G.R. No.

87479 June 4, 1990

NATIONAL POWER CORPORATION, petitioner,

vs.
THE PROVINCE OF ALBAY, ALBAY GOVERNOR ROMEO R. SALALIMA, and ALBAY PROVINCIAL TREASURER
ABUNDIO M. NUÑEZ, respondents.

Romulo L. Ricafort and Jesus R. Cornago for respondents.

SARMIENTO, J.:

The National Power Corporation (NAPOCOR) questions the power of the provincial government of Albay to
collect real property taxes on its properties located at Tiwi, Albay, amassed between June 11, 1984 up to
March 10, 1987.

It appears that on March 14 and 15, 1989, the respondents caused the publication of a notice of auction sale
involving the properties of NAPOCOR and the Philippine Geothermal Inc. consisting of buildings, machines,
and similar improvements standing on their offices at Tiwi, Albay. The amounts to be realized from this
advertised auction sale are supposed to be applied to the tax delinquencies claimed, as and for, as we said,
real property taxes. The back taxes NAPOCOR has supposedly accumulated were computed at
P214,845,184.76.

NAPOCOR opposed the sale, interposing in support of its non-liability Resolution No. 17-87, of the Fiscal
Incentives Review Board (FIRB), which provides as follows:

BE IT RESOLVED, AS IT IS HEREBY RESOLVED, That the tax and duty exemption privileges of the
National Power Corporation, including those pertaining to its domestic purchases of petroleum
and petroleum products, granted under the terms and conditions of Commonwealth Act No.
120 (Creating the National Power Corporation, defining its powers, objectives and functions,
and for other purposes), as amended, are restored effective March 10, 1987, subject to the
following conditions: 1

as well as the Memorandum of Executive Secretary Catalino Macaraig, which also states thus:

Pursuant to Sections 1 (f) and 2 (e) of Executive Order No. 93, series of 1986, FIRB Resolution
No. 17-87, series of 1987, restoring, subject to certain conditions prescribed therein, the tax
and duty exemption privileges of NPC as provided under Commonwealth Act No. 120, as
amended, effective March 10, 1987, is hereby confirmed and approved. 2

On March 10, 1989, the Court resolved to issue a temporary restraining order directing the Albay provincial
government "to CEASE AND DESIST from selling and disposing of the NAPOCOR properties subject matter of
this petition. 3 It appears, however, that "the temporary restraining order failed to reach respondents before
the scheduled bidding at 10:00 a.m. on March 30, 1989 ... [h]ence, the respondents proceeded with the
bidding wherein the Province of Albay was the highest bidder. 4

Page 1 of 92
The Court gathers from the records that:

(1) Under Section 13, of Republic Act No. 6395, amending Commonwealth Act No. 120 (charter of NAPOCOR):

Section 13. Non-profit Character of the Corporation; Exemption from All Taxes, Duties, Fees,
Imposts and Other Charges by the Government and Government Instrumentalities. The
Corporation shall be non-profit and shall devote all its returns from its capital investment as
well as excess revenues from its operation, for expansion, To enable the Corporation to pay its
indebtedness and obligations and in furtherance and effective implementation of the policy
enunciated in Section One of this Act, the Corporation, including its subsidiaries, is hereby
declared exempt from the payment of all forms of taxes, duties, fees, imposts as well as costs
and service fees including filing fees, appeal bonds, supersedeas bonds, in any court or
administrative proceedings. 5

(2) On August 24, 1975, Presidential Decree No. 776 was promulgated, creating the Fiscal Incentives Review
Board (FIRB). Among other things, the Board was tasked as follows:

Section 2. A Fiscal Incentives Review Board is hereby created for the purpose of determining
what subsidies and tax exemptions should be modified, withdrawn, revoked or suspended,
which shall be composed of the following officials:

Chairman - Secretary of Finance

Members - Secretary of Industry
- Director General of the National Economic and
Development Authority
- Commissioner of Internal Revenue
- Commissioner of Customs

The Board may recommend to the President of the Philippines and for reasons of compatibility
with the declared economic policy, the withdrawal, modification, revocation or suspension of
the enforceability of any of the abovestated statutory subsidies or tax exemption grants, except
those granted by the Constitution. To attain its objectives, the Board may require the assistance
of any appropriate government agency or entity. The Board shall meet once a month, or
oftener at the call of the Secretary of Finance. 6

(3) On June 11, 1984, Presidential Decree No. 1931 was promulgated, prescribing, among other
things, that:

Section 1. The provisions of special or general law to the contrary notwithstanding, all
exemptions from the payment of duties, taxes, fees, impost and other charges heretofore
granted in favor of government-owned or controlled corporations including their subsidiaries
are hereby withdrawn. 7

(4) Meanwhile, FIRB Resolution No. 10-85 was issued, "restoring" NAPOCOR's tax exemption effective June 11,
1984 to June 30, 1985;

Page 2 of 92
(5) Thereafter, FIRB Resolution No. 1-86 was issued, granting tax exemption privileges to NAPOCOR from July
1, 1985 and indefinitely thereafter;

(6) Likewise, FIRB Resolution No. 17-87 was promulgated, giving NAPOCOR tax exemption privileges effective
until March 10, 1987; 8

(7) On December 17, 1986, Executive Order No. 93 was promulgated by President Corazon Aquino, providing,
among other things, as follows:

SECTION 1. The provisions of any general or special law to the contrary notwithstanding, all tax
and duty incentives granted to government and private entities are hereby withdrawn, except. 9

and

SECTION 2. The Fiscal Incentives Review Board created under Presidential Decree No. 776, as
amended, is hereby authorized to:

a) restore tax and/or duty exemptions withdrawn hereunder in whole or in part;

b) revise the scope and coverage of tax and/or duty exemption that may be restored;

c) impose conditions for the restoration of tax and/or duty exemption;

d) prescribe the date or period of effectivity of the restoration of tax and/or duty exemption;

e) formulate and submit to the President for approval, a complete system for the grant of
subsidies to deserving beneficiaries, in lieu of or in combination with the restoration of tax and
duty exemptions or preferential treatment in taxation, indicating the source of funding
therefor, eligible beneficiaries and the terms and conditions for the grant thereof taking into
consideration the international commitments of the Philippines and the necessary precautions
such that the grant of subsidies does not become the basis for countervailing action. 10

(8) On October 5, 1987, the Office of the President issued the Memorandum, confirming NAPOCOR's tax
exemption aforesaid. 11

The provincial government of Albay now defends the auction sale in question on the theory that the various
FIRB issuances constitute an undue delegation of the taxing Power and hence, null and void, under the
Constitution. It is also contended that, insofar as Executive Order No. 93 authorizes the FIRB to grant tax
exemptions, the same is of no force and effect under the constitutional provision allowing the legislature
alone to accord tax exemption privileges.

It is to be pointed out that under Presidential Decree No. 776, the power of the FIRB was merely to
"recommend to the President of the Philippines and for reasons of compatibility with the declared economic
policy, the withdrawal, modification, revocation or suspension of the enforceability of any of the above-cited
statutory subsidies or tax exemption grants, except those granted by the Constitution." It has no authority to
impose taxes or revoke existing ones, which, after all, under the Constitution, only the legislature may

Page 3 of 92
accomplish. 12 The question therefore is whether or not the various tax exemptions granted by virtue of FIRB
Resolutions Nos. 10-85, 1-86, and 17-87 are valid and constitutional.

We shall deal with FIRB No. 17-87 later, but with respect to FIRB Resolutions Nos. 10- 85 and 1-86, we sustain
the provincial government of Albay.

As we said, the FIRB, under its charter, Presidential Decree No. 776, had been empowered merely to
"recommend" tax exemptions. By itself, it could not have validly prescribed exemptions or restore taxability.
Hence, as of June 11, 1984 (promulgation of Presidential Decree No. 1931), NAPOCOR had ceased to enjoy tax
exemption privileges.

The fact that under Executive Order No. 93, the FIRB has been given the prerogative to "restore tax and/or
duty exemptions withdrawn hereunder in whole or in part," 13 and "impose conditions for ... tax and/or duty
exemption" 14is of no moment. These provisions are prospective in character and can not affect the Board's
past acts.

The Court is aware that in its preamble, Executive Order No. 93 states:

WHEREAS, a number of affected entities, government and private were able to get back their tax and duty
exemption privileges through the review mechanism implemented by the Fiscal Incentives Review Board
(FIRB); 15but by no means can we say that it has "ratified" the acts of FIRB. It is to misinterpret the scope of
FIRB's powers under Presidential Decree No. 776 to say that it has. Apart from that, Section 2 of the Executive
Order was clearly intended to amend Presidential Decree No. 776, which means, mutatis mutandis, that FIRB
did not have the right, in the first place, to grant tax exemptions or withdraw existing ones.

Does Executive Order No. 93 constitute an unlawful delegation of legislative power? It is to be stressed that
the provincial government of Albay admits that as of March 10, 1987 (the date Resolution No. 17-87 was
affirmed by the Memorandum of the Office of the President, dated October 5, 1987), NAPOCOR's exemption
had been validly restored. What it questions is NAPOCOR's liability in the interregnum between June 11, 1984,
the date its tax privileges were withdrawn, and March 10, 1987, the date they were purportedly restored. To
be sure, it objects to Executive Order No. 93 as alledgedly a delegation of legislative power, but only insofar as
its (NAPOCOR's) June 11, 1984 to March 10, 1987 tax accumulation is concerned. We therefore leave the issue
of "delegation" to the future and its constitutionality when the proper case arises. For the nonce, we leave
Executive Order No. 93 alone, and so also, its validity as far as it grants tax exemptions (through the FIRB)
beginning December 17, 1986, the date of its promulgation.

NAPOCOR must then be held liable for the intervening years aforesaid. So it has been held:

xxx xxx xxx

The last issue to be resolved is whether or not the private-respondent is liable for the fixed and
deficiency percentage taxes in the amount of P3,025.96 (i.e. for the period from January 1,
1946 to February 29, 1948) before the approval of its municipal franchises. As aforestated, the
franchises were approved by the President only on February 24,1948. Therefore, before the
said date, the private respondent was liable for the payment of percentage and fixed taxes as
seller of light, heat, and power which, as the petitioner claims, amounted to P3,025.96. The
legislative franchise (R.A. No. 3843) exempted the grantee from all kinds of taxes other than the

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 2% tax from the date the original franchise was granted. The exemption, therefore, did not
cover the period before the franchise was granted, i.e. before February 24, 1948. ... 16

Actually, the State has no reason to decry the taxation of NAPOCOR's properties, as and by way of real
property taxes. Real property taxes, after all, form part and parcel of the financing apparatus of the
Government in development and nation-building, particularly in the local government level, Thus:

SEC. 86. Distribution of proceeds. — (a) The proceeds of the real property tax, except as
otherwise provided in this Code, shall accrue to the province, city or municipality where the
property subject to the tax is situated and shall be applied by the respective local government
unit for its own use and benefit.

(b) Barrio shares in real property tax collections. — The annual shares of the barrios in real
property tax collections shall be as follows:

(1) Five per cent of the real property tax collections of the province and another five percent of
the collections of the municipality shall accrue to the barrio where the property subject to the
tax is situated.

(2) In the case of the city, ten per cent of the collections of the tax shag likewise accrue to the
barrio where the property is situated.

Thirty per cent of the barrio shares herein referred to may be spent for salaries or per diems of the barrio
officials and other administrative expenses, while the remaining seventy per cent shall be utilized for
development projects approved by the Secretary of Local Government and Community Development or by
such committee created, or representatives designated, by him.

SEC. 87. Application of proceeds. — (a) The proceeds of the real property tax pertaining to the
city and to the municipality shall accrue entirely to their respective general funds. In the case of
the province, one-fourth thereof shall accrue to its road and bridge fund and the remaining
three-fourths, to its general fund.

(b) The entire proceeds of the additional one per cent real property tax levied for the Special
Education Fund created under R.A. No. 5447 collected in the province or city on real property
situated in their respective territorial jurisdictions shall be distributed as follows:

(1) Collections in the provinces: Fifty per cent shall accrue to the municipality where the
property subject to the tax is situated; twenty per cent shall accrue to the province; and thirty
per cent shall be remitted to the Treasurer of the Philippines to be expended exclusively for
stabilizing the Special Education Fund in municipalities, cities and provinces in accordance with
the provisions of Section seven of R.A. No. 5447.

(2) Collections in the cities: Sixty per cent shall be retained by the city; and forty per cent shall
be remitted to the Treasurer of the Philippines to be expended exclusively for stabilizing the
special education fund in municipalities, cities and provinces as provided under Section 7 of R.A.
No. 5447.

Page 5 of 92
 However, any increase in the shares of provinces, cities and municipalities from
said additional tax accruing to their respective local school boards commencing
with fiscal year 1973-74 over what has been actually realized during the fiscal
year 1971-72 which, for purposes of this Code, shall remain as the based year,
shall be divided equally between the general fund and the special education
fund of the local government units concerned. The Secretary of Finance may,
however, at his discretion, increase to not more than seventy-five per cent the
amount that shall accrue annually to the local general fund.

(c) The proceeds of all delinquent taxes and penalties, as well as the income realized from the
use, lease or other disposition of real property acquired by the province or city at a public
auction in accordance with the provisions of this Code, and the proceeds of the sale of the
delinquent real property or, of the redemption thereof shall accrue to the province, city or
municipality in the same manner and proportion as if the tax or taxes had been paid in regular
course.

(d) The proceeds of the additional real property tax on Idle private lands shall accrue to the
respective general funds of the province, city and municipality where the land subject to the tax
is situated. 17

To all intents and purposes, real property taxes are funds taken by the State with one hand and given to the
other. In no measure can the Government be said to have lost anything.

As a rule finally, claims of tax exemption are construed strongly against the claimant. 18 They must also be
shown to exist clearly and categorically, and supported by clear legal provisions. 19

Taxes are the lifeblood of the nation. 20 Their primary purpose is to generate funds for the State to finance the
needs of the citizenry and to advance the common weal.

WHEREFORE, the petition is DENIED. No costs. The auction sale of the petitioner's properties to answer for
real estate taxes accumulated between June 11, 1984 through March 10, 1987 is hereby declared valid.

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.

Page 6 of 92
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;

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 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

Page 8 of 92
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

Page 9 of 92
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
Page 10 of 92
 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

Page 11 of 92
 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

Page 12 of 92
 (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

17
CPI's 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.

Page 13 of 92
 V

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:

Page 14 of 92
 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 Reimbursement 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

Page 15 of 92
 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 Reimbursement 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

Page 16 of 92
(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.

Page 17 of 92
 (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

Page 18 of 92
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.

Page 19 of 92
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
Page 20 of 92
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

Page 21 of 92
 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.

Page 22 of 92
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

Page 23 of 92
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-

Page 24 of 92
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. L-75697

VALENTIN TIO doing business under the name and style of OMI ENTERPRISES, petitioner,
vs.
VIDEOGRAM REGULATORY BOARD, MINISTER OF FINANCE, METRO MANILA COMMISSION, CITY MAYOR
and CITY TREASURER OF MANILA, respondents.

Nelson Y. Ng for petitioner.

The City Legal Officer for respondents City Mayor and City Treasurer.

Page 25 of 92
MELENCIO-HERRERA, J.:

This petition was filed on September 1, 1986 by petitioner on his own behalf and purportedly on behalf of
other videogram operators adversely affected. It assails the constitutionality of Presidential Decree No. 1987
entitled "An Act Creating the Videogram Regulatory Board" with broad powers to regulate and supervise the
videogram industry (hereinafter briefly referred to as the BOARD). The Decree was promulgated on October 5,
1985 and took effect on April 10, 1986, fifteen (15) days after completion of its publication in the Official
Gazette.

On November 5, 1985, a month after the promulgation of the abovementioned decree, Presidential Decree
No. 1994 amended the National Internal Revenue Code providing, inter alia:

SEC. 134. Video Tapes. — There shall be collected on each processed video-tape cassette, ready for
playback, regardless of length, an annual tax of five pesos; Provided, That locally manufactured or
imported blank video tapes shall be subject to sales tax.

On October 23, 1986, the Greater Manila Theaters Association, Integrated Movie Producers, Importers and
Distributors Association of the Philippines, and Philippine Motion Pictures Producers Association, hereinafter
collectively referred to as the Intervenors, were permitted by the Court to intervene in the case, over
petitioner's opposition, upon the allegations that intervention was necessary for the complete protection of
their rights and that their "survival and very existence is threatened by the unregulated proliferation of film
piracy." The Intervenors were thereafter allowed to file their Comment in Intervention.

The rationale behind the enactment of the DECREE, is set out in its preambular clauses as follows:

1. WHEREAS, the proliferation and unregulated circulation of videograms including, among others,
videotapes, discs, cassettes or any technical improvement or variation thereof, have greatly prejudiced
the operations of moviehouses and theaters, and have caused a sharp decline in theatrical attendance
by at least forty percent (40%) and a tremendous drop in the collection of sales, contractor's specific,
amusement and other taxes, thereby resulting in substantial losses estimated at P450 Million annually
in government revenues;

2. WHEREAS, videogram(s) establishments collectively earn around P600 Million per annum from
rentals, sales and disposition of videograms, and such earnings have not been subjected to tax, thereby
depriving the Government of approximately P180 Million in taxes each year;

3. WHEREAS, the unregulated activities of videogram establishments have also affected the viability of
the movie industry, particularly the more than 1,200 movie houses and theaters throughout the
country, and occasioned industry-wide displacement and unemployment due to the shutdown of
numerous moviehouses and theaters;

4. "WHEREAS, in order to ensure national economic recovery, it is imperative for the Government to
create an environment conducive to growth and development of all business industries, including the
movie industry which has an accumulated investment of about P3 Billion;

5. WHEREAS, proper taxation of the activities of videogram establishments will not only alleviate the
dire financial condition of the movie industry upon which more than 75,000 families and 500,000

Page 26 of 92
 workers depend for their livelihood, but also provide an additional source of revenue for the
Government, and at the same time rationalize the heretofore uncontrolled distribution of videograms;

6. WHEREAS, the rampant and unregulated showing of obscene videogram features constitutes a clear
and present danger to the moral and spiritual well-being of the youth, and impairs the mandate of the
Constitution for the State to support the rearing of the youth for civic efficiency and the development
of moral character and promote their physical, intellectual, and social well-being;

7. WHEREAS, civic-minded citizens and groups have called for remedial measures to curb these blatant
malpractices which have flaunted our censorship and copyright laws;

8. WHEREAS, in the face of these grave emergencies corroding the moral values of the people and
betraying the national economic recovery program, bold emergency measures must be adopted with
dispatch; ... (Numbering of paragraphs supplied).

Petitioner's attack on the constitutionality of the DECREE rests on the following grounds:

1. Section 10 thereof, which imposes a tax of 30% on the gross receipts payable to the local
government is a RIDER and the same is not germane to the subject matter thereof;

2. The tax imposed is harsh, confiscatory, oppressive and/or in unlawful restraint of trade in violation
of the due process clause of the Constitution;

3. There is no factual nor legal basis for the exercise by the President of the vast powers conferred
upon him by Amendment No. 6;

4. There is undue delegation of power and authority;

5. The Decree is an ex-post facto law; and

6. There is over regulation of the video industry as if it were a nuisance, which it is not.

We shall consider the foregoing objections in seriatim.

1. The Constitutional requirement that "every bill shall embrace only one subject which shall be expressed in
the title thereof" 1 is sufficiently complied with if the title be comprehensive enough to include the general
purpose which a statute seeks to achieve. It is not necessary that the title express each and every end that the
statute wishes to accomplish. The requirement is satisfied if all the parts of the statute are related, and are
germane to the subject matter expressed in the title, or as long as they are not inconsistent with or foreign to
the general subject and title. 2An act having a single general subject, indicated in the title, may contain any
number of provisions, no matter how diverse they may be, so long as they are not inconsistent with or foreign
to the general subject, and may be considered in furtherance of such subject by providing for the method and
means of carrying out the general object." 3 The rule also is that the constitutional requirement as to the title
of a bill should not be so narrowly construed as to cripple or impede the power of legislation. 4 It should be
given practical rather than technical construction. 5

Page 27 of 92
Tested by the foregoing criteria, petitioner's contention that the tax provision of the DECREE is a rider is
without merit. That section reads, inter alia:

Section 10. Tax on Sale, Lease or Disposition of Videograms. — Notwithstanding any provision of law to
the contrary, the province shall collect a tax of thirty percent (30%) of the purchase price or rental rate,
as the case may be, for every sale, lease or disposition of a videogram containing a reproduction of any
motion picture or audiovisual program. Fifty percent (50%) of the proceeds of the tax collected shall
accrue to the province, and the other fifty percent (50%) shall acrrue to the municipality where the tax
is collected; PROVIDED, That in Metropolitan Manila, the tax shall be shared equally by the
City/Municipality and the Metropolitan Manila Commission.

xxx xxx xxx

The foregoing provision is allied and germane to, and is reasonably necessary for the accomplishment of, the
general object of the DECREE, which is the regulation of the video industry through the Videogram Regulatory
Board as expressed in its title. The tax provision is not inconsistent with, nor foreign to that general subject
and title. As a tool for regulation 6 it is simply one of the regulatory and control mechanisms scattered
throughout the DECREE. The express purpose of the DECREE to include taxation of the video industry in order
to regulate and rationalize the heretofore uncontrolled distribution of videograms is evident from Preambles 2
and 5, supra. Those preambles explain the motives of the lawmaker in presenting the measure. The title of the
DECREE, which is the creation of the Videogram Regulatory Board, is comprehensive enough to include the
purposes expressed in its Preamble and reasonably covers all its provisions. It is unnecessary to express all
those objectives in the title or that the latter be an index to the body of the DECREE. 7

2. Petitioner also submits that the thirty percent (30%) tax imposed is harsh and oppressive, confiscatory, and
in restraint of trade. However, it is beyond serious question that a tax does not cease to be valid merely
because it regulates, discourages, or even definitely deters the activities taxed. 8 The power to impose taxes is
one so unlimited in force and so searching in extent, that the courts scarcely venture to declare that it is
subject to any restrictions whatever, except such as rest in the discretion of the authority which exercises
it. 9 In imposing a tax, the legislature acts upon its constituents. This is, in general, a sufficient security against
erroneous and oppressive taxation. 10

The tax imposed by the DECREE is not only a regulatory but also a revenue measure prompted by the
realization that earnings of videogram establishments of around P600 million per annum have not been
subjected to tax, thereby depriving the Government of an additional source of revenue. It is an end-user tax,
imposed on retailers for every videogram they make available for public viewing. It is similar to the 30%
amusement tax imposed or borne by the movie industry which the theater-owners pay to the government,
but which is passed on to the entire cost of the admission ticket, thus shifting the tax burden on the buying or
the viewing public. It is a tax that is imposed uniformly on all videogram operators.

The levy of the 30% tax is for a public purpose. It was imposed primarily to answer the need for regulating the
video industry, particularly because of the rampant film piracy, the flagrant violation of intellectual property
rights, and the proliferation of pornographic video tapes. And while it was also an objective of the DECREE to
protect the movie industry, the tax remains a valid imposition.

The public purpose of a tax may legally exist even if the motive which impelled the legislature to
impose the tax was to favor one industry over another. 11
Page 28 of 92
 It is inherent in the power to tax that a state be free to select the subjects of taxation, and it has been
repeatedly held that "inequities which result from a singling out of one particular class for taxation or
exemption infringe no constitutional limitation". 12 Taxation has been made the implement of the
state's police power.13

At bottom, the rate of tax is a matter better addressed to the taxing legislature.

3. Petitioner argues that there was no legal nor factual basis for the promulgation of the DECREE by the former
President under Amendment No. 6 of the 1973 Constitution providing that "whenever in the judgment of the
President ... , there exists a grave emergency or a threat or imminence thereof, or whenever the interim
Batasang Pambansa or the regular National Assembly fails or is unable to act adequately on any matter for any
reason that in his judgment requires immediate action, he may, in order to meet the exigency, issue the
necessary decrees, orders, or letters of instructions, which shall form part of the law of the land."

In refutation, the Intervenors and the Solicitor General's Office aver that the 8th "whereas" clause sufficiently
summarizes the justification in that grave emergencies corroding the moral values of the people and betraying
the national economic recovery program necessitated bold emergency measures to be adopted with dispatch.
Whatever the reasons "in the judgment" of the then President, considering that the issue of the validity of the
exercise of legislative power under the said Amendment still pends resolution in several other cases, we
reserve resolution of the question raised at the proper time.

4. Neither can it be successfully argued that the DECREE contains an undue delegation of legislative power.
The grant in Section 11 of the DECREE of authority to the BOARD to "solicit the direct assistance of other
agencies and units of the government and deputize, for a fixed and limited period, the heads or personnel of
such agencies and units to perform enforcement functions for the Board" is not a delegation of the power to
legislate but merely a conferment of authority or discretion as to its execution, enforcement, and
implementation. "The true distinction is between the delegation of power to make the law, which necessarily
involves a discretion as to what it shall be, and conferring authority or discretion as to its execution to be
exercised under and in pursuance of the law. The first cannot be done; to the latter, no valid objection can be
made." 14 Besides, in the very language of the decree, the authority of the BOARD to solicit such assistance is
for a "fixed and limited period" with the deputized agencies concerned being "subject to the direction and
control of the BOARD." That the grant of such authority might be the source of graft and corruption would not
stigmatize the DECREE as unconstitutional. Should the eventuality occur, the aggrieved parties will not be
without adequate remedy in law.

5. The DECREE is not violative of the ex post facto principle. An ex post facto law is, among other categories,
one which "alters the legal rules of evidence, and authorizes conviction upon less or different testimony than
the law required at the time of the commission of the offense." It is petitioner's position that Section 15 of the
DECREE in providing that:

All videogram establishments in the Philippines are hereby given a period of forty-five (45) days after
the effectivity of this Decree within which to register with and secure a permit from the BOARD to
engage in the videogram business and to register with the BOARD all their inventories of videograms,
including videotapes, discs, cassettes or other technical improvements or variations thereof, before
they could be sold, leased, or otherwise disposed of. Thereafter any videogram found in the possession
of any person engaged in the videogram business without the required proof of registration by the

Page 29 of 92
 BOARD, shall be prima facie evidence of violation of the Decree, whether the possession of such
videogram be for private showing and/or public exhibition.

raises immediately a prima facie evidence of violation of the DECREE when the required proof of registration
of any videogram cannot be presented and thus partakes of the nature of an ex post facto law.

The argument is untenable. As this Court held in the recent case of Vallarta vs. Court of Appeals, et al. 15

... it is now well settled that "there is no constitutional objection to the passage of a law providing that
the presumption of innocence may be overcome by a contrary presumption founded upon the
experience of human conduct, and enacting what evidence shall be sufficient to overcome such
presumption of innocence" (People vs. Mingoa 92 Phil. 856 [1953] at 858-59, citing 1 COOLEY, A
TREATISE ON THE CONSTITUTIONAL LIMITATIONS, 639-641). And the "legislature may enact that when
certain facts have been proved that they shall be prima facie evidence of the existence of the guilt of
the accused and shift the burden of proof provided there be a rational connection between the facts
proved and the ultimate facts presumed so that the inference of the one from proof of the others is
not unreasonable and arbitrary because of lack of connection between the two in common
experience". 16

Applied to the challenged provision, there is no question that there is a rational connection between the fact
proved, which is non-registration, and the ultimate fact presumed which is violation of the DECREE, besides
the fact that the prima facie presumption of violation of the DECREE attaches only after a forty-five-day period
counted from its effectivity and is, therefore, neither retrospective in character.

6. We do not share petitioner's fears that the video industry is being over-regulated and being eased out of
existence as if it were a nuisance. Being a relatively new industry, the need for its regulation was apparent.
While the underlying objective of the DECREE is to protect the moribund movie industry, there is no question
that public welfare is at bottom of its enactment, considering "the unfair competition posed by rampant film
piracy; the erosion of the moral fiber of the viewing public brought about by the availability of unclassified and
unreviewed video tapes containing pornographic films and films with brutally violent sequences; and losses in
government revenues due to the drop in theatrical attendance, not to mention the fact that the activities of
video establishments are virtually untaxed since mere payment of Mayor's permit and municipal license fees
are required to engage in business. 17

The enactment of the Decree since April 10, 1986 has not brought about the "demise" of the video industry.
On the contrary, video establishments are seen to have proliferated in many places notwithstanding the 30%
tax imposed.

In the last analysis, what petitioner basically questions is the necessity, wisdom and expediency of the DECREE.
These considerations, however, are primarily and exclusively a matter of legislative concern.

Only congressional power or competence, not the wisdom of the action taken, may be the basis for
declaring a statute invalid. This is as it ought to be. The principle of separation of powers has in the
main wisely allocated the respective authority of each department and confined its jurisdiction to such
a sphere. There would then be intrusion not allowable under the Constitution if on a matter left to the
discretion of a coordinate branch, the judiciary would substitute its own. If there be adherence to the
rule of law, as there ought to be, the last offender should be courts of justice, to which rightly litigants

Page 30 of 92
 submit their controversy precisely to maintain unimpaired the supremacy of legal norms and
prescriptions. The attack on the validity of the challenged provision likewise insofar as there may be
objections, even if valid and cogent on its wisdom cannot be sustained. 18

In fine, petitioner has not overcome the presumption of validity which attaches to a challenged statute. We
find no clear violation of the Constitution which would justify us in pronouncing Presidential Decree No. 1987
as unconstitutional and void.

WHEREFORE, the instant Petition is hereby dismissed.

No costs.

SO ORDERED.

G.R. No. L-31156 February 27, 1976

PEPSI-COLA BOTTLING COMPANY OF THE PHILIPPINES, INC., plaintiff-appellant,

vs.
MUNICIPALITY OF TANAUAN, LEYTE, THE MUNICIPAL MAYOR, ET AL., defendant appellees.

Sabido, Sabido & Associates for appellant.

Provincial Fiscal Zoila M. Redona & Assistant Provincial Fiscal Bonifacio R Matol and Assistant Solicitor General
Conrado T. Limcaoco & Solicitor Enrique M. Reyes for appellees.

MARTIN, J.:

This is an appeal from the decision of the Court of First Instance of Leyte in its Civil Case No. 3294, which was
certified to Us by the Court of Appeals on October 6, 1969, as involving only pure questions of law, challenging
the power of taxation delegated to municipalities under the Local Autonomy Act (Republic Act No. 2264, as
amended, June 19, 1959).

On February 14, 1963, the plaintiff-appellant, Pepsi-Cola Bottling Company of the Philippines, Inc.,
commenced a complaint with preliminary injunction before the Court of First Instance of Leyte for that court
to declare Section 2 of Republic Act No. 2264.1 otherwise known as the Local Autonomy Act, unconstitutional
as an undue delegation of taxing authority as well as to declare Ordinances Nos. 23 and 27, series of 1962, of
the municipality of Tanauan, Leyte, null and void.

On July 23, 1963, the parties entered into a Stipulation of Facts, the material portions of which state that, first,
both Ordinances Nos. 23 and 27 embrace or cover the same subject matter and the production tax rates
imposed therein are practically the same, and second, that on January 17, 1963, the acting Municipal
Treasurer of Tanauan, Leyte, as per his letter addressed to the Manager of the Pepsi-Cola Bottling Plant in said
municipality, sought to enforce compliance by the latter of the provisions of said Ordinance No. 27, series of
1962.

Page 31 of 92
Municipal Ordinance No. 23, of Tanauan, Leyte, which was approved on September 25, 1962, levies and
collects "from soft drinks producers and manufacturers a tai of one-sixteenth (1/16) of a centavo for every
bottle of soft drink corked." 2 For the purpose of computing the taxes due, the person, firm, company or
corporation producing soft drinks shall submit to the Municipal Treasurer a monthly report, of the total
number of bottles produced and corked during the month. 3

On the other hand, Municipal Ordinance No. 27, which was approved on October 28, 1962, levies and collects
"on soft drinks produced or manufactured within the territorial jurisdiction of this municipality a tax of ONE
CENTAVO (P0.01) on each gallon (128 fluid ounces, U.S.) of volume capacity." 4 For the purpose of computing
the taxes due, the person, fun company, partnership, corporation or plant producing soft drinks shall submit
to the Municipal Treasurer a monthly report of the total number of gallons produced or manufactured during
the month. 5

The tax imposed in both Ordinances Nos. 23 and 27 is denominated as "municipal production tax.'

On October 7, 1963, the Court of First Instance of Leyte rendered judgment "dismissing the complaint and
upholding the constitutionality of [Section 2, Republic Act No. 2264] declaring Ordinance Nos. 23 and 27 legal
and constitutional; ordering the plaintiff to pay the taxes due under the oft the said Ordinances; and to pay
the costs."

From this judgment, the plaintiff Pepsi-Cola Bottling Company appealed to the Court of Appeals, which, in
turn, elevated the case to Us pursuant to Section 31 of the Judiciary Act of 1948, as amended.

There are three capital questions raised in this appeal:

1. — Is Section 2, Republic Act No. 2264 an undue delegation of power, confiscatory and
oppressive?

2. — Do Ordinances Nos. 23 and 27 constitute double taxation and impose percentage or

specific taxes?

3. — Are Ordinances Nos. 23 and 27 unjust and unfair?

1. The power of taxation is an essential and inherent attribute of sovereignty, belonging as a matter of right to
every independent government, without being expressly conferred by the people. 6 It is a power that is purely
legislative and which the central legislative body cannot delegate either to the executive or judicial
department of the government without infringing upon the theory of separation of powers. The exception,
however, lies in the case of municipal corporations, to which, said theory does not apply. Legislative powers
may be delegated to local governments in respect of matters of local concern. 7 This is sanctioned by
immemorial practice. 8 By necessary implication, the legislative power to create political corporations for
purposes of local self-government carries with it the power to confer on such local governmental agencies the
power to tax. 9 Under the New Constitution, local governments are granted the autonomous authority to
create their own sources of revenue and to levy taxes. Section 5, Article XI provides: "Each local government
unit shall have the power to create its sources of revenue and to levy taxes, subject to such limitations as may
be provided by law." Withal, it cannot be said that Section 2 of Republic Act No. 2264 emanated from beyond
the sphere of the legislative power to enact and vest in local governments the power of local taxation.

Page 32 of 92
The plenary nature of the taxing power thus delegated, contrary to plaintiff-appellant's pretense, would not
suffice to invalidate the said law as confiscatory and oppressive. In delegating the authority, the State is not
limited 6 the exact measure of that which is exercised by itself. When it is said that the taxing power may be
delegated to municipalities and the like, it is meant that there may be delegated such measure of power to
impose and collect taxes as the legislature may deem expedient. Thus, municipalities may be permitted to tax
subjects which for reasons of public policy the State has not deemed wise to tax for more general
purposes. 10 This is not to say though that the constitutional injunction against deprivation of property without
due process of law may be passed over under the guise of the taxing power, except when the taking of the
property is in the lawful exercise of the taxing power, as when (1) the tax is for a public purpose; (2) the rule
on uniformity of taxation is observed; (3) either the person or property taxed is within the jurisdiction of the
government levying the tax; and (4) in the assessment and collection of certain kinds of taxes notice and
opportunity for hearing are provided. 11 Due process is usually violated where the tax imposed is for a private
as distinguished from a public purpose; a tax is imposed on property outside the State, i.e., extraterritorial
taxation; and arbitrary or oppressive methods are used in assessing and collecting taxes. But, a tax does not
violate the due process clause, as applied to a particular taxpayer, although the purpose of the tax will result
in an injury rather than a benefit to such taxpayer. Due process does not require that the property subject to
the tax or the amount of tax to be raised should be determined by judicial inquiry, and a notice and hearing as
to the amount of the tax and the manner in which it shall be apportioned are generally not necessary to due
process of law. 12

There is no validity to the assertion that the delegated authority can be declared unconstitutional on the
theory of double taxation. It must be observed that the delegating authority specifies the limitations and
enumerates the taxes over which local taxation may not be exercised. 13 The reason is that the State has
exclusively reserved the same for its own prerogative. Moreover, double taxation, in general, is not forbidden
by our fundamental law, since We have not adopted as part thereof the injunction against double taxation
found in the Constitution of the United States and some states of the Union. 14 Double taxation becomes
obnoxious only where the taxpayer is taxed twice for the benefit of the same governmental entity 15 or by the
same jurisdiction for the same purpose, 16 but not in a case where one tax is imposed by the State and the
other by the city or municipality. 17

2. The plaintiff-appellant submits that Ordinance No. 23 and 27 constitute double taxation, because these two
ordinances cover the same subject matter and impose practically the same tax rate. The thesis proceeds from
its assumption that both ordinances are valid and legally enforceable. This is not so. As earlier quoted,
Ordinance No. 23, which was approved on September 25, 1962, levies or collects from soft drinks producers or
manufacturers a tax of one-sixteen (1/16) of a centavo for .every bottle corked, irrespective of the volume
contents of the bottle used. When it was discovered that the producer or manufacturer could increase the
volume contents of the bottle and still pay the same tax rate, the Municipality of Tanauan enacted Ordinance
No. 27, approved on October 28, 1962, imposing a tax of one centavo (P0.01) on each gallon (128 fluid ounces,
U.S.) of volume capacity. The difference between the two ordinances clearly lies in the tax rate of the soft
drinks produced: in Ordinance No. 23, it was 1/16 of a centavo for every bottle corked; in Ordinance No. 27, it
is one centavo (P0.01) on each gallon (128 fluid ounces, U.S.) of volume capacity. The intention of the
Municipal Council of Tanauan in enacting Ordinance No. 27 is thus clear: it was intended as a plain substitute
for the prior Ordinance No. 23, and operates as a repeal of the latter, even without words to that
effect. 18 Plaintiff-appellant in its brief admitted that defendants-appellees are only seeking to enforce
Ordinance No. 27, series of 1962. Even the stipulation of facts confirms the fact that the Acting Municipal
Treasurer of Tanauan, Leyte sought t6 compel compliance by the plaintiff-appellant of the provisions of said
Ordinance No. 27, series of 1962. The aforementioned admission shows that only Ordinance No. 27, series of
Page 33 of 92
1962 is being enforced by defendants-appellees. Even the Provincial Fiscal, counsel for defendants-appellees
admits in his brief "that Section 7 of Ordinance No. 27, series of 1962 clearly repeals Ordinance No. 23 as the
provisions of the latter are inconsistent with the provisions of the former."

That brings Us to the question of whether the remaining Ordinance No. 27 imposes a percentage or a specific
tax. Undoubtedly, the taxing authority conferred on local governments under Section 2, Republic Act No.
2264, is broad enough as to extend to almost "everything, accepting those which are mentioned therein." As
long as the text levied under the authority of a city or municipal ordinance is not within the exceptions and
limitations in the law, the same comes within the ambit of the general rule, pursuant to the rules of exclucion
attehus and exceptio firmat regulum in cabisus non excepti 19 The limitation applies, particularly, to the
prohibition against municipalities and municipal districts to impose "any percentage tax or other taxes in any
form based thereon nor impose taxes on articles subject to specific tax except gasoline, under the provisions
of the National Internal Revenue Code." For purposes of this particular limitation, a municipal ordinance which
prescribes a set ratio between the amount of the tax and the volume of sale of the taxpayer imposes a sales
tax and is null and void for being outside the power of the municipality to enact. 20 But, the imposition of "a
tax of one centavo (P0.01) on each gallon (128 fluid ounces, U.S.) of volume capacity" on all soft drinks
produced or manufactured under Ordinance No. 27 does not partake of the nature of a percentage tax on
sales, or other taxes in any form based thereon. The tax is levied on the produce (whether sold or not) and not
on the sales. The volume capacity of the taxpayer's production of soft drinks is considered solely for purposes
of determining the tax rate on the products, but there is not set ratio between the volume of sales and the
amount of the tax.21

Nor can the tax levied be treated as a specific tax. Specific taxes are those imposed on specified articles, such
as distilled spirits, wines, fermented liquors, products of tobacco other than cigars and cigarettes, matches
firecrackers, manufactured oils and other fuels, coal, bunker fuel oil, diesel fuel oil, cinematographic films,
playing cards, saccharine, opium and other habit-forming drugs. 22 Soft drink is not one of those specified.

3. The tax of one (P0.01) on each gallon (128 fluid ounces, U.S.) of volume capacity on all softdrinks, produced
or manufactured, or an equivalent of 1-½ centavos per case, 23 cannot be considered unjust and unfair. 24 an
increase in the tax alone would not support the claim that the tax is oppressive, unjust and confiscatory.
Municipal corporations are allowed much discretion in determining the reates of imposable taxes. 25 This is in
line with the constutional policy of according the widest possible autonomy to local governments in matters of
local taxation, an aspect that is given expression in the Local Tax Code (PD No. 231, July 1, 1973). 26 Unless the
amount is so excessive as to be prohibitive, courts will go slow in writing off an ordinance as unreasonable. 27
Reluctance should not deter compliance with an ordinance such as Ordinance No. 27 if the purpose of the law
to further strengthen local autonomy were to be realized. 28

Finally, the municipal license tax of P1,000.00 per corking machine with five but not more than ten crowners
or P2,000.00 with ten but not more than twenty crowners imposed on manufacturers, producers, importers
and dealers of soft drinks and/or mineral waters under Ordinance No. 54, series of 1964, as amended by
Ordinance No. 41, series of 1968, of defendant Municipality, 29 appears not to affect the resolution of the
validity of Ordinance No. 27. Municipalities are empowered to impose, not only municipal license taxes upon
persons engaged in any business or occupation but also to levy for public purposes, just and uniform taxes.
The ordinance in question (Ordinance No. 27) comes within the second power of a municipality.

ACCORDINGLY, the constitutionality of Section 2 of Republic Act No. 2264, otherwise known as the Local
Autonomy Act, as amended, is hereby upheld and Municipal Ordinance No. 27 of the Municipality of Tanauan,
Page 34 of 92
Leyte, series of 1962, re-pealing Municipal Ordinance No. 23, same series, is hereby declared of valid and legal
effect. Costs against petitioner-appellant.

SO ORDERED.

Castro, C.J., Teehankee, Barredo, Makasiar, Antonio, Esguerra, Muñoz Palma, Aquino and Concepcion, Jr., JJ.,
concur.

Separate Opinions

FERNANDO, J., concurring:

The opinion of the Court penned by Justice Martin is impressed with a scholarly and comprehensive character.
Insofar as it shows adherence to tried and tested concepts of the law of municipal taxation, I am only in
agreement. If I limit myself to concurrence in the result, it is primarily because with the article on Local
Autonomy found in the present Constitution, I feel a sense of reluctance in restating doctrines that arose from
a different basic premise as to the scope of such power in accordance with the 1935 Charter. Nonetheless it is
well-nigh unavoidable that I do so as I am unable to share fully what for me are the nuances and implications
that could arise from the approach taken by my brethren. Likewise as to the constitutional aspect of the
thorny question of double taxation, I would limit myself to what has been set forth in City of Baguio v. De
Leon.1

1. The present Constitution is quite explicit as to the power of taxation vested in local and municipal
corporations. It is therein specifically provided: "Each local government unit shall have the power to create its
own sources of revenue and to levy taxes subject to such limitations as may be provided by law. 2 That was not
the case under the 1935 Charter. The only limitation then on the authority, plenary in character of the
national government, was that while the President of the Philippines was vested with the power of control
over all executive departments, bureaus, or offices, he could only . It exercise general supervision over all local
governments as may be provided by law ... 3As far as legislative power over local government was concerned,
no restriction whatsoever was placed on the Congress of the Philippines. It would appear therefore that the
extent of the taxing power was solely for the legislative body to decide. It is true that in 1939, there was a
statute that enlarged the scope of the municipal taxing power. 4 Thereafter, in 1959 such competence was
further expanded in the Local Autonomy Act. 5 Nevertheless, as late as December of 1964, five years after its
enactment of the Local Autonomy Act, this Court, through Justice Dizon, in Golden Ribbon Lumber Co. v. City of
Butuan, 6 reaffirmed the traditional concept in these words: "The rule is well-settled that municipal
corporations, unlike sovereign states, after clothed with no power of taxation; that its charter or a statute
must clearly show an intent to confer that power or the municipal corporation cannot assume and exercise it,
and that any such power granted must be construed strictly, any doubt or ambiguity arising from the terms of
the grant to be resolved against the municipality."7

Page 35 of 92
Taxation, according to Justice Parades in the earlier case of Tan v. Municipality of Pagbilao,8 "is an attribute of
sovereignty which municipal corporations do not enjoy." 9 That case left no doubt either as to weakness of a
claim "based merely by inferences, implications and deductions, [as they have no place in the interpretation of
the power to tax of a municipal corporation." 10 As the conclusion reached by the Court finds support in such
grant of the municipal taxing power, I concur in the result. 2. As to any possible infirmity based on an alleged
double taxation, I would prefer to rely on the doctrine announced by this Court in City of Baguio v. De
Leon. 11 Thus: "As to why double taxation is not violative of due process, Justice Holmes made clear in this
language: 'The objection to the taxation as double may be laid down on one side. ... The 14th Amendment [the
due process clause) no more forbids double taxation than it does doubling the amount of a tax, short of
(confiscation or proceedings unconstitutional on other grouse With that decision rendered at a time when
American sovereignty in the Philippines was recognized, it possesses more than just a persuasive effect. To
some, it delivered the coup justice to the bogey of double taxation as a constitutional bar to the exercise of
the taxing power. It would seem though that in the United States, as with us, its ghost, as noted by an eminent
critic, still stalks the juridical stage. 'In a 1947 decision, however, we quoted with approval this excerpt from a
leading American decision: 'Where, as here, Congress has clearly expressed its intention, the statute must be
sustained even though double taxation results. 12

So I would view the issues in this suit and accordingly concur in the result.

Separate Opinions

FERNANDO, J., concurring:

The opinion of the Court penned by Justice Martin is impressed with a scholarly and comprehensive character.
Insofar as it shows adherence to tried and tested concepts of the law of municipal taxation, I am only in
agreement. If I limit myself to concurrence in the result, it is primarily because with the article on Local
Autonomy found in the present Constitution, I feel a sense of reluctance in restating doctrines that arose from
a different basic premise as to the scope of such power in accordance with the 1935 Charter. Nonetheless it is
well-nigh unavoidable that I do so as I am unable to share fully what for me are the nuances and implications
that could arise from the approach taken by my brethren. Likewise as to the constitutional aspect of the
thorny question of double taxation, I would limit myself to what has been set forth in City of Baguio v. De
Leon.1

1. The present Constitution is quite explicit as to the power of taxation vested in local and municipal
corporations. It is therein specifically provided: "Each local government unit shall have the power to create its
own sources of revenue and to levy taxes subject to such limitations as may be provided by law. 2 That was not
the case under the 1935 Charter. The only limitation then on the authority, plenary in character of the
national government, was that while the President of the Philippines was vested with the power of control
over all executive departments, bureaus, or offices, he could only . It exercise general supervision over all local
governments as may be provided by law ... 3As far as legislative power over local government was concerned,
no restriction whatsoever was placed on the Congress of the Philippines. It would appear therefore that the
extent of the taxing power was solely for the legislative body to decide. It is true that in 1939, there was a
statute that enlarged the scope of the municipal taxing power. 4 Thereafter, in 1959 such competence was
further expanded in the Local Autonomy Act. 5 Nevertheless, as late as December of 1964, five years after its
enactment of the Local Autonomy Act, this Court, through Justice Dizon, in Golden Ribbon Lumber Co. v. City of
Butuan, 6 reaffirmed the traditional concept in these words: "The rule is well-settled that municipal
corporations, unlike sovereign states, after clothed with no power of taxation; that its charter or a statute
Page 36 of 92
must clearly show an intent to confer that power or the municipal corporation cannot assume and exercise it,
and that any such power granted must be construed strictly, any doubt or ambiguity arising from the terms of
the grant to be resolved against the municipality."7

Taxation, according to Justice Parades in the earlier case of Tan v. Municipality of Pagbilao,8 "is an attribute of
sovereignty which municipal corporations do not enjoy." 9 That case left no doubt either as to weakness of a
claim "based merely by inferences, implications and deductions, [as they have no place in the interpretation of
the power to tax of a municipal corporation." 10 As the conclusion reached by the Court finds support in such
grant of the municipal taxing power, I concur in the result. 2. As to any possible infirmity based on an alleged
double taxation, I would prefer to rely on the doctrine announced by this Court in City of Baguio v. De
Leon. 11 Thus: "As to why double taxation is not violative of due process, Justice Holmes made clear in this
language: 'The objection to the taxation as double may be laid down on one side. ... The 14th Amendment [the
due process clause) no more forbids double taxation than it does doubling the amount of a tax, short of
(confiscation or proceedings unconstitutional on other grouse With that decision rendered at a time when
American sovereignty in the Philippines was recognized, it possesses more than just a persuasive effect. To
some, it delivered the coup justice to the bogey of double taxation as a constitutional bar to the exercise of
the taxing power. It would seem though that in the United States, as with us, its ghost, as noted by an eminent
critic, still stalks the juridical stage. 'In a 1947 decision, however, we quoted with approval this excerpt from a
leading American decision: 'Where, as here, Congress has clearly expressed its intention, the statute must be
sustained even though double taxation results. 12

So I would view the issues in this suit and accordingly concur in the result.

G.R. No. 78742 July 14, 1989

ASSOCIATION OF SMALL LANDOWNERS IN THE PHILIPPINES, INC., JUANITO D. GOMEZ, GERARDO B.

ALARCIO, FELIPE A. GUICO, JR., BERNARDO M. ALMONTE, CANUTO RAMIR B. CABRITO, ISIDRO T. GUICO,
FELISA I. LLAMIDO, FAUSTO J. SALVA, REYNALDO G. ESTRADA, FELISA C. BAUTISTA, ESMENIA J. CABE,
TEODORO B. MADRIAGA, AUREA J. PRESTOSA, EMERENCIANA J. ISLA, FELICISIMA C. ARRESTO, CONSUELO
M. MORALES, BENJAMIN R. SEGISMUNDO, CIRILA A. JOSE & NAPOLEON S. FERRER, petitioners,
vs.
HONORABLE SECRETARY OF AGRARIAN REFORM, respondent.

G.R. No. 79310 July 14, 1989

ARSENIO AL. ACUNA, NEWTON JISON, VICTORINO FERRARIS, DENNIS JEREZA, HERMINIGILDO GUSTILO,
PAULINO D. TOLENTINO and PLANTERS' COMMITTEE, INC., Victorias Mill District, Victorias, Negros
Occidental, petitioners,
vs.
JOKER ARROYO, PHILIP E. JUICO and PRESIDENTIAL AGRARIAN REFORM COUNCIL, respondents.

G.R. No. 79744 July 14, 1989

INOCENTES PABICO, petitioner,

vs.
HON. PHILIP E. JUICO, SECRETARY OF THE DEPARTMENT OF AGRARIAN REFORM, HON. JOKER ARROYO,

Page 37 of 92
EXECUTIVE SECRETARY OF THE OFFICE OF THE PRESIDENT, and Messrs. SALVADOR TALENTO, JAIME
ABOGADO, CONRADO AVANCENA and ROBERTO TAAY, respondents.

G.R. No. 79777 July 14, 1989

NICOLAS S. MANAAY and AGUSTIN HERMANO, JR., petitioners,

vs.
HON. PHILIP ELLA JUICO, as Secretary of Agrarian Reform, and LAND BANK OF THE
PHILIPPINES, respondents.

SYLLABUS

1. CONSTITUTIONAL LAW; SUPREME COURT; ROLE. — Although holding neither purse nor sword and so
regarded as the weakest of the three departments of the government, the judiciary is nonetheless vested with
the power to annul the acts of either the legislative or the executive or of both when not conformable to the
fundamental law. This is the reason for what some quarters call the doctrine of judicial supremacy.

2. ID.; SEPARATION OF POWERS; CONSTRUED. — The doctrine of separation of powers imposes upon the
courts a proper restraint, born of the nature of their functions and of their respect for the other departments,
in striking down the acts of the legislative and the executive as unconstitutional. The policy, indeed, is a blend
of courtesy and caution. To doubt is to sustain. The theory is that before the act was done or the law was
enacted, earnest studies were made by Congress or the President, or both, to insure that the Constitution
would not be breached.

3. ID.; SUPREME COURT; POWER TO DECLARE AN ACT OR LAW UNCONSTITUTIONAL; CONSTITUTIONS. —

The Constitution itself lays down stringent conditions for a declaration of unconstitutionality, requiring
therefor the concurrence of a majority of the members of the Supreme Court who took part in the
deliberations and voted on the issue during their session en banc.

4. ID.; ID.; ID.; JUDICIAL INQUIRY; REQUISITES. — The Court will assume jurisdiction over a constitutional
question only if it is shown that the essential requisites of a judicial inquiry into such a question are first
satisfied. Thus, there must be an actual case or controversy involving a conflict of legal rights susceptible of
judicial determination, the constitutional question must have been opportunely raised by the proper party,
and the resolution of the question is unavoidably necessary to the decision of the case itself.

5. REMEDIAL LAW; ACTIONS; PROPER PARTY; CASE AT BAR. — With particular regard to the requirement
of proper party as applied in the cases before us, we hold that the same is satisfied by the petitioners and
intervenors because each of them has sustained or is in danger of sustaining an immediate injury as a result of
the acts or measures complained of.

6. CONSTITUTIONAL LAW; SUPREME COURT; POWER TO DECLARE AN ACT OR LAW UNCONSTITUTIONAL;

TRIBUNAL WITH WIDE DISCRETION TO WAIVE REQUIREMENT. — Even if, strictly speaking, they are not
covered by the definition, it is still within the wide discretion of the Court to waive the requirement and so
remove the impediment to its addressing and resolving the serious constitutional questions raised.

Page 38 of 92
7. ID.; ID.; JUDICIAL SUPREMACY. — . . . When the judiciary mediates to allocate constitutional
boundaries, it does not assert any superiority over the other departments; it does not in reality nullify or
invalidate an act of the Legislature, but only asserts the solemn and sacred obligation assigned to it by the
Constitution to determine conflicting claims of authority under the Constitution and to establish for the
parties in an actual controversy the rights which that instrument secures and guarantees to them. This is in
truth all that is involved in what is termed "judicial supremacy" which properly is the power of judicial review
under the Constitution.

8. ID.; 1973 CONSTITUTION; PRESIDENT; EXERCISE OF LEGISLATIVE POWER DURING MARTIAL LAW,
SUSTAINED. — The promulgation of P.D. No. 27 by President Marcos in the exercise of his powers under
martial law has already been sustained in Gonzales v. Estrella and we find no reason to modify or reverse it on
that issue.

9. ID.; 1987 CONSTITUTION; PRESIDENT; LEGISLATIVE POWER, AUTHORIZED. — As for the power of
President Aquino to promulgate Proc. No. 131 and E.O. Nos. 228 and 229, the same was authorized under
Section 6 of the Transitory Provisions of the 1987 Constitution, quoted above. The said measures were issued
by President Aquino before July 27, 1987, when the Congress of the Philippines was formally convened and
took over legislative power from her. They are not "midnight" enactments intended to pre-empt the
legislature because E.O. No. 228 was issued on July 17, 1987, and the other measures, i.e., Proc. No. 131 and
E.O. No. 229, were both issued on July 22, 1987.

10. ID.; ID.; ID.; MEASURES PROMULGATED REMAINS VALID EVEN AFTER LOST OF LEGISLATIVE POWER;
RATIONALE. — Neither is it correct to say that these measures ceased to be valid when she lost her legislative
power for, like any statute, they continue to be in force unless modified or repealed by subsequent law or
declared invalid by the courts. A statute does not ipso facto become inoperative simply because of the
dissolution of the legislature that enacted it. By the same token, President Aquino's loss of legislative power
did not have the effect of invalidating all the measures enacted by her when and as long as she possessed it.

11. ID.; STATUTES; PROCLAMATION REMAINS VALID EVEN AFTER LOST OF LEGISLATIVE POWER;
RATIONALE. — Proc. No. 131 is not an appropriation measure even if it does provide for the creation of said
fund, for that is not its principal purpose. An appropriation law is one the primary and specific purpose of
which is to authorize the release of public funds from the treasury. The creation of the fund is only incidental
to the main objective of the proclamation, which is agrarian reform.

12. ID.; ID.; PROCLAMATION NO. 131 AND EXECUTIVE ORDER NO. 229; ABSENCE OF RETENTION LIMIT
PROVIDED FOR IN REPUBLIC ACT NO. 6657. — The argument of some of the petitioners that Proc. No. 131 and
E.O. No. 229 should be invalidated because they do not provide for retention limits as required by Article XIII,
Section 4 of the Constitution is no longer tenable. R.A. No. 6657 does provide that in no case shall retention by
the landowner exceed five (5) hectares. three (3) hectares may be awarded to each child of the landowner,
subject to two (2) qualification which is now in Section 6 of the law.

13. ID.; ID.; TITLE OF A BILL NEED NOT BE CATALOGUED. — The title of the bill does not have to be a
catalogue of its contents and will suffice if the matters embodied in the text are relevant to each other and
may be inferred from the title.

14. CIVIL LAW; EFFECT AND APPLICATION OF LAWS; ISSUANCES FROM THE PRESIDENT REQUIRE
PUBLICATION FOR EFFECTIVITY. — But for all their peremptoriness, these issuances from the President Marcos
Page 39 of 92
still had to comply with the requirement for publication as this Court held in Tañada v. Tuvera. Hence, unless
published in the Official Gazette in accordance with Article 2 of the Civil Code, they could not have any force
and effect if they were among those enactments successfully challenged in that case. (LOI 474 was published,
though, in the Official Gazette dated November 29, 1976.)

15. REMEDIAL LAW; SPECIAL CIVIL ACTION; MANDAMUS; OFFICE. — Mandamus will lie to compel the
discharge of the discretionary duty itself but not to control the discretion to be exercised. In other words,
mandamus can issue to require action only but not specific action.

16. ID.; ID.; ID.; GENERALLY NOT AVAILABLE WHERE THERE IS A PLAIN, SPEEDY REMEDY; EXCEPTION. —
While it is true that as a rule the writ will not be proper as long as there is still a plain, speedy and adequate
remedy available from the administrative authorities, resort to the courts may still be permitted if the issue
raised is a question of law.

17. POLITICAL LAW; POLICE POWER AND EMINENT DOMAIN; TRADITIONAL DISTINCTIONS. — There are
traditional distinctions between the police power and the power of eminent domain that logically preclude
the application of both powers at the same time on the same subject. The cases before us present no knotty
complication insofar as the question of compensable taking is concerned. To the extent that the measures
under challenge merely prescribe retention limits for landowners, there is an exercise of the police power for
the regulation of private property in accordance with the Constitution. But where, to carry out such
regulation, it becomes necessary to deprive such owners of whatever lands they may own in excess of the
maximum area allowed, there is definitely a taking under the power of eminent domain for which payment of
just compensation is imperative. The taking contemplated is not a mere limitation of the use of the land. What
is required is the surrender of the title to and the physical possession of the said excess and all beneficial
rights accruing to the owner in favor of the farmer-beneficiary. This is definitely an exercise not of the police
power but of the power of eminent domain.

18. BILL OF RIGHTS; EQUAL PROTECTION CLAUSE; CLASSIFICATION; DEFINED. — Classification has been
defined as the grouping of persons or things similar to each other in certain particulars and different from
each other in these same particulars.

19. ID.; ID.; ID.; REQUISITES.; EQUAL PROTECTION CLAUSE; CLASSIFICATION; DEFINED. — To be valid, it
must conform to the following requirements: (1) it must be based on substantial distinctions; (2) it must be
germane to the purposes of the law; (3) it must not be limited to existing conditions only; and (4) it must apply
equally to all the members of the class.

20. ID.; ID.; ID.; MEANING. — Equal protection simply means that all persons or things similarly situated
must be treated alike both as to the rights conferred and the liabilities imposed.

21. POLITICAL LAW; EMINENT DOMAIN; NATURE. — Eminent domain is an inherent power of the State that
enables it to forcibly acquire private lands intended for public use upon payment of just compensation to the
owner.

22. ID.; ID.; WHEN AVAILED OF. — Obviously, there is no need to expropriate where the owner is willing to
sell under terms also acceptable to the purchaser, in which case an ordinary deed of sale may be agreed upon
by the parties. It is only where the owner is unwilling to sell, or cannot accept the price or other conditions
offered by the vendee, that the power of eminent domain will come into play to assert the paramount
Page 40 of 92
authority of the State over the interests of the property owner. Private rights must then yield to the irresistible
demands of the public interest on the time-honored justification, as in the case of the police power, that the
welfare of the people is the supreme law.

23. ID.; ID.; REQUIREMENTS. — Basically, the requirements for a proper exercise of the power are: (1)
public use and (2) just compensation.

24. ID.; POLITICAL QUESTION; DEFINED. — The term "political question" connotes what it means in
ordinary parlance, namely, a question of policy. It refers to "those questions which, under the Constitution,
are to be decided by the people in their sovereign capacity; or in regard to which full discretionary authority
has been delegated to the legislative or executive branch of the government." It is concerned with issues
dependent upon the wisdom, not legality, of a particular measure. (Tañada vs. Cuenco, 100 Phil. 1101)

25. ID.; EMINENT DOMAIN JUST COMPENSATION; DEFINED. — Just compensation is defined as the full and
fair equivalent of the property taken from its owner by the expropriator.

26. ID.; ID.; ID.; WORD "JUST", EXPLAINED. — It has been repeatedly stressed by this Court that the
measure is not the taker's gain but the owner's loss. The word "just" is used to intensify the meaning of the
word "compensation" to convey the idea that the equivalent to be rendered for the property to be taken shall
be real, substantial, full, ample.

27. ID.; ID.; ID.; COMPENSABLE TAKING; CONDITIONS. — There is compensable taking when the following
conditions concur: (1) the expropriator must enter a private property; (2) the entry must be for more than a
momentary period; (3) the entry must be under warrant or color of legal authority; (4) the property must be
devoted to public use or otherwise informally appropriated or injuriously affected; and (5) the utilization of
the property for public use must be in such a way as to oust the owner and deprive him of beneficial
enjoyment of the property.

28. ID.; ID.; ID.; DEPOSIT NOT NECESSARY WHERE THE EXPROPRIATOR IS THE ESTATE. — Where the State
itself is the expropriator, it is not necessary for it to make a deposit upon its taking possession of the
condemned property, as "the compensation is a public charge, the good faith of the public is pledged for its
payment, and all the resources of taxation may be employed in raising the amount."

29. ID.; ID.; ID.; DETERMINATION THEREOF, ADDRESSED TO THE COURTS OF JUSTICE. — The determination
of just compensation is a function addressed to the courts of justice and may not be usurped by any other
branch or official of the government.

30. ID.; ID.; ID.; EMINENT DOMAIN UNDER THE COMPREHENSIVE AGRARIAN REFORM LAW;
DETERMINATION MADE BY THE DEPARTMENT OF AGRARIAN RELATIONS, ONLY PRELIMINARY. — The
determination of the just compensation by the DAR is not by any means final and conclusive upon the
landowner or any other interested party, for Section 16 (f) clearly provides: Any party who disagrees with the
decision may bring the matter to the court of proper jurisdiction for final determination of just compensation.
The determination made by the DAR is only preliminary unless accepted by all parties concerned. Otherwise,
the courts of justice will still have the right to review with finality the said determination in the exercise of
what is admittedly a judicial function. —

Page 41 of 92
31. ID.; ID.; ID.; PAYMENT IN MONEY ONLY NOT APPLICABLE IN REVOLUTIONARY KIND OF EXPROPRIATION.
— We do not deal here with the traditional exercise of the power of eminent domain. This is not an ordinary
expropriation where only a specific property of relatively limited area is sought to be taken by the State from
its owner for a specific and perhaps local purpose. What we deal with here is a revolutionary kind of
expropriation. The expropriation before us affects all private agricultural lands whenever found and of
whatever kind as long as they are in excess of the maximum retention limits allowed their owners. Such a
program will involve not mere millions of pesos. The cost will be tremendous. Considering the vast areas of
land subject to expropriation under the laws before us, we estimate that hundreds of billions of pesos will be
needed, far more indeed than the amount of P50 billion initially appropriated, which is already staggering as it
is by our present standards. The Court has not found in the records of the Constitutional Commission any
categorial agreement among the members regarding the meaning to be given the concept of just
compensation as applied to the comprehensive agrarian reform program being contemplated. On the other
hand, there is nothing in the records either that militates against the assumptions we are making of the
general sentiments and intention of the members on the content and manner of the payment to be made to
the landowner in the light of the magnitude of the expenditure and the limitations of the expropriator.
Therefore, payment of the just compensation is not always required to be made fully in money.

32. ID.; ID.; ID.; PRINCIPLE THAT TITLE SHALL PASS ONLY UPON FULL PAYMENT OF JUST COMPENSATION,
NOT APPLICABLE. — Title to the property expropriated shall pass from the owner to the expropriator only
upon full payment of the just compensation. The CARP Law, for its part, conditions the transfer of possession
and ownership of the land to the government on receipt by the landowner of the corresponding payment or
the deposit by the DAR of the compensation in cash or LBP bonds with an accessible bank. Until then, title also
remains with the landowner. No outright change of ownership is contemplated either. Hence, that the
assailed measures violate due process by arbitrarily transferring title before the land is fully paid for must also
be rejected.

33. ADMINISTRATIVE LAW; EXHAUSTION OF ADMINISTRATIVE REMEDIES; CASE AT BAR. — It does not
appear in G.R. No. 78742 that the appeal filed by the petitioners with the Office of the President has already
been resolved. Although we have said that the doctrine of exhaustion of administrative remedies need not
preclude immediate resort to judicial action, there are factual issues that have yet to be examined on the
administrative level, especially the claim that the petitioners are not covered by LOI 474 because they do not
own other agricultural lands than the subjects of their petition. Obviously, the Court cannot resolve these
issues.

CRUZ, J.:

In ancient mythology, Antaeus was a terrible giant who blocked and challenged Hercules for his life on his way
to Mycenae after performing his eleventh labor. The two wrestled mightily and Hercules flung his adversary to
the ground thinking him dead, but Antaeus rose even stronger to resume their struggle. This happened several
times to Hercules' increasing amazement. Finally, as they continued grappling, it dawned on Hercules that
Antaeus was the son of Gaea and could never die as long as any part of his body was touching his Mother
Earth. Thus forewarned, Hercules then held Antaeus up in the air, beyond the reach of the sustaining soil, and
crushed him to death.

Mother Earth. The sustaining soil. The giver of life, without whose invigorating touch even the powerful
Antaeus weakened and died.
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The cases before us are not as fanciful as the foregoing tale. But they also tell of the elemental forces of life
and death, of men and women who, like Antaeus need the sustaining strength of the precious earth to stay
alive.

"Land for the Landless" is a slogan that underscores the acute imbalance in the distribution of this precious
resource among our people. But it is more than a slogan. Through the brooding centuries, it has become a
battle-cry dramatizing the increasingly urgent demand of the dispossessed among us for a plot of earth as
their place in the sun.

Recognizing this need, the Constitution in 1935 mandated the policy of social justice to "insure the well-being
and economic security of all the people," 1 especially the less privileged. In 1973, the new Constitution
affirmed this goal adding specifically that "the State shall regulate the acquisition, ownership, use, enjoyment
and disposition of private property and equitably diffuse property ownership and profits." 2 Significantly, there
was also the specific injunction to "formulate and implement an agrarian reform program aimed at
emancipating the tenant from the bondage of the soil." 3

The Constitution of 1987 was not to be outdone. Besides echoing these sentiments, it also adopted one whole
and separate Article XIII on Social Justice and Human Rights, containing grandiose but undoubtedly sincere
provisions for the uplift of the common people. These include a call in the following words for the adoption by
the State of an agrarian reform program:

SEC. 4. The State shall, by law, undertake an agrarian reform program founded on the right of
farmers and regular farmworkers, who are landless, to own directly or collectively the lands
they till or, in the case of other farmworkers, to receive a just share of the fruits thereof. To this
end, the State shall encourage and undertake the just distribution of all agricultural lands,
subject to such priorities and reasonable retention limits as the Congress may prescribe, taking
into account ecological, developmental, or equity considerations and subject to the payment of
just compensation. In determining retention limits, the State shall respect the right of small
landowners. The State shall further provide incentives for voluntary land-sharing.

Earlier, in fact, R.A. No. 3844, otherwise known as the Agricultural Land Reform Code, had already been
enacted by the Congress of the Philippines on August 8, 1963, in line with the above-stated principles. This
was substantially superseded almost a decade later by P.D. No. 27, which was promulgated on October 21,
1972, along with martial law, to provide for the compulsory acquisition of private lands for distribution among
tenant-farmers and to specify maximum retention limits for landowners.

The people power revolution of 1986 did not change and indeed even energized the thrust for agrarian
reform. Thus, on July 17, 1987, President Corazon C. Aquino issued E.O. No. 228, declaring full land ownership
in favor of the beneficiaries of P.D. No. 27 and providing for the valuation of still unvalued lands covered by
the decree as well as the manner of their payment. This was followed on July 22, 1987 by Presidential
Proclamation No. 131, instituting a comprehensive agrarian reform program (CARP), and E.O. No. 229,
providing the mechanics for its implementation.

Subsequently, with its formal organization, the revived Congress of the Philippines took over legislative power
from the President and started its own deliberations, including extensive public hearings, on the improvement
of the interests of farmers. The result, after almost a year of spirited debate, was the enactment of R.A. No.
6657, otherwise known as the Comprehensive Agrarian Reform Law of 1988, which President Aquino signed
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on June 10, 1988. This law, while considerably changing the earlier mentioned enactments, nevertheless gives
them suppletory effect insofar as they are not inconsistent with its provisions. 4

The above-captioned cases have been consolidated because they involve common legal questions, including
serious challenges to the constitutionality of the several measures mentioned above. They will be the subject
of one common discussion and resolution, The different antecedents of each case will require separate
treatment, however, and will first be explained hereunder.

G.R. No. 79777

Squarely raised in this petition is the constitutionality of P.D. No. 27, E.O. Nos. 228 and 229, and R.A. No. 6657.

The subjects of this petition are a 9-hectare riceland worked by four tenants and owned by petitioner Nicolas
Manaay and his wife and a 5-hectare riceland worked by four tenants and owned by petitioner Augustin
Hermano, Jr. The tenants were declared full owners of these lands by E.O. No. 228 as qualified farmers under
P.D. No. 27.

The petitioners are questioning P.D. No. 27 and E.O. Nos. 228 and 229 on grounds inter alia of separation of
powers, due process, equal protection and the constitutional limitation that no private property shall be taken
for public use without just compensation.

They contend that President Aquino usurped legislative power when she promulgated E.O. No. 228. The said
measure is invalid also for violation of Article XIII, Section 4, of the Constitution, for failure to provide for
retention limits for small landowners. Moreover, it does not conform to Article VI, Section 25(4) and the other
requisites of a valid appropriation.

In connection with the determination of just compensation, the petitioners argue that the same may be made
only by a court of justice and not by the President of the Philippines. They invoke the recent cases of EPZA v.
Dulay 5 andManotok v. National Food Authority. 6 Moreover, the just compensation contemplated by the Bill
of Rights is payable in money or in cash and not in the form of bonds or other things of value.

In considering the rentals as advance payment on the land, the executive order also deprives the petitioners of
their property rights as protected by due process. The equal protection clause is also violated because the
order places the burden of solving the agrarian problems on the owners only of agricultural lands. No similar
obligation is imposed on the owners of other properties.

The petitioners also maintain that in declaring the beneficiaries under P.D. No. 27 to be the owners of the
lands occupied by them, E.O. No. 228 ignored judicial prerogatives and so violated due process. Worse, the
measure would not solve the agrarian problem because even the small farmers are deprived of their lands and
the retention rights guaranteed by the Constitution.

In his Comment, the Solicitor General stresses that P.D. No. 27 has already been upheld in the earlier cases
ofChavez v. Zobel, 7 Gonzales v. Estrella, 8 and Association of Rice and Corn Producers of the Philippines, Inc. v.
The National Land Reform Council. 9 The determination of just compensation by the executive authorities
conformably to the formula prescribed under the questioned order is at best initial or preliminary only. It does
not foreclose judicial intervention whenever sought or warranted. At any rate, the challenge to the order is
premature because no valuation of their property has as yet been made by the Department of Agrarian

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Reform. The petitioners are also not proper parties because the lands owned by them do not exceed the
maximum retention limit of 7 hectares.

Replying, the petitioners insist they are proper parties because P.D. No. 27 does not provide for retention
limits on tenanted lands and that in any event their petition is a class suit brought in behalf of landowners with
landholdings below 24 hectares. They maintain that the determination of just compensation by the
administrative authorities is a final ascertainment. As for the cases invoked by the public respondent, the
constitutionality of P.D. No. 27 was merely assumed in Chavez, while what was decided in Gonzales was the
validity of the imposition of martial law.

In the amended petition dated November 22, 1588, it is contended that P.D. No. 27, E.O. Nos. 228 and 229
(except Sections 20 and 21) have been impliedly repealed by R.A. No. 6657. Nevertheless, this statute should
itself also be declared unconstitutional because it suffers from substantially the same infirmities as the earlier
measures.

A petition for intervention was filed with leave of court on June 1, 1988 by Vicente Cruz, owner of a 1. 83-
hectare land, who complained that the DAR was insisting on the implementation of P.D. No. 27 and E.O. No.
228 despite a compromise agreement he had reached with his tenant on the payment of rentals. In a
subsequent motion dated April 10, 1989, he adopted the allegations in the basic amended petition that the
above- mentioned enactments have been impliedly repealed by R.A. No. 6657.

G.R. No. 79310

The petitioners herein are landowners and sugar planters in the Victorias Mill District, Victorias, Negros
Occidental. Co-petitioner Planters' Committee, Inc. is an organization composed of 1,400 planter-members.
This petition seeks to prohibit the implementation of Proc. No. 131 and E.O. No. 229.

The petitioners claim that the power to provide for a Comprehensive Agrarian Reform Program as decreed by
the Constitution belongs to Congress and not the President. Although they agree that the President could
exercise legislative power until the Congress was convened, she could do so only to enact emergency
measures during the transition period. At that, even assuming that the interim legislative power of the
President was properly exercised, Proc. No. 131 and E.O. No. 229 would still have to be annulled for violating
the constitutional provisions on just compensation, due process, and equal protection.

They also argue that under Section 2 of Proc. No. 131 which provides:

Agrarian Reform Fund.-There is hereby created a special fund, to be known as the Agrarian Reform Fund, an
initial amount of FIFTY BILLION PESOS (P50,000,000,000.00) to cover the estimated cost of the Comprehensive
Agrarian Reform Program from 1987 to 1992 which shall be sourced from the receipts of the sale of the assets
of the Asset Privatization Trust and Receipts of sale of ill-gotten wealth received through the Presidential
Commission on Good Government and such other sources as government may deem appropriate. The
amounts collected and accruing to this special fund shall be considered automatically appropriated for the
purpose authorized in this Proclamation the amount appropriated is in futuro, not in esse. The money needed
to cover the cost of the contemplated expropriation has yet to be raised and cannot be appropriated at this
time.

Page 45 of 92
Furthermore, they contend that taking must be simultaneous with payment of just compensation as it is
traditionally understood, i.e., with money and in full, but no such payment is contemplated in Section 5 of the
E.O. No. 229. On the contrary, Section 6, thereof provides that the Land Bank of the Philippines "shall
compensate the landowner in an amount to be established by the government, which shall be based on the
owner's declaration of current fair market value as provided in Section 4 hereof, but subject to certain
controls to be defined and promulgated by the Presidential Agrarian Reform Council." This compensation may
not be paid fully in money but in any of several modes that may consist of part cash and part bond, with
interest, maturing periodically, or direct payment in cash or bond as may be mutually agreed upon by the
beneficiary and the landowner or as may be prescribed or approved by the PARC.

The petitioners also argue that in the issuance of the two measures, no effort was made to make a careful
study of the sugar planters' situation. There is no tenancy problem in the sugar areas that can justify the
application of the CARP to them. To the extent that the sugar planters have been lumped in the same
legislation with other farmers, although they are a separate group with problems exclusively their own, their
right to equal protection has been violated.

A motion for intervention was filed on August 27,1987 by the National Federation of Sugarcane Planters
(NASP) which claims a membership of at least 20,000 individual sugar planters all over the country. On
September 10, 1987, another motion for intervention was filed, this time by Manuel Barcelona, et al.,
representing coconut and riceland owners. Both motions were granted by the Court.

NASP alleges that President Aquino had no authority to fund the Agrarian Reform Program and that, in any
event, the appropriation is invalid because of uncertainty in the amount appropriated. Section 2 of Proc. No.
131 and Sections 20 and 21 of E.O. No. 229 provide for an initial appropriation of fifty billion pesos and thus
specifies the minimum rather than the maximum authorized amount. This is not allowed. Furthermore, the
stated initial amount has not been certified to by the National Treasurer as actually available.

Two additional arguments are made by Barcelona, to wit, the failure to establish by clear and convincing
evidence the necessity for the exercise of the powers of eminent domain, and the violation of the
fundamental right to own property.

The petitioners also decry the penalty for non-registration of the lands, which is the expropriation of the said
land for an amount equal to the government assessor's valuation of the land for tax purposes. On the other
hand, if the landowner declares his own valuation he is unjustly required to immediately pay the
corresponding taxes on the land, in violation of the uniformity rule.

In his consolidated Comment, the Solicitor General first invokes the presumption of constitutionality in favor
of Proc. No. 131 and E.O. No. 229. He also justifies the necessity for the expropriation as explained in the
"whereas" clauses of the Proclamation and submits that, contrary to the petitioner's contention, a pilot
project to determine the feasibility of CARP and a general survey on the people's opinion thereon are not
indispensable prerequisites to its promulgation.

On the alleged violation of the equal protection clause, the sugar planters have failed to show that they belong
to a different class and should be differently treated. The Comment also suggests the possibility of Congress
first distributing public agricultural lands and scheduling the expropriation of private agricultural lands later.
From this viewpoint, the petition for prohibition would be premature.

Page 46 of 92
The public respondent also points out that the constitutional prohibition is against the payment of public
money without the corresponding appropriation. There is no rule that only money already in existence can be
the subject of an appropriation law. Finally, the earmarking of fifty billion pesos as Agrarian Reform Fund,
although denominated as an initial amount, is actually the maximum sum appropriated. The word "initial"
simply means that additional amounts may be appropriated later when necessary.

On April 11, 1988, Prudencio Serrano, a coconut planter, filed a petition on his own behalf, assailing the
constitutionality of E.O. No. 229. In addition to the arguments already raised, Serrano contends that the
measure is unconstitutional because:

(1) Only public lands should be included in the CARP;

(2) E.O. No. 229 embraces more than one subject which is not expressed in the title;

(3) The power of the President to legislate was terminated on July 2, 1987; and

(4) The appropriation of a P50 billion special fund from the National Treasury did not originate
from the House of Representatives.

G.R. No. 79744

The petitioner alleges that the then Secretary of Department of Agrarian Reform, in violation of due process
and the requirement for just compensation, placed his landholding under the coverage of Operation Land
Transfer. Certificates of Land Transfer were subsequently issued to the private respondents, who then refused
payment of lease rentals to him.

On September 3, 1986, the petitioner protested the erroneous inclusion of his small landholding under
Operation Land transfer and asked for the recall and cancellation of the Certificates of Land Transfer in the
name of the private respondents. He claims that on December 24, 1986, his petition was denied without
hearing. On February 17, 1987, he filed a motion for reconsideration, which had not been acted upon when
E.O. Nos. 228 and 229 were issued. These orders rendered his motion moot and academic because they
directly effected the transfer of his land to the private respondents.

The petitioner now argues that:

(1) E.O. Nos. 228 and 229 were invalidly issued by the President of the Philippines.

(2) The said executive orders are violative of the constitutional provision that no private
property shall be taken without due process or just compensation.

(3) The petitioner is denied the right of maximum retention provided for under the 1987
Constitution.

The petitioner contends that the issuance of E.0. Nos. 228 and 229 shortly before Congress convened is
anomalous and arbitrary, besides violating the doctrine of separation of powers. The legislative power granted
to the President under the Transitory Provisions refers only to emergency measures that may be promulgated
in the proper exercise of the police power.

Page 47 of 92
The petitioner also invokes his rights not to be deprived of his property without due process of law and to the
retention of his small parcels of riceholding as guaranteed under Article XIII, Section 4 of the Constitution. He
likewise argues that, besides denying him just compensation for his land, the provisions of E.O. No. 228
declaring that:

Lease rentals paid to the landowner by the farmer-beneficiary after October 21, 1972 shall be
considered as advance payment for the land.

is an unconstitutional taking of a vested property right. It is also his contention that the inclusion of even small
landowners in the program along with other landowners with lands consisting of seven hectares or more is
undemocratic.

In his Comment, the Solicitor General submits that the petition is premature because the motion for
reconsideration filed with the Minister of Agrarian Reform is still unresolved. As for the validity of the issuance
of E.O. Nos. 228 and 229, he argues that they were enacted pursuant to Section 6, Article XVIII of the
Transitory Provisions of the 1987 Constitution which reads:

The incumbent president shall continue to exercise legislative powers until the first Congress is convened.

On the issue of just compensation, his position is that when P.D. No. 27 was promulgated on October 21.
1972, the tenant-farmer of agricultural land was deemed the owner of the land he was tilling. The leasehold
rentals paid after that date should therefore be considered amortization payments.

In his Reply to the public respondents, the petitioner maintains that the motion he filed was resolved on
December 14, 1987. An appeal to the Office of the President would be useless with the promulgation of E.O.
Nos. 228 and 229, which in effect sanctioned the validity of the public respondent's acts.

G.R. No. 78742

The petitioners in this case invoke the right of retention granted by P.D. No. 27 to owners of rice and corn
lands not exceeding seven hectares as long as they are cultivating or intend to cultivate the same. Their
respective lands do not exceed the statutory limit but are occupied by tenants who are actually cultivating
such lands.

According to P.D. No. 316, which was promulgated in implementation of P.D. No. 27:

No tenant-farmer in agricultural lands primarily devoted to rice and corn shall be ejected or
removed from his farmholding until such time as the respective rights of the tenant- farmers
and the landowner shall have been determined in accordance with the rules and regulations
implementing P.D. No. 27.

The petitioners claim they cannot eject their tenants and so are unable to enjoy their right of retention
because the Department of Agrarian Reform has so far not issued the implementing rules required under the
above-quoted decree. They therefore ask the Court for a writ of mandamus to compel the respondent to issue
the said rules.

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In his Comment, the public respondent argues that P.D. No. 27 has been amended by LOI 474 removing any
right of retention from persons who own other agricultural lands of more than 7 hectares in aggregate area or
lands used for residential, commercial, industrial or other purposes from which they derive adequate income
for their family. And even assuming that the petitioners do not fall under its terms, the regulations
implementing P.D. No. 27 have already been issued, to wit, the Memorandum dated July 10, 1975 (Interim
Guidelines on Retention by Small Landowners, with an accompanying Retention Guide Table), Memorandum
Circular No. 11 dated April 21, 1978, (Implementation Guidelines of LOI No. 474), Memorandum Circular No.
18-81 dated December 29,1981 (Clarificatory Guidelines on Coverage of P.D. No. 27 and Retention by Small
Landowners), and DAR Administrative Order No. 1, series of 1985 (Providing for a Cut-off Date for Landowners
to Apply for Retention and/or to Protest the Coverage of their Landholdings under Operation Land Transfer
pursuant to P.D. No. 27). For failure to file the corresponding applications for retention under these measures,
the petitioners are now barred from invoking this right.

The public respondent also stresses that the petitioners have prematurely initiated this case notwithstanding
the pendency of their appeal to the President of the Philippines. Moreover, the issuance of the implementing
rules, assuming this has not yet been done, involves the exercise of discretion which cannot be controlled
through the writ of mandamus. This is especially true if this function is entrusted, as in this case, to a separate
department of the government.

In their Reply, the petitioners insist that the above-cited measures are not applicable to them because they do
not own more than seven hectares of agricultural land. Moreover, assuming arguendo that the rules were
intended to cover them also, the said measures are nevertheless not in force because they have not been
published as required by law and the ruling of this Court in Tanada v. Tuvera.10 As for LOI 474, the same is
ineffective for the additional reason that a mere letter of instruction could not have repealed the presidential
decree.

Although holding neither purse nor sword and so regarded as the weakest of the three departments of the
government, the judiciary is nonetheless vested with the power to annul the acts of either the legislative or
the executive or of both when not conformable to the fundamental law. This is the reason for what some
quarters call the doctrine of judicial supremacy. Even so, this power is not lightly assumed or readily exercised.
The doctrine of separation of powers imposes upon the courts a proper restraint, born of the nature of their
functions and of their respect for the other departments, in striking down the acts of the legislative and the
executive as unconstitutional. The policy, indeed, is a blend of courtesy and caution. To doubt is to sustain.
The theory is that before the act was done or the law was enacted, earnest studies were made by Congress or
the President, or both, to insure that the Constitution would not be breached.

In addition, the Constitution itself lays down stringent conditions for a declaration of unconstitutionality,
requiring therefor the concurrence of a majority of the members of the Supreme Court who took part in the
deliberations and voted on the issue during their session en banc.11 And as established by judge made
doctrine, the Court will assume jurisdiction over a constitutional question only if it is shown that the essential
requisites of a judicial inquiry into such a question are first satisfied. Thus, there must be an actual case or
controversy involving a conflict of legal rights susceptible of judicial determination, the constitutional question
must have been opportunely raised by the proper party, and the resolution of the question is unavoidably
necessary to the decision of the case itself. 12

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With particular regard to the requirement of proper party as applied in the cases before us, we hold that the
same is satisfied by the petitioners and intervenors because each of them has sustained or is in danger of
sustaining an immediate injury as a result of the acts or measures complained of. 13 And even if, strictly
speaking, they are not covered by the definition, it is still within the wide discretion of the Court to waive the
requirement and so remove the impediment to its addressing and resolving the serious constitutional
questions raised.

In the first Emergency Powers Cases, 14 ordinary citizens and taxpayers were allowed to question the
constitutionality of several executive orders issued by President Quirino although they were invoking only an
indirect and general interest shared in common with the public. The Court dismissed the objection that they
were not proper parties and ruled that "the transcendental importance to the public of these cases demands
that they be settled promptly and definitely, brushing aside, if we must, technicalities of procedure." We have
since then applied this exception in many other cases. 15

The other above-mentioned requisites have also been met in the present petitions.

In must be stressed that despite the inhibitions pressing upon the Court when confronted with constitutional
issues like the ones now before it, it will not hesitate to declare a law or act invalid when it is convinced that
this must be done. In arriving at this conclusion, its only criterion will be the Constitution as God and its
conscience give it the light to probe its meaning and discover its purpose. Personal motives and political
considerations are irrelevancies that cannot influence its decision. Blandishment is as ineffectual as
intimidation.

For all the awesome power of the Congress and the Executive, the Court will not hesitate to "make the
hammer fall, and heavily," to use Justice Laurel's pithy language, where the acts of these departments, or of
any public official, betray the people's will as expressed in the Constitution.

It need only be added, to borrow again the words of Justice Laurel, that —

... when the judiciary mediates to allocate constitutional boundaries, it does not assert any
superiority over the other departments; it does not in reality nullify or invalidate an act of the
Legislature, but only asserts the solemn and sacred obligation assigned to it by the Constitution
to determine conflicting claims of authority under the Constitution and to establish for the
parties in an actual controversy the rights which that instrument secures and guarantees to
them. This is in truth all that is involved in what is termed "judicial supremacy" which properly
is the power of judicial review under the Constitution. 16

The cases before us categorically raise constitutional questions that this Court must categorically resolve. And
so we shall.

II

We proceed first to the examination of the preliminary issues before resolving the more serious challenges to
the constitutionality of the several measures involved in these petitions.

The promulgation of P.D. No. 27 by President Marcos in the exercise of his powers under martial law has
already been sustained in Gonzales v. Estrella and we find no reason to modify or reverse it on that issue. As

Page 50 of 92
for the power of President Aquino to promulgate Proc. No. 131 and E.O. Nos. 228 and 229, the same was
authorized under Section 6 of the Transitory Provisions of the 1987 Constitution, quoted above.

The said measures were issued by President Aquino before July 27, 1987, when the Congress of the Philippines
was formally convened and took over legislative power from her. They are not "midnight" enactments
intended to pre-empt the legislature because E.O. No. 228 was issued on July 17, 1987, and the other
measures, i.e., Proc. No. 131 and E.O. No. 229, were both issued on July 22, 1987. Neither is it correct to say
that these measures ceased to be valid when she lost her legislative power for, like any statute, they continue
to be in force unless modified or repealed by subsequent law or declared invalid by the courts. A statute does
not ipso facto become inoperative simply because of the dissolution of the legislature that enacted it. By the
same token, President Aquino's loss of legislative power did not have the effect of invalidating all the
measures enacted by her when and as long as she possessed it.

Significantly, the Congress she is alleged to have undercut has not rejected but in fact substantially affirmed
the challenged measures and has specifically provided that they shall be suppletory to R.A. No. 6657 whenever
not inconsistent with its provisions. 17 Indeed, some portions of the said measures, like the creation of the P50
billion fund in Section 2 of Proc. No. 131, and Sections 20 and 21 of E.O. No. 229, have been incorporated by
reference in the CARP Law. 18

That fund, as earlier noted, is itself being questioned on the ground that it does not conform to the
requirements of a valid appropriation as specified in the Constitution. Clearly, however, Proc. No. 131 is not an
appropriation measure even if it does provide for the creation of said fund, for that is not its principal purpose.
An appropriation law is one the primary and specific purpose of which is to authorize the release of public
funds from the treasury. 19 The creation of the fund is only incidental to the main objective of the
proclamation, which is agrarian reform.

It should follow that the specific constitutional provisions invoked, to wit, Section 24 and Section 25(4) of
Article VI, are not applicable. With particular reference to Section 24, this obviously could not have been
complied with for the simple reason that the House of Representatives, which now has the exclusive power to
initiate appropriation measures, had not yet been convened when the proclamation was issued. The
legislative power was then solely vested in the President of the Philippines, who embodied, as it were, both
houses of Congress.

The argument of some of the petitioners that Proc. No. 131 and E.O. No. 229 should be invalidated because
they do not provide for retention limits as required by Article XIII, Section 4 of the Constitution is no longer
tenable. R.A. No. 6657 does provide for such limits now in Section 6 of the law, which in fact is one of its most
controversial provisions. This section declares:

Retention Limits. — Except as otherwise provided in this Act, no person may own or retain,
directly or indirectly, any public or private agricultural land, the size of which shall vary
according to factors governing a viable family-sized farm, such as commodity produced, terrain,
infrastructure, and soil fertility as determined by the Presidential Agrarian Reform Council
(PARC) created hereunder, but in no case shall retention by the landowner exceed five (5)
hectares. Three (3) hectares may be awarded to each child of the landowner, subject to the
following qualifications: (1) that he is at least fifteen (15) years of age; and (2) that he is actually
tilling the land or directly managing the farm; Provided, That landowners whose lands have
been covered by Presidential Decree No. 27 shall be allowed to keep the area originally
Page 51 of 92
 retained by them thereunder, further, That original homestead grantees or direct compulsory
heirs who still own the original homestead at the time of the approval of this Act shall retain
the same areas as long as they continue to cultivate said homestead.

The argument that E.O. No. 229 violates the constitutional requirement that a bill shall have only one subject,
to be expressed in its title, deserves only short attention. It is settled that the title of the bill does not have to
be a catalogue of its contents and will suffice if the matters embodied in the text are relevant to each other
and may be inferred from the title. 20

The Court wryly observes that during the past dictatorship, every presidential issuance, by whatever name it
was called, had the force and effect of law because it came from President Marcos. Such are the ways of
despots. Hence, it is futile to argue, as the petitioners do in G.R. No. 79744, that LOI 474 could not have
repealed P.D. No. 27 because the former was only a letter of instruction. The important thing is that it was
issued by President Marcos, whose word was law during that time.

But for all their peremptoriness, these issuances from the President Marcos still had to comply with the
requirement for publication as this Court held in Tanada v. Tuvera. 21 Hence, unless published in the Official
Gazette in accordance with Article 2 of the Civil Code, they could not have any force and effect if they were
among those enactments successfully challenged in that case. LOI 474 was published, though, in the Official
Gazette dated November 29,1976.)

Finally, there is the contention of the public respondent in G.R. No. 78742 that the writ of mandamus cannot
issue to compel the performance of a discretionary act, especially by a specific department of the government.
That is true as a general proposition but is subject to one important qualification. Correctly and categorically
stated, the rule is that mandamus will lie to compel the discharge of the discretionary duty itself but not to
control the discretion to be exercised. In other words, mandamus can issue to require action only but not
specific action.

Whenever a duty is imposed upon a public official and an unnecessary and unreasonable delay
in the exercise of such duty occurs, if it is a clear duty imposed by law, the courts will intervene
by the extraordinary legal remedy of mandamus to compel action. If the duty is purely
ministerial, the courts will require specific action. If the duty is purely discretionary, the courts
by mandamus will require action only. For example, if an inferior court, public official, or board
should, for an unreasonable length of time, fail to decide a particular question to the great
detriment of all parties concerned, or a court should refuse to take jurisdiction of a cause when
the law clearly gave it jurisdiction mandamus will issue, in the first case to require a decision,
and in the second to require that jurisdiction be taken of the cause. 22

And while it is true that as a rule the writ will not be proper as long as there is still a plain, speedy and
adequate remedy available from the administrative authorities, resort to the courts may still be permitted if
the issue raised is a question of law. 23

III

There are traditional distinctions between the police power and the power of eminent domain that logically
preclude the application of both powers at the same time on the same subject. In the case of City of Baguio v.
NAWASA, 24for example, where a law required the transfer of all municipal waterworks systems to the

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NAWASA in exchange for its assets of equivalent value, the Court held that the power being exercised was
eminent domain because the property involved was wholesome and intended for a public use. Property
condemned under the police power is noxious or intended for a noxious purpose, such as a building on the
verge of collapse, which should be demolished for the public safety, or obscene materials, which should be
destroyed in the interest of public morals. The confiscation of such property is not compensable, unlike the
taking of property under the power of expropriation, which requires the payment of just compensation to the
owner.

In the case of Pennsylvania Coal Co. v. Mahon, 25 Justice Holmes laid down the limits of the police power in a
famous aphorism: "The general rule at least is that while property may be regulated to a certain extent, if
regulation goes too far it will be recognized as a taking." The regulation that went "too far" was a law
prohibiting mining which might cause the subsidence of structures for human habitation constructed on the
land surface. This was resisted by a coal company which had earlier granted a deed to the land over its mine
but reserved all mining rights thereunder, with the grantee assuming all risks and waiving any damage claim.
The Court held the law could not be sustained without compensating the grantor. Justice Brandeis filed a lone
dissent in which he argued that there was a valid exercise of the police power. He said:

Every restriction upon the use of property imposed in the exercise of the police power deprives
the owner of some right theretofore enjoyed, and is, in that sense, an abridgment by the State
of rights in property without making compensation. But restriction imposed to protect the
public health, safety or morals from dangers threatened is not a taking. The restriction here in
question is merely the prohibition of a noxious use. The property so restricted remains in the
possession of its owner. The state does not appropriate it or make any use of it. The state
merely prevents the owner from making a use which interferes with paramount rights of the
public. Whenever the use prohibited ceases to be noxious — as it may because of further
changes in local or social conditions — the restriction will have to be removed and the owner
will again be free to enjoy his property as heretofore.

Recent trends, however, would indicate not a polarization but a mingling of the police power and the power of
eminent domain, with the latter being used as an implement of the former like the power of taxation. The
employment of the taxing power to achieve a police purpose has long been accepted. 26 As for the power of
expropriation, Prof. John J. Costonis of the University of Illinois College of Law (referring to the earlier case of
Euclid v. Ambler Realty Co., 272 US 365, which sustained a zoning law under the police power) makes the
following significant remarks:

Euclid, moreover, was decided in an era when judges located the Police and eminent domain
powers on different planets. Generally speaking, they viewed eminent domain as encompassing
public acquisition of private property for improvements that would be available for public use,"
literally construed. To the police power, on the other hand, they assigned the less intrusive task
of preventing harmful externalities a point reflected in the Euclid opinion's reliance on an
analogy to nuisance law to bolster its support of zoning. So long as suppression of a privately
authored harm bore a plausible relation to some legitimate "public purpose," the pertinent
measure need have afforded no compensation whatever. With the progressive growth of
government's involvement in land use, the distance between the two powers has contracted
considerably. Today government often employs eminent domain interchangeably with or as a
useful complement to the police power-- a trend expressly approved in the Supreme Court's

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 1954 decision in Berman v. Parker, which broadened the reach of eminent domain's "public
use" test to match that of the police power's standard of "public purpose." 27

The Berman case sustained a redevelopment project and the improvement of blighted areas in the District of
Columbia as a proper exercise of the police power. On the role of eminent domain in the attainment of this
purpose, Justice Douglas declared:

If those who govern the District of Columbia decide that the Nation's Capital should be
beautiful as well as sanitary, there is nothing in the Fifth Amendment that stands in the way.

Once the object is within the authority of Congress, the right to realize it through the exercise
of eminent domain is clear.

For the power of eminent domain is merely the means to the end. 28

In Penn Central Transportation Co. v. New York City, 29 decided by a 6-3 vote in 1978, the U.S Supreme Court
sustained the respondent's Landmarks Preservation Law under which the owners of the Grand Central
Terminal had not been allowed to construct a multi-story office building over the Terminal, which had been
designated a historic landmark. Preservation of the landmark was held to be a valid objective of the police
power. The problem, however, was that the owners of the Terminal would be deprived of the right to use the
airspace above it although other landowners in the area could do so over their respective properties. While
insisting that there was here no taking, the Court nonetheless recognized certain compensatory rights
accruing to Grand Central Terminal which it said would "undoubtedly mitigate" the loss caused by the
regulation. This "fair compensation," as he called it, was explained by Prof. Costonis in this wise:

In return for retaining the Terminal site in its pristine landmark status, Penn Central was authorized to transfer
to neighboring properties the authorized but unused rights accruing to the site prior to the Terminal's
designation as a landmark — the rights which would have been exhausted by the 59-story building that the
city refused to countenance atop the Terminal. Prevailing bulk restrictions on neighboring sites were
proportionately relaxed, theoretically enabling Penn Central to recoup its losses at the Terminal site by
constructing or selling to others the right to construct larger, hence more profitable buildings on the
transferee sites. 30

The cases before us present no knotty complication insofar as the question of compensable taking is
concerned. To the extent that the measures under challenge merely prescribe retention limits for landowners,
there is an exercise of the police power for the regulation of private property in accordance with the
Constitution. But where, to carry out such regulation, it becomes necessary to deprive such owners of
whatever lands they may own in excess of the maximum area allowed, there is definitely a taking under the
power of eminent domain for which payment of just compensation is imperative. The taking contemplated is
not a mere limitation of the use of the land. What is required is the surrender of the title to and the physical
possession of the said excess and all beneficial rights accruing to the owner in favor of the farmer-beneficiary.
This is definitely an exercise not of the police power but of the power of eminent domain.

Whether as an exercise of the police power or of the power of eminent domain, the several measures before
us are challenged as violative of the due process and equal protection clauses.

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The challenge to Proc. No. 131 and E.O. Nos. 228 and 299 on the ground that no retention limits are
prescribed has already been discussed and dismissed. It is noted that although they excited many bitter
exchanges during the deliberation of the CARP Law in Congress, the retention limits finally agreed upon are,
curiously enough, not being questioned in these petitions. We therefore do not discuss them here. The Court
will come to the other claimed violations of due process in connection with our examination of the adequacy
of just compensation as required under the power of expropriation.

The argument of the small farmers that they have been denied equal protection because of the absence of
retention limits has also become academic under Section 6 of R.A. No. 6657. Significantly, they too have not
questioned the area of such limits. There is also the complaint that they should not be made to share the
burden of agrarian reform, an objection also made by the sugar planters on the ground that they belong to a
particular class with particular interests of their own. However, no evidence has been submitted to the Court
that the requisites of a valid classification have been violated.

Classification has been defined as the grouping of persons or things similar to each other in certain particulars
and different from each other in these same particulars. 31 To be valid, it must conform to the following
requirements: (1) it must be based on substantial distinctions; (2) it must be germane to the purposes of the
law; (3) it must not be limited to existing conditions only; and (4) it must apply equally to all the members of
the class. 32 The Court finds that all these requisites have been met by the measures here challenged as
arbitrary and discriminatory.

Equal protection simply means that all persons or things similarly situated must be treated alike both as to the
rights conferred and the liabilities imposed. 33 The petitioners have not shown that they belong to a different
class and entitled to a different treatment. The argument that not only landowners but also owners of other
properties must be made to share the burden of implementing land reform must be rejected. There is a
substantial distinction between these two classes of owners that is clearly visible except to those who will not
see. There is no need to elaborate on this matter. In any event, the Congress is allowed a wide leeway in
providing for a valid classification. Its decision is accorded recognition and respect by the courts of justice
except only where its discretion is abused to the detriment of the Bill of Rights.

It is worth remarking at this juncture that a statute may be sustained under the police power only if there is a
concurrence of the lawful subject and the lawful method. Put otherwise, the interests of the public generally
as distinguished from those of a particular class require the interference of the State and, no less important,
the means employed are reasonably necessary for the attainment of the purpose sought to be achieved and
not unduly oppressive upon individuals. 34 As the subject and purpose of agrarian reform have been laid down
by the Constitution itself, we may say that the first requirement has been satisfied. What remains to be
examined is the validity of the method employed to achieve the constitutional goal.

One of the basic principles of the democratic system is that where the rights of the individual are concerned,
the end does not justify the means. It is not enough that there be a valid objective; it is also necessary that the
means employed to pursue it be in keeping with the Constitution. Mere expediency will not excuse
constitutional shortcuts. There is no question that not even the strongest moral conviction or the most urgent
public need, subject only to a few notable exceptions, will excuse the bypassing of an individual's rights. It is
no exaggeration to say that a, person invoking a right guaranteed under Article III of the Constitution is a
majority of one even as against the rest of the nation who would deny him that right.

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That right covers the person's life, his liberty and his property under Section 1 of Article III of the Constitution.
With regard to his property, the owner enjoys the added protection of Section 9, which reaffirms the familiar
rule that private property shall not be taken for public use without just compensation.

This brings us now to the power of eminent domain.

IV

Eminent domain is an inherent power of the State that enables it to forcibly acquire private
lands intended for public use upon payment of just compensation to the owner. Obviously,
there is no need to expropriate where the owner is willing to sell under terms also acceptable
to the purchaser, in which case an ordinary deed of sale may be agreed upon by the
parties. 35 It is only where the owner is unwilling to sell, or cannot accept the price or other
conditions offered by the vendee, that the power of eminent domain will come into play to
assert the paramount authority of the State over the interests of the property owner. Private
rights must then yield to the irresistible demands of the public interest on the time-honored
justification, as in the case of the police power, that the welfare of the people is the supreme
law.

But for all its primacy and urgency, the power of expropriation is by no means absolute (as indeed no power is
absolute). The limitation is found in the constitutional injunction that "private property shall not be taken for
public use without just compensation" and in the abundant jurisprudence that has evolved from the
interpretation of this principle. Basically, the requirements for a proper exercise of the power are: (1) public
use and (2) just compensation.

Let us dispose first of the argument raised by the petitioners in G.R. No. 79310 that the State should first
distribute public agricultural lands in the pursuit of agrarian reform instead of immediately disturbing property
rights by forcibly acquiring private agricultural lands. Parenthetically, it is not correct to say that only public
agricultural lands may be covered by the CARP as the Constitution calls for "the just distribution of all
agricultural lands." In any event, the decision to redistribute private agricultural lands in the manner
prescribed by the CARP was made by the legislative and executive departments in the exercise of their
discretion. We are not justified in reviewing that discretion in the absence of a clear showing that it has been
abused.

A becoming courtesy admonishes us to respect the decisions of the political departments when they decide
what is known as the political question. As explained by Chief Justice Concepcion in the case of Tañada v.
Cuenco: 36

The term "political question" connotes what it means in ordinary parlance, namely, a question
of policy. It refers to "those questions which, under the Constitution, are to be decided by the
people in their sovereign capacity; or in regard to which full discretionary authority has been
delegated to the legislative or executive branch of the government." It is concerned with issues
dependent upon the wisdom, not legality, of a particular measure.

It is true that the concept of the political question has been constricted with the enlargement of judicial
power, which now includes the authority of the courts "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

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the Government." 37 Even so, this should not be construed as a license for us to reverse the other departments
simply because their views may not coincide with ours.

The legislature and the executive have been seen fit, in their wisdom, to include in the CARP the redistribution
of private landholdings (even as the distribution of public agricultural lands is first provided for, while also
continuing apace under the Public Land Act and other cognate laws). The Court sees no justification to
interpose its authority, which we may assert only if we believe that the political decision is not unwise, but
illegal. We do not find it to be so.

In U.S. v. Chandler-Dunbar Water Power Company,38 it was held:

Congress having determined, as it did by the Act of March 3,1909 that the entire St. Mary's
river between the American bank and the international line, as well as all of the upland north of
the present ship canal, throughout its entire length, was "necessary for the purpose of
navigation of said waters, and the waters connected therewith," that determination is
conclusive in condemnation proceedings instituted by the United States under that Act, and
there is no room for judicial review of the judgment of Congress ... .

As earlier observed, the requirement for public use has already been settled for us by the Constitution itself
No less than the 1987 Charter calls for agrarian reform, which is the reason why private agricultural lands are
to be taken from their owners, subject to the prescribed maximum retention limits. The purposes specified in
P.D. No. 27, Proc. No. 131 and R.A. No. 6657 are only an elaboration of the constitutional injunction that the
State adopt the necessary measures "to encourage and undertake the just distribution of all agricultural lands
to enable farmers who are landless to own directly or collectively the lands they till." That public use, as
pronounced by the fundamental law itself, must be binding on us.

The second requirement, i.e., the payment of just compensation, needs a longer and more thoughtful
examination.

Just compensation is defined as the full and fair equivalent of the property taken from its owner by the
expropriator. 39 It has been repeatedly stressed by this Court that the measure is not the taker's gain but the
owner's loss. 40 The word "just" is used to intensify the meaning of the word "compensation" to convey the
idea that the equivalent to be rendered for the property to be taken shall be real, substantial, full, ample. 41

It bears repeating that the measures challenged in these petitions contemplate more than a mere regulation
of the use of private lands under the police power. We deal here with an actual taking of private agricultural
lands that has dispossessed the owners of their property and deprived them of all its beneficial use and
enjoyment, to entitle them to the just compensation mandated by the Constitution.

As held in Republic of the Philippines v. Castellvi, 42 there is compensable taking when the following conditions
concur: (1) the expropriator must enter a private property; (2) the entry must be for more than a momentary
period; (3) the entry must be under warrant or color of legal authority; (4) the property must be devoted to
public use or otherwise informally appropriated or injuriously affected; and (5) the utilization of the property
for public use must be in such a way as to oust the owner and deprive him of beneficial enjoyment of the
property. All these requisites are envisioned in the measures before us.

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Where the State itself is the expropriator, it is not necessary for it to make a deposit upon its taking possession
of the condemned property, as "the compensation is a public charge, the good faith of the public is pledged
for its payment, and all the resources of taxation may be employed in raising the amount." 43 Nevertheless,
Section 16(e) of the CARP Law provides that:

Upon receipt by the landowner of the corresponding payment or, in case of rejection or no
response from the landowner, upon the deposit with an accessible bank designated by the DAR
of the compensation in cash or in LBP bonds in accordance with this Act, the DAR shall take
immediate possession of the land and shall request the proper Register of Deeds to issue a
Transfer Certificate of Title (TCT) in the name of the Republic of the Philippines. The DAR shall
thereafter proceed with the redistribution of the land to the qualified beneficiaries.

Objection is raised, however, to the manner of fixing the just compensation, which it is claimed is entrusted to
the administrative authorities in violation of judicial prerogatives. Specific reference is made to Section 16(d),
which provides that in case of the rejection or disregard by the owner of the offer of the government to buy
his land-

... the DAR shall conduct summary administrative proceedings to determine the compensation
for the land by requiring the landowner, the LBP and other interested parties to submit
evidence as to the just compensation for the land, within fifteen (15) days from the receipt of
the notice. After the expiration of the above period, the matter is deemed submitted for
decision. The DAR shall decide the case within thirty (30) days after it is submitted for decision.

To be sure, the determination of just compensation is a function addressed to the courts of justice and may
not be usurped by any other branch or official of the government. EPZA v. Dulay 44 resolved a challenge to
several decrees promulgated by President Marcos providing that the just compensation for property under
expropriation should be either the assessment of the property by the government or the sworn valuation
thereof by the owner, whichever was lower. In declaring these decrees unconstitutional, the Court held
through Mr. Justice Hugo E. Gutierrez, Jr.:

The method of ascertaining just compensation under the aforecited decrees constitutes
impermissible encroachment on judicial prerogatives. It tends to render this Court inutile in a
matter which under this Constitution is reserved to it for final determination.

Thus, although in an expropriation proceeding the court technically would still have the power
to determine the just compensation for the property, following the applicable decrees, its task
would be relegated to simply stating the lower value of the property as declared either by the
owner or the assessor. As a necessary consequence, it would be useless for the court to appoint
commissioners under Rule 67 of the Rules of Court. Moreover, the need to satisfy the due
process clause in the taking of private property is seemingly fulfilled since it cannot be said that
a judicial proceeding was not had before the actual taking. However, the strict application of
the decrees during the proceedings would be nothing short of a mere formality or charade as
the court has only to choose between the valuation of the owner and that of the assessor, and
its choice is always limited to the lower of the two. The court cannot exercise its discretion or
independence in determining what is just or fair. Even a grade school pupil could substitute for
the judge insofar as the determination of constitutional just compensation is concerned.

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 xxx

In the present petition, we are once again confronted with the same question of whether the
courts under P.D. No. 1533, which contains the same provision on just compensation as its
predecessor decrees, still have the power and authority to determine just compensation,
independent of what is stated by the decree and to this effect, to appoint commissioners for
such purpose.

This time, we answer in the affirmative.

xxx

It is violative of due process to deny the owner the opportunity to prove that the valuation in
the tax documents is unfair or wrong. And it is repulsive to the basic concepts of justice and
fairness to allow the haphazard work of a minor bureaucrat or clerk to absolutely prevail over
the judgment of a court promulgated only after expert commissioners have actually viewed the
property, after evidence and arguments pro and con have been presented, and after all factors
and considerations essential to a fair and just determination have been judiciously evaluated.

A reading of the aforecited Section 16(d) will readily show that it does not suffer from the arbitrariness that
rendered the challenged decrees constitutionally objectionable. Although the proceedings are described as
summary, the landowner and other interested parties are nevertheless allowed an opportunity to submit
evidence on the real value of the property. But more importantly, the determination of the just compensation
by the DAR is not by any means final and conclusive upon the landowner or any other interested party, for
Section 16(f) clearly provides:

Any party who disagrees with the decision may bring the matter to the court of proper
jurisdiction for final determination of just compensation.

The determination made by the DAR is only preliminary unless accepted by all parties concerned. Otherwise,
the courts of justice will still have the right to review with finality the said determination in the exercise of
what is admittedly a judicial function.

The second and more serious objection to the provisions on just compensation is not as easily resolved.

This refers to Section 18 of the CARP Law providing in full as follows:

SEC. 18. Valuation and Mode of Compensation. — The LBP shall compensate the landowner in
such amount as may be agreed upon by the landowner and the DAR and the LBP, in accordance
with the criteria provided for in Sections 16 and 17, and other pertinent provisions hereof, or as
may be finally determined by the court, as the just compensation for the land.

The compensation shall be paid in one of the following modes, at the option of the landowner:

(1) Cash payment, under the following terms and conditions:

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 (a) For lands above fifty (50) hectares, insofar as the excess
hectarage is concerned — Twenty-five percent (25%) cash, the
balance to be paid in government financial instruments negotiable
at any time.

(b) For lands above twenty-four (24) hectares and up to fifty (50)
hectares — Thirty percent (30%) cash, the balance to be paid in
government financial instruments negotiable at any time.

(c) For lands twenty-four (24) hectares and below — Thirty-five

percent (35%) cash, the balance to be paid in government
financial instruments negotiable at any time.

(2) Shares of stock in government-owned or controlled corporations, LBP preferred shares,

physical assets or other qualified investments in accordance with guidelines set by the PARC;

(3) Tax credits which can be used against any tax liability;

(4) LBP bonds, which shall have the following features:

(a) Market interest rates aligned with 91-day treasury bill rates. Ten percent (10%) of the face value of
the bonds shall mature every year from the date of issuance until the tenth (10th) year: Provided, That
should the landowner choose to forego the cash portion, whether in full or in part, he shall be paid
correspondingly in LBP bonds;

(b) Transferability and negotiability. Such LBP bonds may be used by the landowner, his successors-in-
interest or his assigns, up to the amount of their face value, for any of the following:

(i) Acquisition of land or other real properties of the government, including assets under the Asset
Privatization Program and other assets foreclosed by government financial institutions in the same
province or region where the lands for which the bonds were paid are situated;

(ii) Acquisition of shares of stock of government-owned or controlled corporations or shares of stock

owned by the government in private corporations;

(iii) Substitution for surety or bail bonds for the provisional release of accused persons, or for
performance bonds;

(iv) Security for loans with any government financial institution, provided the proceeds of the loans
shall be invested in an economic enterprise, preferably in a small and medium- scale industry, in the
same province or region as the land for which the bonds are paid;

(v) Payment for various taxes and fees to government: Provided, That the use of these bonds for these
purposes will be limited to a certain percentage of the outstanding balance of the financial
instruments; Provided, further, That the PARC shall determine the percentages mentioned above;

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 (vi) Payment for tuition fees of the immediate family of the original bondholder in government
universities, colleges, trade schools, and other institutions;

(vii) Payment for fees of the immediate family of the original bondholder in government hospitals; and

(viii) Such other uses as the PARC may from time to time allow.

The contention of the petitioners in G.R. No. 79777 is that the above provision is unconstitutional insofar as it
requires the owners of the expropriated properties to accept just compensation therefor in less than money,
which is the only medium of payment allowed. In support of this contention, they cite jurisprudence holding
that:

The fundamental rule in expropriation matters is that the owner of the property expropriated is
entitled to a just compensation, which should be neither more nor less, whenever it is possible
to make the assessment, than the money equivalent of said property. Just compensation has
always been understood to be the just and complete equivalent of the loss which the owner of
the thing expropriated has to suffer by reason of the expropriation . 45 (Emphasis supplied.)

In J.M. Tuazon Co. v. Land Tenure Administration, 46 this Court held:

It is well-settled that just compensation means the equivalent for the value of the property at
the time of its taking. Anything beyond that is more, and anything short of that is less, than just
compensation. It means a fair and full equivalent for the loss sustained, which is the measure of
the indemnity, not whatever gain would accrue to the expropriating entity. The market value of
the land taken is the just compensation to which the owner of condemned property is entitled,
the market value being that sum of money which a person desirous, but not compelled to buy,
and an owner, willing, but not compelled to sell, would agree on as a price to be given and
received for such property. (Emphasis supplied.)

In the United States, where much of our jurisprudence on the subject has been derived, the weight of
authority is also to the effect that just compensation for property expropriated is payable only in money and
not otherwise. Thus —

The medium of payment of compensation is ready money or cash. The condemnor cannot
compel the owner to accept anything but money, nor can the owner compel or require the
condemnor to pay him on any other basis than the value of the property in money at the time
and in the manner prescribed by the Constitution and the statutes. When the power of eminent
domain is resorted to, there must be a standard medium of payment, binding upon both
parties, and the law has fixed that standard as money in cash. 47 (Emphasis supplied.)

Part cash and deferred payments are not and cannot, in the nature of things, be regarded as a
reliable and constant standard of compensation. 48

"Just compensation" for property taken by condemnation means a fair equivalent in money,
which must be paid at least within a reasonable time after the taking, and it is not within the
power of the Legislature to substitute for such payment future obligations, bonds, or other
valuable advantage. 49(Emphasis supplied.)

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It cannot be denied from these cases that the traditional medium for the payment of just compensation is
money and no other. And so, conformably, has just compensation been paid in the past solely in that medium.
However, we do not deal here with the traditional excercise of the power of eminent domain. This is not an
ordinary expropriation where only a specific property of relatively limited area is sought to be taken by the
State from its owner for a specific and perhaps local purpose.

What we deal with here is a revolutionary kind of expropriation.

The expropriation before us affects all private agricultural lands whenever found and of whatever kind as long
as they are in excess of the maximum retention limits allowed their owners. This kind of expropriation is
intended for the benefit not only of a particular community or of a small segment of the population but of the
entire Filipino nation, from all levels of our society, from the impoverished farmer to the land-glutted owner.
Its purpose does not cover only the whole territory of this country but goes beyond in time to the foreseeable
future, which it hopes to secure and edify with the vision and the sacrifice of the present generation of
Filipinos. Generations yet to come are as involved in this program as we are today, although hopefully only as
beneficiaries of a richer and more fulfilling life we will guarantee to them tomorrow through our
thoughtfulness today. And, finally, let it not be forgotten that it is no less than the Constitution itself that has
ordained this revolution in the farms, calling for "a just distribution" among the farmers of lands that have
heretofore been the prison of their dreams but can now become the key at least to their deliverance.

Such a program will involve not mere millions of pesos. The cost will be tremendous. Considering the vast
areas of land subject to expropriation under the laws before us, we estimate that hundreds of billions of pesos
will be needed, far more indeed than the amount of P50 billion initially appropriated, which is already
staggering as it is by our present standards. Such amount is in fact not even fully available at this time.

We assume that the framers of the Constitution were aware of this difficulty when they called for agrarian
reform as a top priority project of the government. It is a part of this assumption that when they envisioned
the expropriation that would be needed, they also intended that the just compensation would have to be paid
not in the orthodox way but a less conventional if more practical method. There can be no doubt that they
were aware of the financial limitations of the government and had no illusions that there would be enough
money to pay in cash and in full for the lands they wanted to be distributed among the farmers. We may
therefore assume that their intention was to allow such manner of payment as is now provided for by the
CARP Law, particularly the payment of the balance (if the owner cannot be paid fully with money), or indeed
of the entire amount of the just compensation, with other things of value. We may also suppose that what
they had in mind was a similar scheme of payment as that prescribed in P.D. No. 27, which was the law in
force at the time they deliberated on the new Charter and with which they presumably agreed in principle.

The Court has not found in the records of the Constitutional Commission any categorical agreement among
the members regarding the meaning to be given the concept of just compensation as applied to the
comprehensive agrarian reform program being contemplated. There was the suggestion to "fine tune" the
requirement to suit the demands of the project even as it was also felt that they should "leave it to Congress"
to determine how payment should be made to the landowner and reimbursement required from the farmer-
beneficiaries. Such innovations as "progressive compensation" and "State-subsidized compensation" were also
proposed. In the end, however, no special definition of the just compensation for the lands to be expropriated
was reached by the Commission. 50

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On the other hand, there is nothing in the records either that militates against the assumptions we are making
of the general sentiments and intention of the members on the content and manner of the payment to be
made to the landowner in the light of the magnitude of the expenditure and the limitations of the
expropriator.

With these assumptions, the Court hereby declares that the content and manner of the just compensation
provided for in the afore- quoted Section 18 of the CARP Law is not violative of the Constitution. We do not
mind admitting that a certain degree of pragmatism has influenced our decision on this issue, but after all this
Court is not a cloistered institution removed from the realities and demands of society or oblivious to the need
for its enhancement. The Court is as acutely anxious as the rest of our people to see the goal of agrarian
reform achieved at last after the frustrations and deprivations of our peasant masses during all these
disappointing decades. We are aware that invalidation of the said section will result in the nullification of the
entire program, killing the farmer's hopes even as they approach realization and resurrecting the spectre of
discontent and dissent in the restless countryside. That is not in our view the intention of the Constitution, and
that is not what we shall decree today.

Accepting the theory that payment of the just compensation is not always required to be made fully in money,
we find further that the proportion of cash payment to the other things of value constituting the total
payment, as determined on the basis of the areas of the lands expropriated, is not unduly oppressive upon the
landowner. It is noted that the smaller the land, the bigger the payment in money, primarily because the small
landowner will be needing it more than the big landowners, who can afford a bigger balance in bonds and
other things of value. No less importantly, the government financial instruments making up the balance of the
payment are "negotiable at any time." The other modes, which are likewise available to the landowner at his
option, are also not unreasonable because payment is made in shares of stock, LBP bonds, other properties or
assets, tax credits, and other things of value equivalent to the amount of just compensation.

Admittedly, the compensation contemplated in the law will cause the landowners, big and small, not a little
inconvenience. As already remarked, this cannot be avoided. Nevertheless, it is devoutly hoped that these
countrymen of ours, conscious as we know they are of the need for their forebearance and even sacrifice, will
not begrudge us their indispensable share in the attainment of the ideal of agrarian reform. Otherwise, our
pursuit of this elusive goal will be like the quest for the Holy Grail.

The complaint against the effects of non-registration of the land under E.O. No. 229 does not seem to be
viable any more as it appears that Section 4 of the said Order has been superseded by Section 14 of the CARP
Law. This repeats the requisites of registration as embodied in the earlier measure but does not provide, as
the latter did, that in case of failure or refusal to register the land, the valuation thereof shall be that given by
the provincial or city assessor for tax purposes. On the contrary, the CARP Law says that the just compensation
shall be ascertained on the basis of the factors mentioned in its Section 17 and in the manner provided for in
Section 16.

The last major challenge to CARP is that the landowner is divested of his property even before actual payment
to him in full of just compensation, in contravention of a well- accepted principle of eminent domain.

The recognized rule, indeed, is that title to the property expropriated shall pass from the owner to the
expropriator only upon full payment of the just compensation. Jurisprudence on this settled principle is
consistent both here and in other democratic jurisdictions. Thus:

Page 63 of 92
Title to property which is the subject of condemnation proceedings does not vest the condemnor until the
judgment fixing just compensation is entered and paid, but the condemnor's title relates back to the date on
which the petition under the Eminent Domain Act, or the commissioner's report under the Local Improvement
Act, is filed. 51

... although the right to appropriate and use land taken for a canal is complete at the time of entry, title to the
property taken remains in the owner until payment is actually made. 52 (Emphasis supplied.)

In Kennedy v. Indianapolis, 53 the US Supreme Court cited several cases holding that title to property does not
pass to the condemnor until just compensation had actually been made. In fact, the decisions appear to be
uniformly to this effect. As early as 1838, in Rubottom v. McLure, 54 it was held that "actual payment to the
owner of the condemned property was a condition precedent to the investment of the title to the property in
the State" albeit "not to the appropriation of it to public use." In Rexford v. Knight, 55 the Court of Appeals of
New York said that the construction upon the statutes was that the fee did not vest in the State until the
payment of the compensation although the authority to enter upon and appropriate the land was complete
prior to the payment. Kennedy further said that "both on principle and authority the rule is ... that the right to
enter on and use the property is complete, as soon as the property is actually appropriated under the
authority of law for a public use, but that the title does not pass from the owner without his consent, until just
compensation has been made to him."

Our own Supreme Court has held in Visayan Refining Co. v. Camus and Paredes, 56 that:

If the laws which we have exhibited or cited in the preceding discussion are attentively
examined it will be apparent that the method of expropriation adopted in this jurisdiction is
such as to afford absolute reassurance that no piece of land can be finally and irrevocably taken
from an unwilling owner until compensation is paid ... . (Emphasis supplied.)

It is true that P.D. No. 27 expressly ordered the emancipation of tenant-farmer as October 21, 1972 and
declared that he shall "be deemed the owner" of a portion of land consisting of a family-sized farm except that
"no title to the land owned by him was to be actually issued to him unless and until he had become a full-
fledged member of a duly recognized farmers' cooperative." It was understood, however, that full payment of
the just compensation also had to be made first, conformably to the constitutional requirement.

When E.O. No. 228, categorically stated in its Section 1 that:

All qualified farmer-beneficiaries are now deemed full owners as of October 21, 1972 of the
land they acquired by virtue of Presidential Decree No. 27. (Emphasis supplied.)

it was obviously referring to lands already validly acquired under the said decree, after proof of full-fledged
membership in the farmers' cooperatives and full payment of just compensation. Hence, it was also perfectly
proper for the Order to also provide in its Section 2 that the "lease rentals paid to the landowner by the
farmer- beneficiary after October 21, 1972 (pending transfer of ownership after full payment of just
compensation), shall be considered as advance payment for the land."

The CARP Law, for its part, conditions the transfer of possession and ownership of the land to the government
on receipt by the landowner of the corresponding payment or the deposit by the DAR of the compensation in

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cash or LBP bonds with an accessible bank. Until then, title also remains with the landowner. 57 No outright
change of ownership is contemplated either.

Hence, the argument that the assailed measures violate due process by arbitrarily transferring title before the
land is fully paid for must also be rejected.

It is worth stressing at this point that all rights acquired by the tenant-farmer under P.D. No. 27, as recognized
under E.O. No. 228, are retained by him even now under R.A. No. 6657. This should counter-balance the
express provision in Section 6 of the said law that "the landowners whose lands have been covered by
Presidential Decree No. 27 shall be allowed to keep the area originally retained by them thereunder, further,
That original homestead grantees or direct compulsory heirs who still own the original homestead at the time
of the approval of this Act shall retain the same areas as long as they continue to cultivate said homestead."

In connection with these retained rights, it does not appear in G.R. No. 78742 that the appeal filed by the
petitioners with the Office of the President has already been resolved. Although we have said that the
doctrine of exhaustion of administrative remedies need not preclude immediate resort to judicial action, there
are factual issues that have yet to be examined on the administrative level, especially the claim that the
petitioners are not covered by LOI 474 because they do not own other agricultural lands than the subjects of
their petition.

Obviously, the Court cannot resolve these issues. In any event, assuming that the petitioners have not yet
exercised their retention rights, if any, under P.D. No. 27, the Court holds that they are entitled to the new
retention rights provided for by R.A. No. 6657, which in fact are on the whole more liberal than those granted
by the decree.

The CARP Law and the other enactments also involved in these cases have been the subject of bitter attack
from those who point to the shortcomings of these measures and ask that they be scrapped entirely. To be
sure, these enactments are less than perfect; indeed, they should be continuously re-examined and rehoned,
that they may be sharper instruments for the better protection of the farmer's rights. But we have to start
somewhere. In the pursuit of agrarian reform, we do not tread on familiar ground but grope on terrain fraught
with pitfalls and expected difficulties. This is inevitable. The CARP Law is not a tried and tested project. On the
contrary, to use Justice Holmes's words, "it is an experiment, as all life is an experiment," and so we learn as
we venture forward, and, if necessary, by our own mistakes. We cannot expect perfection although we should
strive for it by all means. Meantime, we struggle as best we can in freeing the farmer from the iron shackles
that have unconscionably, and for so long, fettered his soul to the soil.

By the decision we reach today, all major legal obstacles to the comprehensive agrarian reform program are
removed, to clear the way for the true freedom of the farmer. We may now glimpse the day he will be
released not only from want but also from the exploitation and disdain of the past and from his own feelings
of inadequacy and helplessness. At last his servitude will be ended forever. At last the farm on which he toils
will be his farm. It will be his portion of the Mother Earth that will give him not only the staff of life but also
the joy of living. And where once it bred for him only deep despair, now can he see in it the fruition of his
hopes for a more fulfilling future. Now at last can he banish from his small plot of earth his insecurities and
dark resentments and "rebuild in it the music and the dream."

Page 65 of 92
WHEREFORE, the Court holds as follows:

1. R.A. No. 6657, P.D. No. 27, Proc. No. 131, and E.O. Nos. 228 and 229 are SUSTAINED against
all the constitutional objections raised in the herein petitions.

2. Title to all expropriated properties shall be transferred to the State only upon full payment of
compensation to their respective owners.

3. All rights previously acquired by the tenant- farmers under P.D. No. 27 are retained and
recognized.

4. Landowners who were unable to exercise their rights of retention under P.D. No. 27 shall
enjoy the retention rights granted by R.A. No. 6657 under the conditions therein prescribed.

5. Subject to the above-mentioned rulings all the petitions are DISMISSED, without
pronouncement as to costs.

SO ORDERED.

G.R. No. 159610 June 12, 2008

COMMISSIONER OF INTERNAL REVENUE, petitioner,

vs.
CENTRAL LUZON DRUG CORPORATION, respondent.

DECISION

CARPIO, J.:

The Case

This petition for review on certiorari1 assails the 13 August 2003 Decision2 of the Court of Appeals in CA-G.R.
SP No. 70480. The Court of Appeals dismissed the appeal filed by the Commissioner of Internal Revenue
(petitioner) questioning the 15 April 2002 Decision 3 of the Court of Tax Appeals (CTA) in CTA Case No. 6054
ordering petitioner to issue, in favor of Central Luzon Drug Corporation (respondent), a tax credit certificate in
the amount of P2,376,805.63, arising from the alleged erroneous interpretation of the term "tax credit" used
in Section 4(a) of Republic Act No. (RA) 7432.4

The Facts

Respondent is a domestic corporation engaged in the retail of medicines and other pharmaceutical
products.5 In 1997, it operated eight drugstores under the business name and style "Mercury Drug." 6

Pursuant to the provisions of RA 7432 and Revenue Regulations No. (RR) 2-947 issued by the Bureau of
Internal Revenue (BIR), respondent granted 20% sales discount to qualified senior citizens on their purchases
of medicines covering the calendar year 1997. The sales discount granted to senior citizens
totaled P2,798,508.00.

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On 15 April 1998, respondent filed its 1997 Corporate Annual Income Tax Return reflecting a nil income tax
liability due to net loss incurred from business operations of P2,405,140.00.8 Respondent filed its 1997 Income
Tax Return under protest.9

On 19 March 1999, respondent filed with the petitioner a claim for refund or credit of overpaid income tax for
the taxable year 1997 in the amount of P2,660,829.00.10 Respondent alleged that the overpaid tax was the
result of the wrongful implementation of RA 7432. Respondent treated the 20% sales discount as a deduction
from gross sales in compliance with RR 2-94 instead of treating it as a tax credit as provided under Section 4(a)
of RA 7432.

On 6 April 2000, respondent filed a Petition for Review with the CTA in order to toll the running of the two-
year statutory period within which to file a judicial claim. Respondent reasoned that RR 2-94, which is a mere
implementing administrative regulation, cannot modify, alter or amend the clear mandate of RA 7432.
Consequently, Section 2(i) of RR 2-94 is without force and effect for being inconsistent with the law it seeks to
implement.11

In his Answer, petitioner stated that the construction given to a statute by a specialized administrative agency
like the BIR is entitled to great respect and should be accorded great weight. When RA 7432 allowed senior
citizens' discounts to be claimed as tax credit, it was silent as to the mechanics of availing the same. For
clarification, the BIR issued RR 2-94 and defined the term "tax credit" as a deduction from the establishment's
gross income and not from its tax liability in order to avoid an absurdity that is not intended by the law. 12

The Ruling of the Court of Tax Appeals

On 15 April 2002, the CTA rendered a Decision ordering petitioner to issue a tax credit certificate in the
amount of P2,376,805.63 in favor of respondent.

The CTA stated that in a number of analogous cases, it has consistently ruled that the 20% senior citizens'
discount should be treated as tax credit instead of a mere deduction from gross income. 13 In quoting its
previous decisions, the CTA ruled that RR 2-94 engraved a new meaning to the phrase "tax credit" as
deductible from gross income which is a deviation from the plain intendment of the law. An administrative
regulation must not contravene but should conform to the standards that the law prescribes.14

The CTA also ruled that respondent has properly substantiated its claim for tax credit by documentary
evidence. However, based on the examination conducted by the commissioned independent certified public
accountant (CPA), there were some material discrepancies due to missing cash slips, lack of senior citizen's ID
number, failure to include the cash slips in the summary report and vice versa. Therefore, between the
Summary Report presented by respondent and the audited amount presented by the independent CPA, the
CTA deemed it proper to consider the lesser of two amounts.

The re-computation of the overpaid income tax15 for the year 1997 is as follows:

Sales, Net P176,742,607.00

Add: 20% Sales Discount to Senior Citizens 2,798,508.00
Sales, Gross P179,541,115.00
Less: Cost of Sales

Page 67 of 92
 Merchandise inventory, P
beg. 20,905,489.00
Purchases 168,762,950.00
Merchandise inventory, -27,281,439.00 162,387,000.00
end
Gross Profit P 17,154,115.00
Add: Miscellaneous income 402,124.00
Total Income P 17,556,239.00
Less: Operating expenses 16,913,699.00
Net Income P 642,540.00
Less: Income subjected to final tax (Interest 249,172.00
Income16)
Net Taxable Income P 393,368.00
Income Tax Due (35%) P 137,679.00
Less: Tax Credit (Cost of 20% discount as 2,514,484.63
adjusted17)
Income Tax Payable (P 2,376,805.63)
Income Tax Actually Paid 0.00
Income Tax Refundable (P 2,376,805.63)

Aggrieved by the CTA's decision, petitioner elevated the case before the Court of Appeals.

The Ruling of the Appellate Court

On 13 August 2003, the Court of Appeals affirmed the CTA's decision in toto.

The Court of Appeals disagreed with petitioner's contention that the CTA's decision applied a literal
interpretation of the law. It reasoned that under the verba legis rule, if the statute is clear, plain, and free from
ambiguity, it must be given its literal meaning and applied without interpretation. This principle rests on the
presumption that the words used by the legislature in a statute correctly express its intent and preclude the
court from construing it differently.18

The Court of Appeals distinguished "tax credit" as an amount subtracted from a taxpayer's total tax liability to
arrive at the tax due while a "tax deduction" reduces the taxpayer's taxable income upon which the tax
liability is computed. "A credit differs from deduction in that the former is subtracted from tax while the latter
is subtracted from income before the tax is computed."19

The Court of Appeals found no legal basis to support petitioner's opinion that actual payment by the taxpayer
or actual receipt by the government of the tax sought to be credited or refunded is a condition sine qua
non for the availment of tax credit as enunciated in Section 22920 of the Tax Code. The Court of Appeals
stressed that Section 229 of the Tax Code pertains to illegally collected or erroneously paid taxes while RA
7432 is a special law which uses the method of tax credit in the context of just compensation. Further, RA
7432 does not require prior tax payment as a condition for claiming the cost of the sales discount as tax credit.

Page 68 of 92
Hence, this petition.

The Issues

Petitioner raises two issues21 in this Petition:

1. Whether the appellate court erred in holding that respondent may claim the 20% senior citizens'
sales discount as a tax credit deductible from future income tax liabilities instead of a mere deduction
from gross income or gross sales; and

2. Whether the appellate court erred in holding that respondent is entitled to a refund.

The Ruling of the Court

The petition lacks merit.

The issues presented are not novel. In two similar cases involving the same parties where respondent lodged
its claim for tax credit on the senior citizens' discount granted in 199522 and 1996,23 this Court has squarely
ruled that the 20% senior citizens' discount required by RA 7432 may be claimed as a tax credit and not merely
a tax deduction from gross sales or gross income. Under RA 7432, Congress granted the tax credit benefit to all
covered establishments without conditions. The net loss incurred in a taxable year does not preclude the grant
of tax credit because by its nature, the tax credit may still be deducted from a future, not a present, tax
liability. However, the senior citizens' discount granted as a tax credit cannot be refunded.

RA 7432 expressly allows private establishments

to claim the amount of discounts they grant to senior citizens
as tax credit.

Section 4(a) of RA 7432 states:

SECTION 4. Privileges for the Senior Citizens. - The senior citizens shall be entitled to the following:

a) the grant of twenty percent (20%) discount from all establishments relative to the utilization
of transportation services, hotels and similar lodging establishments, restaurants and
recreation centers and purchase of medicines anywhere in the country: Provided, That private
establishments may claim the cost as tax credit; (Emphasis supplied)

However, RR 2-94 interpreted the tax credit provision of RA 7432 in this wise:

Sec. 2. DEFINITIONS. - For purposes of these regulations:

xxx

i. Tax Credit - refers to the amount representing 20% discount granted to a qualified senior citizen by
all establishments relative to their utilization of transportation services, hotels and similar lodging
establishments, restaurants, drugstores, recreation centers, theaters, cinema houses, concert halls,
circuses, carnivals and other similar places of culture, leisure and amusement, which discount shall be

Page 69 of 92
 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. (Emphasis supplied).

xxx

Sec. 4. Recording/Bookkeeping Requirement for Private Establishments

xxx

The amount of 20% discount shall be deducted from the gross income for income tax purposes and
from gross sales of the business enterprise concerned for purposes of the VAT and other percentage
taxes. (Emphasis supplied)

Tax credit is defined as a peso-for-peso reduction from a taxpayer's tax liability. It is a direct subtraction from
the tax payable to the government. On the other hand, RR 2-94 treated the amount of senior citizens' discount
as a tax deduction which is only a subtraction from gross income resulting to a lower taxable income. RR 2-94
treats the senior citizens' discount in the same manner as the allowable deductions provided in Section 34,
Chapter VII of the National Internal Revenue Code. RR 2-94 affords merely a fractional reduction in the taxes
payable to the government depending on the applicable tax rate.

In Commissioner of Internal Revenue v. Central Luzon Drug Corporation,24 the Court ruled that petitioner's
definition in RR 2-94 of a tax credit is clearly erroneous. To deny the tax credit, despite the plain mandate of
the law, is indefensible. In Commissioner of Internal Revenue v. Central Luzon Drug
Corporation, the Court declared, "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 Court further stated that the law cannot be amended by a mere regulation because
"administrative agencies in 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." Hence, there
being a dichotomy in the law and the revenue regulation, the definition provided in Section 2(i) of RR 2-94
cannot be given effect.

The tax credit may still be deducted

from a future, not a present, tax liability.

In the petition filed before this Court, petitioner alleged that respondent incurred a net loss from its business
operations in 1997; hence, it did not pay any income tax. Since no tax payment was made, it follows that no
tax credit can also be claimed because tax credits are usually applied against a tax liability. 25

In Commissioner of Internal Revenue v. Central Luzon Drug Corporation,26 the Court stressed that prior
payment of tax liability is not a pre-condition before a taxable entity can avail of the tax credit. The Court
declared, "Where there is no tax liability or where a private establishment reports a net loss for the period,
the tax credit can be availed of and carried over to the next taxable year."27 It is irrefutable that under RA
7432, Congress has granted the tax credit benefit to all covered establishments without conditions. Therefore,
neither a tax liability nor a prior tax payment is required for the existence or grant of a tax credit. 28 The
applicable law on this point is clear and without any qualifications.29

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Hence, respondent is entitled to claim the amount of P2,376,805.63 as tax credit despite incurring net loss
from business operations for the taxable year 1997.

The senior citizens' discount may be claimed

as a tax credit and not a refund.

Section 4(a) of RA 7432 expressly provides that private establishments may claim the cost as a tax credit. A tax
credit can only be utilized as payment for future internal revenue tax liabilities of the taxpayer while a tax
refund, issued as a check or a warrant, can be encashed. A tax refund can be availed of immediately while a
tax credit can only be utilized if the taxpayer has existing or future tax liabilities.

If the words of the law are clear, plain, and free of ambiguity, it must be given its literal meaning and applied
without any interpretation. Hence, the senior citizens' discount may be claimed as a tax credit and not as a
refund.30

RA 9257 now specifically provides that all covered establishments

may claim the senior citizens' discount as tax deduction.

On 26 February 2004, RA 9257, otherwise known as the "Expanded Senior Citizens Act of 2003," was signed
into law and became effective on 21 March 2004.31

RA 9257 has amended RA 7432. Section 4(a) of RA 9257 reads:

"Sec. 4. Privileges for the Senior Citizens. - The senior citizens shall be entitled to the following:

(a) the grant of twenty percent (20%) discount from all establishments relative to the utilization of
services in hotels and similar lodging establishments, restaurants and recreation centers, and purchase
of medicinesin all establishments for the exclusive use or enjoyment of senior citizens, including
funeral and burial services for the death of senior citizens;

xxx

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

Contrary to the provision in RA 7432 where the senior citizens' discount granted by all covered establishments
can be claimed as tax credit, RA 9257 now specifically provides that this discount should be treated as tax
deduction.

With the effectivity of RA 9257 on 21 March 2004, there is now a new tax treatment for senior citizens'
discount granted by all covered establishments. This discount should be considered as a deductible expense

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from gross income and no longer as tax credit.32 The present case, however, covers the taxable year 1997 and
is thus governed by the old law, RA 7432.

WHEREFORE, we DENY the petition. We AFFIRM the assailed Decision of the Court of Appeals dated 13
August 2003 in CA-G.R. SP No. 70480.

No pronouncement as to costs.

SO ORDERED.

G.R. No. 180651 July 30, 2014

NURSERY CARE CORPORATION; SHOEMART, INC.; STAR APPLIANCE CENTER, INC.; H&B, INC.; SUPPLIES
STATION, INC.; and HARDWARE WORKSHOP, INC., Petitioners,
vs.
ANTHONY ACEVEDO, in his capacity as THE TREASURER OF MANILA; and THE CITY OF MANILA,Respondents.

DECISION

BERSAMIN, J.:

The issue here concerns double taxation. There is double taxation when the same taxpayer is taxed twice
when he should be taxed only once for the same purpose by the same taxing authority within the same
jurisdiction during the same taxing period, and the taxes are of the same kind or character. Double taxation is
obnoxious.

The Case

Under review are the resolution promulgated in CA-G.R. SP No. 72191 on June 18, 2007,1 whereby the Court
of Appeals (CA) denied petitioners' appeal for lack of jurisdiction; and the resolution promulgated on
November 14, 2007,2 whereby the CA denied their motion for reconsideration for its lack of merit.

Antecedents

The City of Manila assessed and collected taxes from the individual petitioners pursuant to Section 15 (Tax on
Wholesalers, Distributors, or Dealers) and Section 17 (Tax on Retailers) of the Revenue Code of Manila.3 At the
same time, the City of Manila imposed additional taxes upon the petitioners pursuant to Section 21 ofthe
Revenue Code of Manila,4 as amended, as a condition for the renewal of their respective business licenses for
the year 1999. Section 21 of the Revenue Code of Manila stated:

Section 21. Tax on Business Subject to the Excise, Value-Added or Percentage Taxes under the NIRC - On any of
the following businesses and articles of commerce subject to the excise, value-added or percentage taxes
under the National Internal Revenue Code, hereinafter referred to as NIRC, as amended, a tax of FIFTY
PERCENT (50%) OF ONE PERCENT (1%) per annum on the gross sales or receipts of the preceding calendar year
is hereby imposed:

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A) On person who sells goods and services in the course of trade or businesses; x x x PROVIDED, that all
registered businesses in the City of Manila already paying the aforementioned tax shall be exempted from
payment thereof.

To comply with the City of Manila’s assessmentof taxes under Section 21, supra, the petitioners paid under
protest the following amounts corresponding to the first quarter of 1999,5 to wit:

(a) Nursery Care Corporation ₱595,190.25

(b) Shoemart Incorporated ₱3,283,520.14

(c) Star Appliance Center ₱236,084.03

(d) H & B, Inc. ₱1,271,118.74

(e) Supplies Station, Inc. ₱239,501.25

(f) Hardware Work Shop, Inc. ₱609,953.24

By letter dated March 1, 1999, the petitioners formally requested the Office of the City Treasurer for the tax
credit or refund of the local business taxes paid under protest.6 However, then City Treasurer Anthony
Acevedo (Acevedo) denied the request through his letter of March 10, 1999.7

On April 8, 1999, the petitioners, through their representative, Cecilia R. Patricio, sought the reconsideration
of the denial of their request.8 Still, the City Treasurer did not reconsider.9 In the meanwhile, Liberty Toledo
succeeded Acevedo as the City Treasurer of Manila.10

On April 29, 1999, the petitioners filed their respective petitions for certiorariin the Regional Trial Court (RTC)
in Manila. The petitions, docketed as Civil Cases Nos. 99-93668 to 99-93673,11 were initially raffled to different
branches, but were soon consolidated in Branch 34.12 After the presiding judge of Branch 34 voluntarily
inhibited himself, the consolidated cases were transferred to Branch 23, 13 but were again re-raffled to Branch
19 upon the designation of Branch 23 as a special drugs court.14

The parties agreed on and jointly submitted the following issues for the consideration and resolution of the
RTC, namely:

(a) Whether or not the collection of taxes under Section 21 of Ordinance No. 7794, as amended,
constitutes double taxation.

(b) Whether or not the failure of the petitioners to avail of the statutorily provided remedy for their tax
protest on the ground of unconstitutionality, illegality and oppressiveness under Section 187 of the
Local Government Code renders the present action dismissible for non-exhaustion of administrative
remedy.15

Decision of the RTC

On April 26, 2002, the RTC rendered its decision, holding thusly:

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The Court perceives of no instance of the constitutionally proscribed double taxation, in the strict, narrow or
obnoxious sense, imposed upon the petitioners under Section 15 and 17, on the one hand, and under Section
21, on the other, of the questioned Ordinance. The tax imposed under Section 15 and 17, as against that
imposed under Section 21, are levied against different tax objects or subject matter. The tax under Section 15
is imposed upon wholesalers, distributors or dealers, while that under Section 17 is imposedupon retailers. In
short, taxes imposed under Section 15 and 17 is a tax on the business of wholesalers, distributors, dealers and
retailers. On the other hand, the tax imposed upon herein petitioners under Section 21 is not a tax against the
business of the petitioners (as wholesalers, distributors, dealers or retailers)but is rather a tax against
consumers or end-users of the articles sold by petitioners. This is plain from a reading of the modifying
paragraph of Section 21 which says:

"The tax shall be payable by the person paying for the services rendered and shall be paid to the person
rendering the services who is required to collect and pay the tax within twenty (20) days after the end of each
quarter." (Underscoring supplied)

In effect, the petitioners only act as the collection or withholding agent of the City while the ones actually
paying the tax are the consumers or end-users of the articles being sold by petitioners. The taxes imposed
under Sec. 21 represent additional amounts added by the business establishment to the basic prices of its
goods and services which are paid by the end-users to the businesses. It is actually not taxes on the business
of petitioners but on the consumers. Hence, there is no double taxation in the narrow, strict or obnoxious
sense,involved in the imposition of taxes by the City of Manila under Sections 15, 17 and 21 of the questioned
Ordinance. This in effect resolves infavor of the constitutionality of the assailed sections of Ordinance No.
7807 of the City of Manila.

Petitioners, likewise, pray the Court to direct respondents to cease and desist from implementing Section 21
of the questioned Ordinance. That the Court cannot do, without doing away with the mandatory provisions of
Section 187 of the Local Government Code which distinctly commands that an appeal questioning the
constitutionality or legality of a tax ordinance shall not have the effectof suspending the effectivity of the
ordinance and the accrual and payment of the tax, fee or charge levied therein. This is so because an
ordinance carries with it the presumption of validity.

xxx

With the foregoing findings, petitioners’ prayer for the refund of the amounts paid by them under protest
must, likewise, fail.

Wherefore, the petitions are dismissed. Without pronouncement as to costs.

SO ORDERED.16

The petitioners appealed to the CA.17

Ruling of the CA

On June 18, 2007, the CA deniedthe petitioners’ appeal, ruling as follows:

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The six (6) cases were consolidated on a common question of fact and law, that is, whether the act ofthe City
Treasurer of Manila of assessing and collecting business taxes under Section 21of Ordinance 7807, on top of
other business taxes alsoassessed and collected under the previous sections of the same ordinance is a
violation of the provisions of Section 143 of the Local Government Code.

Clearly, the disposition of the present appeal in these consolidated cases does not necessitate the calibration
of the whole evidence as there is no question or doubt as to the truth or the falsehood of the facts obtaining
herein, as both parties agree thereon. The present case involves a question of law that would not lend itself to
an examination or evaluation by this Court of the probative value of the evidence presented.

Thus the Court is constrained todismiss the instant petition for lack of jurisdiction under Section 2,Rule 50 of
the 1997 Rules on Civil Procedure which states:

"Sec. 2. Dismissal of improper appeal to the Court of Appeals. – An appeal under Rule 41 taken from the
Regional Trial Court to the Court of Appeals raising only questions of law shall be dismissed, issues purely of
law not being reviewable by said court. similarly, an appeal by notice of appeal instead of by petition for
review from the appellate judgment of a Regional Trial Court shall be dismissed.

An appeal erroneously taken tothe Court of Appeals shall not be transferred to the appropriate court but shall
be dismissed outright.

WHEREFORE, the foregoing considered, the appeal is DISMISSED.

SO ORDERED.18

The petitioners moved for reconsideration, but the CA denied their motion through the resolution
promulgated on November 14, 2007.19

Issues

The petitioners now appeal, raising the following grounds, to wit:

A.

THE COURT OF APPEALS, IN DISMISSING THE APPEAL OF THE PETITIONERS AND DENYING THEIR MOTION FOR
RECONSIDERATION, ERRED INRULING THAT THE ISSUE INVOLVED IS A PURELY LEGAL QUESTION.

B.

THE COURT OF APPEALS ERRED IN NOT REVERSING THE DECISION OF BRANCH 19 OF THE REGIONAL TRIAL
COURT OF MANILA DATED 26 APRIL 2002 DENYING PETITIONERS’ PRAYER FOR REFUND OF THE AMOUNTS
PAID BY THEM UNDER PROTEST AND DISMISSING THE PETITION FOR CERTIORARI FILED BY THE PETITIONERS.

C.

THE COURT OF APPEALS ERRED IN NOT RULING THAT THE ACT OF THE CITY TREASURER OF MANILA IN
IMPOSING, ASSESSING AND COLLECTING THE ADDITIONAL BUSINESS TAX UNDER SECTION 21 OFORDINANCE
NO. 7794, AS AMENDED BY ORDINANCE NO. 7807, ALSO KNOWN AS THE REVENUE CODE OF THE CITY
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OFMANILA, IS CONSTITUTIVE OF DOUBLE TAXATION AND VIOLATIVE OF THE LOCAL GOVERNMENT CODE OF
1991.20

The main issues for resolution are, therefore, (1) whether or not the CA properly denied due course to the
appeal for raising pure questions of law; and (2) whether or not the petitioners were entitled to the tax credit
or tax refund for the taxes paid under Section 21, supra.

Ruling

The appeal is meritorious.

1.

The CA did not err in dismissing the appeal;

but the rules should be liberally applied
for the sake of justice and equity

The Rules of Courtprovides three modes of appeal from the decisions and final orders of the RTC, namely: (1)
ordinary appeal or appeal by writ of error under Rule 41, where the decisionsand final orders were rendered
in civil or criminal actions by the RTC in the exercise of original jurisdiction; (2) petition for review under Rule
42, where the decisions and final orders were rendered by the RTC in the exerciseof appellate jurisdiction; and
(3) petition for review on certiorarito the Supreme Court under Rule 45.21 The first mode of appeal is taken to
the CA on questions of fact, or mixed questions of fact and law. The second mode of appeal is brought to the
CA on questions of fact, of law, or mixed questions of fact and law. 22 The third mode of appeal is elevated to
the Supreme Court only on questions of law.23

The distinction between a question oflaw and a question of fact is well established. On the one hand, a
question of law ariseswhen there is doubt as to what the law is on a certain state of facts; on the other, there
is a question of fact when the doubt arises asto the truth or falsity of the alleged facts.24 According to Leoncio
v. De Vera:25

x x x For a question to beone of law, the same must not involve an examination of the probative value ofthe
evidence presented by the litigants or any of them. The resolution of the issue must restsolely on what the law
provides on the given set of circumstances. Once it is clear that the issue invites a review of the evidence
presented, the question posed is one of fact. Thus, the test of whether a question isone of law or offact is not
the appellation given to such question by the party raising the same; rather, it is whether the appellate court
can determine the issue raised without reviewing or evaluating the evidence, in which case, it is a question
oflaw; otherwise it is a question of fact.26

The nature of the issues to be raised on appeal can be gleaned from the appellant’s notice of appeal filed in
the trial court, and from the appellant’s brief submitted to the appellate court. 27 In this case, the petitioners
filed a notice of appeal in which they contended that the April 26, 2002 decision and the order of July 17, 2002
issued by the RTC denying their consolidated motion for reconsideration were contrary to the facts and law
obtaining in the consolidated cases.28 In their consolidated memorandum filed in the CA, they essentially
assailed the RTC’s ruling that the taxes imposed on and collected from the petitioners under Section 21 of the
Revenue Code of Manila constituted double taxation in the strict, narrow or obnoxious sense. Considered

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together, therefore, the notice of appeal and consolidated memorandum evidently did notraise issues that
required the reevaluation of evidence or the relevance of surrounding circumstances.

The CA rightly concluded that the petitioners thereby raised only a question of law. The dismissal of their
appeal was proper, strictly speaking, because Section 2, Rule 50 of the Rules of Court provides that an appeal
from the RTC to the CA raising only questions of law shall be dismissed;

and that an appeal erroneously taken to the CA shall be outrightly dismissed.29

2.

Collection of taxes pursuant to Section 21 of the

Revenue Code of Manila constituted double taxation

The foregoing notwithstanding, the Court, given the circumstances obtaining herein and in light of
jurisprudence promulgated subsequent to the filing of the petition, deems it fitting and proper to adopt a
liberal approach in order to render a justand speedy disposition of the substantive issue at hand. Hence, we
resolve, bearing inmind the following pronouncement in Go v. Chaves: 30

Our rules of procedure are designed to facilitate the orderly disposition of cases and permit the prompt
disposition of unmeritorious cases which clog the court dockets and do little more than waste the courts’
time. These technical and procedural rules, however, are intended to ensure, rather than suppress, substantial
justice. A deviation from their rigid enforcement may thus be allowed, as petitioners should be given the
fullest opportunity to establish the merits of their case, rather than lose their property on mere technicalities.
We held in Ong Lim Sing, Jr. v. FEB Leasing and Finance Corporation that:

Courts have the prerogative to relax procedural rules of even the most mandatory character, mindful of the
duty to reconcile both the need to speedily put an end to litigation and the parties' right to due process.In
numerous cases, this Court has allowed liberal construction of the rules when to do so would serve the
demands of substantial justice and equity.

The petitioners point out that although Section 21 of the Revenue Code of Manila was not itself
unconstitutional or invalid, its enforcement against the petitioners constituted double taxation because the
local business taxes under Section 15 and Section 17 of the Revenue Code of Manila were already being paid
by them.31 They contend that the proviso in Section 21 exempted all registered businesses in the City of
Manila from paying the tax imposed under Section 21;32 and that the exemption was more in accord with
Section 143 of the Local Government Code,33 the law that vested in the municipal and city governments the
power to impose business taxes.

The respondents counter, however, that double taxation did not occur from the imposition and collection of
the tax pursuant to Section 21 of the Revenue Code of Manila;34 that the taxes imposed pursuant to Section
21 were in the concept of indirect taxes upon the consumers of the goods and services sold by a business
establishment;35 and that the petitioners did not exhaust their administrative remedies by first appealing to
the Secretary of Justice to challenge the constitutionalityor legality of the tax ordinance.36

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In resolving the issue of double taxation involving Section 21 of the Revenue Code of Manila, the Court is
mindful of the ruling in City of Manila v. Coca-Cola Bottlers Philippines, Inc.,37 which has been reiterated in
Swedish Match Philippines, Inc. v. The Treasurer of the City of Manila.38 In the latter, the Court has held:

x x x [T]he issue of double taxation is not novel, as it has already been settled by this Court in The City of
Manila v. Coca-Cola Bottlers Philippines, Inc.,in this wise:

Petitioners obstinately ignore the exempting proviso in Section 21 of Tax Ordinance No. 7794, to their own
detriment.1âwphi1 Said exempting proviso was precisely included in said section so as to avoid double
taxation.

Double taxation means taxingthe same property twice when it should be taxed only once; that is, "taxing the
same person twice by the same jurisdictionfor the same thing." It is obnoxious when the taxpayer is taxed
twice, when it should be but once. Otherwise described as "direct duplicate taxation," the two taxes must be
imposed on the same subject matter, for the same purpose, by the same taxing authority, within the same
jurisdiction, during the same taxing period; and the taxes must be of the same kind or character.

Using the aforementioned test, the Court finds that there is indeed double taxation if respondent is subjected
to the taxes under both Sections 14 and 21 of Tax Ordinance No. 7794, since these are being imposed: (1) on
the same subject matter – the privilege of doing business in the City of Manila; (2) for the same purpose – to
make persons conducting business within the City of Manila contribute tocity revenues; (3) by the same taxing
authority – petitioner Cityof Manila; (4) within the same taxing jurisdiction – within the territorial jurisdiction
of the City of Manila; (5) for the same taxing periods – per calendar year; and (6) of the same kind or character
– a local business tax imposed on gross sales or receipts of the business.

The distinction petitioners attempt to make between the taxes under Sections 14 and 21 of Tax Ordinance No.
7794 is specious. The Court revisits Section 143 of the LGC, the very source of the power of municipalities and
cities to impose a local business tax, and to which any local business tax imposed by petitioner City of Manila
must conform. It is apparent from a perusal thereof that when a municipality or city has already imposed a
business tax on manufacturers, etc.of liquors, distilled spirits, wines, and any other article of commerce,
pursuant to Section 143(a) of the LGC, said municipality or city may no longer subject the same manufacturers,
etc.to a business tax under Section 143(h) of the same Code. Section 143(h) may be imposed only on
businesses that are subject to excise tax, VAT, or percentagetax under the NIRC, and that are "not otherwise
specified in preceding paragraphs." In the same way, businesses such as respondent’s, already subject to a
local business tax under Section 14 of Tax Ordinance No. 7794 [which is based on Section 143(a) of the LGC],
can no longer be made liable for local business tax under Section 21 of the same Tax Ordinance [which is
based on Section 143(h) of the LGC].

Based on the foregoing reasons, petitioner should not have been subjected to taxes under Section 21 of the
ManilaRevenue Code for the fourth quarter of 2001, considering thatit had already been paying local business
tax under Section 14 of the same ordinance.

xxxx

Accordingly, respondent’s assessment under both Sections 14 and 21 had no basis. Petitioner is indeed liable
to pay business taxes to the City of Manila; nevertheless, considering that the former has already paid these

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taxes under Section 14 of the Manila Revenue Code, it is exempt from the same payments under Section 21 of
the same code. Hence, payments made under Section 21 must be refunded in favor of petitioner.

It is undisputed thatpetitioner paid business taxes based on Sections 14 and 21 for the fourth quarter of 2001
in the total amount of ₱470,932.21. Therefore, it is entitled to a refund of ₱164,552.04 corresponding to the
payment under Section 21 of the Manila Revenue Code.

On the basis of the rulings in Coca-Cola Bottlers Philippines, Inc. and Swedish Match Philippines, Inc., the Court
now holds that all the elements of double taxation concurred upon the Cityof Manila’s assessment on and
collection from the petitioners of taxes for the first quarter of 1999 pursuant to Section 21 of the Revenue
Code of Manila.

Firstly, because Section 21 of the Revenue Code of Manila imposed the tax on a person who sold goods and
services in the course of trade or business based on a certain percentage ofhis gross sales or receipts in the
preceding calendar year, while Section 15 and Section 17 likewise imposed the tax on a person who sold goods
and services in the course of trade or business but only identified such person with particularity, namely, the
wholesaler, distributor or dealer (Section 15), and the retailer (Section 17), all the taxes – being imposed on
the privilege of doing business in the City of Manila in order to make the taxpayers contributeto the city’s
revenues – were imposed on the same subject matter and for the same purpose.

Secondly, the taxes were imposed by the same taxing authority (the City of Manila) and within the same
jurisdiction in the same taxing period (i.e., per calendar year).

Thirdly, the taxes were all in the nature of local business taxes.

We note that although Coca-Cola Bottlers Philippines, Inc. and Swedish Match Philippines, Inc. involved
Section 21 vis-à-vis Section 14 (Tax on Manufacturers, Assemblers and Other Processors)39 of the Revenue
Code of Manila, the legal principlesenunciated therein should similarly apply because Section 15 (Tax on
Wholesalers, Distributors, or Dealers)and Section 17 (Tax on Retailers) of the Revenue Code of Manila
imposed the same nature of tax as that imposed under Section 14, i.e., local business tax, albeit on a different
subject matter or group of taxpayers.

In fine, the imposition of the tax under Section 21 of the Revenue Code of Manila constituted double taxation,
and the taxes collected pursuant thereto must be refunded.

WHEREFORE, the Court GRANTS the petition for review on certiorari; REVERSES and SETS ASIDE the
resolutions promulgated on June 18, 2007 and November 14, 2007 in CA-G.R. SP No. 72191; and DIRECTS the
City of Manila to refund the payments made by the petitioners of the taxes assessed and collected for the first
quarter of 1999 pursuant to Section 21 of the Revenue Code of Manila.

No pronouncement on costs of suit.

SO ORDERED.

G.R. No. 168056 October 18, 2005

Agenda for Item No. 45

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G.R. No. 168056 (ABAKADA Guro Party List Officer Samson S. Alcantara, et al. vs. The Hon. Executive
Secretary Eduardo R. Ermita); G.R. No. 168207 (Aquilino Q. Pimentel, Jr., et al. vs. Executive Secretary
Eduardo R. Ermita, et al.); G.R. No. 168461 (Association of Pilipinas Shell Dealers, Inc., et al. vs. Cesar V.
Purisima, et al.); G.R. No. 168463 (Francis Joseph G. Escudero vs. Cesar V. Purisima, et al); and G.R. No.
168730 (Bataan Governor Enrique T. Garcia, Jr. vs. Hon. Eduardo R. Ermita, et al.)

RESOLUTION

For resolution are the following motions for reconsideration of the Court’s Decision dated September 1, 2005
upholding the constitutionality of Republic Act No. 9337 or the VAT Reform Act 1:

1) Motion for Reconsideration filed by petitioners in G.R. No. 168463, Escudero, et al., on the following
grounds:

A. THE DELETION OF THE "NO PASS ON PROVISIONS" FOR THE SALE OF PETROLEUM PRODUCTS AND POWER
GENERATION SERVICES CONSTITUTED GRAVE ABUSE OF DISCRETION AMOUNTING TO LACK OR EXCESS OF
JURISDICTION ON THE PART OF THE BICAMERAL CONFERENCE COMMITTEE.

B. REPUBLIC ACT NO. 9337 GROSSLY VIOLATES THE CONSTITUTIONAL IMPERATIVE ON EXCLUSIVE
ORIGINATION OF REVENUE BILLS UNDER §24, ARTICLE VI, 1987 PHILIPPINE CONSTITUTION.

C. REPUBLIC ACT NO. 9337’S STAND-BY AUTHORITY TO THE EXECUTIVE TO INCREASE THE VAT RATE,
ESPECIALLY ON ACCOUNT OF THE EFFECTIVE RECOMMENDATORY POWER GRANTED TO THE SECRETARY OF
FINANCE, CONSTITUTES UNDUE DELEGATION OF LEGISLATIVE AUTHORITY.

2) Motion for Reconsideration of petitioner in G.R. No. 168730, Bataan Governor Enrique T. Garcia, Jr., with
the argument that burdening the consumers with significantly higher prices under a VAT regime vis-à-vis a 3%
gross tax renders the law unconstitutional for being arbitrary, oppressive and inequitable.

and

3) Motion for Reconsideration by petitioners Association of Pilipinas Shell Dealers, Inc. in G.R. No. 168461, on
the grounds that:

I. This Honorable Court erred in upholding the constitutionality of Section 110(A)(2) and Section 110(B) of the
NIRC, as amended by the EVAT Law, imposing limitations on the amount of input VAT that may be claimed as a
credit against output VAT, as well as Section 114(C) of the NIRC, as amended by the EVAT Law, requiring the
government or any of its instrumentalities to withhold a 5% final withholding VAT on their gross payments on
purchases of goods and services, and finding that the questioned provisions:

A. are not arbitrary, oppressive and consfiscatory as to amount to a deprivation of property without due
process of law in violation of Article III, Section 1 of the 1987 Philippine Constitution;

B. do not violate the equal protection clause prescribed under Article III, Section 1 of the 1987 Philippine
Constitution; and

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C. apply uniformly to all those belonging to the same class and do not violate Article VI, Section 28(1) of the
1987 Philippine Constitution.

II. This Honorable Court erred in upholding the constitutionality of Section 110(B) of the NIRC, as amended by
the EVAT Law, imposing a limitation on the amount of input VAT that may be claimed as a credit against
output VAT notwithstanding the finding that the tax is not progressive as exhorted by Article VI, Section 28(1)
of the 1987 Philippine Constitution.

Respondents filed their Consolidated Comment. Petitioner Garcia filed his Reply.

Petitioners Escudero, et al., insist that the bicameral conference committee should not even have acted on
the no pass-on provisions since there is no disagreement between House Bill Nos. 3705 and 3555 on the one
hand, and Senate Bill No. 1950 on the other, with regard to the no pass-on provision for the sale of service for
power generation because both the Senate and the House were in agreement that the VAT burden for the sale
of such service shall not be passed on to the end-consumer. As to the no pass-on provision for sale of
petroleum products, petitioners argue that the fact that the presence of such a no pass-on provision in the
House version and the absence thereof in the Senate Bill means there is no conflict because "a House
provision cannot be in conflict with something that does not exist."

Such argument is flawed. Note that the rules of both houses of Congress provide that a conference committee
shall settle the "differences" in the respective bills of each house. Verily, the fact that a no pass-on provision is
present in one version but absent in the other, and one version intends two industries, i.e., power generation
companies and petroleum sellers, to bear the burden of the tax, while the other version intended only the
industry of power generation, transmission and distribution to be saddled with such burden, clearly shows
that there are indeed differences between the bills coming from each house, which differences should be
acted upon by the bicameral conference committee. It is incorrect to conclude that there is no clash between
two opposing forces with regard to the no pass-on provision for VAT on the sale of petroleum products merely
because such provision exists in the House version while it is absent in the Senate version. It is precisely the
absence of such provision in the Senate bill and the presence thereof in the House bills that causes the
conflict. The absence of the provision in the Senate bill shows the Senate’s disagreement to the intention of
the House of Representatives make the sellers of petroleum bear the burden of the VAT. Thus, there are
indeed two opposing forces: on one side, the House of Representatives which wants petroleum dealers to be
saddled with the burden of paying VAT and on the other, the Senate which does not see it proper to make that
particular industry bear said burden. Clearly, such conflicts and differences between the no pass-on provisions
in the Senate and House bills had to be acted upon by the bicameral conference committee as mandated by
the rules of both houses of Congress.

Moreover, the deletion of the no pass-on provision made the present VAT law more in consonance with the
very nature of VAT which, as stated in the Decision promulgated on September 1, 2005, is a tax on spending or
consumption, thus, the burden thereof is ultimately borne by the end-consumer.

Escudero, et al., then claim that there had been changes introduced in the Rules of the House of
Representatives regarding the conduct of the House panel in a bicameral conference committee, since the
time of Tolentino vs. Secretary of Finance2 to act as safeguards against possible abuse of authority by the
House members of the bicameral conference committee. Even assuming that the rule requiring the House
panel to report back to the House if there are substantial differences in the House and Senate bills had indeed
been introduced after Tolentino, the Court stands by its ruling that the issue of whether or not the House
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panel in the bicameral conference committee complied with said internal rule cannot be inquired into by the
Court. To reiterate, "mere failure to conform to parliamentary usage will not invalidate the action (taken by a
deliberative body) when the requisite number of members have agreed to a particular measure." 3

Escudero, et. al., also contend that Republic Act No. 9337 grossly violates the constitutional imperative on
exclusive origination of revenue bills under Section 24 of Article VI of the Constitution when the Senate
introduced amendments not connected with VAT.

The Court is not persuaded.

Article VI, Section 24 of the Constitution provides:

Sec. 24 All appropriation, revenue or tariff bills, bills authorizing increase of the public debt, bills of local
application, and private bills shall originate exclusively in the House of Representatives, but the Senate may
propose or concur with amendments.

Section 24 speaks of origination of certain bills from the House of Representatives which has been interpreted
in the Tolentino case as follows:

… To begin with, it is not the law — but the revenue bill — which is required by the Constitution to "originate
exclusively" in the House of Representatives. It is important to emphasize this, because a bill originating in the
House may undergo such extensive changes in the Senate that the result may be a rewriting of the whole … At
this point, what is important to note is that, as a result of the Senate action, a distinct bill may be produced. To
insist that a revenue statute — and not only the bill which initiated the legislative process culminating in the
enactment of the law — must substantially be the same as the House bill would be to deny the Senate's power
not only to "concur with amendments" but also to " propose amendments." It would be to violate the
coequality of legislative power of the two houses of Congress and in fact make the House superior to the
Senate.

… Given, then, the power of the Senate to propose amendments, the Senate can propose its own version even
with respect to bills which are required by the Constitution to originate in the House.

...

Indeed, what the Constitution simply means is that the initiative for filing revenue, tariff, or tax bills, bills
authorizing an increase of the public debt, private bills and bills of local application must come from the House
of Representatives on the theory that, elected as they are from the districts, the members of the House can be
expected to be more sensitive to the local needs and problems. On the other hand, the senators, who are
elected at large, are expected to approach the same problems from the national perspective. Both views are
thereby made to bear on the enactment of such laws.4

Clearly, after the House bills as approved on third reading are duly transmitted to the Senate, the Constitution
states that the latter can propose or concur with amendments. The Court finds that the subject provisions
found in the Senate bill are within the purview of such constitutional provision as declared in
the Tolentino case.

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The intent of the House of Representatives in initiating House Bill Nos. 3555 and 3705 was to solve the
country’s serious financial problems. It was stated in the respective explanatory notes that there is a need for
the government to make significant expenditure savings and a credible package of revenue measures. These
measures include improvement of tax administration and control and leakages in revenues from income taxes
and value added tax. It is also stated that one opportunity that could be beneficial to the overall status of our
economy is to review existing tax rates, evaluating the relevance given our present conditions. Thus, with
these purposes in mind and to accomplish these purposes for which the house bills were filed, i.e., to raise
revenues for the government, the Senate introduced amendments on income taxes, which as admitted by
Senator Ralph Recto, would yield about ₱10.5 billion a year.

Moreover, since the objective of these house bills is to raise revenues, the increase in corporate income taxes
would be a great help and would also soften the impact of VAT measure on the consumers by distributing the
burden across all sectors instead of putting it entirely on the shoulders of the consumers.

As to the other National Internal Revenue Code (NIRC) provisions found in Senate Bill No. 1950, i.e.,
percentage taxes, franchise taxes, amusement and excise taxes, these provisions are needed so as to cushion
the effects of VAT on consumers. As we said in our decision, certain goods and services which were subject to
percentage tax and excise tax would no longer be VAT exempt, thus, the consumer would be burdened more
as they would be paying the VAT in addition to these taxes. Thus, there is a need to amend these sections to
soften the impact of VAT. The Court finds no reason to reverse the earlier ruling that the Senate introduced
amendments that are germane to the subject matter and purposes of the house bills.

Petitioners Escudero, et al., also reiterate that R.A. No. 9337’s stand- by authority to the Executive to increase
the VAT rate, especially on account of the recommendatory power granted to the Secretary of Finance,
constitutes undue delegation of legislative power. They submit that the recommendatory power given to the
Secretary of Finance in regard to the occurrence of either of two events using the Gross Domestic Product
(GDP) as a benchmark necessarily and inherently required extended analysis and evaluation, as well as policy
making.

There is no merit in this contention. The Court reiterates that in making his recommendation to the President
on the existence of either of the two conditions, the Secretary of Finance is not acting as the alter ego of the
President or even her subordinate. He is acting as the agent of the legislative department, to determine and
declare the event upon which its expressed will is to take effect. The Secretary of Finance becomes the means
or tool by which legislative policy is determined and implemented, considering that he possesses all the
facilities to gather data and information and has a much broader perspective to properly evaluate them. His
function is to gather and collate statistical data and other pertinent information and verify if any of the two
conditions laid out by Congress is present. Congress granted the Secretary of Finance the authority to
ascertain the existence of a fact, namely, whether by December 31, 2005, the value-added tax collection as a
percentage of GDP of the previous year exceeds two and four-fifth percent (24/5%) or the national government
deficit as a percentage of GDP of the previous year exceeds one and one-half percent (1½%). If either of these
two instances has occurred, the Secretary of Finance, by legislative mandate, must submit such information to
the President. Then the 12% VAT rate must be imposed by the President effective January 1, 2006. Congress
does not abdicate its functions or unduly delegate power when it describes what job must be done, who must
do it, and what is the scope of his authority; in our complex economy that is frequently the only way in which
the legislative process can go forward. There is no undue delegation of legislative power but only of the
discretion as to the execution of a law. This is constitutionally permissible. Congress did not delegate the
power to tax but the mere implementation of the law. The intent and will to increase the VAT rate to 12%
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came from Congress and the task of the President is to simply execute the legislative policy. That Congress
chose to use the GDP as a benchmark to determine economic growth is not within the province of the Court to
inquire into, its task being to interpret the law.

With regard to petitioner Garcia’s arguments, the Court also finds the same to be without merit. As stated in
the assailed Decision, the Court recognizes the burden that the consumers will be bearing with the passage of
R.A. No. 9337. But as was also stated by the Court, it cannot strike down the law as unconstitutional simply
because of its yokes. The legislature has spoken and the only role that the Court plays in the picture is to
determine whether the law was passed with due regard to the mandates of the Constitution. Inasmuch as the
Court finds that there are no constitutional infirmities with its passage, the validity of the law must therefore
be upheld.

Finally, petitioners Association of Pilipinas Shell Dealers, Inc. reiterated their arguments in the petition, citing
this time, the dissertation of Associate Justice Dante O. Tinga in his Dissenting Opinion.

The glitch in petitioners’ arguments is that it presents figures based on an event that is yet to happen. Their
illustration of the possible effects of the 70% limitation, while seemingly concrete, still remains theoretical.
Theories have no place in this case as the Court must only deal with an existing case or controversy that is
appropriate or ripe for judicial determination, not one that is conjectural or merely anticipatory.5 The Court
will not intervene absent an actual and substantial controversy admitting of specific relief through a decree
conclusive in nature, as distinguished from an opinion advising what the law would be upon a hypothetical
state of facts.6

The impact of the 70% limitation on the creditable input tax will ultimately depend on how one manages and
operates its business. Market forces, strategy and acumen will dictate their moves. With or without these VAT
provisions, an entrepreneur who does not have the ken to adapt to economic variables will surely perish in the
competition. The arguments posed are within the realm of business, and the solution lies also in business.

Petitioners also reiterate their argument that the input tax is a property or a property right. In the same
breath, the Court reiterates its finding that it is not a property or a property right, and a VAT-registered
person’s entitlement to the creditable input tax is a mere statutory privilege.

Petitioners also contend that even if the right to credit the input VAT is merely a statutory privilege, it has
already evolved into a vested right that the State cannot remove.

As the Court stated in its Decision, the right to credit the input tax is a mere creation of law. Prior to the
enactment of multi-stage sales taxation, the sales taxes paid at every level of distribution are not recoverable
from the taxes payable. With the advent of Executive Order No. 273 imposing a 10% multi-stage tax on all
sales, it was only then that the crediting of the input tax paid on purchase or importation of goods and
services by VAT-registered persons against the output tax was established. This continued with the Expanded
VAT Law (R.A. No. 7716), and The Tax Reform Act of 1997 (R.A. No. 8424). The right to credit input tax as
against the output tax is clearly a privilege created by law, a privilege that also the law can limit. It should be
stressed that a person has no vested right in statutory privileges.7

The concept of "vested right" is a consequence of the constitutional guaranty of due process that expresses a
present fixed interest which in right reason and natural justice is protected against arbitrary state action; it
includes not only legal or equitable title to the enforcement of a demand but also exemptions from new

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obligations created after the right has become vested. Rights are considered vested when the right to
enjoyment is a present interest, absolute, unconditional, and perfect or fixed and irrefutable. 8 As adeptly
stated by Associate Justice Minita V. Chico-Nazario in her Concurring Opinion, which the Court adopts,
petitioners’ right to the input VAT credits has not yet vested, thus –

It should be remembered that prior to Rep. Act No. 9337, the petroleum dealers’ input VAT credits were
inexistent – they were unrecognized and disallowed by law. The petroleum dealers had no such property
called input VAT credits. It is only rational, therefore, that they cannot acquire vested rights to the use of such
input VAT credits when they were never entitled to such credits in the first place, at least, not until Rep. Act
No. 9337.

My view, at this point, when Rep. Act No. 9337 has not yet even been implemented, is that petroleum dealers’
right to use their input VAT as credit against their output VAT unlimitedly has not vested, being a mere
expectancy of a future benefit and being contingent on the continuance of Section 110 of the National Internal
Revenue Code of 1997, prior to its amendment by Rep. Act No. 9337.

The elucidation of Associate Justice Artemio V. Panganiban is likewise worthy of note, to wit:

Moreover, there is no vested right in generally accepted accounting principles. These refer to accounting
concepts, measurement techniques, and standards of presentation in a company’s financial statements, and
are not rooted in laws of nature, as are the laws of physical science, for these are merely developed and
continually modified by local and international regulatory accounting bodies. To state otherwise and recognize
such asset account as a vested right is to limit the taxing power of the State. Unlimited, plenary,
comprehensive and supreme, this power cannot be unduly restricted by mere creations of the State.

More importantly, the assailed provisions of R.A. No. 9337 already involve legislative policy and wisdom. So
long as there is a public end for which R.A. No. 9337 was passed, the means through which such end shall be
accomplished is for the legislature to choose so long as it is within constitutional bounds. As stated
in Carmichael vs. Southern Coal & Coke Co.:

If the question were ours to decide, we could not say that the legislature, in adopting the present scheme
rather than another, had no basis for its choice, or was arbitrary or unreasonable in its action. But, as the state
is free to distribute the burden of a tax without regard to the particular purpose for which it is to be used,
there is no warrant in the Constitution for setting the tax aside because a court thinks that it could have
distributed the burden more wisely. Those are functions reserved for the legislature.9

WHEREFORE, the Motions for Reconsideration are hereby DENIED WITH FINALITY. The temporary restraining
order issued by the Court is LIFTED.

SO ORDERED.

(The Justices who filed their respective concurring and dissenting opinions maintain their respective positions.
Justice Dante O. Tinga filed a dissenting opinion to the present Resolution; while Justice Consuelo Ynares-
Santiago joins him in his dissenting opinion.)

DISSENTING OPINION

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Tinga, J.:

Once again, the majority has refused to engage and refute in any meaningful fashion the arguments raised by
the petitioners in G.R. No. 168461. The de minimis appreciation exhibited by the majority of the issues of 70%
cap, the 60-month amortization period, and 5% withholding VAT on transactions made with the national
government is regrettable, with ruinous consequences for the nation. I see no reason to turn back from any of
the views expressed in my Dissenting Opinion, and I accordingly dissent from the denial of the Motion for
Reconsideration filed by the petitioners in G.R. No. 168461.1

The reasons for my vote have been comprehensively discussed in my previous Dissenting Opinion, and I do not
see the need to replicate them herein. However, I wish to stress a few points.

Tax Statutes May Be Invalidated

If They Pose a Clear and Present Danger

To the Deprivation of Life, Liberty and

Property Without Due Process of Law

The majority again dismisses the arguments of the petitioners as "theoretical", "conjectural" or merely
"anticipatory," notwithstanding that the injury to the taxpayers resulting from Section 8 and 12 of the E-VAT
Law is ascertainable with mathematical certainty. In support of this view, the majority cites the
Court’s Resolution dated 15 June 2005 in Information Technology Foundation v. COMELEC,2 one of the rulings
issued in that case subsequent to the main Decision rendered on 13 January 2004. The reference is grievously
ironic, considering that in the 13 January 2004 Decision, the Court, over vigorous dissents, chose anyway to
intervene and grant the petition despite the fact that the petitioners therein did not allege any violation of any
constitutional provision or letter of statute.3 In this case, the petitioners have squarely invoked the violation of
the Bill of Rights of the Constitution, and yet the majority is suddenly timid, unlike in Infotech.

Still, the formulation of the majority unfortunately leaves the impression that any statute, taxing or otherwise,
is beyond judicial attack prior to its implementation. If the tax measure in question provided that the taxpayer
shall remit all income earned to the government beginning 1 January 2008, would this mean that the Court
can take cognizance of the legal challenge only starting 2 January 2008?

I do not share the majority’s penchant for awaiting the blood spurts before taking action even when the
knife’s edge already dangles. As I maintained in my Dissenting Opinion, a tax measure may be validly
challenged and stricken down even before its implementation if it poses a clear and present danger to the
deprivation of life, liberty or property of the taxpayer without due process of law. This is the expectation of
every citizen who wishes to maintain trust in all the branches of government. In the enforcement of the
constitutional rights of all persons, the commonsense expectation is that the Court, as guardian of these
rights, is empowered to step in even before the prospective violation takes place. Hence, the evolution of the
"clear and present danger" doctrine and other analogous principles, without which, the Court would be seen
as inutile in the face of constitutional violation.

Of course, not every anticipatory threat to constitutional liberties can be assailed prior to implementation,
hence the employment of the "clear and present danger" standard to separate the wheat from the chaff. Still,

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the Court should not be so readily dismissive of the petitioners’ posture herein merely because it is
anticipatory. There should have been a meaningful engagement by the majority of the facts and formulae
presented by the petitioners before the reasonable conclusion could have been reached on the maturity of
the claim. That the majority has not bothered to do so is ultimately of tragic consequence.

70% Input VAT Credit

An Impaired Asset

The ponencia, joined by Justices Panganiban and Chico-Nazario, express the belief that no property rights
attach to the input VAT paid by the taxpayer. This is a bizarre view that assumes that all income earned by
private persons preternaturally belongs to the government, and whatever is retained by the person after taxes
is acquired as a matter of privilege. This is the sort of thinking that has fermented revolutions throughout
history, such as the American Revolution of 1776.

I pointed out in my Dissenting Opinion that under current accepted international accounting standards, the
30% prepaid input VAT would be recorded as a loss in the accounting books, since the possibility of its
recovery is improbable, considering that the E-VAT Law allows its recovery only after the business has ceased
to exist. Even the Bureau of Internal Revenue itself has long recognized the unutilized input VAT as an asset.

The majority fails to realize that even under the new E-VAT Law, the State recognizes that the persons who
pre-pay that input VAT, usually the dealers or retailers, are not the persons who are liable to pay for the tax.
The VAT system, as implemented through the previous VAT law and the new E-VAT Law, squarely holds the
end consumer as the taxpayer liable to shoulder the input VAT. Nonetheless, under the mechanism foisted in
the new E-VAT Law, the dealer or retailer who pre-pays the input VAT is virtually precluded from recovering
the pre-paid input VAT, since the law only allows such recovery upon the cessation of the business. Indeed,
the only way said class of taxpayers can recover this pre-paid input VAT was if it were to cease operations at
the end of every quarter.

The illusion that blinds the majority to this state of affairs is the claim that the pre-paid input VAT may anyway
be carried over into the succeeding quarter, a chimera enhanced by the grossly misleading presentation of the
Office of the Solicitor General. What this deception fosters, and what the majority fails to realize, is that since
the taxpayer is perpetually obliged to remit the 30% input VAT every quarter, there would be a continuous
accumulation of excess input VAT. It is not true then that the input VAT prepaid for the first quarter can be
recovered in the second, third or fourth quarter of that year, or at any time in the next year for that matter
since the amount of prepaid input VAT accumulates with every succeeding prepayment of input VAT.
Moreover, the accumulation of the prepaid input VAT diminishes the actual value of the refundable amounts,
considering the established principle of "time-value of money", as explained in my Dissenting Opinion.

Thus, the pre-paid input VAT, for which the petitioners and other similarly situated taxpayers are not even
ultimately liable in the first place, represents in tangible terms an actual loss. To put it more succinctly, when
the taxpayer prepays the 30% input VAT, there is no chance for its recovery except until after the taxpayer
ceases to be such. This point is crucial, as it goes in the heart of the constitutional challenge raised by the
petitioners. A recognition that the input VAT is a property asset places it squarely in the ambit of the due
process clause.

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The majority now stresses that prior to Executive Order No. 273 sales taxes paid by the retailer or dealers
were not recoverable. The nature of a sales tax precisely is that it is shouldered by the seller, not the
consumer. In that case, the clear legislative intent is to encumber the retailer with the end tax. Under the VAT
system, as enshrined under Rep. Act No. 9337, the new E-VAT Law, there is precisely a legislative recognition
that it is the end user, not the seller, who shoulders the E-VAT. The problem with the new E-VAT law is that it
correspondingly imposes a defeatist mechanism that obviates this entitlement of the seller by forcibly
withholding in perpetua this pre-paid input VAT.

The majority cites with approval Justice Chico-Nazario’s argument, as expressed in her concurring opinion,
that prior to the new E-VAT Law, the petroleum dealers in particular had no input VAT credits to speak of, and
therefore, could not assert any property rights to the input VAT credits under the new law. Of course the
petroleum dealers had no input VAT credits prior to the E-VAT Law because precisely they were not covered
by the VAT system in the first place. What would now be classified as "input VAT credits" was, in real terms,
profit obtainable by the petroleum dealers prior to the new E-VAT Law. The E-VAT Law stands to diminish such
profit, not by outright taking perhaps, but by ad infinitum confiscation with the illusory promise of eventual
return. Obviously, there is a deprivation of property in such case; yet is it seriously contended that such
deprivation is ipso facto sheltered if it is not classified as a taking, but instead reclassified as a "credit"?

It is highly distressful that the Court, in its haste to decree petitioners as bereft of any vested property rights,
rejects the notion that a person has a vested right to the earnings and profits incurred in business. Before, no
legal basis could be found to prop up such a palpably outlandish claim; but the Decision, as affirmed by the
majority’s Resolution, now enshrines a temerarious proposition with doctrinal status.

In the Decision, and also in Justice Panganiban’s Separate Opinion therein, the case of United Paracale Mining
Co. v. De la Rosa4 was cited in support of the proposition that there is no vested right to the input VAT credit.
Justice Panganiban went as far as to cite that case to support the contention that "[t]here is no vested right in
a deferred input tax account; it is a mere statutory privilege." Reliance on the case is quite misplaced. First, as
pointed out in my Dissenting Opinion, it does not even pertain to tax credits involving as it does, questions on
the jurisdiction of the Bureau of Mines.5 Second, the putative vested rights therein pertained to mining claims,
yet all mineral resources indisputably belong to the State. Herein, the rights pertain to profit incurred by
private enterprise, and certainly the majority cannot contend that such profits actually belong to the State.

As stated in my Dissenting Opinion, the Constitution itself recognizes a right to income and profit when it
recognizes "the right of enterprises to reasonable returns on investments, and to expansion and
growth."6 Section 20, Article II of the Constitution further mandates that the State recognize the indispensable
role of the private sector, the encouragement of private enterprise, and the provision of incentives to needed
investments.7 Indeed, there is a fundamental recognition in any form of democratic government that
recognizes a capitalist economy that the enterprise has a right to its profits. Today, the Court instead affirms
that there is no such right. Should capital flight ensue, the phenomenom should not be blamed on investors in
view of our judicial system’s rejection of capitalism’s fundamental precept.

Mainstream Denunciation of 70% Cap

The fact that petitioners are dealers of petroleum products may have left the impression that the 70% cap
singularly affects the petroleum industry; or that other classes of dealers or retailers do not pose the same
objections to these "innovations" in the E-VAT law. This is far from the truth.

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In fact, the clamor against the 70% cap has been widespread among the players and components in the
financial mainstream. Denunciations have been registered by the Philippine Chamber of Commerce and
Industry8, the Joint Foreign Chambers of the Philippines (comprising of the American Chamber of Commerce in
the Philippines, the Australian-New Zealand Chamber Commerce of the Philippines, Inc., the Canadian
Chamber of Commerce of the Philippines, Inc., the European Chamber of Commerce of the Philippines, Inc.,
the Japanese Chamber of Commerce of the Philippines, Inc., the Korean Chamber of Commerce and Industry
of the Philippines, and the Philippine Association of Multinational Companies Regional Headquarters,
Inc.),9 the Filipino-Chinese Chamber of Commerce and Industry,10 the Federation of Philippine Industries,11 the
Consumer and Oil Price Watch,12 the Association of Certified Public Accountants in Public Practice, 13 the
Philippine Tobacco Institute,14 and the auditing firm of PricewaterhouseCooper.15

Even newly installed Finance Secretary Margarito Teves has expressed concern that the 70% input VAT "may
not work across all industries because of varying profit margins".16 Other experts who have voiced concerns
on the 70% input VAT are former NEDA Directors Cielito Habito 17 and Solita Monsod,18 Peter Wallace of the
Wallace Business Forum,19 and Paul R. Cooper, director of PricewaterhouseCooper.

In fact, Mr. Cooper published in the Philippine Daily Inquirer a lengthy disquisition on the problems
surrounding the 70% cap, portions of which I replicate below:

Policy concerns on the cap

When the idea of putting a cap was originally introduced on the floor of the Senate. The idea was to address
to some extent the under-reporting of output VAT by non-complaint taxpayers. The original suggestion was a
90 percent cap, or effectively a 1-percent minimum VAT. At that level, the rule should not impact adversely on
complaint taxpayers, but would result in non-complaint taxpayers having to account for closer to their true tax
liability.

As a general policy consideration, one should question why our legislators are penalizing complaint taxpayers
when the fundamental issue is at the apparent inability of the Bureau of Internal Revenue (BIR) to implement
tax law effectively.

At a 90-percent cap, the measure might still have been defensible as a rough proxy for VAT. However,
somewhere in the bicameral process, the rule has become even more punitive with a 70-percent cap. As with
most amendments introduced at the bicameral stage, there is no public indication about what lawmakers
were thinking when they put the travesty in place.

xxx

One of the arguments in Senate debates for taxing the power and petroleum sectors was that if it was good
enough for mom-and-pop stores to have to account for the VAT, it was good enough for the biggest
companies in the country to do the same. A similar argument here is that if small businesses have to pay a
minimum 3-percent tax, why should larger VAT-registered persons get away with paying less?

The problem with this thinking is threefold:

· The percentage tax applies to small businesses in the hard-to-tax sector and a few believe the BIR collects
close to what it should from this. Nor should we be overly concerned if this is the case—the revenues are

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small, and the BIR’s efforts would be a lot better focused on larger taxpayers where more significant revenues
will be at issue.

· VAT-registered persons incur compliance costs. The 3-percent tax might be better conceived as a slightly
more expensive option to allow taxpayers to opt out of the VAT, rather than a punitive rule for small
businesses. (If the percentage tax is considered unduly punitive, why is it not just repealed?)

· Ironically, one of the new measures in the Senate bill was to allow taxpayers with turnovers below, the
registration threshold to register voluntarily for VAT if they believe the 3-percent tax imposition to be
excessive. Without the minimum VAT, smaller taxpayers might have been encouraged to enter the more
formalized VAT sector.

Potential consequences of the cap

The minimum VAT will distort the way taxpayers conduct business. A 3-percent minimum VAT is more likely to
impact on sellers of goods than on sellers of services, as their proportion of taxable inputs are lower (there is
no VAT paid when using labor, but there is VAT on the purchase of goods). Consequently, there will be a bias
toward consuming services over goods. Businesses may have an incentive to obtain goods from the informal
(and potentially tax-evading) sector as there will be no input tax paid for the purchase—in other words, the
bill may actively encourage less tax complaint behavior. Business structures may change; expect buy-sell
distributors to convent into commission agents, as this reduces the risk that they will need to pay more than
should be paid under a VAT system to cover the 3-percent minimum VAT.20

These objections are voiced by members of the sensible center, and not those reflexively against VAT or any
tax imposition of the current administration. These objections are raised by the people who stand to be
directly affected on a daily punitive basis by the imposition of the 70% cap, the 60-month amortization period
and the 5% withholding VAT. Indeed, Justice Chico-Nazario has expressed her disbelief over, or at least has
asserted as unproven, the claimed impact of the input VAT on the petroleum dealers. 21 Of course there can be
no tangible gauge as of yet on the impact of these changes in the VAT law, since they have yet to be
implemented. However, the prevalent adverse reaction within the business sector should be sufficiently
expressive of the actual fears of the people who should know better. It is sad that the majority, by maintaining
a blithely naïve view of the input VAT, perpetuates the disconnect between the Court and the business sector,
unnecessarily considering that in this instance, the concerns of the financial community can be translated into
a viable constitutional challenge.

Reliance on Legislative Amendments

An Abdication of the Court’s Constitutional Duty

Justice Panganiban has already expressed the view that the remedy to the inequities caused by the new input
VAT system would be amending the law, and not an outright declaration of unconstitutionality. I can only
hazard a guess on how many members of the Court or the legal community are similarly reliant on that
remedy as a means of assuaging their fears on the impact of the input VAT innovations.

As I stated in my Dissenting Opinion, it is this Court, and not the legislature, which has the duty to strike down
unconstitutional laws. Congress may amend unconstitutional laws to remedy such legal infirmities, but it is

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under no constitutional or legal obligation to do so. The same does not hold true with this Court. The essence
of judicial review mandates that the Court strike down unconstitutional laws.

Another corollary prospect has also arisen, that the Executive Department itself will mitigate the
implementation of the 70% cap by not fully implementing the law.

This prospect of course is speculative, the sort of speculation that is wholly dependent on the whim of the
officials of the executive branch and one that cannot be quantified by mathematical formula. This cannot be
the basis for any judicial action or vote. Moreover, such resort may actually be illegal.

For one, Article 239 of the Revised Penal Code imposes the penalty of prision correccional on public officers
"who shall encroach upon the powers of the legislative branch of the Government, either by making general
rules or regulations beyond the scope of his authority, or by attempting to repeal a law or suspending the
execution thereof." Certainly, the remedy to the inequities of the E-VAT Law cannot be left to administrative
pussy-footing, considering that these officials may be jailed for refusing to implement the law, or obfuscating
the legislative will.

Second, it is a cardinal rule that an administrative agency such as the Bureau of Internal Revenue or even the
Department of Finance cannot amend an act of Congress. Whatever administrative regulations they may
adopt under legislative authority must be in harmony with the provisions of the law they are intended to carry
into effect. They cannot widen or diminish its scope.22

Finally, it must be remembered that one of the central doctrines enforced in the disposition of the joint
petitions is that the power to tax belongs solely to the legislative branch of government. If the legislative will
were to be frustrated by haphazard implementation by the executive branch, all our disquisitions on this
matter, as well as the key constitutional principle on the inherent, non-delegable nature of the legislative
power of taxation, will be for naught.

Indeed, I truly fear the scenario when, after the deluge, the executive branch of government suspends the
implementation of the 70% cap, or increases the cap to a higher amount such as 90%. Any taxpayer will have
standing to attack such remedial measure, considering that the net effect would be to diminish the
government’s collection of cash at hand. Following the law, the proper judicial action would be to uphold the
clear legislative intent over the reengineering of the taxing provisions by the executive branch of government.
Yet if the courts instead uphold the power of the executive branch of government to reinvent the tax statute,
then the end concession would be that the power to enact tax laws ultimately belongs to the executive branch
of government.

I hesitate to say this, but there will be confusion, instability, and multiple fatalities within the business sector
with the enforcement of the amendments of Section 8 and 12 of the E-VAT Law. It could have been stopped
through the allowance of the petition in G.R. No. 168461, but regrettably the Court did not act.

I respectfully dissent.

DANTE O. TINGA

Associate Justice

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