Film Development Council of the Philippines vs.

Colon Heritage Realty Corporation

Facts:
City of Cebu passed the Revised Omnibus Tax Ordinance of the City of Cebu, specifically the provision in question
before the case are Se 42 and 43, which require proprietors, lessees or operators of theatres, cinemas, concert
halls, circuses, boxing stadia, and other places of amusement, to pay an amusement tax equivalent to thirty
percent (30%) of the gross receipts of admission fees to the Office of the City Treasurer of Cebu City.

A decade later, Congress passed RA 9167 creating the Film Development Council of the Philippine and abolishing
the Film Development Foundation of the Philippines, Inc. and the Film Rating Board. Sections 13 and 14 of RA 9167
provided for the tax treatment of certain graded films, specifically the collection of amusement tax reward and
amusement tax deduction and remittance.

Section 13. Privileges of Graded Films. - Films which have obtained an "A" or "B" grading from the
Council pursuant to Sections 11 and 12 of this Act shall be entitled to the following privileges:

a. Amusement tax reward. - A grade "A" or "B" film shall entitle its producer to an incentive equivalent to
the amusement tax imposed and collected on the graded films by cities and municipalities in Metro Manila
and other highly urbanized and independent component cities in the Philippines pursuant to Sections 140
to 151 of Republic Act No. 7160 at the following rates:

1. For grade "A" films - 100% of the amusement tax collected on such film; and

2. For grade "B" films - 65% of the amusement tax collected on such films. The remaining thirty-
five (35%) shall accrue to the funds of the Council.

Section 14. Amusement Tax Deduction and Remittance. - All revenue from the amusement tax on the
graded film which may otherwise accrue to the cities and municipalities in Metropolitan Manila and highly
urbanized and independent component cities in the Philippines pursuant to Section 140 of Republic Act.
No. 7160 during the period the graded film is exhibited, shall be deducted and withheld by the proprietors,
operators or lessees of theaters or cinemas and remitted within thirty (30) days from the termination of the
exhibition to the Council which shall reward the corresponding amusement tax to the producers of the
graded film within fifteen (15) days from receipt thereof.

Proprietors, operators and lessees of theaters or cinemas who fail to remit the amusement tax proceeds
within the prescribed period shall be liable to a surcharge equivalent to five percent (5%) of the amount
due for each month of delinquency which shall be paid to the Council. (emphasis added)

According to Petitioner, all the cities within Metro Manila and other cities complied with the mandate of the law,
with the sole exception of Cebu City.

Petitioner demanded payments from the unpaid amusement tax rewards due to the producers of the Grade A or B
film to several proprietor and cinema operators, including Colon Heritage and they were given 10 days to pay the
amounts to FDCP. However, no response was made.

Because of the persistent refusal of the proprietors and cinema operators to remit the said amounts as FDCP
demanded, on one hand, and Cebu City's assertion of a claim on the amounts in question, the city filed a case
before the RTC a petition for declaratory relief with application for a writ of preliminary injunction, seeking the
declaration of Sec. 13 and 14 of RA 9167 as invalid and unconstitutional.

The trial court ruled declaring that sections 13 and 14 of RA 9167 are unconstitutional; declaring that FDCP cannot
collect under the said provisions; declaring that SM Cinema Corporation has the obligation to remit all amusement
taxes withheld on graded films to respondent FDCP for taxes due; and declaring all amusement taxes withheld and
those which may be collected by Intervenor SM on graded films shown in SM Cinemas in Cebu City shall be
remitted to petitioner Cebu City pursuant to City Ordinance.

According to the court, what RA 9167 seeks to accomplish is the segregation of the amusement taxes raised and
collected by Cebu City and its subsequent transfer to FDCP. The court concluded that this arrangement cannot be
classified as a tax exemption but is a confiscatory measure where the national government extracts money from
the local government's coffers and transfers it to FDCP, a private agency, which in turn, will award the money to
private persons, the film producers, for having produced graded films.

The court further held that Secs. 13 and 14 of RA 9167 are contrary to the basic policy in local autonomy that all
taxes, fees, and charges imposed by the LGUs shall accrue exclusively to them, as articulated in Article 10 Sec. 5 of
the 1987 Constitution. This edict, according to the court, is a limitation upon the rule-making power of Congress
when it provides guidelines and limitations on the local government unit's (LGU's) power of taxation. Therefore,
when Congress passed this "limitation," if went beyond its legislative authority, rendering the questioned
provisions unconstitutional.

Colon Heritage also filed a case seeking to declare Sec. 14 of RA 9167 as unconstitutional.

The trial court in the case filed by Colon Heritage ruled Declaring Republic Act No. 9167 as invalid and
unconstitutional; the obligation to remit amusement taxes for the graded films to respondent is ordered
extinguished; directing respondent to refund all the amounts paid by petitioner, by way of amusement tax, plus
the legal rate of interest thereof, until the whole amount is paid in full.

Hence, this petition.

Issue:
Whether RA 9167 violated fiscal autonomy.
Whether the amusement tax reward is a tax exemption.
Whether RA 9167 is entirely unconstitutional.
Whether the paid amusement tax should be returned to the City Government.

Ruling:
Fiscal Autonomy of the LGU

The Court ruled that the decision of the trial courts should not be disturbed.

The power of taxation, being an essential and inherent attribute of sovereignty, belongs, as a matter of right, to
every independent government, and needs no express conferment by the people before it can be exercised. It is
purely legislative and, thus, cannot be delegated to the executive and judicial branches of government without
running afoul to the theory of separation of powers. It, however, can be delegated to municipal corporations,
consistent with the principle that legislative powers may be delegated to local governments in respect of matters
of local concern. Local Government Units, through their fiscal autonomy, has the power to create their own
sources of revenue in addition to their equitable share in the national taxes released by the national government,
as well as the power to allocate their resources in accordance with their own priorities. It extends to the
preparation of their budgets, and local officials in tum have to work within the constraints thereof. The basic
rationale for the current rule on local fiscal autonomy is the strengthening of LGUs and the safeguarding of their
viability and self-sufficiency through a direct grant of general and broad tax powers. Such fiscal autonomy was
reiterated under the Local Government Code, extending to local government units the authority of provinces and
municipalities to levy certain taxes, fees, and charges, cities, such as respondent city government, may therefore
validly levy amusement taxes subject to the parameters set forth under the law.

In the case at bar, through the application and enforcement of Sec. 14 of RA 9167, the income from the
amusement taxes levied by the covered LGUs did not and will under no circumstance accrue to them, not even
partially, despite being the taxing authority therefor. Congress, therefore, clearly overstepped its plenary
legislative power, the amendment being violative of the fundamental law's guarantee on local autonomy. Instead
of being exclusive revenue of the City of Cebu, the collected amusement taxes will be taken from them by the
FDCP, which in turn will be transferred to private persons. Hence, they will derive revenue from them.

Tax Exemptions

It was also ruled by the Court that the amusement tax reward, however, is not, a tax exemption. Exempting a
person or entity from tax is to relieve or to excuse that person or entity from the burden of the imposition. Here,
however, it cannot be said that an exemption from amusement taxes was granted by Congress to the producers of
graded films. Take note that the burden of paying the amusement tax in question is on the proprietors, lessors,
and operators of the theaters and cinemas that showed the graded films.

Simply put, both the burden and incidence of the amusement tax are borne by the proprietors, lessors, and
operators, not by the producers of the graded films. The transfer of the amount to the film producers is actually a
monetary reward given to them for having produced a graded film, the funding for which was taken by the
national government from the coffers of the covered LGUs. Without a doubt, this is not an exemption from
payment of tax.

Unconstitutional
In this regard, it is well to emphasize that if it appears that the rest of the law is free from the taint of
unconstitutionality, then it should remain in force and effect if said law contains a separability clause. A
separability clause is a legislative expression of intent that the nullity of one provision shall not invalidate the other
provisions of the act. Such a clause is not, however, controlling and the courts, in spite of it, may invalidate the
whole statute where what is left, after the void part, is not complete and workable.

RA 9167 has a seperability clause. Moreoever, where a part of a statute is void as repugnant to the Constitution,
while another part is valid, the valid portion, if separable from the invalid, may stand-and be enforced. Here, the
constitutionality of the rest of the provisions of RA 9167 was never put in question. Too, nowhere in the assailed
judgment of the RTC was it explicated why the entire law was being declared as unconstitutional.

It is a basic tenet that courts cannot go beyond the issues in a case, which the RTC, Branch 5 did when it declared
RA 9167 unconstitutional. This being the case, and in view of the elementary rule that every statute is presumed
valid, the declaration by the RTC, Branch 5 of the entirety of RA 9167 as unconstitutional, is improper.

Return of the paid amusement tax

In view of the declaration of nullity of unconstitutionality of Secs. 13 and 14 of RA 9167, all amusement taxes
remitted to petitioner FDCP prior to the date of the finality of this decision shall remain legal and valid under the
operative fact doctrine. Amusement taxes due to petitioner but unremitted up to the finality of this decision shall
be remitted to petitioner within thirty (30) days from date of finality. Thereafter, amusement taxes previously
covered by RA 9167 shall be remitted to the local governments.

To order FDCP and the producers of graded films which may have already received the amusement tax incentive
reward pursuant to the questioned provisions of RA 9167, to return the amounts received to the respective taxing
authorities would certainly impose a heavy, and possibly crippling, financial burden upon them who merely, and
presumably in good faith, complied with the legislative fiat subject of this case. For these reasons, we are of the
considered view that the application of the doctrine of operative facts in the case at bar is proper so as not to
penalize FDCP for having complied with the legislative command in RA 9167, and the producers of graded films
who have already received their tax cut prior to this Decision for having produced top-quality films.

With respect to the amounts retained by the cinema proprietors due to petitioner FDCP, said proprietors are
required under the law to remit the same to petitioner. Obeisance to the rule of law must always be protected and
preserved at all times and the unjustified refusal of said proprietors cannot be tolerated. The operative fact
doctrine equally applies to the non-remittance by said proprietors since the law produced legal effects prior to the
declaration of the nullity of Secs. 13 and 14 in these instant petitions. It can be surmised, however, that the
proprietors were at a loss whether or not to remit said amounts to FDCP considering the position of the City of
Cebu for them to remit the amusement taxes directly to the local government. For this reason, the proprietors
shall not be liable for surcharges.

Mactan Cebu International Airport Authority vs. Hon. Ferdinand J. Marcos

Facts:
MCIAA was created under the RA 6958 mandated to "principally undertake the economical, efficient and effective
control, management and supervision of the Mactan International Airport in the Province of Cebu and the Lahug
Airport in Cebu City, and such other Airports as may be established in the Province of Cebu. Since its creation, It
enjoyed the privilege of exemption from payment of realty taxes in accordance of its charter.

Later on, treasurer of City of Cebu demanded payment for realty taxes on several parcels of land from MCIAA.
However, petitioner objected from such demand, claiming that they are exempt from realty taxes. It also asserts
the provision under the local government code that LGU are prohibited to obtain taxes from the national
government, its agencies and instrumentalities, and local government units.

Respondent refused to cancel and set aside petitioner’s realty tax account insisting that MCIAA is a GOCC whose
tax exemption privilege has been withdrawn under the local government code.

As the City of Cebu was about to issue a warrant of levy against the properties of petitioner, the latter was
compelled to pay its tax account "under protest" and thereafter filed a Petition for Declaratory Relief with the
Regional Trial Court of Cebu. MCIAA basically contended that the taxing powers of local government units do not
extend to the levy of taxes or fees of any kind on an instrumentality of the national government. Petitioner insisted
that while it is indeed a government-owned corporation, it nonetheless stands on the same footing as an agency or
instrumentality of the national government. Petitioner insisted that while it is indeed a government-owned
corporation, it nonetheless stands on the same footing as an agency or instrumentality of the national government
by the very nature of its powers and functions.
Respondent City, however, asserted that MCIAA is not an instrumentality of the government but merely a
government-owned corporation performing proprietary functions.

The trial court dismissed the petition. Hence, this case before the court.

Issues:
Whether the City of Cebu may obtain realty taxes from the MCIAA.

Ruling:

The Court concludes that as a general rule, as laid down in Section 133 the taxing powers of local government units
cannot extend to the levy of inter alia, "taxes, fees, and charges of any kind of the National Government, its
agencies and instrumentalities, and local government units"; however, pursuant to Section 232, provinces, cities,
municipalities in the Metropolitan Manila Area may impose the real property tax except on, inter alia, "real
property owned by the Republic of the Philippines or any of its political subdivisions except when the beneficial
used thereof has been granted, for consideration or otherwise, to a taxable person", as provided in item (a) of the
first paragraph of Section 234. However, such grant of exemption was withdrawn from GOCCs under the last
paragraph of Sec 234 of the Local Government Code.

Since the last paragraph of Section 234 unequivocally withdrew, upon the effectivity of the LGC, exemptions from
real property taxes granted to natural or juridical persons, including government-owned or controlled
corporations, except as provided in the said section, and the petitioner is, undoubtedly, a government-owned
corporation, it necessarily follows that its exemption from such tax granted it in Section 14 of its charter, R.A. No.
6958, has been withdrawn.

Last paragraph of Section 234 further qualifies the retention of the exemption in so far as the real property taxes
are concerned by limiting the retention only to those enumerated there-in; all others not included in the
enumeration lost the privilege upon the effectivity of the LGC. Moreover, even as the real property is owned by the
Republic of the Philippines, or any of its political subdivisions covered by item (a) of the first paragraph of Section
234, the exemption is withdrawn if the beneficial use of such property has been granted to taxable person for
consideration or otherwise.

Even if the petitioner was originally not a taxable person for purposes of real property tax, in light of the forgoing
disquisitions, it had already become even if it be conceded to be an "agency" or "instrumentality" of the
Government, a taxable person for such purpose in view of the withdrawal in the last paragraph of Section 234 of
exemptions from the payment of real property taxes, which, as earlier adverted to, applies to the petitioner.

Mactan-Cebu International Airport Authority vs. City of Lapu Lapu

Facts:
Petitioner Mactan-Cebu International Airport Authority (MCIAA) was created by Congress on July 31, 1990 under
Republic Act No. 6958 to "undertake the economical, efficient and effective control, management and supervision
of the Mactan International Airport in the Province of Cebu and the Lahug Airport in Cebu City x x x and such other
airports as may be established in the Province of Cebu." It is represented in this case by the Office of the Solicitor
General. Respondent City of Lapu-Lapu is a local government unit and political subdivision, created and existing
under its own charter with capacity to sue and be sued. Respondent Elena T. Pacaldo was impleaded in her
capacity as the City Treasurer of respondent City.

Upon its creation, petitioner enjoyed exemption from realty taxes. however, this Court rendered a decision in
Mactan-Cebu International Airport Authority v. Marcos (the 1996 MCIAA case) declaring that upon the effectivity
of Republic Act No. 7160 (The Local Government Code of 1991), petitioner was no longer exempt from real estate
taxes. Since the last paragraph of Section 234 unequivocally withdrew, upon the effectivity of the LGC, exemptions
from payment of real property taxes granted to natural or juridical persons, including government-owned or
controlled corporations, except as provided in the said section, and the petitioner is, undoubtedly, a government-
owned corporation, it necessarily follows that its exemption from such tax granted it in Section 14 of its Charter,
R.A. No. 6958, has been withdrawn.

Respondent City issued to petitioner a Statement of Real Estate Tax assessing the lots comprising the Mactan
International Airport which included the airfield, runway, taxi way and the lots on which these are built. Petitioner
contends that these lots, and the lots to which they are built, are utilized solely and exclusively for public purposes
and are exempt from real property tax. Petitioner based its claim for exemption on DOJ Opinion No. 50.
Respondent issued notices of levy on 18 sets of real properties of petitioners. Petitioner filed a petition for
Prohibition, TRO, and a writ of preliminary injunction with RTC Lapu Lapu which sought to enjoin respondent City
from issuing the warrant of levy against petitioner’s properties from selling them at public auction for delinquency
in realty tax obligations.

Petitioner claimed before the RTC that it had discovered that respondent City did not pass any ordinance
authorizing the collection of real property tax, a tax for the special education fund (SEF), and a penalty interest for
its nonpayment. Petitioner argued that without the corresponding tax ordinances, respondent City could not
impose and collect real property tax, an additional tax for the SEF, and penalty interest from petitioner.

RTC granted the writ of preliminary which was later on lifted upon motion by the respondents.

An appeal before the CA was filed. However, the appellate court ruled in favor of the City Government holding that
petitioner is a government-owned or controlled corporation and its properties are subject to realty tax. The motion
for reconsideration was denied.

Hence, this petition before the Court.

Issue:
Whether MCIAA is exempted from real property tax.

Ruling:
The Court of Appeals (Cebu City) erred in declaring that the 1996 MCIAA case still controls and that petitioner is a
GOCC. The 2006 MIAA case governs.

The Court of Appeals’ reliance on the 1996 MCIAA case is misplaced and its staunch refusal to apply the 2006 MIAA
case is patently erroneous. The Court of Appeals, finding for respondents, refused to apply the ruling in the 2006
MIAA case on the premise that the same had not yet reached finality, and that as far as MCIAA is concerned, the
1996 MCIAA case is still good law.

While it is true, as respondents allege, that the 1996 MCIAA case was cited in a long line of cases, still, in 2006, the
Court en banc decided a case that in effect reversed the 1996 Mactan ruling. The 2006 MIAA case had, since the
promulgation of the questioned Decision and Resolution, reached finality and had in fact been either affirmed or
cited in numerous cases by the Court. The decision became final and executory on November 3, 2006.
Furthermore, the 2006 MIAA case was decided by the Court en banc while the 1996 MCIAA case was decided by a
Division. Hence, the 1996 MCIAA case should be read in light of the subsequent and unequivocal ruling in the 2006
MIAA case.

MIAA is a government instrumentality vested with corporate powers and performing essential public services
pursuant to Section 2(10) of the Introductory Provisions of the Administrative Code. As a government
instrumentality, MIAA is not subject to any kind of tax by local governments under Section 133(o) of the Local
Government Code. The exception to the exemption in Section 234(a) does not apply to MIAA because MIAA is not
a taxable entity under the Local Government Code. Such exception applies only if the beneficial use of real
property owned by the Republic is given to a taxable entity.

Finally, the Airport Lands and Buildings of MIAA are properties devoted to public use and thus are properties of
public dominion. Properties of public dominion are owned by the State or the Republic.
As properties of public dominion owned by the Republic, there is no doubt whatsoever that the Airport Lands and
Buildings are expressly exempt from real estate tax under Section 234(a) of the Local Government Code.

Under Section 2(10) and (13) of the Introductory Provisions of the Administrative Code, which governs the legal
relation and status of government units, agencies and offices within the entire government machinery, MIAA is a
government instrumentality and not a government-owned or controlled corporation. Under Section 133(o) of the
Local Government Code, MIAA as a government instrumentality is not a taxable person because it is not subject to
"[t]axes, fees or charges of any kind" by local governments. The only exception is when MIAA leases its real
property to a "taxable person" as provided in Section 234(a) of the Local Government Code, in which case the
specific real property leased becomes subject to real estate tax. Thus, only portions of the Airport Lands and
Buildings leased to taxable persons like private parties are subject to real estate tax by the City of Parañaque.

Under Article 420 of the Civil Code, the Airport Lands and Buildings of MIAA, being devoted to public use, are
properties of public dominion and thus owned by the State or the Republic of the Philippines. Article 420
specifically mentions "ports x x x constructed by the State," which includes public airports and seaports, as
properties of public dominion and owned by the Republic. As properties of public dominion owned by the
Republic, there is no doubt whatsoever that the Airport Lands and Buildings are expressly exempt from real estate
tax under Section 234(a) of the Local Government Code. This Court has also repeatedly ruled that properties of
public dominion are not subject to execution or foreclosure sale.

Planters Product Inc. vs. Fertiphil Corp.

Facts:
Petitioner PPI and private respondent Fertiphil are private corporations incorporated under Philippine laws. They
are both engaged in the importation and distribution of fertilizers, pesticides and agricultural chemicals.

President Ferdinand Marcos, exercising his legislative powers, issued LOI No. 1465 which provided, among others,
for the imposition of a capital recovery component (CRC) on the domestic sale of all grades of fertilizers in the
Philippines.

Fertiphil paid ₱10 for every bag of fertilizer it sold in the domestic market to the Fertilizer and Pesticide Authority
(FPA). FPA remits its collection to Far East Bank and Trust Company who applies to the payment of corporate debts
of Planters Products Inc. (PPI)

After the Edsa Revolution, FPA voluntarily stopped the imposition of the P10 levy. Upon return of democracy,
Fertiphil demanded a refund but PPI refused. Fertiphil filed a complaint for collection and damages against FPA
and PPI with the RTC on the ground that LOI No. 1465 is unjust, unreaonable oppressive, invalid and unlawful
resulting to denial of due process of law.

FPA answered that it is a valid exercise of the police power of the state in ensuring the stability of the fertilizing
industry in the country and that Fertiphil did NOT sustain damages since the burden imposed fell on the ultimate
consumers.

RTC and CA favored Fertiphil holding that it is an exercise of the power of taxation ad is as such because it is NOT
for public purpose as PPI is a private corporation.

Issues:
Whether the imposition of 10 pesos on fertilizer bag is a valid exercise of taxation or police power.

Ruling:
Police power and the power of taxation are inherent powers of the State. These powers are distinct and have
different tests for validity. Police power is the power of the State to enact legislation that may interfere with
personal liberty or property in order to promote the general welfare, while the power of taxation is the power to
levy taxes to be used for public purpose. The main purpose of police power is the regulation of a behavior or
conduct, while taxation is revenue generation. The "lawful subjects" and "lawful means" tests are used to
determine the validity of a law enacted under the police power. The power of taxation, on the other hand, is
circumscribed by inherent and constitutional limitations.

We agree with the RTC that the imposition of the levy was an exercise by the State of its taxation power. While it is
true that the power of taxation can be used as an implement of police power, the primary purpose of the levy is
revenue generation. If the purpose is primarily revenue, or if revenue is, at least, one of the real and substantial
purposes, then the exaction is properly called a tax.

We agree with the RTC that the imposition of the levy was an exercise by the State of its taxation power. While it is
true that the power of taxation can be used as an implement of police power, the primary purpose of the levy is
revenue generation. If the purpose is primarily revenue, or if revenue is, at least, one of the real and substantial
purposes, then the exaction is properly called a tax.

The ₱10 levy under LOI No. 1465 is too excessive to serve a mere regulatory purpose. The levy, no doubt, was a big
burden on the seller or the ultimate consumer. It increased the price of a bag of fertilizer by as much as five
percent. A plain reading of the LOI also supports the conclusion that the levy was for revenue generation. The LOI
expressly provided that the levy was imposed "until adequate capital is raised to make PPI viable."

Taxes are exacted only for a public purpose. The ₱10 levy is unconstitutional because it was not for a public
purpose. The levy was imposed to give undue benefit to PPI.

An inherent limitation on the power of taxation is public purpose. Taxes are exacted only for a public purpose.
They cannot be used for purely private purposes or for the exclusive benefit of private persons. The reason for this
is simple. The power to tax exists for the general welfare; hence, implicit in its power is the limitation that it should
be used only for a public purpose. It would be a robbery for the State to tax its citizens and use the funds
generated for a private purpose. As an old United States case bluntly put it: "To lay with one hand, the power of
the government on the property of the citizen, and with the other to bestow it upon favored individuals to aid
private enterprises and build up private fortunes, is nonetheless a robbery because it is done under the forms of
law and is called taxation."

It is clear from the Letter of Understanding that the levy was imposed precisely to pay the corporate debts of PPI.
We cannot agree with PPI that the levy was imposed to ensure the stability of the fertilizer industry in the country.
The letter of understanding and the plain text of the LOI clearly indicate that the levy was exacted for the benefit
of a private corporation.