yet been formed up xxx.

Easing the problems at these two ports would result in savings on cost of the operation as cargo
storage and on damages and losses. It would also give relief to passengers from time-delay,
inconvenience and exposure to hazards in commuting between the pier and ship at anchor.

Furthermore, it would redound to better utilization of the government piers, therefore greater
revenue from port operations.
At the bigger scale, more economic benefits in terms of more employment, greater productivity,
increased per capita income in the Davao region, and in light of the limited financial resources of
the government for port development the TFSC proposal would be beneficial to the country.

On April 21, 1976 the PPA Board of Directors passed Resolution No. 7 accepting
and approving TEFASCO's project proposal. PPA resolved to -

xxx [a]pprove, xxx the project proposal of the Terminal Facilities and Services Corporation, Inc.
for the construction of specialized port facilities and provision of port services in Davao City,
subject to the terms and conditions set forth in the report of the Technical Committee created by
the Board in its meeting of January 30, 1975, and to the usual government rules and regulations.

PPA relayed its acceptance of the project terms and conditions to TEFASCO in the
letter dated May 7, 1976 of Acting General Manager Mariano Nicanor which affirmed
[2]

that -

We are pleased to inform you that the Board of Directors, Philippine Ports Authority, approved
the project proposal of the Terminal Facilities and Services Corporation to construct a
specialized port facilities and provision of port services in Davao City as follows:

1) Docking Facilities for Ocean Going and Interisland vessels with containerized cargo.

2) Stevedoring and Arrastre for above.

3) Warehousing;

4) Container yard and warehouse for containerizing cargoes or breaking up cargoes for
containers.

5) Bulk handling and silos for corn, in cooperation with the NGA.

6) Bulk handling for fertilizer.

7) Bulk handling or conveyor system for banana exports.

8) Bulk handling for sugar.

9) Bonded warehousing.

The approval is subject to the terms and conditions set forth at enclosure.

You are hereby authorized to start work immediately taking into account national and local laws
and regulations pertaining to the project construction and operation.

The enclosure referred to in the letter above-quoted stipulated the "Terms and
Conditions of PPA Board Approval of the Project Proposal," particularly -
[3]
 (1) That all fees and/or permits pertinent to the construction and operation of the
proposed project shall be paid to and/or secured from the proper authorities.

(2) That the plans shall not be altered without the prior approval of the Bureau of Public
Works in coordination with the PPA.

(3) That [any] damage to public and private property arising from the construction and
operation of the project shall be the sole responsibility of the applicant-company.

(4) That the Director of Public Works shall be notified five (5) days before the start
of the construction works and that the Director of Public Works or his representative
shall be authorized to inspect the works and premises while the work is in progress
and even after the completion thereof.

(5) That the applicant shall construct and complete the structure under the proposed
project within eighteen (18) months after the approval of the permit, otherwise the
permit shall be null and void.

(6) That the facility shall handle general cargoes that are loaded as filler cargoes on
bulk/container ships calling at the facility.

(7) That the applicant shall build up its banana export traffic to replace the probable loss
of its container traffic five (5) years from now because of the plan of PPA to put up
a common user type container terminal at the port of Sasa.

(8) That all charges payable to the Bureau of Customs will continue to apply upon take
over of port operations by the PPA of the Port of Davao from the Bureau of Customs
and direct control and regulations of operations of private port facilities in the
general area of that port.

Under the foregoing terms and conditions, TEFASCO contracted dollar loans from
private commercial institutions abroad to construct its specialized terminal complex with
port facilities and thereafter poured millions worth of investments in the process of
building the port. Long after TEFASCO broke ground with massive infrastructurework,
the PPA Board curiously passed on October 1, 1976 Resolution No. 50 under which
TEFASCO, without asking for one, was compelled to submit an application for
construction permit. Without the consent of TEFASCO, the application imposed
additional significant conditions -

(1) This Permit to Construct (PTC) will entitle the applicant to operate the facility for a period of
fifteen (15) years, without jeopardy to negotiation for a renewal for a period not exceeding ten
(10) years. At the expiration of the permit, all improvements shall automatically become the
property of the Authority. Thereafter, any interested party, including the applicant, may lease it
under new conditions; (2) In the event that the Foreshore Lease Application expires or is
disapproved/canceled, this permit shall also be rendered null and void; xxx (7) All other fees
and/or permits pertinent to the construction and operation of the proposed project shall be paid to
and/or secured from the proper authorities; xxx (9) Unless specifically authorized, no general
cargo shall be handled through the facility; (10) All rates and charges to be derived from the use
of said facility or facilities shall be approved by the Authority; xxx (12) An application fee in the
amount of one-tenth or one percent of the total estimated cost of the proposed
improvement/structure shall be paid upon advice; (13) Other requirements of the law shall be
complied by the applicant.

NOTE: Subject further to the terms and conditions as approved by PPA Board under Resolution
No. 7 of 21 April 1976, except that PPA shall take over the role of the Bureau of Public Works
and of the Bureau of Customs stipulated in the said approval.

TEFASCO played along with this needless exercise as PPA approved the awkward
application in a letter stating -

We are returning herewith your application for Permit to Construct No. 77-19 dated 18 October
1977, duly approved (validation of the original permit to construct approved by the PPA Board
under Resolution No. 7 of 21 April 1976), for the construction of your port facilities in Bo.
Ilang, Davao City, subject to the conditions stipulated under the approved permit and in
accordance with the attached approved set of plans and working drawings.

It is understood that this permit is still subject to the terms and conditions under the original
permit except that this Authority takes over the role of the Bureau of Public Works and of the
Bureau of Customs as stipulated thereon.

The series of PPA impositions did not stop there. Two (2) years after the completion
of the port facilities and the commencement of TEFASCO's port operations, or on June
10, 1978, PPA again issued to TEFASCO another permit, designated as Special Permit
No. CO/CO-1-067802, under which more onerous conditions were foisted on
TEFASCOs port operations. In the purported permit appeared for the first time the
[4]

contentious provisions for ten percent (10%) government share out of arrastre and
stevedoring gross income and one hundred percent (100%) wharfage and berthing
charges, thus -

Pursuant to the provisions of Presidential Decree No. 857, otherwise known as the Revised
Charter of the Philippine Ports Authority, and upon due consideration of the formal written
application and its enclosures in accordance with PPA Memorandum Order No. 21 dated May 27,
1977, PPA Administrative Order No. 22-77 dated December 9, 1977, and other pertinent policies
and guidelines, a Special Permit is hereby granted to TERMINAL FACILITIES AND
SERVICES CORPORATION (TEFASCO), with address at Slip 3, Pier 4, North Harbor, Manila
to provide its arrastre/stevedoring services at its own private wharf located at Barrio Ilang, Davao
City, subject to the following conditions:

xxx xxx xxx

2. Grantee shall render arrastre/stevedoring services on cargoes of vessels under the

agency of Retla Shipping/Transcoastal Shipping, Solid Shipping, Sea Transport and
 other commercial vessels which cannot be accommodated in government piers at
PMU-Davao due to port congestion which shall be determined by the Port
Manager/Harbor Master/Port Operations Officer whose decision shall be conclusive;

3. Grantee shall promptly submit its latest certified financial statement and all statistical
and other data required by the Authority from time to time;

4. Grantee shall strictly comply with all applicable PPA rules and regulations now in
force or to be promulgated hereafter and other pertinent rules and regulations
promulgated by other agency of the government and other applicable laws, orders
or decrees;

5. Grantee shall remit to the government an amount equivalent to ten (10%) percentum
of the handling rates chargeable on similar cargo in government piers/wharves
within the jurisdiction of PMU-Davao on or before the 5th working day of every
month provided, however, that in case of delay, grantee shall pay a penalty of one
(1%) percentum of the accumulated total amount due for every day of delay;
provided, further, that said rate shall be reasonably adjusted if and when warranted
by the financial conditions of the Grantee;

6. Grantee shall settle with the Authority its back accounts on the 10% government share
from the start of its arrastre/stevedoring operation plus 6% legal interest per annum
as provided by law;

7. That cargoes and vessels diverted to TEFASCO wharf shall be subject to 100%
wharfage and berthing charges respectively;

8. Grantee shall hold the Authority free from any liability arising out of the maintenance
and operation thereof;

9. Grantee shall not in any manner pose a competition with any port or port facility
owned by the government. Rates of charges shall in no case be lower than those
prevailing at the Government Port of Davao.

xxx xxx xxx

This Special Permit is non-transferable and shall remain valid from the date of issuance hereof
until December 31, 1978; provided, however, that at any time prior to the expiration thereof, the
same may be revoked for violation of any of the conditions herein set forth or for cause at the
discretion of the PPA General Manager or his duly authorized representative.

Subsequent exactions of PPA included: (a) Admin. Order 09-81, s. 1981, notifying [5]

all arrastre and stevedoring operators, whether they do business in government owned
port facilities, that special services income be subjected to "government share"
equivalent to ten percent (10%) thereof; and, (b) Memo. Circ. 36-82, s. 1982, mandating [6]

an assessment of one hundred percent (100%) wharfage dues on commercial and third-
party cargoes regardless of extent of use of private port facilities and one hundred
percent (100%) berthing charges on every foreign vessel docking at private wharves
loading or discharging commercial or third-party cargoes. TEFASCO repeatedly asked
PPA for extensions to pay these additional obligations and for reduction in the rates. But
the PPA's response was final and non-negotiable statements of arrears and current
accounts and threats of business closure in case of failure to pay them. The trial court
[7]

summed up the documentary evidence on this point -

xxx [w]hen TEFASCO requested for the structuring of its account of P3.5 million, resulting to a
memorandum, issued by PPA General Manager to its internal control, to verify the specific
assessment of TEFASCO, coming out in the specific amount of P3,143,425.67 which became a
subject of TEFASCO various and series of letters-protest to PPA, for reconsideration of its
ultimatum, to enforce TEFASCOs back account, dated June 1, 1983, marked Exh. 32 for
defendant, after a series of letters for reconsideration of TEFASCO and reply of PPA, marked
Exh. 26 to 31 for the defendants, an ultimatum letter of PPA was issued followed by another
series of letters of protest, reconsideration and petition of TEFASCO and reply of PPA,
correspondingly marked Exh. 40 51 for the defendants, until ultimately, the execution of a
memorandum of agreement, marked Exh. 52 for the defendant, dated February 10, 1984.

Most alarming was the receipt of defendants communication by TEFASCO, in its letter
dated June 1, 1983, a cease and desist order of PPA for TEFASCO, to stop its commercial port
operation xxx.[8]

On February 10, 1984 TEFASCO and PPA executed a Memorandum of

Agreement (MOA) providing among others for (a) acknowledgment of TEFASCO's
arrears in government share at Three Million Eight Hundred Seven Thousand Five
Hundred Sixty-Three Pesos and Seventy-Five Centavos (P3,807,563.75) payable
monthly, with default penalized by automatic withdrawal of its commercial private port
permit and permit to operate cargo handling services; (b) reduction of government share
from ten percent (10%) to six percent (6%) on all cargo handling and related revenue (or
arrastre and stevedoring gross income); (c) opening of its pier facilities to all commercial
and third-party cargoes and vessels for a period coterminous with its foreshore lease
contract with the National Government; and, (d) tenure of five (5) years extendible by
five (5) more years for TEFASCO's permit to operate cargo handling in its private port
facilities. In return PPA promised to issue the necessary permits for TEFASCOs port
activities. TEFASCO complied with the MOA and paid the accrued and current
government share. [9]

On August 30, 1988 TEFASCO sued PPA and PPA Port Manager, and Port Officer
in Davao City for refund of government share it had paid and for damages as a result of
alleged illegal exaction from its clients of one hundred percent (100%) berthing and
wharfage fees. The complaint also sought to nullify the February 10, 1984MOA and all
other PPA issuances modifying the terms and conditions of the April 21,
1976 Resolution No. 7 above-mentioned. [10]
 The RTC, Branch 17, Davao City, in its decision dated July 15, 1992 in Civil Case
No. 19216-88, ruled for TEFASCO, (a) nullifying the MOA and all PPA issuances
imposing government share and one hundred percent (100%) berthing and wharfage
fees or otherwise modifying PPA Resolution No. 7, and, (b) awarding Five Million
Ninety-Five Thousand Thirty Pesos and Seventeen Centavos (P5,095,030.17) for
reimbursement of government share and Three Million Nine Hundred Sixty-One
Thousand Nine Hundred Sixty-Four Pesos and Six Centavos (P3,961,964.06) for thirty
percent (30%) berthing charges and Fifteen Million Eight Hundred Ten Thousand Thirty-
Two Pesos and Seven Centavos (P15,810,032.07) for fifty percent (50%) wharfage fees
which TEFASCO could have earned as private port usage fee from 1977 to 1991 had
PPA not collected one hundred percent (100%) of these fees; Two Hundred Forty-Eight
Thousand Seven Hundred Twenty-Seven Pesos (P248,727.00) for dredging and
blasting expenses; One Million Pesos (P1,000,000.00) in damages for blatant violation
of PPA Resolution No. 7; and, Five Hundred Thousand Pesos (P500,000.00) for
attorneys fees, with twelve percent (12%) interest per annum on the total amount
awarded. [11]

PPA appealed the decision of the trial court to the Court of Appeals. The appellate
court in its original decision recognized the validity of the impositions and reversed in
toto the decision of the trial court. TEFASCO moved for reconsideration which the
[12]

Court of Appeals found partly meritorious. Thus the Court of Appeals in its Amended
Decision partially affirmed the RTC decision only in the sense that PPA was directed to
pay TEFASCO (1) the amounts of Fifteen Million Eight Hundred Ten Thousand Thirty-
Two Pesos and Seven Centavos (P15,810,032.07) representing fifty percent (50%)
wharfage fees and Three Million Nine Hundred Sixty-One Thousand Nine Hundred
Sixty-Four Pesos and Six Centavos (P3,961,964.06) representing thirty percent (30%)
berthing fees which TEFASCO could have earned as private port usage fee from 1977
to 1991 had PPA not illegally imposed and collected one hundred percent (100%)
of wharfage and berthing fees and (2) Five Hundred Thousand Pesos (P500,000.00) for
attorneys fees. The Court of Appeals held that the one hundred percent (100%) berthing
and wharfage fees were unenforceable because they had not been approved by the
President under Secs. 19 and 20, P.D. No. 857, and discriminatory since much lower
rates were charged in other private ports as shown by PPA issuances effective 1995 to
1997. Both PPA and TEFASCO were unsatisfied with this disposition hence these
petitions.
In G.R. No. 135639 TEFASCO prays to reinstate in toto the decision of the trial
court. Its grounds are: (a) PPA Resolution No. 7 and the terms and conditions
thereunder constitute a contract that PPA could not change at will; (b) the MOA between
PPA and TEFASCO indicating the schedule of TEFASCO arrears and reducing the rate
of government share is void for absence of consideration; and, (c) government share is
neither authorized by PPA Resolution No. 7 nor by any law, and in fact, impairs the
obligation of contracts.
In G.R. No. 135826 PPA seeks to set aside the award of actual damages for
wharfage and berthing fees and for attorneys fees. PPA anchors its arguments on the
following: (a) that its collection of one hundred percent (100%) wharfage and berthing
fees is authorized by Secs. 6 (b, ix) and 39 (a), P.D. No. 857, under which the
imposable rates for such fees are within the sole power and authority of PPA; (b) that
absence of evidentiary relevance of PPA issuances effective 1995 to 1997 reducing
wharfage, berthing and port usage fees in private ports; (c) that TEFASCO's lack of
standing to claim alleged overpayments of wharfage and berthing fees; and, (d) that
lack of legal basis for the award of fifty percent (50%) wharfage and thirty percent (30%)
berthing fees as actual damages in favor of TEFASCO for the period from 1977 to 1991,
and for attorneys fees.
In a nutshell, the issues in the two (2) consolidated petitions are centered on: (a) the
character of the obligations between TEFASCO and PPA; (b) the validity of the
collection by PPA of one hundred percent (100%) wharfage fees and berthing charges;
(c) the propriety of the award of fifty percent (50%) wharfage fees and thirty percent
(30%) berthing charges as actual damages in favor of TEFASCO for the period from
1977 to 1991; (d) the legality of the imposed government share and the MOA stipulating
a schedule of TEFASCO's arrears for and imposing a reduced rate of government share;
and, (e) the propriety of the award of attorneys fees and damages.
Firstly, it was not a mere privilege that PPA bestowed upon TEFASCO to construct a
specialized terminal complex with port facilities and provide port services in Davao City
under PPA Resolution No. 7 and the terms and conditions thereof. Rather, the
arrangement was envisioned to be mutually beneficial, on one hand, to obtain business
opportunities for TEFASCO, and on the other, enhance PPA's services -

The international port of Sasa and the domestic port of Sta. Ana are general cargo type
ports. They are facing serious ship and cargo congestion problems brought about mainly by the
faster growth of shipping industry than the development of the ports. They do not possess the
special cargo handling facilities which TFSC plans to put up at the proposed terminal.
[13]

It is true that under P.D. No. 857 (1975) as amended, the construction and
[14]

operation of ports are subject to licensing regulations of the PPA as public

utility. However, the instant case did not arise out of pure beneficence on the part of the
[15]

government where TEFASCO would be compelled to pay ordinary license and permit
fees. TEFASCO accepted and performed definite obligations requiring big
investments that made up the valuable consideration of the project. The inter-agency
committee report that recommended approval of TEFASCO port construction and
operation estimated investments at Sixteen Million Pesos (P16,000,000.00) (1975/1976
price levels) disbursed within a construction period of one year and covered by foreign
[16]

loans of Two Million Four Hundred Thirty-Four Thousand US Dollars (US$2,434,000.00)

with interests of up to Ten Million Nine Hundred Sixty-Five Thousand Four Hundred
Sixty-Five Pesos (P10,965,465.00) for the years 1979 to 1985. In 1987 the total
[17]

investment of TEFASCO in the project was valued at One Hundred Fifty-Six Million Two
Hundred Fifty-One Thousand Seven Hundred Ninety-Eight Pesos
(P156,251,798.00). The inter-agency committee report also listed the costly facilities
[18]

TEFASCO would build, and which in fact it has already built -

xxx The terminal complex will provide specialized mechanical cargo handling facilities for
bananas, sugar, beer, grain and fertilizer, and containerized cargo operations. The marginal wharf
could accommodate two ocean-going ships and one inter-island vessel at a time. The essential
structures and facilities to be provided are: (1) 400-meter concrete wharf; (2) Back-up area (3.8
hectare reclaimed area plus a 21-hectare inland industrial zone); (3) Two warehouses with total
floor area of 5,000 sq. meters; (4) mechanized banana loading equipment; (5) container yard. [19]

With such considerable amount of money spent in reliance upon the promises of
PPA under Resolution No. 7 and the terms and conditions thereof, the authorization for
TEFASCO to build and operate the specialized terminal complex with port facilities
assumed the character of a truly binding contract between the grantor and the
grantee. It was a two-way advantage for both TEFASCO and PPA, that is, the
[20]

business opportunities for the former and the decongestion of port traffic
in Davao City for the latter, which is also the cause of consideration for the existence of
the contract. The cases of Ramos v. Central Bank of
the Philippines and Commissioner of Customs v. Auyong Hian are deemed
[21] [22]

precedents. In Ramos, the Central Bank (CB) committed itself to support the Overseas
Bank of Manila (OBM) and avoid its liquidation in exchange for the execution of a voting
trust agreement turning over the management of OBM to CB and a mortgage of its
properties to CB to cover OBMs overdraft balance. This agreement was reached in CBs
capacity as the regulatory agency of banking operations. After OBM accepted and
performed in good faith its obligations, we deemed as perfected contract the relation
between CB and OBM from which CB could not retreat and in the end prejudice OBM
and its depositors and creditors -

Bearing in mind that the communications, xxx as well as the voting trust agreement xxx had been
prepared by the CB, and the well-known rule that ambiguities therein are to be construed against
the party that caused them, the record becomes clear that, in consideration of the execution of the
voting trust agreement by the petitioner stockholders of OBM, and of the mortgage or
assignment of their personal properties to the CB, xxx the CB had agreed to announce its
readiness to support the new management in order to allay the fears of depositors and creditors
xxx and to stave off liquidation by providing adequate funds for the rehabilitation, normalization
and stabilization of the OBM, in a manner similar to what the CB had previously done with the
Republic Bank xxx. While no express terms in the documents refer to the provision of funds by
CB for the purpose, the same is necessarily implied, for in no other way could it rehabilitate,
normalize and stabilize a distressed bank. xxx

The deception practiced by the Central Bank, not only on petitioners but on its own management
team, was in violation of Articles 1159 and 1315 of the Civil Code of the Philippines:

Art. 1159. Obligations arising from contracts have the force of law between the contracting
parties and should be complied with in good faith.

Art. 1315. Contracts are perfected by mere consent, and from that moment the parties are bound
not only to the fulfillment of what has been expressly stipulated but also to all the consequences
which, according to their nature, may be in keeping with good faith, usage and law. [23]
 Auyong Hian involved an importation of old newspapers in four (4) shipments under
a "no-dollar" arrangement pursuant to a license issued by the Import Control
Commission. When the last shipment arrived in Manila, the customs authorities seized
the importation on the ground that it was made without the license required by Central
Bank Circular No. 45. While the seizure proceedings were pending before the Collector
of Customs, the President of the Philippines through its Cabinet canceled the aforesaid
license for the reason that it was illegally issued "in that no fixed date of expiration is
stipulated." On review, this Court held -

xxx [W]hile the Cabinet, acting for the President, can pass on the validity of a license issued by
the Import Control Commission, that power cannot be arbitrarily exercised. The action must be
founded on good ground or reason and must not be capricious or whimsical. This principle is so
clear to require further elaboration.

xxx In fact, if the cancellation were to prevail, the importer would stand to lose the license fee he
paid amounting to P12,000.00, plus the value of the shipment amounting to P21,820.00. This is
grossly inequitable. Moreover, "it has been held in a great number of cases that a permit or
license may not arbitrarily be revoked xxx where, on the faith of it, the owner has incurred
material expense."

It has also been held that where the licensee has acted under the license in good faith, and has
incurred expense in the execution of it, by making valuable improvements or otherwise, it is
regarded in equity as an executed contract and substantially an easement, the revocation of which
would be a fraud on the licensee, and therefore the licensor is estopped to revoke it xxx It has
also been held that the license cannot be revoked without reimbursing the licensee for his
expenditures or otherwise placing him in status quo. [24]

For a regulatory permit to be impressed with contractual character we held

in Batchelder v. Central Bank that the administrative agency in issuing the permit must
[25]

have assumed such obligation on itself. The facts certainly bear out the conclusion that
PPA passed Resolution No. 7 and the terms and conditions thereof with a view to
decongesting port traffic in government ports in Davao City and engaging TEFASCO to
infuse its own funds and skills to operate another port therein. As acceptance of these
considerations and execution thereof immediately followed, it is too late for PPA to
change the rules of engagement with TEFASCO as expressed in the said Resolution
and other relevant documents.
The terms and conditions binding TEFASCO are only those enumerated or
mentioned in the inter-agency committee report, PPA Resolution No. 7 and PPA letter
datedMay 7, 1976 and its enclosure. With due consideration for the policy that laws of
the land are written into every contract, the said documents stand to be the only
[26]

source of obligations between the parties. That being the case, it was arbitrary,
unreasonable and unfair for PPA to add new burdens and uncertainties into their
agreement of which TEFASCO had no prior knowledge even in the context of regulation.
Lowell v. Archambault is persuasive on this issue. In that case, the defendant was
[27]

engaged in the business of an undertaker who wanted to erect on his land a stable to be
used in connection therewith. He then applied to the board of health for a license to
permit him to occupy and use the building when completed for the stabling of eight (8)
horses. His application was granted and a license was issued to him permitting the
exercise of this privilege. Upon receiving it, he at once had plans prepared and began
the erection of a stable on a site from which he had, at a pecuniary loss, removed
another building. After the work had begun but before its completion, the board of health
acting on a petition of residents in the immediate vicinity rescinded their former vote and
canceled the license. The court held -

xxxUpon application for permission to erect a stable, which, in the absence of a restricting statute,
would be a legitimate improvement in the enjoyment of his property, the applicant is entitled to
know the full measure of immunity that can be granted to him before making the expenditure of
money required to carry out his purpose. A resort to the general laws relating to the subject, or to
ordinances or regulations made pursuant to them, should furnish him with the required
information. When this has been obtained, he has a right to infer that he can safely act, with the
assurance that, so long as he complies with the requirements under which it is proposed to grant
the privilege, he has a constitutional claim to protection, until the legislature further restricts or
entirely abolishes the right bestowed. A license should not be subjected to the uncertainties that
constantly would arise if unauthorized limitations, of which he can have no knowledge, are
subsequently and without notice to be read into his license, at the pleasure of the licensing
board. Besides, all reasonable police regulations enacted for the preservation of the public health
or morality, where a penalty is provided for their violation, while they may limit or prevent the
use or enjoyment of property except under certain restrictions, and are constitutional, create
statutory misdemeanors, which are not to be extended by implication. xxx. It was not within the
power of the board of health, even after a hearing, in the absence of an authority conferred upon
them by legislative sanction, to deprive him of the privilege they had unreservedly granted. [28]

The record shows that PPA made express representations to TEFASCO that it
would authorize and support its port project under clear and categorical terms and
conditions of an envisioned contract. TEFASCO complied with its obligation which
ultimately resulted to the benefit of PPA. And the PPA accepted the project as
completed and authorized TEFASCO to operate the same. Under these circumstances,
PPA is estopped from reneging on its commitments and covenants as exclusively
contained in the inter-agency committee report, PPA Resolution No. 7 and PPA letter
dated May 7, 1976 and its enclosure. As this Court explained in Ramos v. Central Bank
of the Philippines - [29]

xxx[A]n estoppel may arise from the making of a promise even though without consideration, if
it was intended that the promise should be relied upon and in fact it was relied upon, and if a
refusal to enforce it would be virtually to sanction the perpetration of fraud or would result in
other injustice. In this respect, the reliance by the promisee is generally evidenced by action or
forbearance on his part, and the idea has been expressed that such action or forbearance would
reasonably have been expected by the promisor. xxx
 But even assuming arguendo that TEFASCO relied upon a mere privilege granted
by PPA, still the terms and conditions between them as written in the documents
approving TEFASCO's project proposal should indubitably remain the same. Under
traditional form of property ownership, recipients of privileges or largesses from the
government could be said to have no property rights because they possessed no
traditionally recognized proprietary interest therein. The cases of Vinco v. Municipality of
Hinigaran and Pedro v. Provincial Board of Rizal holding that a license to operate
[30] [31]

cockpits would be a mere privilege belonged to this vintage. But the right-privilege
dichotomy came to an end when courts realized that individuals should not be subjected
to the unfettered whims of government officials to withhold privileges previously given
them. Indeed to perpetuate such distinction would leave the citizens at the mercy of
[32]

State functionaries, and worse, threaten the liberties protected by the Bill of
Rights. Thus in Kisner v. Public Service Commission wherein the US Public Service
[33]

Commission reduced the number of vehicles which appellant Kisner was authorized to
operate under his certificate of convenience and necessity when no limit was stipulated
therein, it was ruled -

It appears from the record in this case that after the issuance of the initial certificate the appellant
took steps to procure vehicles in addition to the one he already owned. He changed his position
in reliance upon the original certificate authorizing him to operate an unlimited number of
vehicles. xxx For the purpose of due process analysis, a property interest includes not only the
traditional notions of real and personal property, but also extends to those benefits to which an
individual may be deemed to have a legitimate claim of entitlement under existing rules and
regulations. xxx The right of the appellant in the case at bar to operate more than one vehicle
under the certificate of convenience and necessity, as originally issued, clearly constituted a
benefit to the appellant and that benefit may be deemed to be a legitimate claim of entitlement
under existing rules and regulations.

Even if PPA granted TEFASCO only a license to construct and operate a

specialized complex terminal with port facilities, the fact remains that PPA cannot
unilaterally impose conditions that find no basis in the inter-agency committee report,
PPA Resolution No. 7 and PPA letter dated May 7, 1976 and its enclosure.
Secondly, we hold that PPA's imposition of one hundred percent (100%) wharfage
fees and berthing charges is void. It is very clear from P.D. No. 857 as amended that
wharfage and berthing rates collectible by PPA "upon the coming into operation of this
Decree shall be those now provided under Parts 1, 2, 3 and 6 of Title VII of Book II
of The Tariff and Customs Code, until such time that the President upon
recommendation of the Board may order that the adjusted schedule of dues are in
effect." PPA cannot unilaterally peg such rates but must rely on either The Tariff and
[34]

Customs Code or the quasi-legislative issuances of the President in view of the

legislative prerogative of rate-fixing. [35]

Accordingly, P.D. No. 441 (1974) amending The Tariff and Customs Code fixed
wharfage dues at fixed amounts per specified quantity brought into or involving national
ports or at fifty percent (50%) of the rates provided for herein in case the articles
imported or exported from or transported within the Philippines are loaded or unloaded
offshore, in midstream, or in private wharves where no loading or unloading facilities are
owned and maintained by the government. Inasmuch as the TEFASCO port is privately
owned and maintained, we rule that the applicable rate for imported or exported articles
loaded or unloaded thereat is not one hundred percent (100%) but only fifty percent
(50%) of the rates specified in P.D. No. 441.
As regard berthing charges, this Court has ruled in Commissioner of Customs v.
Court of Tax Appeals that "subject vessels, not having berthed at a national port but at
[36]

the Port of Kiwalan, which was constructed, operated, and continues to be maintained
by private respondent xxx are not subject to berthing charges, and petitioner should
refund the berthing fees paid by private respondent." The berthing facilities
at Port of Kiwalan were constructed, improved, operated and maintained solely by and
at the expense of a private corporation, the Iligan Express. On various dates, vessels
using the berthing facilities therein were assessed berthing fees by the Collector of
Customs which were paid by private respondent under protest. We nullified the
collection and ordered their refund -

The only issue involved in this petition for review is: Whether a vessel engaged in foreign trade,
which berths at a privately owned wharf or pier, is liable to the payment of the berthing charge
under Section 2901 of the Tariff and Customs Code, which, as amended by Presidential Decree
No. 34, reads:

Sec. 2901. Definition. - Berthing charge is the amount assessed against a vessel for mooring or
berthing at a pier, wharf, bulk-head-wharf, river or channel marginal wharf at any national port
in the Philippines; or for mooring or making fast to a vessel so berthed; or for coming or mooring
within any slip, channel, basin, river or canal under the jurisdiction of any national port of the
Philippines: Provided, however, That in the last instance, the charge shall be fifty (50%) per cent
of rates provided for in cases of piers without cargo shed in the succeeding sections. The owner,
agent, operator or master of the vessel is liable for this charge.

Petitioner Commissioner of Customs contends that the government has the authority to impose
and collect berthing fees whether a vessel berths at a private pier or at a national port. On the
other hand, private respondent argues that the right of the government to impose berthing fees is
limited to national ports only.

The governing law classifying ports into national ports and municipal ports is Executive Order
No. 72, Series of 1936 (O.G. Vol. 35, No. 6, pp. 65-66). A perusal of said executive order
discloses the absence of the port of Kiwalan in the list of national ports mentioned therein.

Furthermore, Paragraph 1 of Executive Order No. 72 expressly provides that the improvement
and maintenance of national ports shall be financed by the Commonwealth Government, and
their administration and operation shall be under the direct supervision and control of the Insular
Collector of Customs. It is undisputed that the port of Kiwalan was constructed and improved
and is operated and maintained solely by and at the expense of the Iligan Express Corporation,
and not by the National Government of the Republic or any of its agencies or
instrumentalities. xxx The port of Kiwalan not being included in the list of national ports
appended to Customs Memorandum Circular No. 33-73 nor in Executive Order No. 72, it
follows inevitably as a matter of law and legal principle that this Court may not properly
consider said port as a national port. To do otherwise would be to legislate on our part and to
arrogate unto ourselves powers not conferred on us by the Constitution. xxx

Plainly, therefore, the port of Kiwalan is not a national port. xxx

Section 2901 of the Tariff and Customs Code prior to its amendment and said section as
amended by Presidential Decree No. 34 are hereunder reproduced with the amendments duly
highlighted:

Sec. 2901. Definition. - Berthing charge is the amount assessed against a vessel for mooring or
berthing at a pier, wharf, bulkhead-wharf, river or channel marginal wharf at any port in the
Philippines; or for mooring or making fast to a vessel so berthed; or for coming or mooring
within any slip, channel, basin, river or canal under the jurisdiction of any port of the Philippines
(old TCC).

Sec. 2901. Definition. - Berthing charge is the amount assessed a vessel for mooring or berthing
at a pier, wharf, bulkhead-wharf, river or channel marginal wharf AT ANY NATIONAL PORT
IN THE PHILIPPINES; for mooring or making fast to a vessel so berthed; or for coming or
mooring within any slip, channel, basin, river or canal under the jurisdiction of ANY
NATIONAL port of the Philippines; Provided, HOWEVER, THAT IN THE LAST INSTANCE,
THE CHARGE SHALL BE FIFTY (50%) PER CENT OF RATES PROVIDED FOR IN
CASES OF PIERS WITHOUT CARGO SHED IN THE SUCCEEDING SECTIONS. (emphasis
in the original).

It will thus be seen that the word national before the word port is inserted in the amendment. The
change in phraseology by amendment of a provision of law indicates a legislative intent to
change the meaning of the provision from that it originally had (Agpalo, supra, p. 76). The
insertion of the word national before the word port is a clear indication of the legislative intent to
change the meaning of Section 2901 from what it originally meant, and not a mere surplusage as
contended by petitioner, in the sense that the change merely affirms what customs authorities had
been observing long before the law was amended (p. 18, Petition). It is the duty of this Court to
give meaning to the amendment. It is, therefore, our considered opinion that under Section 2901
of The Tariff and Customs Code, as amended by Presidential Decree No. 34, only vessels
berthing at national ports are liable for berthing fees. It is to be stressed that there are differences
between national ports and municipal ports, namely: (1) the maintenance of municipal ports is
borne by the municipality, whereas that of the national ports is shouldered by the national
government; (2) municipal ports are created by executive order, while national ports are usually
created by legislation; (3) berthing fees are not collected by the government from vessels
berthing at municipal ports, while such berthing fees are collected by the government from
vessels moored at national ports. The berthing fees imposed upon vessels berthing at national
ports are applied by the national government for the maintenance and repair of said ports. The
national government does not maintain municipal ports which are solely maintained by the
municipalities or private entities which constructed them, as in the case at bar. Thus, no berthing
charges may be collected from vessels moored at municipal ports nor may berthing charges be
imposed by a municipal council xxx. [37]

PPA has not cited - nor have we found - any law creating the TEFASCO Port as a
national port or converting it into one. Hence, following case law, we rule that PPA erred
in collecting berthing fees from vessels that berthed at the privately funded port of
petitioner TEFASCO.
It also bears stressing that one hundred percent (100%) wharfage dues and berthing
charges are void for failing to comply with Sec. 19, P.D. No. 857 as amended, [38]

requiring presidential approval of any increase or decrease of such dues.

In Philippine Interisland Shipping Association of the Philippines v. CA we ruled that
[39]

PPA cannot override the statutory rates for dues by lowering rates of pilotage fees and
leaving the fees to be paid for pilotage to agreement of parties, and further stated that -

There is, therefore, no legal basis for PPA's intransigence, after failing to get the new
administration of President Aquino to revoke the order by issuing its own order in the form of
A.O. NO. 02-88. It is noteworthy that if President Marcos had legislative power under
Amendment No. 6 of the 1973 Constitution so did President Aquino under the Provisional
(Freedom) Constitution who could, had she thought E.O. No. 1088 to be a mere political
gimmick, have just as easily revoked her predecessor's order. It is tempting to ask if the
administrative agency would have shown the same act of defiance of the President's order had
there been no change of administration. What this Court said in La Perla Cigar and Cigarette
Factory v. Capapas,mutatis mutandis, - may be applied to the cases at bar:

Was it within the powers of the then Collector Ang-angco to refuse to collect the duties that must
be paid? That is the crucial point of inquiry. We hold that it was not.

Precisely, he had to give the above legal provisions, quite explicit in character, force and effect.
His obligation was to collect the revenue for the government in accordance with existing legal
provisions, executive agreements and executive orders certainly not excluded. He would not be
living up to his official designation if he were permitted to act otherwise. He was not named
Collector of Customs for nothing

Certainly, if the President himself were called upon to execute the laws faithfully, a Collector of
Customs, himself a subordinate executive official, cannot be considered as exempt in any wise
from such an obligation of fealty. Similarly, if the President cannot suspend the operation of any
law, it would be presumptuous in the extreme for one in the position of then Collector Ang-
angco to consider himself as possessed of such a prerogative [40]

Thirdly, PPA argues that the courts a quo wrongly awarded to TEFASCO fifty
percent (50%) and thirty percent (30%) of the wharfage dues and berthing charges,
respectively, as actual damages representing private port usage fees from 1977 to
1991. It claims that TEFASCO has no cause of action to ask for a portion of these fees
since they were collected from "the owner, agent, operator or master of the vessel" for
the berthing charge and "the owner or consignee of the article, or the agent of either" for
the wharfage dues.
We find no merit in this argument. The cause of action of TEFASCO is the injury it
suffered as a result of the illegal imposition on its clientele of such dues and charges
that should have otherwise gone to it as private port usage fee. TEFASCO is asserting
injury to its right to collect valuable consideration for the use of its facilities and
wrongdoing on the part of PPA prejudicing such right. This is especially true in the light
of PPAs practice of collecting one hundred percent (100%) of the wharfage and berthing
dues by cornering the cargoes and vessels, as it were, even before they were landed
and berthed at TEFASCOs privately owned port. It is aggravated by the fact that these
unlawful rates were collected by PPA long after the port facilities of TEFASCO had been
completed and functioning. Considering these pleaded facts, TEFASCOs cause of
action has been sufficiently alleged and proven. We quote with approval the following
ruling of the Court of Appeals -

xxx As earlier stated, TEFASCO is only trying to recover income it has to forego because of the
excessive collections imposed by PPA. By doing what it was prohibited to do under an existing
law, PPA cannot be allowed to enjoy the fruits of its own illegal act. To be sure, TEFASCO
suffered real damage as a result of such illegal act requiring indemnification xxx.
[41]

There is also no basis for PPAs assertion that there was lack of evidence to support
the award in favor of TEFASCO of Fifteen Million Eight Hundred Ten Thousand Thirty-
Two Pesos and Seven Centavos (P15,810,032.07) representing fifty percent (50%)
wharfage dues and Three Million Nine Hundred Sixty-One Thousand Nine Hundred
Sixty-Four Pesos and Six Centavos (P3,961,964.06) for thirty percent (30%) berthing
charges from 1977 to 1991. According to the appellate court, the determination was
based on the "actual summarized list of cargoes and vessels which went through
TEFASCOs port, which were under obligation to pay usage fees, multiplied by the
applicable tariff rates." The trial court explained in more detail the preponderant
[42]

evidence for the judgment -

Another harassment is the issuance of Memorandum Circular No. 36-82, authorizing collection
of 100% wharfage fees, instead of only 50% and also 100% berthing fees, instead of only 70% as
provided for in PD 441, marked Exh. LL for plaintiff, and a copy of Letter of Instruction No.
8001-A, marked Exh. NN for plaintiff, in the process, the total collection of PPA for wharfage
fees, amounted to P10,582,850.00 and berthing fee, amounted to P6,997,167.00 in the latter case,
berthing fee collected was marked Exh. PP for plaintiff, otherwise if PPA collected only 70% as
provided, it could have collected only P4,898,018.03, equally TEFASCO could have earned the
remainder of P2,099,150.90 while in the case of wharfage fee, if PPA collected only 50%,
TEFASCO would have earned the other half of P5,291,042.00, 50% by way of rentals. xxx

In cases of berthing and wharfage fees prior to the issuance of the injunction order from this
court, PPA charges 100% the totality or summary of claims from PPA, from 1977 to 1991, was
shown and marked Exhibit KKK and submarkings, showing TEFASCO is supposed to collect, if
PPA collects only 50% wharfage, the other 50% goes with TEFASCO in case of berthing 70%,
the remainder of 30% could have been collected by TEFASCO. [43]

Under Arts. 2199 and 2200 of the Civil Code, actual or compensatory damages are
those awarded in satisfaction of or in recompense for loss or injury sustained. They [44]

proceed from a sense of natural justice and are designed to repair the wrong done.
In Producers Bank of the Philippines v. CA we succinctly explain the kinds of actual
[45]

damages, thus-

There are two kinds of actual or compensatory damages: one is the loss of what a person already
possesses, and the other is the failure to receive as a benefit that which would have pertained to
him x x x. In the latter instance, the familiar rule is that damages consisting of unrealized profits,
frequently referred as ganacias frustradas or lucrum cessans, are not to be granted on the basis
of mere speculation, conjecture, or surmise, but rather by reference to some reasonably definite
standard such as market value, established experience, or direct inference from known
circumstances xxx.

It is not necessary to prove with absolute certainty the amount of ganacias

frustradas or lucrum cessans. In Producers Bank of the Philippines we ruled that -

xxx the benefit to be derived from a contract which one of the parties has absolutely failed to
perform is of necessity to some extent, a matter of speculation, but the injured party is not to be
denied for this reason alone. He must produce the best evidence of which his case is susceptible
and if that evidence warrants the inference that he has been damaged by the loss of profits which
he might with reasonable certainty have anticipated but for the defendants wrongful act, he is
entitled to recover.
[46]

Applying the test aforequoted, we find that TEFASCO has proved with clear and
convincing evidence its loss of wharfage and berthing fees. There was basis for the
courts a quo in awarding to TEFASCO, as actual damages, the sums equivalent to fifty
percent (50%) and thirty percent (30%) of the wharfage dues and berthing charges,
respectively. It has not been denied that TEFASCO was forced to reluctantly let go of
such fees to avoid the unwise business practice of financially overburdening the users
of its port by requiring them to pay beyond one hundred percent (100%) of such dues. It
has not also been disproved that this loss of TEFASCO was the direct result of the
collection of one hundred percent (100%) wharfage and berthing dues by PPA, an
imposition that left nothing more for TEFASCO to charge for the use of its port and
terminal facilities. Consequently, there is merit in TEFASCO's claim that had the PPA
imposition been limited to the fifty percent (50%) wharfage dues and seventy percent
(70%) berthing charges, TEFASCO could have received the remainder as port usage
fees since the amounts were disbursed by its clients for that purpose. Significantly, in
regard to berthing charges, TEFASCO's cause
of action and evidence presented before the trial court as well as its assigned error on
appeal on that point were limited to thirty percent (30%) of such charges.
 Fourthly, we also declare void the imposition by PPA of ten percent (10%), later
reduced to six percent (6%), government share out of arrastre and stevedoring gross
income of TEFASCO. This exaction was never mentioned in the contract, much less is it
a binding prestation, between TEFASCO and PPA. What was clearly stated in the terms
and conditions appended to PPA Resolution No. 7 was for TEFASCO to pay and/or
secure from the proper authorities "all fees and/or permits pertinent to the construction
and operation of the proposed project." The government share demanded and collected
from the gross income of TEFASCO from its arrastre and stevedoring activities in
TEFASCO's wholly owned port is certainly not a fee or in any event a proper
condition in a regulatory permit. Rather it is an onerous "contractual
stipulation" which finds no root or basis or reference even in the contract
[47]

aforementioned.
We stress that the cause of the contract between TEFASCO and PPA was, on the
part of the former, to engage in the business of operating its privately owned port
facilities, and for the latter, to decongest port traffic in Davao City and concomitantly to
enhance regional trade. The records of the project acceptance made by PPA indicate
that the contract was executed not to earn income for PPA or the government as
justification for the subsequent and unfair imposition of government share in the arrastre
and stevedoring gross income of TEFASCO. Hence this charge was obviously an after-
thought conceived by PPA only after the TEFASCO port had already begun its
operations. The sharing scheme only meant that PPA would piggy back unreasonably
on the substantial investment and labor of TEFASCO. As the scheme was subsequently
stipulated on percentage of gross income, it actually penalized TEFASCO for its hand
work and substantial capital expenditures in the TEFASCO port and terminal.
Moreover, PPA is bereft of any authority to impose whatever amount it pleases as
government share in the gross income of TEFASCO from its arrastre and stevedoring
operations. As an elementary principle of law, license taxation must not be "so
unreasonable to show a purpose to prohibit a business which is not itself injurious to
public health or morals." In the case at bar, the absurd and confiscatory character of
[48]

government share is convincingly proved by PPA's decision itself to abandon the

disadvantageous scheme through Administrative Order No. 06-95 dated 4 December
1995, Liberalized Regulation on Private Ports Construction, Development, and
Operation. The PPA issuance scrapped government share in the income of private
[49]

ports where no government facilities had been installed and in place thereof imposed a
one-time privilege fee of P20,000.00 per annum for commercial ports and P10,000.00
yearly for non-commercial ports. In passing, we believe that this impost is more in
consonance with the description of government share as consideration for
the "supervision inherent in the upgrading and improvement of port operations, of which
said services are an integral part."
[50]

We do not also agree that TEFASCO subsequently acceded to paying the

government share in its gross income from its arrastre and stevedoring operations, and
in recognizing arrears for such charge. The Memorandum of Agreement (MOA) which it
subsequently signed with PPA did not give TEFASCO any benefit so that we cannot
conclude that there was indeed a voluntary settlement between them. Rather it could be
described aptly as an imposition under actual threats of closure of TEFASCO's
port. Verily the MOA was meant to cloak semblance of validity upon that particular
charge since there was nothing in the original TEFASCO-PPA contract authorizing the
PPA to collect any share in the gross income of TEFASCO in its arrastre and
stevedoring operations.
The MOA is invalid for want of consideration and consent. As such, it is an invalid
[51]

novation of the original agreement between TEFASCO and PPA as embodied in the
[52]

inter-agency committee report, PPA Resolution No. 7 and PPA letter dated May
7, 1976 and its enclosure. Truly, the MOA was a set of stipulations executed under
undue pressure on TEFASCO of permanent closure of its port and terminal. As the
TEFASCO investment was worth millions of dollars in loans and equities, PPA's posture
of prohibiting it from engaging in the bulk of its business presented it with no reasonable
freedom of choice but to accept and sign the MOA. Furthermore, the MOA suffers from
utter want of consideration since nothing more could have been stipulated in the
agreement when every detail of port operation had already been previously spelled out
and sanctioned in the original contract. The belated MOA citations of PPAs recognition
of TEFASCO's facility as a private port and provision of arrastre and stevedoring and
repair services were all part of the agreement from 1976 when the project proposal was
approved by the PPA Board. Under these circumstances, it cannot be said that
TEFASCO embraced voluntarily the unfair imposition in the MOA that inevitably would
cause, as it did, its own bankruptcy.
In sum, TEFASCO is entitled to Five Million Ninety-Five Thousand Thirty Pesos and
Seventeen Centavos (P5,095,030.17) for reimbursement of what PPA illegally collected
as "government share" in the gross income of TEFASCO's arrastre and stevedoring
operations for 1977 to 1991.
Fifthly, we affirm the award of Five Hundred Thousand Pesos (P500,000.00) as
attorneys fees. Attorneys fees may be awarded when a party is compelled to litigate or
incur expenses to protect his interest by reason of an unjustified act of the other
party. In the instant case, attorneys fees were warranted by PPA's unfair exaction of
[53]

exorbitant wharfage and berthing dues from TEFASCO and threats to close its
port. These adverse actions correctly drove the latter to institute the present
proceedings to protect its rights and remedy the unfair situation.
However, we set aside the award of Two Hundred Forty-Eight Thousand Seven
Hundred Twenty-Seven Pesos (P248,727.00) for dredging and blasting expenses. The
trial court justified the award on the ground that this activity was allegedly the
responsibility of PPA under Sec. 37 of P.D. No. 857 as amended which TEFASCO in
[54]

good faith undertook. This is not correct. More precisely, the law obliged PPA to fund
construction and dredging works only in "public ports vested in the Authority." Clearly
the construction of the TEFASCO port was not the responsibility of the PPA and does
not fall under Sec. 37 of P.D. No. 857. The dredging and blasting done by TEFASCO
augmented the viability of its port, and therefore the same were part and parcel of the
contractual obligations it agreed to undertake when it accepted the terms and conditions
of the project.
 It is also erroneous to set legal interest on the damages awarded herein at twelve
percent (12%) yearly computed from the filing of the complaint. In Crismina Garments,
Inc. v. CA , it was held that interest on damages, other than loan or forbearance of
[55]

money, is six percent (6%) annually computed from determination with reasonable
certainty of the amount demanded. Thus, applying that rule in the case at bar, the
interest would be six percent (6%) per annum from the date of promulgation of the
decision of the trial court in Civil Cases Nos. 19216-88 on July 15, 1992.
To recapitulate: PPA is liable to TEFASCO for Fifteen Million Eight Hundred Ten
Thousand Thirty-Two Pesos and Seven Centavos (P15,810,032.07) representing fifty
percent (50%) wharfage fees and Three Million Nine Hundred Sixty-One Thousand Nine
Hundred Sixty-Four Pesos and Six Centavos (P3,961,964.06) for thirty percent (30%)
berthing charges from 1977 to 1991 and Five Million Ninety-Five Thousand Thirty Pesos
and Seventeen Centavos (P5,095,030.17) for reimbursement of the unlawfully collected
government share in TEFASCOs gross income from its arrastre and stevedoring
operations during the same period. The said principal amounts herein ordered shall
earn interest at six percent (6%) annually from July 15, 1992, date of promulgation of
the Decision of the Regional Trial Court of Davao in Civil Cases Nos. 19216-88. The
PPA shall also pay TEFASCO the amount of Five Hundred Thousand Pesos
(P500,000.00) for and as attorneys fees.
Henceforth, PPA shall collect only such dues and charges as are duly authorized by
the applicable provisions of The Tariff and Customs Code and presidential issuances
pursuant to Sec. 19, P.D. No. 857. PPA shall strictly observe only the legally
imposable rates. Furthermore, PPA has no authority to charge government share in the
gross income of TEFASCO from its arrastre and stevedoring operations within its
subject private port in Davao City.
TEFASCO's port operations including cargo handling services shall be co-terminous
with its foreshore lease contract with the National Government and any extension of the
said foreshore lease contract shall similarly lengthen the duration of its port
operations. It is clear from the inter-agency committee report, PPA Resolution No. 7 and
PPA letter dated May 7, 1976 and its enclosure that the intention of the parties under
their contract is to integrate port operations of TEFASCO so that all services therein,
including arrastre and stevedoring operations, shall end at the same time. The
subsequent and onerous MOA did not change the tenure of its port operations, there
being no clear and convincing showing of TEFASCO's free and voluntary amenability
thereto. In no case, however, shall such port operations of TEFASCO exceed fifty (50)
years which is the maximum period of foreshore lease contracts with the National
Government.
WHEREFORE, the Amended Decision of the Court of Appeals dated September 30,
1998 in case CA-G.R. CV No. 47318 is MODIFIED as follows:

1. The Philippine Ports Authority (PPA) is held liable and hereby ordered to pay and reimburse
to Terminal Facilities and Services Corporation (TEFASCO) the amounts of Fifteen Million
Eight Hundred Ten Thousand Thirty-Two Pesos and Seven Centavos (P15,810,032.07) and
Three Million Nine Hundred Sixty-One Thousand Nine Hundred Sixty-Four Pesos and Six
Centavos (P3,961,964.06) representing fifty percent (50%) wharfage fees and thirty percent
(30%) berthing charges respectively, from 1977 to 1991, and the sum of Five Million Ninety-
Five Thousand Thirty Pesos and Seventeen Centavos (P5,095,030.17) representing PPAs
unlawfully collected government share in the gross income of TEFASCO's arrastre and
stevedoring operations during the said period;

2. The said principal amounts herein ordered to be paid by PPA to TEFASCO shall earn interest
at six percent (6%) per annum from July 15, 1992, date of promulgation of the Decision of the
Regional Trial Court, Branch 17 of Davao City in Civil Case No. 19216-88; and

3. The PPA is also ordered to pay TEFASCO the sum of Five Hundred Thousand Pesos
(P500,000.00) for and as attorneys fees.

Costs against the Philippine Ports Authority.

SO ORDERED.
G.R. No. L-10448 August 30, 1957

IN THE MATTER OF A PETITION FOR DECLARATORY JUDGMENT REGARDING THE VALIDITY OF

MUNICIPAL ORDINANCE NO. 3659 OF THE CITY OF MANILA. PHYSICAL THERAPY ORGANIZATION OF
THE PHILIPPINES, INC., petitioner-appellant,
vs.
THE MUNICIPAL BOARD OF THE CITY OF MANILA and ARSENIO H. LACSON, as Mayor of the City of
Manila, respondents-appellees.

Mariano M. de Joya for appellant.

City Fiscal Eugenio Angeles and Assistant Fiscal Arsenio Nañawa for appellees.

MONTEMAYOR, J.:

The petitioner-appellant, an association of registered massagists and licensed operators of massage clinics in the
City of Manila and other parts of the country, filed an action in the Court of First Instance of Manila for declaratory
judgment regarding the validity of Municipal Ordinance No. 3659, promulgated by the Municipal Board and
approved by the City Mayor. To stop the City from enforcing said ordinance, the petitioner secured an injunction
upon filing of a bond in the sum of P1,000.00. A hearing was held, but the parties without introducing any
evidence submitted the case for decision on the pleadings, although they submitted written memoranda.
Thereafter, the trial court dismissed the petition and later dissolved the writ of injunction previously issued.

The petitioner appealed said order of dismissal directly to this Court. In support of its appeal, petitioner-appellant
contends among other things that the trial court erred in holding that the Ordinance in question has not restricted
the practice of massotherapy in massage clinics to hygienic and aesthetic massage, that the Ordinance is valid
as it does not regulate the practice of massage, that the Municipal Board of Manila has the power to enact the
Ordinance in question by virtue of Section 18, Subsection (kk), Republic Act 409, and that permit fee of P100.00
is moderate and not unreasonable. Inasmuch as the appellant assails and discuss certain provisions regarding
the ordinance in question, and it is necessary to pass upon the same, for purposes of ready reference, we are
reproducing said ordinance in toto.

ORDINANCE No. 3659

AN ORDINANCE REGULATING THE OPERATION OF MASSAGE CLINICS IN THE CITY OF MANILA

AND PROVIDING PENALTIES FOR VIOLATIONS THEREOF.

Be it ordained by the Municipal Board of the City of Manila, that:

Section 1. Definition. — For the purpose of this Ordinance the following words and phrases shall be taken
in the sense hereinbelow indicated:

(a) Massage clinic shall include any place or establishment used in the practice of hygienic and aesthetic
massage;

(b) Hygienic and aesthetic massage shall include any system of manipulation of treatment of the
superficial parts of the human body of hygienic and aesthetic purposes by rubbing, stroking, kneading, or
tapping with the hand or an instrument;

(c) Massagist shall include any person who shall have passed the required examination and shall have
been issued a massagist certificate by the Committee of Examiners of Massagist, or by the Director of
Health or his authorized representative;

(d) Attendant or helper shall include any person employed by a duly qualified massagist in any message
clinic to assist the latter in the practice of hygienic and aesthethic massage;
(e) Operator shall include the owner, manager, administrator, or any person who operates or is
responsible for the operation of a message clinic.

SEC. 2. Permit Fees. — No person shall engage in the operation of a massage clinic or in the occupation
of attendant or helper therein without first having obtained a permit therefor from the Mayor. For every
permit granted under the provisions of this Ordinance, there shall be paid to the City Treasurer the
following annual fees:

(a) Operator of a massage P100.00

(b) Attendant or helper 5.00

Said permit, which shall be renewed every year, may be revoked by the Mayor at any time for the
violation of this Ordinance.

SEC. 3. Building requirement. — (a) In each massage clinic, there shall be separate rooms for the male
and female customers. Rooms where massage operations are performed shall be provided with sliding
curtains only instead of swinging doors. The clinic shall be properly ventilated, well lighted and maintained
under sanitary conditions at all times while the establishment is open for business and shall be provided
with the necessary toilet and washing facilities.

(b) In every clinic there shall be no private rooms or separated compartment except those assigned for
toilet, lavatories, dressing room, office or kitchen.

(c) Every massage clinic shall "provided with only one entrance and it shall have no direct or indirect
communication whatsoever with any dwelling place, house or building.

SEC. 4. Regulations for the operation of massage clinics. — (a) It shall be unlawful for any operator
massagist, attendant or helper to use, or allow the use of, a massage clinic as a place of assignation or
permit the commission therein of any incident or immoral act. Massage clinics shall be used only for
hygienic and aesthetic massage.

(b) Massage clinics shall open at eight o'clock a.m. and shall close at eleven o'clock p.m.

(c) While engaged in the actual performance of their duties, massagists, attendants and helpers in a
massage clinic shall be as properly and sufficiently clad as to avoid suspicion of intent to commit an
indecent or immoral act;

(d) Attendants or helpers may render service to any individual customer only for hygienic and aesthetic
purposes under the order, direction, supervision, control and responsibility of a qualified massagist.

SEC. 5. Qualifications — No person who has previously been convicted by final judgment of competent
court of any violation of the provisions of paragraphs 3 and 5 of Art. 202 and Arts. 335, 336, 340 and 342
of the Revised Penal Code, or Secs. 819 of the City of Manila, or who is suffering from any venereal or
communicable disease shall engage in the occupation of massagist, attendant or helper in any massage
clinic. Applicants for Mayor's permit shall attach to their application a police clearance and health
certificate duly issued by the City Health Officers as well as a massagist certificate duly issued by the
Committee or Examiners for Massagists or by the Director of Health or his authorized representatives, in
case of massagists.

SEC. 6. Duty of operator of massage clinic. — No operator of massage clinic shall allow such clinic to
operate without a duly qualified massagist nor allow, any man or woman to act as massagist, attendant or
helper therein without the Mayor's permit provided for in the preceding sections. He shall submit
whenever required by the Mayor or his authorized representative the persons acting as massagists,
attendants or helpers in his clinic. He shall place the massage clinic open to inspection at all times by the
 police, health officers, and other law enforcement agencies of the government, shall be held liable for
anything which may happen with the premises of the massage clinic.

SEC. 7. Penalty. — Any person violating any of the provisions of this Ordinance shall upon conviction, be
punished by a fine of not less than fifty pesos nor more than two hundred pesos or by imprisonment for
not less than six days nor more than six months, or both such fine and imprisonment, at the discretion of
the court.

SEC. 8. Repealing Clause. — All ordinances or parts of ordinances, which are inconsistent herewith, are
hereby repealed.

SEC. 9. Effectivity. — This Ordinance shall take effect upon its approval.

Enacted, August 27, 1954.

Approved, September 7, 1954.

The main contention of the appellant in its appeal and the principal ground of its petition for declaratory judgment
is that the City of Manila is without authority to regulate the operation of massagists and the operation of
massage clinics within its jurisdiction; that whereas under the Old City Charter, particularly, Section 2444 (e) of
the Revised Administrative Code, the Municipal Board was expressly granted the power to regulate and fix the
license fee for the occupation of massagists, under the New Charter of Manila, Republic Act 409, said power has
been withdrawn or omitted and that now the Director of Health, pursuant to authority conferred by Section 938 of
the Revised Administrative Code and Executive Order No. 317, series of 1941, as amended by Executive Order
No. 392, series, 1951, is the one who exercises supervision over the practice of massage and over massage
clinics in the Philippines; that the Director of Health has issued Administrative Order No. 10, dated May 5, 1953,
prescribing "rules and regulations governing the examination for admission to the practice of massage, and the
operation of massage clinics, offices, or establishments in the Philippines", which order was approved by the
Secretary of Health and duly published in the Official Gazette; that Section 1 (a) of Ordinance No. 3659 has
restricted the practice of massage to only hygienic and aesthetic massage prohibits or does not allow qualified
massagists to practice therapeutic massage in their massage clinics. Appellant also contends that the license fee
of P100.00 for operator in Section 2 of the Ordinance is unreasonable, nay, unconscionable.

If we can ascertain the intention of the Manila Municipal Board in promulgating the Ordinance in question, much
of the objection of appellant to its legality may be solved. It would appear to us that the purpose of the Ordinance
is not to regulate the practice of massage, much less to restrict the practice of licensed and qualified massagists
of therapeutic massage in the Philippines. The end sought to be attained in the Ordinance is to prevent the
commission of immorality and the practice of prostitution in an establishment masquerading as a massage clinic
where the operators thereof offer to massage or manipulate superficial parts of the bodies of customers for
hygienic and aesthetic purposes. This intention can readily be understood by the building requirements in Section
3 of the Ordinance, requiring that there be separate rooms for male and female customers; that instead of said
rooms being separated by permanent partitions and swinging doors, there should only be sliding curtains
between them; that there should be "no private rooms or separated compartments, except those assigned for
toilet, lavatories, dressing room, office or kitchen"; that every massage clinic should be provided with only one
entrance and shall have no direct or indirect communication whatsoever with any dwelling place, house or
building; and that no operator, massagists, attendant or helper will be allowed "to use or allow the use of a
massage clinic as a place of assignation or permit the commission therein of any immoral or incident act", and in
fixing the operating hours of such clinic between 8:00 a.m. and 11:00 p.m. This intention of the Ordinance was
correctly ascertained by Judge Hermogenes Concepcion, presiding in the trial court, in his order of dismissal
where he said: "What the Ordinance tries to avoid is that the massage clinic run by an operator who may not be a
masseur or massagista may be used as cover for the running or maintaining a house of prostitution."

Ordinance No. 3659, particularly, Sections 1 to 4, should be considered as limited to massage clinics used in the
practice of hygienic and aesthetic massage. We do not believe that Municipal Board of the City of Manila and the
Mayor wanted or intended to regulate the practice of massage in general or restrict the same to hygienic and
aesthetic only.
As to the authority of the City Board to enact the Ordinance in question, the City Fiscal, in representation of the
appellees, calls our attention to Section 18 of the New Charter of the City of Manila, Act No. 409, which gives
legislative powers to the Municipal Board to enact all ordinances it may deem necessary and proper for the
promotion of the morality, peace, good order, comfort, convenience and general welfare of the City and its
inhabitants. This is generally referred to as the General Welfare Clause, a delegation in statutory form of the
police power, under which municipal corporations, are authorized to enact ordinances to provide for the health
and safety, and promote the morality, peace and general welfare of its inhabitants. We agree with the City Fiscal.

As regards the permit fee of P100.00, it will be seen that said fee is made payable not by the masseur or
massagist, but by the operator of a massage clinic who may not be a massagist himself. Compared to permit
fees required in other operations, P100.00 may appear to be too large and rather unreasonable. However, much
discretion is given to municipal corporations in determining the amount of said fee without considering it as a tax
for revenue purposes:

The amount of the fee or charge is properly considered in determining whether it is a tax or an exercise of
the police power. The amount may be so large as to itself show that the purpose was to raise revenue
and not to regulate, but in regard to this matter there is a marked distinction between license fees
imposed upon useful and beneficial occupations which the sovereign wishes to regulate but not restrict,
and those which are inimical and dangerous to public health, morals or safety. In the latter case the fee
may be very large without necessarily being a tax. (Cooley on Taxation, Vol. IV, pp. 3516-17; underlining
supplied.)

Evidently, the Manila Municipal Board considered the practice of hygienic and aesthetic massage not as a useful
and beneficial occupation which will promote and is conducive to public morals, and consequently, imposed the
said permit fee for its regulation.

In conclusion, we find and hold that the Ordinance in question as we interpret it and as intended by the appellees
is valid. We deem it unnecessary to discuss and pass upon the other points raised in the appeal. The order
appealed from is hereby affirmed. No costs.

Paras, C.J., Bengzon, Padilla, Reyes, A., Bautista Angelo, Labrador, Concepcion, Reyes, J.B.L., Endencia and
Felix, JJ., concur.
G.R. No. L- 41383 August 15, 1988

PHILIPPINE AIRLINES, INC., plaintiff-appellant,

vs.
ROMEO F. EDU in his capacity as Land Transportation Commissioner, and UBALDO CARBONELL, in his
capacity as National Treasurer, defendants-appellants.

Ricardo V. Puno, Jr. and Conrado A. Boro for plaintiff-appellant.

GUTIERREZ, JR., J.:

What is the nature of motor vehicle registration fees? Are they taxes or regulatory fees?

This question has been brought before this Court in the past. The parties are, in effect, asking for a re-
examination of the latest decision on this issue.

This appeal was certified to us as one involving a pure question of law by the Court of Appeals in a case where
the then Court of First Instance of Rizal dismissed the portion-about complaint for refund of registration fees paid
under protest.

The disputed registration fees were imposed by the appellee, Commissioner Romeo F. Elevate pursuant to
Section 8, Republic Act No. 4136, otherwise known as the Land Transportation and Traffic Code.

The Philippine Airlines (PAL) is a corporation organized and existing under the laws of the Philippines and
engaged in the air transportation business under a legislative franchise, Act No. 42739, as amended by Republic
Act Nos. 25). and 269.1 Under its franchise, PAL is exempt from the payment of taxes. The pertinent provision of
the franchise provides as follows:

Section 13. In consideration of the franchise and rights hereby granted, the grantee shall pay to
the National Government during the life of this franchise a tax of two per cent of the gross
revenue or gross earning derived by the grantee from its operations under this franchise. Such tax
shall be due and payable quarterly and shall be in lieu of all taxes of any kind, nature or
description, levied, established or collected by any municipal, provincial or national automobiles,
Provided, that if, after the audit of the accounts of the grantee by the Commissioner of Internal
Revenue, a deficiency tax is shown to be due, the deficiency tax shall be payable within the ten
days from the receipt of the assessment. The grantee shall pay the tax on its real property in
conformity with existing law.

On the strength of an opinion of the Secretary of Justice (Op. No. 307, series of 1956) PAL has, since 1956, not
been paying motor vehicle registration fees.

Sometime in 1971, however, appellee Commissioner Romeo F. Elevate issued a regulation requiring all tax
exempt entities, among them PAL to pay motor vehicle registration fees.

Despite PAL's protestations, the appellee refused to register the appellant's motor vehicles unless the amounts
imposed under Republic Act 4136 were paid. The appellant thus paid, under protest, the amount of P19,529.75
as registration fees of its motor vehicles.

After paying under protest, PAL through counsel, wrote a letter dated May 19,1971, to Commissioner Edu
demanding a refund of the amounts paid, invoking the ruling in Calalang v. Lorenzo (97 Phil. 212 [1951]) where it
was held that motor vehicle registration fees are in reality taxes from the payment of which PAL is exempt by
virtue of its legislative franchise.
Appellee Edu denied the request for refund basing his action on the decision in Republic v. Philippine Rabbit Bus
Lines, Inc., (32 SCRA 211, March 30, 1970) to the effect that motor vehicle registration fees are regulatory
exceptional. and not revenue measures and, therefore, do not come within the exemption granted to PAL? under
its franchise. Hence, PAL filed the complaint against Land Transportation Commissioner Romeo F. Edu and
National Treasurer Ubaldo Carbonell with the Court of First Instance of Rizal, Branch 18 where it was docketed
as Civil Case No. Q-15862.

Appellee Romeo F. Elevate in his capacity as LTC Commissioner, and LOI Carbonell in his capacity as National
Treasurer, filed a motion to dismiss alleging that the complaint states no cause of action. In support of the motion
to dismiss, defendants repatriation the ruling in Republic v. Philippine Rabbit Bus Lines, Inc., (supra) that
registration fees of motor vehicles are not taxes, but regulatory fees imposed as an incident of the exercise of the
police power of the state. They contended that while Act 4271 exempts PAL from the payment of any tax except
two per cent on its gross revenue or earnings, it does not exempt the plaintiff from paying regulatory fees, such
as motor vehicle registration fees. The resolution of the motion to dismiss was deferred by the Court until after
trial on the merits.

On April 24, 1973, the trial court rendered a decision dismissing the appellant's complaint "moved by the later
ruling laid down by the Supreme Court in the case or Republic v. Philippine Rabbit Bus Lines, Inc., (supra)." From
this judgment, PAL appealed to the Court of Appeals which certified the case to us.

Calalang v. Lorenzo (supra) and Republic v. Philippine Rabbit Bus Lines, Inc. (supra) cited by PAL and
Commissioner Romeo F. Edu respectively, discuss the main points of contention in the case at bar.

Resolving the issue in the Philippine Rabbit case, this Court held:

"The registration fee which defendant-appellee had to pay was imposed by Section 8 of the
Revised Motor Vehicle Law (Republic Act No. 587 [1950]). Its heading speaks of "registration
fees." The term is repeated four times in the body thereof. Equally so, mention is made of the "fee
for registration." (Ibid., Subsection G) A subsection starts with a categorical statement "No fees
shall be charged." (lbid.,Subsection H) The conclusion is difficult to resist therefore that the Motor
Vehicle Act requires the payment not of a tax but of a registration fee under the police power.
Hence the incipient, of the section relied upon by defendant-appellee under the Back Pay Law, It
is not held liable for a tax but for a registration fee. It therefore cannot make use of a backpay
certificate to meet such an obligation.

Any vestige of any doubt as to the correctness of the above conclusion should be dissipated by
Republic Act No. 5448. ([1968]. Section 3 thereof as to the imposition of additional tax on
privately-owned passenger automobiles, motorcycles and scooters was amended by Republic Act
No. 5470 which is (sic) approved on May 30, 1969.) A special science fund was thereby created
and its title expressly sets forth that a tax on privately-owned passenger automobiles, motorcycles
and scooters was imposed. The rates thereof were provided for in its Section 3 which clearly
specifies the" Philippine tax."(Cooley to be paid as distinguished from the registration fee under
the Motor Vehicle Act. There cannot be any clearer expression therefore of the legislative will,
even on the assumption that the earlier legislation could by subdivision the point be susceptible of
the interpretation that a tax rather than a fee was levied. What is thus most apparent is that where
the legislative body relies on its authority to tax it expressly so states, and where it is enacting a
regulatory measure, it is equally exploded (at p. 22,1969

In direct refutation is the ruling in Calalang v. Lorenzo (supra), where the Court, on the other hand, held:

The charges prescribed by the Revised Motor Vehicle Law for the registration of motor vehicles
are in section 8 of that law called "fees". But the appellation is no impediment to their being
considered taxes if taxes they really are. For not the name but the object of the charge
determines whether it is a tax or a fee. Geveia speaking, taxes are for revenue, whereas fees are
exceptional. for purposes of regulation and inspection and are for that reason limited in amount to
what is necessary to cover the cost of the services rendered in that connection. Hence, a charge
fixed by statute for the service to be person,-When by an officer, where the charge has no relation
 to the value of the services performed and where the amount collected eventually finds its way
into the treasury of the branch of the government whose officer or officers collected the chauffeur,
is not a fee but a tax."(Cooley on Taxation, Vol. 1, 4th ed., p. 110.)

From the data submitted in the court below, it appears that the expenditures of the Motor Vehicle
Office are but a small portion—about 5 per centum—of the total collections from motor vehicle
registration fees. And as proof that the money collected is not intended for the expenditures of
that office, the law itself provides that all such money shall accrue to the funds for the construction
and maintenance of public roads, streets and bridges. It is thus obvious that the fees are not
collected for regulatory purposes, that is to say, as an incident to the enforcement of regulations
governing the operation of motor vehicles on public highways, for their express object is to
provide revenue with which the Government is to discharge one of its principal functions—the
construction and maintenance of public highways for everybody's use. They are veritable taxes,
not merely fees.

As a matter of fact, the Revised Motor Vehicle Law itself now regards those fees as taxes, for it
provides that "no other taxes or fees than those prescribed in this Act shall be imposed," thus
implying that the charges therein imposed—though called fees—are of the category of taxes. The
provision is contained in section 70, of subsection (b), of the law, as amended by section 17 of
Republic Act 587, which reads:

Sec. 70(b) No other taxes or fees than those prescribed in this Act shall be
imposed for the registration or operation or on the ownership of any motor vehicle,
or for the exercise of the profession of chauffeur, by any municipal corporation, the
provisions of any city charter to the contrary notwithstanding: Provided, however,
That any provincial board, city or municipal council or board, or other competent
authority may exact and collect such reasonable and equitable toll fees for the use
of such bridges and ferries, within their respective jurisdiction, as may be
authorized and approved by the Secretary of Public Works and Communications,
and also for the use of such public roads, as may be authorized by the President
of the Philippines upon the recommendation of the Secretary of Public Works and
Communications, but in none of these cases, shall any toll fee." be charged or
collected until and unless the approved schedule of tolls shall have been posted
levied, in a conspicuous place at such toll station. (at pp. 213-214)

Motor vehicle registration fees were matters originally governed by the Revised Motor Vehicle Law (Act 3992
[19511) as amended by Commonwealth Act 123 and Republic Acts Nos. 587 and 1621.

Today, the matter is governed by Rep. Act 4136 [1968]), otherwise known as the Land Transportation Code, (as
amended by Rep. Acts Nos. 5715 and 64-67, P.D. Nos. 382, 843, 896, 110.) and BP Blg. 43, 74 and 398).

Section 73 of Commonwealth Act 123 (which amended Sec. 73 of Act 3992 and remained unsegregated, by Rep.
Act Nos. 587 and 1603) states:

Section 73. Disposal of moneys collected.—Twenty per centum of the money collected under the
provisions of this Act shall accrue to the road and bridge funds of the different provinces and
chartered cities in proportion to the centum shall during the next previous year and the remaining
eighty per centum shall be deposited in the Philippine Treasury to create a special fund for the
construction and maintenance of national and provincial roads and bridges. as well as the streets
and bridges in the chartered cities to be alloted by the Secretary of Public Works and
Communications for projects recommended by the Director of Public Works in the different
provinces and chartered cities. ....

Presently, Sec. 61 of the Land Transportation and Traffic Code provides:

Sec. 61. Disposal of Mortgage. Collected—Monies collected under the provisions of this Act shall
be deposited in a special trust account in the National Treasury to constitute the Highway Special
 Fund, which shall be apportioned and expended in accordance with the provisions of the"
Philippine Highway Act of 1935. "Provided, however, That the amount necessary to maintain and
equip the Land Transportation Commission but not to exceed twenty per cent of the total
collection during one year, shall be set aside for the purpose. (As amended by RA 64-67,
approved August 6, 1971).

It appears clear from the above provisions that the legislative intent and purpose behind the law requiring owners
of vehicles to pay for their registration is mainly to raise funds for the construction and maintenance of highways
and to a much lesser degree, pay for the operating expenses of the administering agency. On the other hand,
the Philippine Rabbit case mentions a presumption arising from the use of the term "fees," which appears to have
been favored by the legislature to distinguish fees from other taxes such as those mentioned in Section 13 of Rep.
Act 4136 which reads:

Sec. 13. Payment of taxes upon registration.—No original registration of motor vehicles subject to
payment of taxes, customs s duties or other charges shall be accepted unless proof of payment of
the taxes due thereon has been presented to the Commission.

referring to taxes other than those imposed on the registration, operation or ownership of a motor vehicle (Sec.
59, b, Rep. Act 4136, as amended).

Fees may be properly regarded as taxes even though they also serve as an instrument of regulation, As stated
by a former presiding judge of the Court of Tax Appeals and writer on various aspects of taxpayers

It is possible for an exaction to be both tax arose. regulation. License fees are changes. looked to
as a source of revenue as well as a means of regulation (Sonzinky v. U.S., 300 U.S. 506) This is
true, for example, of automobile license fees. Isabela such case, the fees may properly be
regarded as taxes even though they also serve as an instrument of regulation. If the purpose is
primarily revenue, or if revenue is at least one of the real and substantial purposes, then the
exaction is properly called a tax. (1955 CCH Fed. tax Course, Par. 3101, citing Cooley on
Taxation (2nd Ed.) 592, 593; Calalang v. Lorenzo. 97 Phil. 213-214) Lutz v. Araneta 98 Phil. 198.)
These exactions are sometimes called regulatory taxes. (See Secs. 4701, 4711, 4741, 4801,
4811, 4851, and 4881, U.S. Internal Revenue Code of 1954, which classify taxes on tobacco and
alcohol as regulatory taxes.) (Umali, Reviewer in Taxation, 1980, pp. 12-13, citing Cooley on
Taxation, 2nd Edition, 591-593).

Indeed, taxation may be made the implement of the state's police power (Lutz v. Araneta, 98 Phil. 148).

If the purpose is primarily revenue, or if revenue is, at least, one of the real and substantial purposes, then the
exaction is properly called a tax (Umali, Id.) Such is the case of motor vehicle registration fees. The conclusions
become inescapable in view of Section 70(b) of Rep. Act 587 quoted in the Calalang case. The same provision
appears as Section 591-593). in the Land Transportation code. It is patent therefrom that the legislators had in
mind a regulatory tax as the law refers to the imposition on the registration, operation or ownership of a motor
vehicle as a "tax or fee." Though nowhere in Rep. Act 4136 does the law specifically state that the imposition is a
tax, Section 591-593). speaks of "taxes." or fees ... for the registration or operation or on the ownership of any
motor vehicle, or for the exercise of the profession of chauffeur ..." making the intent to impose a tax more
apparent. Thus, even Rep. Act 5448 cited by the respondents, speak of an "additional" tax," where the law could
have referred to an original tax and not one in addition to the tax already imposed on the registration, operation,
or ownership of a motor vehicle under Rep. Act 41383. Simply put, if the exaction under Rep. Act 4136 were
merely a regulatory fee, the imposition in Rep. Act 5448 need not be an "additional" tax. Rep. Act 4136 also
speaks of other "fees," such as the special permit fees for certain types of motor vehicles (Sec. 10) and additional
fees for change of registration (Sec. 11). These are not to be understood as taxes because such fees are very
minimal to be revenue-raising. Thus, they are not mentioned by Sec. 591-593). of the Code as taxes like the
motor vehicle registration fee and chauffers' license fee. Such fees are to go into the expenditures of the Land
Transportation Commission as provided for in the last proviso of see. 61, aforequoted.

It is quite apparent that vehicle registration fees were originally simple exceptional. intended only for rigidly
purposes in the exercise of the State's police powers. Over the years, however, as vehicular traffic exploded in
number and motor vehicles became absolute necessities without which modem life as we know it would stand
still, Congress found the registration of vehicles a very convenient way of raising much needed revenues. Without
changing the earlier deputy. of registration payments as "fees," their nature has become that of "taxes."

In view of the foregoing, we rule that motor vehicle registration fees as at present exacted pursuant to the Land
Transportation and Traffic Code are actually taxes intended for additional revenues. of government even if one
fifth or less of the amount collected is set aside for the operating expenses of the agency administering the
program.

May the respondent administrative agency be required to refund the amounts stated in the complaint of PAL?

The answer is NO.

The claim for refund is made for payments given in 1971. It is not clear from the records as to what payments
were made in succeeding years. We have ruled that Section 24 of Rep. Act No. 5448 dated June 27, 1968,
repealed all earlier tax exemptions Of corporate taxpayers found in legislative franchises similar to that invoked
by PAL in this case.

In Radio Communications of the Philippines, Inc. v. Court of Tax Appeals, et al. (G.R. No. 615)." July 11, 1985),
this Court ruled:

Under its original franchise, Republic Act No. 21); enacted in 1957, petitioner Radio
Communications of the Philippines, Inc., was subject to both the franchise tax and income tax. In
1964, however, petitioner's franchise was amended by Republic Act No. 41-42). to the effect that
its franchise tax of one and one-half percentum (1-1/2%) of all gross receipts was provided as "in
lieu of any and all taxes of any kind, nature, or description levied, established, or collected by any
authority whatsoever, municipal, provincial, or national from which taxes the grantee is hereby
expressly exempted." The issue raised to this Court now is the validity of the respondent court's
decision which ruled that the exemption under Republic Act No. 41-42). was repealed by Section
24 of Republic Act No. 5448 dated June 27, 1968 which reads:

"(d) The provisions of existing special or general laws to the contrary

notwithstanding, all corporate taxpayers not specifically exempt under Sections 24
(c) (1) of this Code shall pay the rates provided in this section. All corporations,
agencies, or instrumentalities owned or controlled by the government, including
the Government Service Insurance System and the Social Security System but
excluding educational institutions, shall pay such rate of tax upon their taxable net
income as are imposed by this section upon associations or corporations engaged
in a similar business or industry. "

An examination of Section 24 of the Tax Code as amended shows clearly that the law intended all
corporate taxpayers to pay income tax as provided by the statute. There can be no doubt as to
the power of Congress to repeal the earlier exemption it granted. Article XIV, Section 8 of the
1935 Constitution and Article XIV, Section 5 of the Constitution as amended in 1973 expressly
provide that no franchise shall be granted to any individual, firm, or corporation except under the
condition that it shall be subject to amendment, alteration, or repeal by the legislature when the
public interest so requires. There is no question as to the public interest involved. The country
needs increased revenues. The repealing clause is clear and unambiguous. There is a listing of
entities entitled to tax exemption. The petitioner is not covered by the provision. Considering the
foregoing, the Court Resolved to DENY the petition for lack of merit. The decision of the
respondent court is affirmed.

Any registration fees collected between June 27, 1968 and April 9, 1979, were correctly imposed because the tax
exemption in the franchise of PAL was repealed during the period. However, an amended franchise was given to
PAL in 1979. Section 13 of Presidential Decree No. 1590, now provides:
 In consideration of the franchise and rights hereby granted, the grantee shall pay to the Philippine
Government during the lifetime of this franchise whichever of subsections (a) and (b) hereunder
will result in a lower taxes.)

(a) The basic corporate income tax based on the grantee's annual net taxable
income computed in accordance with the provisions of the Internal Revenue Code;
or

(b) A franchise tax of two per cent (2%) of the gross revenues. derived by the
grantees from all specific. without distinction as to transport or nontransport
corporations; provided that with respect to international airtransport service, only
the gross passengers, mail, and freight revenues. from its outgoing flights shall be
subject to this law.

The tax paid by the grantee under either of the above alternatives shall be in lieu of all other taxes,
duties, royalties, registration, license and other fees and charges of any kind, nature or
description imposed, levied, established, assessed, or collected by any municipal, city, provincial,
or national authority or government, agency, now or in the future, including but not limited to the
following:

xxx xxx xxx

(5) All taxes, fees and other charges on the registration, license, acquisition, and transfer of
airtransport equipment, motor vehicles, and all other personal or real property of the gravitates
(Pres. Decree 1590, 75 OG No. 15, 3259, April 9, 1979).

PAL's current franchise is clear and specific. It has removed the ambiguity found in the earlier law. PAL is now
exempt from the payment of any tax, fee, or other charge on the registration and licensing of motor vehicles.
Such payments are already included in the basic tax or franchise tax provided in Subsections (a) and (b) of
Section 13, P.D. 1590, and may no longer be exacted.

WHEREFORE, the petition is hereby partially GRANTED. The prayed for refund of registration fees paid in 1971
is DENIED. The Land Transportation Franchising and Regulatory Board (LTFRB) is enjoined functions-the
collecting any tax, fee, or other charge on the registration and licensing of the petitioner's motor vehicles from
April 9, 1979 as provided in Presidential Decree No. 1590.

SO ORDERED.
COMMISSIONER OF INTERNAL G.R. No. 159647
REVENUE,
Petitioner, Present:
Panganiban, J.,
Chairman,
Sandoval-Gutierrez,
- versus - Corona,
Carpio Morales, and
Garcia, JJ
CENTRAL LUZON DRUG Promulgated:
CORPORATION,
Respondent. April 15, 2005
x -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- x

DECISION

PANGANIBAN, J.:
T
he 20 percent discount required by the law to be given to senior citizens is
a tax credit, not merely a tax deduction from the gross income or gross sale of
the establishment concerned. A tax credit is used by a private establishment
only after the tax has been computed; a tax deduction, before the tax is
computed. RA 7432 unconditionally grants a tax credit to all covered entities. Thus,
the provisions of the revenue regulation that withdraw or modify such grant are void.
Basic is the rule that administrative regulations cannot amend or revoke the law.

The Case

Before us is a Petition for Review[1] under Rule 45 of the Rules of Court,

seeking to set aside the August 29, 2002 Decision [2] and the August 11, 2003
Resolution[3] of the Court of Appeals (CA) in CA-GR SP No. 67439. The assailed
Decision reads as follows:

WHEREFORE, premises considered, the Resolution appealed from

is AFFIRMED in toto. No costs.[4]

The assailed Resolution denied petitioners Motion for Reconsideration.

The Facts
The CA narrated the antecedent facts as follows:

Respondent is a domestic corporation primarily engaged in retailing of

medicines and other pharmaceutical products. In 1996, it operated six (6)
drugstores under the business name and style Mercury Drug.

From January to December 1996, respondent granted twenty (20%) percent

sales discount to qualified senior citizens on their purchases of medicines
pursuant to Republic Act No. [R.A.] 7432 and its Implementing Rules and
Regulations. For the said period, the amount allegedly representing the 20%
sales discount granted by respondent to qualified senior citizens
totaled P904,769.00.

On April 15, 1997, respondent filed its Annual Income Tax Return for taxable
year 1996 declaring therein that it incurred net losses from its operations.

On January 16, 1998, respondent filed with petitioner a claim for tax
refund/credit in the amount of P904,769.00 allegedly arising from the 20%
sales discount granted by respondent to qualified senior citizens in compliance
with [R.A.] 7432. Unable to obtain affirmative response from petitioner,
respondent elevated its claim to the Court of Tax Appeals [(CTA or Tax
Court)] via a Petition for Review.

On February 12, 2001, the Tax Court rendered a Decision[5] dismissing

respondents Petition for lack of merit. In said decision, the [CTA] justified its
ruling with the following ratiocination:

x x x, if no tax has been paid to the government, erroneously or illegally,

or if no amount is due and collectible from the taxpayer, tax refund or
tax credit is unavailing. Moreover, whether the recovery of the tax is
made by means of a claim for refund or tax credit, before recovery is
allowed[,] it must be first established that there was an actual collection
and receipt by the government of the tax sought to be recovered. x x x.
 xxxxxxxxx

Prescinding from the above, it could logically be deduced that tax credit
is premised on the existence of tax liability on the part of taxpayer. In
other words, if there is no tax liability, tax credit is not available.

Respondent lodged a Motion for Reconsideration. The [CTA], in its assailed

resolution,[6] granted respondents motion for reconsideration and ordered
herein petitioner to issue a Tax Credit Certificate in favor of respondent citing
the decision of the then Special Fourth Division of [the CA] in CA G.R. SP No.
60057 entitled Central [Luzon] Drug Corporation vs. Commissioner of Internal
Revenue promulgated on May 31, 2001, to wit:

However, Sec. 229 clearly does not apply in the instant case because
the tax sought to be refunded or credited by petitioner was not
erroneously paid or illegally collected. We take exception to the CTAs
sweeping but unfounded statement that both tax refund and tax credit
are modes of recovering taxes which are either erroneously or illegally
paid to the government. Tax refunds or credits do not exclusively
pertain to illegally collected or erroneously paid taxes as they may be
other circumstances where a refund is warranted. The tax refund
provided under Section 229 deals exclusively with illegally collected or
erroneously paid taxes but there are other possible situations, such as
the refund of excess estimated corporate quarterly income tax paid, or
that of excess input tax paid by a VAT-registered person, or that of
excise tax paid on goods locally produced or manufactured but actually
exported. The standards and mechanics for the grant of a refund or
credit under these situations are different from that under Sec. 229. Sec.
4[.a)] of R.A. 7432, is yet another instance of a tax credit and it does not
in any way refer to illegally collected or erroneously paid taxes, x x x. [7]
 Ruling of the Court of Appeals

The CA affirmed in toto the Resolution of the Court of Tax Appeals (CTA) ordering
petitioner to issue a tax credit certificate in favor of respondent in the reduced
amount of P903,038.39. It reasoned that Republic Act No. (RA) 7432 required
neither a tax liability nor a payment of taxes by private establishments prior to the
availment of a tax credit. Moreover, such credit is not tantamount to an unintended
benefit from the law, but rather a just compensation for the taking of private
property for public use.

Hence this Petition.[8]

The Issues

Petitioner raises the following issues for our consideration:

Whether the Court of Appeals erred in holding that respondent may claim the
20% sales discount as a tax credit instead of as a deduction from gross
income or gross sales.

Whether the Court of Appeals erred in holding that respondent is entitled to a

refund.[9]
These two issues may be summed up in only one: whether respondent, despite
incurring a net loss, may still claim the 20 percent sales discount as a tax credit.

The Courts Ruling

The Petition is not meritorious.

Sole Issue:
Claim of 20 Percent Sales Discount
as Tax Credit Despite Net Loss

Section 4a) of RA 7432[10] grants to senior citizens the privilege of obtaining a 20

percent discount on their purchase of medicine from any private establishment in
the country.[11] The latter may then claim the cost of the discount as a tax credit.[12] But
can such credit be claimed, even though an establishment operates at a loss?

We answer in the affirmative.

Tax Credit versus

Tax Deduction

Although the term is not specifically defined in our Tax Code, [13] tax credit generally
refers to an amount that is subtracted directly from ones total tax liability. [14] It is an
allowance against the tax itself[15] or a deduction from what is owed[16] by a taxpayer
to the government. Examples of tax credits are withheld taxes, payments of estimated
tax, and investment tax credits.[17]

Tax credit should be understood in relation to other tax concepts. One of these is tax
deduction -- defined as a subtraction from income for tax purposes, [18] or an amount
that is allowed by law to reduce income prior to [the] application of the tax rate to
compute the amount of tax which is due.[19] An example of a tax deduction is any of
the allowable deductions enumerated in Section 34[20] of the Tax Code.

A tax credit differs from a tax deduction. On the one hand, a tax credit reduces the tax
due, including -- whenever applicable -- the income tax that is determined after
applying the corresponding tax rates to taxable income.[21] A tax deduction, on the other,
reduces the income that is subject to tax[22] in order to arrive at taxable income.[23] To
think of the former as the latter is to avoid, if not entirely confuse, the issue. A tax
credit is used only after the tax has been computed; a tax deduction, before.

Tax Liability Required

for Tax Credit
Since a tax credit is used to reduce directly the tax that is due, there ought to be a tax
liability before the tax credit can be applied. Without that liability, any tax
credit application will be useless. There will be no reason for deducting the latter
when there is, to begin with, no existing obligation to the government. However, as
will be presented shortly, the existence of a tax credit or its grant by law is not the same
as the availment or use of such credit. While the grant is mandatory, the availment or
use is not.

If a net loss is reported by, and no other taxes are currently due from, a business
establishment, there will obviously be no tax liability against which any tax credit can
be applied.[24] For the establishment to choose the immediate availment of a tax
credit will be premature and impracticable. Nevertheless, the irrefutable fact remains
that, under RA 7432, Congress has granted without conditions a tax credit benefit to
all covered establishments.

Although this tax credit benefit is available, it need not be used by losing ventures,
since there is no tax liability that calls for its application. Neither can it be reduced to
nil by the quick yet callow stroke of an administrative pen, simply because no
reduction of taxes can instantly be effected. By its nature, the tax credit may still be
deducted from a future, not a present, tax liability, without which it does not have any
use. In the meantime, it need not move. But it breathes.

Prior Tax Payments Not

Required for Tax Credit

While a tax liability is essential to the availment or use of any tax credit, prior tax
payments are not. On the contrary, for the existence or grant solely of such credit,
neither a tax liability nor a prior tax payment is needed. The Tax Code is in fact
replete with provisions granting or allowing tax credits, even though no taxes have
been previously paid.

For example, in computing the estate tax due, Section 86(E) allows a tax credit --
subject to certain limitations -- for estate taxes paid to a foreign country. Also found
in Section 101(C) is a similar provision for donors taxes -- again when paid to a
foreign country -- in computing for the donors tax due. The tax credits in both instances
allude to the prior payment of taxes, even if not made to our government.

Under Section 110, a VAT (Value-Added Tax)- registered person engaging in

transactions -- whether or not subject to the VAT -- is also allowed a tax credit that
includes a ratable portion of any input tax not directly attributable to either activity.
This input tax may either be the VAT on the purchase or importation of goods or
services that is merely due from -- not necessarily paid by -- such VAT-registered
person in the course of trade or business; or the transitional input tax determined in
accordance with Section 111(A). The latter type may in fact be an amount equivalent
to only eight percent of the value of a VAT-registered persons beginning inventory
of goods, materials and supplies, when such amount -- as computed -- is higher than
the actual VAT paid on the said items.[25] Clearly from this provision, the tax
credit refers to an input tax that is either due only or given a value by mere
comparison with the VAT actually paid -- then later prorated. No tax is actually paid
prior to the availment of such credit.

In Section 111(B), a one and a half percent input tax credit that is merely presumptive
is allowed. For the purchase of primary agricultural products used as inputs -- either
in the processing of sardines, mackerel and milk, or in the manufacture of refined
sugar and cooking oil -- and for the contract price of public work contracts entered
into with the government, again, no prior tax payments are needed for the use of
the tax credit.

More important, a VAT-registered person whose sales are zero-rated or effectively

zero-rated may, under Section 112(A), apply for the issuance of a tax credit certificate
for the amount of creditable input taxes merely due -- again not necessarily paid to --
the government and attributable to such sales, to the extent that the input taxes have
not been applied against output taxes.[26] Where a taxpayer
is engaged in zero-rated or effectively zero-rated sales and also in taxable or exempt
sales, the amount of creditable input taxes due that are not directly and entirely
attributable to any one of these transactions shall be proportionately allocated on the
basis of the volume of sales. Indeed, in availing of such tax credit for VAT purposes,
this provision -- as well as the one earlier mentioned -- shows that the prior payment
of taxes is not a requisite.

It may be argued that Section 28(B)(5)(b) of the Tax Code is another illustration of
a tax credit allowed, even though no prior tax payments are not required. Specifically,
in this provision, the imposition of a final withholding tax rate on cash and/or
property dividends received by a nonresident foreign corporation from a domestic
corporation is subjected to the condition that a foreign tax credit will be given by the
domiciliary country in an amount equivalent to taxes that are merely deemed
paid.[27] Although true, this provision actually refers to the tax credit as a condition only
for the imposition of a lower tax rate, not as a deduction from the corresponding tax
liability. Besides, it is not our government but the domiciliary country that credits
against the income tax payable to the latter by the foreign corporation, the tax to be
foregone or spared.[28]

In contrast, Section 34(C)(3), in relation to Section 34(C)(7)(b), categorically allows

as credits, against the income tax imposable under Title II, the amount of income
taxes merely incurred -- not necessarily paid -- by a domestic corporation during a
taxable year in any foreign country. Moreover, Section 34(C)(5) provides that for
such taxes incurred but not paid, a tax credit may be allowed, subject to the condition
precedent that the taxpayer shall simply give a bond with sureties satisfactory to and
approved by petitioner, in such sum as may be required; and further conditioned
upon payment by the taxpayer of any tax found due, upon petitioners
redetermination of it.

In addition to the above-cited provisions in the Tax Code, there are also tax treaties
and special laws that grant or allow tax credits, even though no prior tax payments
have been made.
Under the treaties in which the tax credit method is used as a relief to avoid double
taxation, income that is taxed in the state of source is also taxable in the state of residence,
but the tax paid in the former is merely allowed as a credit against the tax levied in
the latter.[29] Apparently, payment is made to the state of source, not the state of residence.
No tax, therefore, has been previously paid to the latter.

Under special laws that particularly affect businesses, there can also be tax
credit incentives. To illustrate, the incentives provided for in Article 48 of Presidential
Decree No. (PD) 1789, as amended by Batas Pambansa Blg. (BP) 391, include tax
credits equivalent to either five percent of the net value earned, or five or ten percent
of the net local content of exports.[30] In order to avail of such credits under the said
law and still achieve its objectives, no prior tax payments are necessary.

From all the foregoing instances, it is evident that prior tax payments are not
indispensable to the availment of a tax credit. Thus, the CA correctly held that the
availment under RA 7432 did not require prior tax payments by private
establishments concerned.[31] However, we do not agree with its finding[32] that the
carry-over of tax credits under the said special law to succeeding taxable periods, and
even their application against internal revenue taxes, did not necessitate the existence
of a tax liability.

The examples above show that a tax liability is certainly important in the availment or
use, not the existence or grant, of a tax credit. Regarding this matter, a private
establishment reporting a net loss in its financial statements is no different from
another that presents a net income. Both are entitled to the tax credit provided for
under RA 7432, since the law itself accords that unconditional benefit. However, for
the losing establishment to immediately apply such credit, where no tax is due, will
be an improvident usance.

Sections 2.i and 4 of Revenue

Regulations No. 2-94 Erroneous

RA 7432 specifically allows private establishments to claim as tax credit the amount of
discounts they grant.[33] In turn, the Implementing Rules and Regulations, issued
pursuant thereto, provide the procedures for its availment. [34] To deny such credit,
despite the plain mandate of the law and the regulations carrying out that mandate, is
indefensible.

First, the definition given by petitioner is erroneous. It refers to tax credit as the
amount representing the 20 percent discount that shall be deducted by the said
establishments from their gross income for income tax purposes and from their gross
sales for value-added tax or other percentage tax purposes.[35] In ordinary business
language, the tax credit represents the amount of such discount. However, the
manner by which the discount shall be credited against taxes has not been clarified
by the revenue regulations.

By ordinary acceptation, a discount is an abatement or reduction made from the

gross amount or value of anything.[36] To be more precise, it is in business parlance a
deduction or lowering of an amount of money;[37] or a reduction from the full
amount or value of something, especially a price.[38] In business there are many kinds
of discount, the most common of which is that affecting the income statement[39] or
financial report upon which the income tax is based.

Business Discounts
Deducted from Gross Sales

A cash discount, for example, is one granted by business establishments to credit

customers for their prompt payment.[40] It is a reduction in price offered to the
purchaser if payment is made within a shorter period of time than the maximum
time specified.[41] Also referred to as a sales discounton the part of the seller and
a purchase discount on the part of the buyer, it may be expressed in such
terms as 5/10, n/30.[42]

A quantity discount, however, is a reduction in price allowed for purchases made in

large quantities, justified by savings in packaging, shipping, and handling.[43] It is also
called a volume or bulk discount.[44]

A percentage reduction from the list price x x x allowed by manufacturers to

wholesalers and by wholesalers to retailers[45] is known as a trade discount. No entry for
it need be made in the manual or computerized books of accounts, since the purchase or
sale is already valued at the net price actually charged the buyer. [46] The purpose for
the discount is to encourage trading or increase sales, and the prices at which the
purchased goods may be resold are also suggested.[47] Even a chain discount -- a series
of discounts from one list price -- is recorded at net.[48]

Finally, akin to a trade discount is a functional discount. It is a suppliers price discount

given to a purchaser based on the [latters] role in the [formers] distribution
system.[49] This role usually involves warehousing or advertising.

Based on this discussion, we find that the nature of a sales discount is peculiar.
Applying generally accepted accounting principles (GAAP) in the country, this type
of discount is reflected in the income statement[50] as a line item deducted -- along with
returns, allowances, rebates and other similar expenses -- from gross sales to arrive
at net sales.[51] This type of presentation is resorted to, because the accounts
receivable and sales figures that arise from sales discounts, -- as well as from quantity,
volume or bulk discounts -- are recorded in the manual and computerized books of
accounts and reflected in the financial statements at the gross amounts of the
invoices.[52] This manner of recording credit sales -- known as the gross method -- is
most widely used, because it is simple, more convenient to apply than the net method,
and produces no material errors over time.[53]

However, under the net method used in recording trade, chain or functional discounts, only
the net amounts of the invoices -- after the discounts have been deducted -- are
recorded in the books of accounts[54] and reflected in the financial statements. A separate
line item cannot be shown,[55]because the transactions themselves involving
both accounts receivable and sales have already been entered into, net of the said
discounts.

The term sales discounts is not expressly defined in the Tax Code, but one provision
adverts to amounts whose sum -- along with sales returns, allowances and cost of goods
sold[56] -- is deducted from gross sales to come up with the gross
income, profit or margin[57] derived from business.[58] In another provision therein, sales
discounts that are granted and indicated in the invoices at the time of sale -- and that
do not depend upon the happening of any future event -- may be excluded from
the gross sales within the same quarter they were given. [59] While determinative only of
the VAT, the latter provision also appears as a suitable reference point for income
tax purposes already embraced in the former. After all, these two provisions affirm
that sales discounts are amounts that are always deductible from gross sales.

Reason for the Senior Citizen Discount:

The Law, Not Prompt Payment

A distinguishing feature of the implementing rules of RA 7432 is the private

establishments outright deduction of the discount from the invoice price of the
medicine sold to the senior citizen.[60] It is, therefore, expected that for each retail
sale made under this law, the discount period lasts no more than a day, because such
discount is given -- and the net amount thereof collected -- immediately upon
perfection of the sale.[61]Although prompt payment is made for an arms-length
transaction by the senior citizen, the real and compelling reason for the private
establishment giving the discount is that the law itself makes it mandatory.

What RA 7432 grants the senior citizen is a mere discount privilege, not a sales
discount or any of the above discounts in particular. Prompt payment is not the
reason for (although a necessary consequence of) such grant. To be sure, the
privilege enjoyed by the senior citizen must be equivalent to the tax credit benefit
enjoyed by the private establishment granting the discount. Yet, under the revenue
regulations promulgated by our tax authorities, this benefit has been erroneously
likened and confined to a sales discount.

To a senior citizen, the monetary effect of the privilege may be the same as that
resulting from a sales discount. However, to a private establishment, the effect is
different from a simple reduction in price that results from such discount. In other
words, the tax credit benefit is not the same as a sales discount. To repeat from our
earlier discourse, this benefit cannot and should not be treated as a tax deduction.

To stress, the effect of a sales discount on the income statement and income tax return of an
establishment covered by RA 7432 is different from that resulting from
the availment or use of its tax credit benefit. While the former is a deduction before, the
latter is a deduction after, the income tax is computed. As mentioned earlier, a discount
is not necessarily a sales discount, and a tax credit for a simple discount privilege should
not be automatically treated like a sales discount. Ubi lex non distinguit, nec nos distinguere
debemus. Where the law does not distinguish, we ought not to distinguish.
Sections 2.i and 4 of Revenue Regulations No. (RR) 2-94 define tax credit as the 20
percent discount deductible from gross income for income taxpurposes, or from gross
sales for VAT or other percentage tax purposes. In effect, the tax credit benefit under
RA 7432 is related to a sales discount. This contrived definition is improper,
considering that the latter has to be deducted from gross sales in order to compute
the gross income in the income statement and cannot be deducted again, even for
purposes of computing the income tax.

When the law says that the cost of the discount may be claimed as a tax credit, it
means that the amount -- when claimed -- shall be treated as a reduction from any
tax liability, plain and simple. The option to avail of the tax credit benefit depends
upon the existence of a tax liability, but to limit the benefit to a sales discount -- which
is not even identical to the discount privilege that is granted by law -- does not define
it at all and serves no useful purpose. The definition must, therefore, be stricken
down.

Laws Not Amended

by Regulations

Second, the law cannot be amended by a mere regulation. In fact, a regulation that
operates to create a rule out of harmony with
the statute is a mere nullity;[62] it cannot prevail.
It is a cardinal rule that courts will and should respect the contemporaneous
construction placed upon a statute by the executive officers whose duty it is to
enforce it x x x.[63] In the scheme of judicial tax administration, the need for certainty
and predictability in the implementation of tax laws is crucial.[64] Our tax authorities
fill in the details that Congress may not have the opportunity or competence to
provide.[65] The regulations these authorities issue are relied upon by taxpayers, who
are certain that these will be followed by the courts.[66] Courts, however, will not
uphold these authorities interpretations when clearly absurd, erroneous or improper.

In the present case, the tax authorities have given the term tax credit in Sections 2.i
and 4 of RR 2-94 a meaning utterly in contrast to what RA 7432 provides. Their
interpretation has muddled up the intent of Congress in granting a mere discount
privilege, not a sales discount. The administrative agency issuing these regulations may
not enlarge, alter or restrict the provisions of the law it administers; it cannot engraft
additional requirements not contemplated by the legislature.[67]

In case of conflict, the law must prevail.[68] A regulation adopted pursuant to law is
law.[69] Conversely, a regulation or any portion thereof not adopted pursuant to law is
no law and has neither the force nor the effect of law.[70]

Availment of Tax
Credit Voluntary

Third, the word may in the text of the statute[71] implies that the
availability of the tax credit benefit is neither unrestricted nor mandatory. [72] There is
no absolute right conferred upon respondent, or any similar taxpayer, to avail itself
of the tax credit remedy whenever it chooses; neither does it impose a duty on the
part of the government to sit back and allow an important facet of tax collection to
be at the sole control and discretion of the taxpayer. [73] For the tax authorities to
compel respondent to deduct the 20 percent discount from either its gross income or
its gross sales[74] is, therefore, not only to make an imposition without basis in law, but
also to blatantly contravene the law itself.

What Section 4.a of RA 7432 means is that the tax credit benefit is merely permissive,
not imperative. Respondent is given two options -- either to claim or not to claim
the cost of the discounts as a tax credit. In fact, it may even ignore the credit and
simply consider the gesture as an act of beneficence, an expression of its social
conscience.

Granting that there is a tax liability and respondent claims such cost as a tax credit,
then the tax credit can easily be applied. If there is none, the credit cannot be used
and will just have to be carried over and revalidated[75] accordingly. If, however, the
business continues to operate at a loss and no other taxes are due, thus compelling it
to close shop, the credit can never be applied and will be lost altogether.

In other words, it is the existence or the lack of a tax liability that determines
whether the cost of the discounts can be used as a tax credit. RA 7432 does not give
respondent the unfettered right to avail itself of the credit whenever it pleases.
Neither does it allow our tax administrators to expand or contract the legislative
mandate. The plain meaning rule or verba legis in statutory construction is thus
applicable x x x. Where the words of a statute are clear, plain and free from
ambiguity, it must be given its literal meaning and applied without attempted
interpretation.[76]

Tax Credit Benefit

Deemed Just Compensation

Fourth, Sections 2.i and 4 of RR 2-94 deny the exercise by the State of its power of
eminent domain. Be it stressed that the privilege enjoyed by senior citizens does not
come directly from the State, but rather from the private establishments concerned.
Accordingly, the tax credit benefit granted to these establishments can be deemed as
their just compensation for private property taken by the State for public use. [77]

The concept of public use is no longer confined to the traditional notion of use by the
public, but held synonymous with public interest, public benefit, public welfare, and public
convenience.[78] The discount privilege to which our senior citizens are entitled is
actually a benefit enjoyed by the general public to which these citizens belong. The
discounts given would have entered the coffers and formed part of the gross sales of
the private establishments concerned, were it not for RA 7432. The permanent
reduction in their total revenues is a forced subsidy corresponding to the taking of
private property for public use or benefit.
As a result of the 20 percent discount imposed by RA 7432, respondent becomes
entitled to a just compensation. This term refers not only to the issuance of a tax
credit certificate indicating the correct amount of the discounts given, but also to the
promptness in its release. Equivalent to the payment of property taken by the State,
such issuance -- when not done within a reasonable time from the grant of the
discounts -- cannot be considered as just compensation. In effect, respondent is made
to suffer the consequences of being immediately deprived of its revenues while
awaiting actual receipt, through the certificate, of the equivalent amount it needs to
cope with the reduction in its revenues.[79]

Besides, the taxation power can also be used as an implement for the exercise of the
power of eminent domain.[80] Tax measures are but enforced contributions exacted
on pain of penal sanctions[81] and clearly imposed for a public purpose.[82] In recent
years, the power to tax has indeed become a most effective tool to realize social
justice, public welfare, and the equitable distribution of wealth.[83]

While it is a declared commitment under Section 1 of RA 7432, social justice cannot

be invoked to trample on the rights of property owners who under our Constitution
and laws are also entitled to protection. The social justice consecrated in our
[C]onstitution [is] not intended to take away rights from a person and give them to
another who is not entitled thereto.[84] For this reason, a just compensation for
income that is taken away from respondent becomes necessary. It is in the tax
credit that our legislators find support to realize social justice, and no administrative
body can alter that fact.
To put it differently, a private establishment that merely breaks even[85] -- without the
discounts yet -- will surely start to incur losses because of such discounts. The same
effect is expected if its mark-up is less than 20 percent, and if all its sales come from
retail purchases by senior citizens. Aside from the observation we have already raised
earlier, it will also be grossly unfair to an establishment if the discounts will be
treated merely as deductions from either its gross income or its gross sales. Operating at a
loss through no fault of its own, it will realize that the tax credit limitation under RR
2-94 is inutile, if not improper. Worse, profit-generating businesses will be put in a
better position if they avail themselves of tax creditsdenied those that are losing,
because no taxes are due from the latter.

Grant of Tax Credit

Intended by the Legislature

Fifth, RA 7432 itself seeks to adopt measures whereby senior citizens are assisted by
the community as a whole and to establish a program beneficial to them.[86] These
objectives are consonant with the constitutional policy of making health x x x
services available to all the people at affordable cost[87] and of giving priority for the
needs of the x x x elderly.[88] Sections 2.i and 4 of RR 2-94, however, contradict these
constitutional policies and statutory objectives.

Furthermore, Congress has allowed all private establishments a simple tax credit, not
a deduction. In fact, no cash outlay is required from the government for
the availment or use of such credit. The deliberations on February 5, 1992 of the
Bicameral Conference Committee Meeting on Social Justice, which finalized RA
7432, disclose the true intent of our legislators to treat the sales discounts as a tax credit,
rather than as a deduction from gross income. We quote from those deliberations as
follows:

"THE CHAIRMAN (Rep. Unico). By the way, before that ano, about deductions
from taxable income. I think we incorporated there a
provision na - on the responsibility of the private hospitals
and drugstores, hindi ba?

SEN. ANGARA. Oo.

THE CHAIRMAN. (Rep. Unico), So, I think we have to put in also a provision
here about the deductions from taxable income of that
private hospitals, di ba ganon 'yan?

MS. ADVENTO. Kaya lang po sir, and mga discounts po nila affecting
government and public institutions, so, puwede na po nating
hindi isama yung mga less deductions ng taxable income.

THE CHAIRMAN. (Rep. Unico). Puwede na. Yung about the private hospitals.
Yung isiningit natin?

MS. ADVENTO. Singit na po ba yung 15% on credit. (inaudible/did not use the
microphone).

SEN. ANGARA. Hindi pa, hindi pa.

THE CHAIRMAN. (Rep. Unico) Ah, 'di pa ba naisama natin?

SEN. ANGARA. Oo. You want to insert that?

THE CHAIRMAN (Rep. Unico). Yung ang proposal ni Senator Shahani, e.

SEN. ANGARA. In the case of private hospitals they got the grant of 15%
discount, provided that, the private hospitals can claim the
expense as a tax credit.

REP. AQUINO. Yah could be allowed as deductions in the perpetrations of

(inaudible) income.

SEN. ANGARA. I-tax credit na lang natin para walang cash-out ano?

REP. AQUINO. Oo, tax credit. Tama, Okay. Hospitals ba o lahat ng

establishments na covered.

THE CHAIRMAN. (Rep. Unico). Sa kuwan lang yon, as private hospitals lang.

REP. AQUINO. Ano ba yung establishments na covered?

SEN. ANGARA. Restaurant lodging houses, recreation centers.

REP. AQUINO. All establishments covered siguro?

SEN. ANGARA. From all establishments. Alisin na natin 'Yung kuwan kung
ganon. Can we go back to Section 4 ha?
 REP. AQUINO. Oho.

SEN. ANGARA. Letter A. To capture that thought, we'll say the grant of 20%
discount from all establishments et cetera, et cetera,
provided that said establishments - provided that private
establishments may claim the cost as a tax credit. Ganon ba
'yon?

REP. AQUINO. Yah.

SEN. ANGARA. Dahil kung government, they don't need to claim it.

THE CHAIRMAN. (Rep. Unico). Tax credit.

SEN. ANGARA. As a tax credit [rather] than a kuwan - deduction, Okay.

REP. AQUINO Okay.

SEN. ANGARA. Sige Okay. Di subject to style na lang sa Letter A".[89]

Special Law
Over General Law
Sixth and last, RA 7432 is a special law that should prevail over the Tax Code -- a
general law. x x x [T]he rule is that on a specific matter the special law shall prevail
over the general law, which shall
be resorted to only to supply deficiencies in the former.[90] In addition, [w]here there
are two statutes, the earlier special and the later general -- the terms of the general
broad enough to include the matter provided for in the special -- the fact that one is
special and the other is general creates a presumption that the special is to be
considered as remaining an exception to the general, [91] one as a general law of the
land, the other as the law of a particular case.[92] It is a canon of statutory
construction that a later statute, general in its terms and not expressly repealing a prior
special statute, will ordinarily not affect the special provisions of such earlier statute. [93]

RA 7432 is an earlier law not expressly repealed by, and therefore remains an
exception to, the Tax Code -- a later law. When the former states that a tax credit may
be claimed, then the requirement of prior tax payments under certain provisions of
the latter, as discussed above, cannot be made to apply. Neither can the instances of
or references to a tax deduction under the Tax Code[94] be made to restrict RA 7432.
No provision of any revenue regulation can supplant or modify the acts of Congress.

WHEREFORE, the Petition is hereby DENIED. The assailed Decision and

Resolution of the Court of Appeals AFFIRMED. No pronouncement as to costs.

SO ORDERED.
 [G.R. No. 152675. April 28, 2004]

BATANGAS POWER CORPORATION, petitioner, vs. BATANGAS CITY and

NATIONAL POWER CORPORATION, respondents.

[G.R. No. 152771. April 28, 2004]

NATIONAL POWER CORPORATION, petitioner, vs. HON. RICARDO R.

ROSARIO, in his capacity as Presiding Judge, RTC, Br. 66, Makati City;
BATANGAS CITY GOVERNMENT; ATTY. TEODULFO DEGUITO, in his
capacity as Chief Legal Officer, Batangas City; and BENJAMIN PARGAS,
in his capacity as City Treasurer, Batangas City, respondents.

DECISION
PUNO, J.:

Before us are two (2) consolidated petitions for review under Rule 45 of the Rules of
Civil Procedure, seeking to set aside the rulings of the Regional Trial Court of Makati in
its February 27, 2002 Decision in Civil Case No. 00-205.
The facts show that in the early 1990s, the country suffered from a crippling power
crisis. Power outages lasted 8-12 hours daily and power generation was badly
needed. Addressing the problem, the government, through the National Power
Corporation (NPC), sought to attract investors in power plant operations by providing
them with incentives, one of which was through the NPCs assumption of payment of
their taxes in the Build Operate and Transfer (BOT) Agreement.
On June 29, 1992, Enron Power Development Corporation (Enron) and petitioner
NPC entered into a Fast Track BOT Project. Enron agreed to supply a power station to
NPC and transfer its plant to the latter after ten (10) years of operation. Section 11.02 of
the BOT Agreement provided that NPC shall be responsible for the payment of all taxes
that may be imposed on the power station, except income taxes and permit fees.
Subsequently, Enron assigned its obligation under the BOT Agreement to petitioner
Batangas Power Corporation (BPC).
On September 13, 1992, BPC registered itself with the Board of Investments (BOI)
as a pioneer enterprise. On September 23, 1992, the BOI issued a certificate of
registration to BPC as a pioneer enterprise entitled to a tax holiday for a period of six (6)
[1]

years. The construction of the power station in respondent Batangas City was then
completed. BPC operated the station.
On October 12, 1998, Batangas City (the city, for brevity), thru its legal officer
Teodulfo A. Deguito, sent a letter to BPC demanding payment of business taxes and
penalties, commencing from the year 1994 as provided under Ordinance XI or the 1992
Batangas City Tax Code. BPC refused to pay, citing its tax-exempt status as a pioneer
[2]

enterprise for six (6) years under Section 133 (g) of the Local Government Code (LGC). [3]

On April 15, 1999, city treasurer Benjamin S. Pargas modified the citys tax
claim and demanded payment of business taxes from BPC only for the years 1998-
[4]

1999.He acknowledged that BPC enjoyed a 6-year tax holiday as a pioneer industry but
its tax exemption period expired on September 22, 1998, six (6) years after its
registration with the BOI on September 23, 1992. The city treasurer held that thereafter
BPC became liable to pay its business taxes.
BPC still refused to pay the tax. It insisted that its 6-year tax holiday commenced
from the date of its commercial operation on July 16, 1993, not from the date of its BOI
registration in September 1992. It furnished the city with a BOI letter wherein BOI
[5] [6]

designated July 16, 1993 as the start of BPCs income tax holiday as BPC was not able
to immediately operate due to force majeure. BPC claimed that the local tax holiday is
concurrent with the income tax holiday. In the alternative, BPC asserted that the city
should collect the tax from the NPC as the latter assumed responsibility for its payment
under their BOT Agreement.
The matter was not put to rest. The city legal officer insisted that BPCs tax holiday
[7]

has already expired, while the city argued that it directed its tax claim to BPC as it is the
entity doing business in the city and hence liable to pay the taxes. The city alleged that it
was not privy to NPCs assumption of BPCs tax payment under their BOT Agreement as
the only parties thereto were NPC and BPC.
BPC adamantly refused to pay the tax claims and reiterated its position. The city [8]

was likewise unyielding on its stand. On August 26, 1999, the NPC intervened. While
[9] [10]

admitting assumption of BPCs tax obligations under their BOT Agreement, NPC refused
to pay BPCs business tax as it allegedly constituted an indirect tax on NPC which is a
tax-exempt corporation under its Charter. [11]

In view of the deadlock, BPC filed a petition for declaratory relief with the Makati
[12]

Regional Trial Court (RTC) against Batangas City and NPC, praying for a ruling that it
was not bound to pay the business taxes imposed on it by the city. It alleged that under
the BOT Agreement, NPC is responsible for the payment of such taxes but as NPC is
exempt from taxes, both the BPC and NPC are not liable for its payment. NPC and
Batangas City filed their respective answers.
On February 23, 2000, while the case was still pending, the city refused to issue a
permit to BPC for the operation of its business unless it paid the assessed business
taxes amounting to close to P29M.
In view of this supervening event, BPC, whose principal office is in Makati City, filed
a supplemental petition with the Makati RTC to convert its original petition into an
[13]

action for injunction to enjoin the city from withholding the issuance of its business
permit and closing its power plant. The city opposed on the grounds of lack of
jurisdiction and lack of cause of action. The Supplemental Petition was nonetheless
[14]

admitted by the Makati RTC.

 On February 27, 2002, the Makati RTC dismissed the petition for injunction. It held
that: (1) BPC is liable to pay business taxes to the city; (2) NPCs tax exemption was
withdrawn with the passage of R.A. No. 7160 (The Local Government Code); and,
(3) the 6-year tax holiday granted to pioneer business enterprises starts on the date of
registration with the BOI as provided in Section 133 (g) of R.A. No. 7160, and not on the
date of its actual business operations.
[15]

BPC and NPC filed with this Court a petition for review on certiorari assailing the
[16]

Makati RTC decision. The petitions were consolidated as they impugn the same
decision, involve the same parties and raise related issues.
[17]

In G.R. No. 152771, the NPC contends:

I

RESPONDENT COURT ACTED WITH GRAVE ABUSE OF DISCRETION AMOUNTING

TO LACK OR EXCESS OF JURISDICTION WHEN IT ARBITRARILY AND
CAPRICIOUSLY RULED THAT PETITIONER NPC HAS LOST ITS TAX EXEMPTION
PRIVILEGE BECAUSE SECTION 193 OF R.A. 7160 (LOCAL GOVERNMENT CODE) HAS
WITHDRAWN SUCH PRIVILEGE DESPITE THE SETTLED JURISPRUDENCE THAT
THE ENACTMENT OF A LEGISLATION, WHICH IS A GENERAL LAW, CANNOT
REPEAL A SPECIAL LAW AND THAT SECTION 13 OF R.A. 6395 (NPC LAW) WAS NOT
SPECIFICALLY MENTIONED IN THE REPEALING CLAUSE IN SECTION 534 OF R.A.
7160, AMONG OTHERS.

II

RESPONDENT COURT ACTED WITH GRAVE ABUSE OF DISCRETION AMOUNTING

TO LACK OR EXCESS OF JURISDICTION WHEN IT ARBITRARILY AND
CAPRICIOUSLY OMITTED THE CLEAR PROVISION OF SECTION 133, PARAGRAPH (O)
OF R.A. 7160 WHICH EXEMPTS NATIONAL GOVERNMENT, ITS AGENCIES AND
INSTRUMENTALITIES FROM THE IMPOSITION OF TAXES, FEES OR CHARGES OF
ANY KIND.

III

RESPONDENT COURT ACTED WITH GRAVE ABUSE OF DISCRETION AMOUNTING

TO LACK OR EXCESS OF JURISDICTION WHEN IT ERRONEOUSLY AND
CAPRICIOUSLY ADMITTED BPCs SUPPLEMENTAL PETITION FOR INJUNCTION
NOTWITHSTANDING THAT IT HAD NO JURISDICTION OVER THE PARTY (CITY
GOVERNMENT OF BATANGAS) SOUGHT TO BE ENJOINED.

In G.R. No. 152675, BPC also contends that the trial court erred: 1) in holding it
liable for payment of business taxes even if it is undisputed that NPC has already
assumed payment thereof; and, 2) in ruling that BPCs 6-year tax holiday commenced
on the date of its registration with the BOI as a pioneer enterprise.
The issues for resolution are:
 1. whether BPCs 6-year tax holiday commenced on the date of its BOI registration as a pioneer
enterprise or on the date of its actual commercial operation as certified by the BOI;
2. whether the trial court had jurisdiction over the petition for injunction against Batangas City; and,
3. whether NPCs tax exemption privileges under its Charter were withdrawn by Section 193 of the
Local Government Code (LGC).

We find no merit in the petition.

On the first issue, petitioners BPC and NPC contend that contrary to the impugned
decision, BPCs 6-year tax holiday should commence on the date of its actual
commercial operations as certified to by the BOI, not on the date of its BOI registration.
We disagree. Sec. 133 (g) of the LGC, which proscribes local government units
(LGUs) from levying taxes on BOI-certified pioneer enterprises for a period of six years
from the date of registration, applies specifically to taxes imposed by the local
government, like the business tax imposed by Batangas City on BPC in the case
at bar. Reliance of BPC on the provision of Executive Order No. 226, specifically [18]

Section 1, Article 39, Title III, is clearly misplaced as the six-year tax holiday provided
therein which commences from the date of commercial operation refers to
income taxes imposed by the national government on BOI-registered pioneer firms.
Clearly, it is the provision of the Local Government Code that should apply to the tax
claim of Batangas City against the BPC. The 6-year tax exemption of BPC should thus
commence from the date of BPCs registration with the BOI on July 16, 1993 and end on
July 15, 1999.
Anent the second issue, the records disclose that petitioner NPC did not oppose
BPCs conversion of the petition for declaratory relief to a petition for injunction or raise
the issue of the alleged lack of jurisdiction of the Makati RTC over the petition for
injunction before said court. Hence, NPC is estopped from raising said issue before
us. The fundamental rule is that a party cannot be allowed to participate in a judicial
proceeding, submit the case for decision, accept the judgment only if it is favorable to
him but attack the jurisdiction of the court when it is adverse. [19]

Finally, on the third issue, petitioners insist that NPCs exemption from all taxes
under its Charter had not been repealed by the LGC. They argue that NPCs Charter is a
special law which cannot be impliedly repealed by a general and later legislation like the
LGC. They likewise anchor their claim of tax-exemption on Section 133 (o) of the LGC
which exempts government instrumentalities, such as the NPC, from taxes imposed by
local government units (LGUs), citing in support thereof the case of Basco v.
PAGCOR. [20]

We find no merit in these contentions. The effect of the LGC on the tax exemption
privileges of the NPC has already been extensively discussed and settled in the recent
case of National Power Corporation v. City of Cabanatuan. In said case, this Court [21]

recognized the removal of the blanket exclusion of government instrumentalities

from local taxation as one of the most significant provisions of the 1991
LGC. Specifically, we stressed that Section 193 of the LGC, an express and general [22]

repeal of all statutes granting exemptions from local taxes, withdrew the sweeping tax
privileges previously enjoyed by the NPC under its Charter. We explained the
rationale for this provision, thus:

In recent years, the increasing social challenges of the times expanded the scope of state activity,
and taxation has become a tool to realize social justice and the equitable distribution of wealth,
economic progress and the protection of local industries as well as public welfare and similar
objectives. Taxation assumes even greater significance with the ratification of the 1987
Constitution. Thenceforth, the power to tax is no longer vested exclusively on Congress; local
legislative bodies are now given direct authority to levy taxes, fees and other charges pursuant to
Article X, section 5 of the 1987 Constitution, viz:

Section 5.- Each Local Government unit shall have the power to create its own sources of
revenue, to levy taxes, fees and charges subject to such guidelines and limitations as the
Congress may provide, consistent with the basic policy of local autonomy. Such taxes, fees and
charges shall accrue exclusively to the Local Governments.

This paradigm shift results from the realization that genuine development can be achieved only
by strengthening local autonomy and promoting decentralization of governance. For a long time,
the countrys highly centralized government structure has bred a culture of dependence among
local government leaders upon the national leadership. It has also dampened the spirit of
initiative, innovation and imaginative resilience in matters of local development on the part of
local government leaders. The only way to shatter this culture of dependence is to give the LGUs
a wider role in the delivery of basic services, and confer them sufficient powers to generate their
own sources for the purpose. To achieve this goal, x x x the 1987 Constitution mandates
Congress to enact a local government code that will, consistent with the basic policy of local
autonomy, set the guidelines and limitations to this grant of taxing powers x x x.

To recall, prior to the enactment of the x x x Local Government Code x x x, various measures
have been enacted to promote local autonomy. x x x Despite these initiatives, however, the
shackles of dependence on the national government remained. Local government units were
faced with the same problems that hamper their capabilities to participate effectively in the
national development efforts, among which are: (a) inadequate tax base, (b) lack of fiscal control
over external sources of income, (c) limited authority to prioritize and approve development
projects, (d) heavy dependence on external sources of income, and (e) limited supervisory
control over personnel of national line agencies.

Considered as the most revolutionary piece of legislation on local autonomy, the LGC effectively
deals with the fiscal constraints faced by LGUs. It widens the tax base of LGUs to include taxes
which were prohibited by previous laws x x x.

Neither can the NPC successfully rely on the Basco case as this was decided
[23]

prior to the effectivity of the LGC, when there was still no law empowering local
government units to tax instrumentalities of the national government.
Consequently, when NPC assumed the tax liabilities of the BPC under their 1992
BOT Agreement, the LGC which removed NPCs tax exemption privileges had already
been in effect for six (6) months. Thus, while BPC remains to be the entity doing
business in said city, it is the NPC that is ultimately liable to pay said taxes under the
provisions of both the 1992 BOT Agreement and the 1991 Local Government Code.
IN VIEW WHEREOF, the petitions are DISMISSED. No costs.
SO ORDERED.