TAX1 - Cases F

F.
Scope and Limitations of Taxation

1. Inherent Limitations
a. Power of taxation is inherently legislative in character
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.
Real property tax; Exemptions; PD No. 776 empowered FIRB to recommend tax exemptions.—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.
Same; Same; Executive Order No. 93 validly restored NAPOCOR’S tax exemption.—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 tax
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between June 11, 1984, the date its tax privileges were withdrawn, and March 10, 1987, the date they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.
_______________
*
EN BANC.
199
VOL. 186, JUNE 4, 1990 199

National Power Corporation vs. Province of Albay
Same; Same; Same; Taxes, purpose.—Taxes are the lifeblood of the nation. Their primary purpose
is to generate funds for the State to finance the needs of the citizenry and to advance the common weal.
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,
_______________
Rollo 9.
1
200
200 SUPREME COURT REPORTS ANNOTATED
National Power Corporation vs., Province of Albay
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,” It appears, however, that “the temporary restraining
3
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
The Court gathers from the records that:
1. (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
1. (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
_______________
Id., 10.
2
Id., 31.
3
Id., 79.
4
Id., 28.
5
201
VOL. 186, JUNE 4, 1990 201
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 above-cited 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
1. (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
1. (4)Meanwhile, FIRB Resolution No. 10-85 was issued, “restoring”

NAPOCOR’s tax exemption effective June 11, 1984 to June 30, 1985;
2. (5)Thereafter, FIRB Resolution No. 1-86 was issued, granting tax exemption
privileges to NAPOCOR from July 1, 1985 and indefinitely thereafter;
3. (6)Likewise, FIRB Resolution No. 17-87 was promulgated, giving NAPOCOR
tax exemption privileges effective until March 10, 1987; 8
4. (7)On December 17, 1986, Executive Order No. 93 was promulgated by

President Corazon Aquino, providing, among other things, as follows:
_______________
Pres. Decree No. 776 (1975).

6
Id., 43.
7
Rollo, id., 67.
8
202
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:
1. a)restore tax and/or duty exemptions withdrawn hereunder in whole or in part;

2. b)revise the scope and coverage of tax and/or duty exemption that may be restored;
3. c)impose conditions for the restoration of tax and/or duty exemption;
4. d)prescribe the date or period of effectivity of the restoration of tax and/or duty
exemption;
5. 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
1. (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.
_______________
9
Id., 64.
10
Id., 65.
11
See above, 2.
203
VOL. 188, JUNE 4, 1990 203
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 accomplish. The question therefore is
12
whether or not the various tax exemptions granted by virtue of FIRE 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,” and “impose 13
conditions for. . .tax and/or duty exemption” is of no moment. These provisions are prospective
14
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); 15
_______________
12
CONST. (1973), art. VIII, see. 17, par. (4); also CONST. (1987), art. VI, see. 28, par. (4).
13
Exec. Order No. 93, sec. 2, Par. (a).
14
Supra, par. (c).
15
Rollo, id., 63.
204
but 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 tax 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 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
205
VOL. 186, JUNE 4, 1990 205
24, 1948. x x x 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. (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. (2)In the case of the city, ten per cent of the collections of the tax shall 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. (1)Collections in the provinces: Fifty per cent shall accrue
_______________
Commission of Internal Revenue v. Lingayen Gulf Electric Power Co., Inc., No. L-23771, August 4, 1988, 164
16
SCRA 27.
206
1. 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. 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.
2. (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.
3. (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. They 18
must also be shown to

_______________
Pres. Decree No. 464, secs. 86, 87.

17
Commissioner of Internal Revenue v. Guerrero, No. L-20942, September 22, 1967, 21 SCRA 180.
18
207
VOL. 186, JUNE 4, 1990 207
National Power Corporation vs. Province of Alhay
exist clearly and categorically, and supported by clear legal provisions. 19
Taxes are the lifeblood of the nation. Their primary purpose is to generate funds for the State
20
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.
Fernan (C.J.), Narvasa, Melencio-Herrera, Gutierrez,
Jr., Cruz, Paras, Padilla, Bidin, Cortés and Medialdea, JJ., concur.
Feliciano, J., In the result.
Gancayco and Griño-Aquino, JJ., On leave.
Regalado, J., No part; related to respondents’ counsel.
Petition denied.
Note.—Tax exemptions cannot be merely implied but must be categorically and
unmistakably expressed. (National Development Company vs. Court of Industrial Relations, 151
SCRA 472.)
——o0o——
G.R. No. 162015. March 6, 2006. *
THE CITY GOVERNMENT OF QUEZON CITY, AND THE CITY TREASURER OF

QUEZON CITY, DR. VICTOR B. ENRIGA, petitioners, vs. BAYAN
TELECOMMUNICATIONS, INC., respondent.
Civil Procedure; Appeals; Prohibitions; One of the recognized exceptions to the exhaustion-of-
administrative remedies rule is when only legal issues are to be resolved.—Petitioners argue that
Bayantel had failed to avail itself of the administrative remedies provided for
_______________
*
SECOND DIVISION.
170

70
City Government of Quezon City vs. Bayan
Telecommunications, Inc.
under the LGC, adding that the trial court erred in giving due course to Bayantel’s petition for
prohibition. To petitioners, the appeal mechanics under the LGC constitute Bayantel’s plain and speedy
remedy in this case. The Court does not agree. With the reality that Bayantel’s real properties were
already levied upon on account of its nonpayment of real estate taxes thereon, the Court agrees with
Bayantel that an appeal to the LBAA is not a speedy and adequate remedy within the context of the
aforequoted Section 2 of Rule 65. This is not to mention of the auction sale of said properties already
scheduled on July 30, 2002. Moreover, one of the recognized exceptions to the exhaustion-of-
administrative remedies rule is when, as here, only legal issues are to be resolved. In fact, the Court,
cognizant of the nature of the questions presently involved, gave due course to the instant petition. As the
Court has said in Ty vs. Trampe, 250 SCRA 500 (1995): x x x. Although as a rule, administrative
remedies must first be exhausted before resort to judicial action can prosper, there is a well-settled
exception in cases where the controversy does not involve questions of fact but only of law. x x x.
Taxation; Realty Tax; Franchises; Local Governments; While Section 14 of Republic Act 3259 may
be validly viewed as an implied delegation of power to tax, the delegation under that provision, as
couched, is limited to impositions over properties of the franchisee which are not actually, directly and
exclusively used in the pursuit of its franchise.—The legislative intent expressed in the phrase “exclusive
of this franchise” cannot be construed other than distinguishing between two (2) sets of properties, be
they real or personal, owned by the franchisee, namely, (a) those actually, directly and exclusively used in
its radio or telecommunications business, and (b) those properties which are not so used. It is worthy to
note that the properties subject of the present controversy are only those which are admittedly falling
under the first category. To the mind of the Court, Section 14 of Rep. Act No. 3259 effectively works to
grant or delegate to local governments of Congress’ inherent power to tax the franchisee’s properties
belonging to the second group of properties indicated above, that is, all properties which, “exclusive of
this franchise,” are not actually and directly used in the pursuit of its franchise. As may be recalled, the
taxing power of local governments under both the 1935 and the 1973 Constitutions solely depended upon
an enabling law. Absent such enabling law, local government units were without authority to impose and
collect taxes on real properties within their
171
VOL. 484, MARCH 6, 2006 17

1
respective territorial jurisdictions. While Section 14 of Rep. Act No. 3259 may be validly viewed as
an implied delegation of power to tax, the delegation under that provision, as couched, is limited to
impositions over properties of the franchisee which are not actually, directly and exclusively used in the
pursuit of its franchise. Necessarily, other properties of Bayantel directly used in the pursuit of its
business are beyond the pale of the delegated taxing power of local governments. In a very real sense,
therefore, real properties of Bayantel, save those exclusive of its franchise, are subject to realty taxes.
Ultimately, therefore, the inevitable result was that all realties which are actually, directly and exclusively
used in the operation of its franchise are “exempted” from any property tax. Bayantel’s franchise being
national in character, the “exemption” thus granted under Section 14 of Rep. Act No. 3259 applies to all
its real or personal properties found anywhere within the Philippine archipelago.
Same; Same; Same; Same; The realty tax exemption heretofore enjoyed by Bayantel under its
original franchise, but subsequently withdrawn by force of Section 234 of the Local Government Code,
has been restored by Section 14 of Republic Act No. 7633.—With the LGC’s taking effect on January 1,
1992, Bayantel’s “exemption” from real estate taxes for properties of whatever kind located within the
Metro Manila area was, by force of Section 234 of the Code, expressly withdrawn. But, not long
thereafter, however, or on July 20, 1992, Congress passed Rep. Act No. 7633 amending Bayantel’s
original franchise. Worthy of note is that Section 11 of Rep. Act No. 7633 is a virtual reenacment of the
tax provision, i.e., Section 14, of Bayantel’s original franchise under Rep. Act No. 3259. Stated
otherwise, Section 14 of Rep. Act No. 3259 which was deemed impliedly repealed by Section 234 of the
LGC was expressly revived under Section 14 of Rep. Act No. 7633. In concrete terms, the realty tax
exemption heretofore enjoyed by Bayantel under its original franchise, but subsequently withdrawn by
force of Section 234 of the LGC, has been restored by Section 14 of Rep. Act No. 7633.
Same; Same; Same; Same; The power to tax is primarily vested in the Congress; however, in our
jurisdiction, it may be exercised by local legislative bodies, no longer merely by virtue of a valid
delegation as before, but pursuant to direct authority conferred by Section 5, Article X of the
Constitution.—Bayantel’s posture is well-taken. While the system of local government taxation has
changed with the
172

72
onset of the 1987 Constitution, the power of local government units to tax is still limited. As we
explained in Mactan Cebu International Airport Authority: The power to tax is primarily vested in the
Congress; however, in our jurisdiction, it may be exercised by local legislative bodies, no longer
merely by virtue of a valid delegation as before, but pursuant to direct authority conferred by
Section 5, Article X of the Constitution. Under the latter, the exercise of the power may be subject to
such guidelines and limitations as the Congress may provide which, however, must be consistent with the
basic policy of local autonomy. (at p. 680; Emphasis supplied.)
Same; Same; Same; Same; The Supreme Court has upheld the power of Congress to grant
exemptions over the power of local government units to impose taxes.—In Philippine Long Distance
Telephone Company, Inc. (PLDT) vs. City of Davao, 363 SCRA 522 (2001), this Court has upheld the
power of Congress to grant exemptions over the power of local government units to impose taxes. There,
the Court wrote: Indeed, the grant of taxing powers to local government units under the Constitution
and the LGC does not affect the power of Congress to grant exemptions to certain persons, pursuant
to a declared national policy. The legal effect of the constitutional grant to local governments simply
means that in interpreting statutory provisions on municipal taxing powers, doubts must be resolved in
favor of municipal corporations.
PETITION for review on certiorari of the decision and resolution of the Regional Trial Court,
Br. 227, Quezon City.
The facts are stated in the opinion of the Court.

The City Attorney for petitioners.
De Mesa, Zaballero & Partners for respondent.
GARCIA, J.:
Before the Court, on pure questions of law, is this petition for review on certiorari under Rule 45
of the Rules of Court to nullify and set aside the following issuances of the Regional Trial Court
(RTC) of Quezon City, Branch 227, in its Civil Case No. Q-02-47292, to wit:
173
VOL. 484, MARCH 6, 2006 173
1. 1)Decision dated1
June 6, 2003, declaring respondent Bayan
Telecommunications, Inc. exempt from real estate taxation on its real properties
located in Quezon City; and
2. 2)Order dated December 30, 2003, denying petitioners’ motion for
2
reconsideration.
The facts:
Respondent Bayan Telecommunications, Inc. (Bayantel) is a legislative franchise holder
3
under Republic Act (Rep. Act) No. 3259 to establish and operate radio stations for domestic
4
telecommunications, radiophone, broadcasting and telecasting.

Of relevance to this controversy is the tax provision of Rep. Act No. 3259, embodied in
Section 14 thereof, which reads:
SECTION 14. (a) The grantee shall be liable to pay the same taxes on its real estate, buildings and
personal property, exclusive of the franchise, as other persons or corporations are now or hereafter may
be required by law to pay. (b) The grantee shall further pay to the Treasurer of the Philippines each year,
within ten days after the audit and approval of the accounts as prescribed in this Act, one and one-half per
centum of all gross receipts from the busi-
_______________
1
Penned by then Judge Vicente Q. Roxas, now Associate Justice of the Court of Appeals; Rollo, pp. 46-71.
2
Rollo, p. 72.
3
Formerly named International Communications Corporation.
4
“An Act Granting the International Communications Corporation a Franchise to Establish Radio Stations for Domestic
Telecommunications, Radiophone, Broadcasting and Telecasting.” Approved on June 17, 1961.
This franchise was later extended with the enactment of Republic Act No. 4905 on June 17, 1967, stating that: “SEC. 4. This
franchise shall continue for a period of twenty-five years from the date the first of said stations shall be placed in operation, and
is granted upon the express condition that the same shall be void unless the construction of said station be begun within two
years from the date of the approval of this amendatory Act and be completed within four years from said date.”
174
ness transacted under this franchise by the said grantee (Emphasis supplied).
On January 1, 1992, Rep. Act No. 7160, otherwise known as the “Local Government Code of
1991” (LGC), took effect. Section 232 of the Code grants local government units within the
Metro Manila Area the power to levy tax on real properties, thus:
SEC. 232. Power to Levy Real Property Tax.—A province or city or a municipality within the
Metropolitan Manila Area may levy an annual ad valorem tax on real property such as land, building,
machinery and other improvements not hereinafter specifically exempted.
Complementing the aforequoted provision is the second paragraph of Section 234 of the same
Code which withdrew any exemption from realty tax heretofore granted to or enjoyed by all
persons, natural or juridical, to wit:
SEC. 234. Exemptions from Real Property Tax.—The following are exempted from payment of the real
property tax:
x x x x x x x x x
Except as provided herein, any exemption from payment of real property tax previously granted to, or
enjoyed by, all persons, whether natural or juridical, including government-owned-or-controlled
corporations is hereby withdrawn upon effectivity of this Code (Emphasis supplied).
On July 20, 1992, barely few months after the LGC took effect, Congress enacted Rep. Act No.
7633, amending Bayantel’s original franchise. The amendatory law (Rep. Act No. 7633)
contained the following tax provision:
SEC. 11. The grantee, its successors or assigns shall be liable to pay the same taxes on their real estate,
buildings and personal property, exclusive of this franchise, as other persons or corporations are now or
hereafter may be required by law to pay. In addition thereto, the grantee, its successors or assigns shall
pay a franchise tax equivalent to three percent (3%) of all gross receipts of the tele-
175
VOL. 484, MARCH 6, 2006 175
phone or other telecommunications businesses transacted under this franchise by the grantee, its
successors or assigns and the said percentage shall be in lieu of all taxes on this franchise or earnings
thereof. Provided, That the grantee, its successors or assigns shall continue to be liable for income taxes
payable under Title II of the National Internal Revenue Code . . . . x x x. [Emphasis supplied]
It is undisputed that within the territorial boundary of Quezon City, Bayantel owned several real
properties on which it maintained various telecommunications facilities. These real properties, as
hereunder described, are covered by the following tax declarations:
1. (a)Tax Declaration Nos. D-096-04071, D-096-04074, D-096-04072 and D-096-

04073 pertaining to Bayantel’s Head Office and Operations Center in Roosevelt
St., San Francisco del Monte, Quezon City allegedly the nerve center of
petitioner’s telecommunications franchise operations, said Operation Center
housing mainly petitioner’s Network Operations Group and switching,
transmission and related equipment;
2. (b)Tax Declaration Nos. D-124-01013, D-124-00939, D-124-00920 and D-124-
00941 covering Bayantel’s land, building and equipment in Maginhawa St.,
Barangay East Teacher’s Village, Quezon City which houses
telecommunications facilities; and
3. (c)Tax Declaration Nos. D-011-10809, D-011-10810, D-011-10811, and D-011-
11540 referring to Bayantel’s Exchange Center located in Proj. 8, Brgy. Bahay
Toro, Tandang Sora, Quezon City which houses the Network Operations Group
and cover switching, transmission and other related equipment.
In 1993, the government of Quezon City, pursuant to the taxing power vested on local
government units by Section 5, Article X of the 1987 Constitution, infra, in relation to Section
232 of the LGC, supra, enacted City Ordinance No. SP-91, S-93, otherwise known as
the Quezon City Revenue Code (QCRC), imposing, under Section 5 thereof, a real property tax
5
on all real properties in Quezon City, and, reiterating in

_______________
This took effect on July 1, 1993.

5
176
its Section 6, the withdrawal of exemption from real property tax under Section 234 of the
LGC, supra. Furthermore, much like the LGC, the QCRC, under its Section 230, withdrew tax
exemption privileges in general, as follows:
SEC. 230. Withdrawal of Tax Exemption Privileges.—Unless otherwise provided in this Code, tax
exemptions or incentives granted to, or presently enjoyed by all persons, whether natural or
juridical, including government owned or controlled corporations, except local water districts,
cooperatives duly registered under RA 6938, non-stock and non-profit hospitals and educational
institutions, business enterprises certified by the Board of Investments (BOI) as pioneer or non-pioneer
for a period of six (6) and four (4) years, respectively, . . . are hereby withdrawn effective upon
approval of this Code (Emphasis supplied).
Conformably with the City’s Revenue Code, new tax declarations for Bayantel’s real properties
in Quezon City were issued by the City Assessor and were received by Bayantel on August 13,
1998, except one (Tax Declaration No. 124-01013) which was received on July 14, 1999.
Meanwhile, on March 16, 1995, Rep. Act No. 7925, otherwise known as the “Public
6
Telecommunications Policy Act of the Philippines,” envisaged to level the playing field among
telecommunications companies, took effect. Section 23 of the Act provides:
SEC. 23. Equality of Treatment in the Telecommunications Industry.—Any advantage, favor, privilege,
exemption, or immunity granted under existing franchises, or may hereafter be granted, shall ipso
facto become part of previously granted telecommunications franchises and shall be accorded
immediately and unconditionally to the grantees of such franchises: Provided, however, That the
foregoing shall neither apply to nor affect provisions of telecommunications franchises concerning
territory covered by the franchise, the life
_______________
6
Entitled “An Act to Promote and Govern the Development of Philippine Telecommunications and the Delivery of Public
Telecommunication Services.”
177
VOL. 484, MARCH 6, 2006 177
span of the franchise, or the type of service authorized by the franchise.
On January 7, 1999, Bayantel wrote the office of the City Assessor seeking the exclusion of its
real properties in the city from the roll of taxable real properties. With its request having been
denied, Bayantel interposed an appeal with the Local Board of Assessment Appeals (LBAA).
And, evidently on its firm belief of its exempt status, Bayantel did not pay the real property taxes
assessed against it by the Quezon City government.
On account thereof, the Quezon City Treasurer sent out notices of delinquency for the total
amount of P43,878,208.18, followed by the issuance of several warrants of levy against
Bayantel’s properties preparatory to their sale at a public auction set on July 30, 2002.
Threatened with the imminent loss of its properties, Bayantel immediately withdrew its
appeal with the LBAA and instead filed with the RTC of Quezon City a petition for prohibition
with an urgent application for a temporary restraining order (TRO) and/or writ of preliminary
injunction, thereat docketed as Civil Case No. Q-02-47292, which was raffled to Branch 227 of
the court.
On July 29, 2002, or in the eve of the public auction scheduled the following day, the lower
court issued a TRO, followed, after due hearing, by a writ of preliminary injunction via its order
of August 20, 2002.
And, having heard the parties on the merits, the same court came out with its challenged
Decision of June 6, 2003, the dispositive portion of which reads:
“WHEREFORE, premises considered, pursuant to the enabling franchise under Section 11 of Republic
Act No. 7633, the real estate properties and buildings of petitioner [now, respondent Bayantel] which
have been admitted to be used in the operation of petitioner’s franchise described in the following tax
declarations are hereby DECLARED exempt from real estate taxation:
178
1. (1)Tax Declaration No. D-096-04071—

The preliminary prohibitory injunction issued in the August 20, 2002 Order of this Court is hereby
made permanent. Since this is a resolution of a purely legal issue, there is no pronouncement as to costs.
SO ORDERED.”
Their motion for reconsideration having been denied by the court in its Order dated December
30, 2003, petitioners elevated the case directly to this Court on pure questions of law, ascribing
to the lower court the following errors:
1. I.[I]n declaring the real properties of respondent exempt from real property taxes
notwithstanding the fact that the tax exemption granted to Bayantel in its original
franchise had been withdrawn by the [LGC] and that the said exemption was not
restored by the enactment of RA 7633.
2. II.[In] declaring the real properties of respondent exempt from real property
taxes notwithstanding the enactment of the [QCRC] which withdrew the tax
exemption which may have been granted by RA 7633.
3. III.[In] declaring the real properties of respondent exempt from real property
taxes notwithstanding the vague and ambiguous grant of tax exemption provided
under Section 11 of RA 7633.
4. IV.[In] declaring the real properties of respondent exempt from real property
taxes notwithstanding the fact that [it] had failed
179
VOL. 484, MARCH 6, 2006 179
1. to exhaust administrative remedies in its claim for real property tax exemption.
(Words in bracket added.)
As we see it, the errors assigned may ultimately be reduced to two (2) basic issues, namely:
1. 1.Whether or not Bayantel’s real properties in Quezon City are exempt from real
property taxes under its legislative franchise; and
2. 2.Whether or not Bayantel is required to exhaust administrative remedies before
seeking judicial relief with the trial court.
We shall first address the second issue, the same being procedural in nature.
Petitioners argue that Bayantel had failed to avail itself of the administrative remedies
provided for under the LGC, adding that the trial court erred in giving due course to Bayantel’s
petition for prohibition. To petitioners, the appeal mechanics under the LGC constitute
Bayantel’s plain and speedy remedy in this case.
The Court does not agree.
Petitions for prohibition are governed by the following provision of Rule 65 of the Rules of
Court:
SEC. 2. Petition for prohibition.—When the proceedings of any tribunal, . . . are without or in excess of
its or his jurisdiction, or with grave abuse of discretion amounting to lack or excess of jurisdiction, and
there is no appeal or any other plain, speedy, and adequate remedy in the ordinary course of law, a person
aggrieved thereby may file a verified petition in the proper court, alleging the facts with certainty and
praying that judgment be rendered commanding the respondent to desist from further proceedings in the
action or matter specified therein, or otherwise, granting such incidental reliefs as law and justice may
require.
With the reality that Bayantel’s real properties were already levied upon on account of its
nonpayment of real estate taxes thereon, the Court agrees with Bayantel that an appeal to the
LBAA is not a speedy and adequate remedy within the
180
context of the aforequoted Section 2 of Rule 65. This is not to mention of the auction sale of said
properties already scheduled on July 30, 2002.
Moreover, one of the recognized exceptions to the exhaustion-of-administrative remedies rule
is when, as here, only legal issues are to be resolved. In fact, the Court, cognizant of the nature of
the questions presently involved, gave due course to the instant petition. As the Court has said
in Ty vs. Trampe: 7
x x x. Although as a rule, administrative remedies must first be exhausted before resort to judicial action
can prosper, there is a well-settled exception in cases where the controversy does not involve questions of
fact but only of law. x x x.
Lest it be overlooked, an appeal to the LBAA, to be properly considered, required prior payment
under protest of the amount of P43,878,208.18, a figure which, in the light of the then prevailing
Asian financial crisis, may have been difficult to raise up. Given this reality, an appeal to the
LBAA may not be considered as a plain, speedy and adequate remedy. It is thus understandable
why Bayantel opted to withdraw its earlier appeal with the LBAA and, instead, filed its petition
for prohibition with urgent application for injunctive relief in Civil Case No. Q-02-47292. The
remedy availed of by Bayantel under Section 2, Rule 65 of the Rules of Court must be upheld.
This brings the Court to the more weighty question of whether or not Bayantel’s real
properties in Quezon City are, under its franchise, exempt from real property tax.
The lower court resolved the issue in the affirmative, basically owing to the phrase “exclusive
of this franchise” found in Section 11 of Bayantel’s amended franchise, Rep. Act No. 7633. To
petitioners, however, the language of Section 11 of Rep. Act No. 7633 is neither clear nor
unequivocal. The elabo-
_______________
250 SCRA 500 (1995).
7
181
VOL. 484, MARCH 6, 2006 181
rate and extensive discussion devoted by the trial court on the meaning and import of said
phrase, they add, suggests as much. It is petitioners’ thesis that Bayantel was in no time given
any express exemption from the payment of real property tax under its amendatory franchise.
There seems to be no issue as to Bayantel’s exemption from real estate taxes by virtue of the
term “exclusive of the franchise” qualifying the phrase “same taxes on its real estate, buildings
and personal property,” found in Section 14, supra, of its franchise, Rep. Act No. 3259, as
originally granted.
The legislative intent expressed in the phrase “exclusive of this franchise” cannot be
construed other than distinguishing between two (2) sets of properties, be they real or personal,
owned by the franchisee, namely, (a) those actually, directly and exclusively used in its radio or
telecommunications business, and (b) those properties which are not so used. It is worthy to note
that the properties subject of the present controversy are only those which are admittedly falling
under the first category.
To the mind of the Court, Section 14 of Rep. Act No. 3259 effectively works to grant or
delegate to local governments of Congress’ inherent power to tax the franchisee’s properties
belonging to the second group of properties indicated above, that is, all properties which,
“exclusive of this franchise,” are not actually and directly used in the pursuit of its franchise. As
may be recalled, the taxing power of local governments under both the 1935 and the 1973
Constitutions solely depended upon an enabling law. Absent such enabling law, local
government units were without authority to impose and collect taxes on real properties within
their respective territorial jurisdictions. While Section 14 of Rep. Act No. 3259 may be validly
viewed as an implied delegation of power to tax, the delegation under that provision, as couched,
is limited to impositions over properties of the franchisee which are not actually, directly and
exclusively used in the pursuit of its franchise. Necessarily, other properties of Bayantel directly
182
used in the pursuit of its business are beyond the pale of the delegated taxing power of local
governments. In a very real sense, therefore, real properties of Bayantel, save those exclusive of
its franchise, are subject to realty taxes. Ultimately, therefore, the inevitable result was that all
realties which are actually, directly and exclusively used in the operation of its franchise are
“exempted” from any property tax.
Bayantel’s franchise being national in character, the “exemption” thus granted under Section
14 of Rep. Act No. 3259 applies to all its real or personal properties found anywhere within the
Philippine archipelago.
However, with the LGC’s taking effect on January 1, 1992, Bayantel’s “exemption” from real
estate taxes for properties of whatever kind located within the Metro Manila area was, by force
of Section 234 of the Code, supra, expressly withdrawn. But, not long thereafter, however, or on
July 20, 1992, Congress passed Rep. Act No. 7633 amending Bayantel’s original franchise.
Worthy of note is that Section 11 of Rep. Act No. 7633 is a virtual reenacment of the tax
provision, i.e., Section 14, supra, of Bayantel’s original franchise under Rep. Act No. 3259.
Stated otherwise, Section 14 of Rep. Act No. 3259 which was deemed impliedly repealed by
Section 234 of the LGC was expressly revived under Section 14 of Rep. Act No. 7633. In
concrete terms, the realty tax exemption heretofore enjoyed by Bayantel under its original
franchise, but subsequently withdrawn by force of Section 234 of the LGC, has been restored by
Section 14 of Rep. Act No. 7633.
The Court has taken stock of the fact that by virtue of Section 5, Article X of the 1987
Constitution, local governments
8
_______________
8
Sec. 5. Each local government unit shall have the power to create its own sources of revenues and to levy taxes . . .
subject to such guidelines and limitations as the Congress may provide, consistent with the basic policy of local autonomy.
x x x. Mactan Cebu International Airport Authority vs. Marcos, 261 SCRA 667 (1996), per then Associate Justice, now
retired Chief Justice Hilario G. Davide, Jr., ponente.
183
VOL. 484, MARCH 6, 2006 183
are empowered to levy taxes. And pursuant to this constitutional empowerment, juxtaposed with
Section 232 of the LGC, the Quezon City government enacted in 1993 its local Revenue Code,
9
imposing real property tax on all real properties found within its territorial jurisdiction. And as
earlier stated, the City’s Revenue Code, just like the LGC, expressly withdrew, under Section
230 thereof, supra, all tax exemption privileges in general.
This thus raises the question of whether or not the City’s Revenue Code pursuant to which the
city treasurer of Quezon City levied real property taxes against Bayantel’s real properties located
within the City effectively withdrew the tax exemption enjoyed by Bayantel under its franchise,
as amended.
Bayantel answers the poser in the negative arguing that once again it is only “liable to pay
the same taxes, as any other persons or corporations on all its real or personal
properties, exclusive of its franchise.”
Bayantel’s posture is well-taken. While the system of local government taxation has changed
with the onset of the 1987 Constitution, the power of local government units to tax is still
limited. As we explained in Mactan Cebu International Airport Authority: 10
The power to tax is primarily vested in the Congress; however, in our jurisdiction, it may be exercised by
local legislative bodies, no longer merely be virtue of a valid delegation as before, but pursuant to direct
authority conferred by Section 5, Article X of the Constitution. Under the latter, the exercise of the power
may be subject to such guidelines and limitations as the Congress may provide which, however, must be
consistent with the basic policy of local autonomy. (at p. 680; Emphasis supplied.)
_______________
SEC. 232. Power to Levy Real Property Tax.—A province or city or municipality within the Metropolitan Manila
9
Area may levy an annual ad valorem tax on real property such as land, building, machinery, and other improvement not
hereinafter specifically exempted.
See Footnote #8, supra.
10
184
Clearly then, while a new slant on the subject of local taxation now prevails in the sense that the
former doctrine of local government units’ delegated power to tax had been effectively
modified with Article X, Section 5 of the 1987 Constitution now in place, .the basic doctrine on
local taxation remains essentially the same. For as the Court stressed in Mac-tan, “the power to
tax is [still] primarily vested in the Congress.”
This new perspective is best articulated by Fr. Joaquin G. Bernas, S.J., himself a
Commissioner of the 1986 Constitutional Commission which crafted the 1987 Constitution, thus:
“What is the effect of Section 5 on the fiscal position of municipal corporations? Section 5 does not
change the doctrine that municipal corporations do not possess inherent powers of taxation. What
it does is to confer municipal corporations a general power to levy taxes and otherwise create
sources of revenue. They no longer have to wait for a statutory grant of these powers. The power of the
legislative authority relative to the fiscal powers of local governments has been reduced to the authority to
impose limitations on municipal powers. Moreover, these limitations must be “consistent with the basic
policy of local autonomy.” The important legal effect of Section 5 is thus to reverse the principle that
doubts are resolved against municipal corporations. Henceforth, in interpreting statutory provisions on
municipal fiscal powers, doubts will be resolved in favor of municipal corporations. It is understood,
however, that taxes imposed by local government must be for a public purpose, uniform within a locality,
must not be confiscatory, and must be within the jurisdiction of the local unit to pass.” (Emphasis 11
supplied.)
In net effect, the controversy presently before the Court involves, at bottom, a clash between the
inherent taxing power of the legislature, which necessarily includes the power to exempt, and the
local government’s delegated power to tax under the aegis of the 1987 Constitution.
_______________
Bernas, The Constitution of the Republic of the Philippines, a Commentary, Vol. 11, 1988 ed., p. 381.
11
185
VOL. 484, MARCH 6, 2006 185
Now to go back to the Quezon City Revenue Code which imposed real estate taxes on all real
properties within the city’s territory and removed exemptions theretofore “previously granted to,
or presently enjoyed by all persons, whether natural or juridical ….,” there can really be no
12
dispute that the power of the Quezon City Government to tax is limited by Section 232 of the
LGC which expressly provides that “a province or city or municipality within the Metropolitan
Manila Area may levy an annual ad valorem tax on real property such as land, building,
machinery, and other improvement not hereinafter specifically exempted.” Under this law, the
Legislature highlighted its power to thereafter exempt certain realties from the taxing power of
local government units. An interpretation denying Congress such power to exempt would reduce
the phrase “not hereinafter specifically exempted” as a pure jargon, without meaning whatsoever.
Needless to state, such absurd situation is unacceptable.
For sure, in Philippine Long Distance Telephone Company, Inc. (PLDT) vs. City of
Davao, this Court has upheld the power of Congress to grant exemptions over the power of local
13
government units to impose taxes. There, the Court wrote:

Indeed, the grant of taxing powers to local government units under the Constitution and the LGC
does not affect the power of Congress to grant exemptions to certain persons, pursuant to a declared
national policy. The legal effect of the constitutional grant to local governments simply means that in
interpreting statutory provisions on municipal taxing powers, doubts must be resolved in favor of
municipal corporations. (Emphasis supplied.)
As we see it, then, the issue in this case no longer dwells on whether Congress has the power to
exempt Bayantel’s proper-
_______________
12
Section 6, Quezon City Revenue Code, quoted in Petitioners’ Memorandum; Rollo, p. 323.
13
363 SCRA 522 (2001), per Associate Justice Vicente V. Mendoza, ponente.
186
ties from realty taxes by its enactment of Rep. Act No. 7633 which amended Bayantel’s original
franchise. The more decisive question turns on whether Congress actually did exempt
Bayantel’s properties at all by virtue of Section 11 of Rep. Act No. 7633.
Admittedly, Rep. Act No. 7633 was enacted subsequent to the LGC. Perfectly aware that the
LGC has already withdrawn Bayantel’s former exemption from realty taxes, Congress opted to
pass Rep. Act No. 7633 using, under Section 11 thereof, exactly the same defining phrase
“exclusive of this franchise” which was the basis for Bayantel’s exemption from realty taxes
prior to the LGC. In plain language, Section 11 of Rep. Act No. 7633 states that “the grantee, its
successors or assigns shall be liable to pay the same taxes on their real estate, buildings and
personal property, exclusive of this franchise, as other persons or corporations are now or
hereafter may be required by law to pay.” The Court views this subsequent piece of legislation as
an express and real intention on the part of Congress to once again remove from the LGC’s
delegated taxing power, all of the franchisee’s (Bayantel’s) properties that are actually, directly
and exclusively used in the pursuit of its franchise.
WHEREFORE, the petition is DENIED.
No pronouncement as to costs.
SO ORDERED.
Puno (Chairperson), Sandoval-Gutierrez, Corona and Azcuna, JJ., concur.
Petition denied.
Notes.—Any exemption from the payment of a tax must be clearly stated in the language of
the law. (Commissioner of Internal Revenue vs. Court of Appeals, 329 SCRA 237 [2000])
187
VOL. 484, MARCH 6, 2006 187

United Kimberly-Clark Employees Union-Philippine
Transport General Workers’ Organization vs. Kimberly-
Clark Phils., Inc.
The power to tax is no longer vested exclusively on Congress. (National Power Corporation vs.
City of Cabanatuan, 401 SCRA 259 [2003])
Section 193 of the Local Government Code is indicative of the legislative intent to vest broad
taxing powers upon local government units and to limit exemptions from local taxation to
entities specifically provided. (Philippine Rural Electric Cooperatives Association, Inc. vs. The
Secretary, Department of Interior and Local Government, 403 SCRA 558 [2003])
——o0o——
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., defendants-appellees.
Taxation; Delegation of Powers; Power of taxation may be delegated to local governments on
matters of local concern.—The power of taxation x x x may be delegated to local governments in respect
of matters of local concern. This is sanctioned by immoral practice. 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. x x x 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 to the exact
meassure 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 taxes 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.
Same; Due process; Taking of property without due process of law may not be passed over under
the guise of taxing power, except when the latter is exercised lawfully.—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.
______________
*
EN BANC.
461
VOL. 69, FEBRUARY 27, 1976 46

1
Pepsi-Cola Bottling Co. of the Philippines, Inc. vs.
Municipality of Tanauan, Leyte
Same; Same; Delegation of powers; Delegation of taxing power to local governments may not be
assailed on the ground of double taxation.—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. x x x 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. Double taxation becomes obnoxious only where the
taxpayer is taxed twice for the benefit of the same governmental entity or by the same jurisdiction for the
same purpose, but not in a case where one tax is imposed by the State and the other by the city of
municipality.
Taxation; A municipal ordinance which imposes a tax of P0.01 for every gallon of soft drinks
produced in the municipality does not partake of a percentage tax.—The imposition of “a tax of one
centavo (P0.01) on each gallon (128 flued 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 no set ratio between the volume of sales
and the amount of the tax.
Same; A municipal tax on soft drinks is not a specific tax.—Nor can the tax levied be treated as a
specific tax. Specific taxes are those imposed on specified articles, such as distilled spirits, wines, x x x
cigars and cigarettes, matches, x x x bunker fuel oil, diesel fuel oil, cinematographic films, playing cards,
saccharine, opium and other habit-forming drugs. Soft drinks is not one of those specified.
Same; A municipal tax of P0.01 on each gallon of soft drinks produced is not unfair or oppressive.
—The tax of one centavo (P0.01) on each gallon (128 fluid ounces, U.S.) of volume capacity on all soft
drinks, produced or manufactured, or an equivalent of 1½ centavos per case, cannot be considered unjust
and unfair. 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 rates of imposable
taxes. This is in line with the constitutional 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,
462

62
1973). Unless the amount is so excessive as to be prohibitive, courts will go slow in writing off an
ordinance as unreasonable.
Same; Licenses; Municipalities are empowered to impose not only municipal license but just and
uniform taxes for public purposes.—The municipal license tax of P1,000.00 per corking machine with
five but not more than ten crowners x x x imposed on manufacturers, producers, importers and dealers of
soft drinks and/or mineral waters x x x 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.
APPEAL from a decision of the Court of First Instance of Leyte. Garlitos, J.

Sabido, Sabido & Associates for appellant.
Provincial Fiscal Zoila M. Redoña & Assistant Provincial Fiscal Bonifacio B.
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, otherwise known 1
as the Local Autonomy Act,

_______________
1
“Sec. 2. Taxation.—Any provision of law to the contrary notwithstanding, all chartered cities, municipalities and
municipal districts shall have authority to impose municipal license taxes or fees upon persons engaged in any occupation
or business, or exercising privileges in chartered cities, municipalities and municipal districts by requiring them to secure
licenses at rates fixed by the municipal
463
VOL. 69, FEBRUARY 27, 1976 463
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
_______________
board or city council of the city, the municipal council of the municipality, or the municipal district council of the
municipal district; to collect fees and charges for service rendered by the city, municipality or municipal district; to
regulate and impose reasonable fees for services rendered in connection with any business, profession or occupation being
conducted within the city, municipality or municipal district and otherwise to levy for public purposes, just and uniform
taxes, licenses or fees: Provided, That municipalities and municipal districts shall, in no case, impose any percentage tax
on sales or other taxes in any form based thereon nor impose taxes on articles subject to specific tax, except gasoline,
under the provisions of the National Internal Revenue Code: Provided, however, That no city, municipality or municipal
district may levy or impose any of the following:
1. (a)Residence tax;
2. (b)Documentary stamp tax;
3. (c)Taxes on the business of any newspaper engaged in the printing and publication of any newspaper,
magazine, review or bulletin appearing at regular intervals and having fixed prices for subscription
and sale, and which is not published primarily for the purpose of publishing advertisements;
4. (d)Taxes on persons operating waterworks, irrigation and other public utilities except electric light,
heat and power;
5. (e)Taxes on forest products and forest concessions;
6. (f)Taxes on estates, inheritance, gifts, legacies and other acquisitions mortis causa;
7. (g)Taxes on income of any kind whatsoever;
8. (h)Taxes or fees for the registration of motor vehicles and for the issuance of all kinds of licenses or
permits for the driving thereof;
9. (i)Customs duties registration, wharfage on wharves owned by the national government, tonnage and
all other kinds of customs fees, charges and dues;
10. (j)Taxes of any kind on banks, insurance companies, and persons paying franchise tax;
11. (k)Taxes on premiums paid by owners of property who obtain insurance directly with foreign
insurance companies; and
12. (l)Taxes, fees or levies, of any kind, which in effect impose a burden on exports of Philippine
finished, manufactured or processed products and products of Philippine cottage industries.
464
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.
Municipal Ordinance No. 23, of Tanauan, Leyte, which was approved on September 25,
1962, levies and collects “from soft drinks producers and manufacturers a tax of one-sixteenth
(1/16) of a centavo for every bottle of soft drink corked.” For the purpose of computing the taxes
2
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.” For the purpose of computing the taxes due, the person, firm, company,
4
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
Ordinances Nos. 23 and 27 valid, legal and constitutional; ordering the plaintiff to pay the taxes
due under the oft-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.
_______________
Section 2.
2
Section 3.
3
Section 2.
4
Section 3.
5
465
VOL. 69, FEBRUARY 27, 1976 465
Pepsi-Cola Bottling Co. of the Philippines, Inc, vs.
There are three capital questions raised in this appeal;
1. 1.—Is Section 2, Republic Act No. 2264 an undue delegation of power,

confiscatory and oppressive?
2. 2.—Do Ordinances Nos. 23 and 27 constitute double taxation and impose
percentage or specific taxes?
3. 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. It is a power that is purely legislative and which the central legislative body cannot
6
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. This is sanctioned by immemorial
7
practice. By necessary implication, the legislative power to create political corporations for
8
purposes of local self-government carries with it the power to confer on such local governmental
agencies the power to tax. Under the New Constitution, local governments are granted the
9
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.
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 to 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
_______________
Cooley, The Law of Taxation, Vol. 1, Fourth Edition, 149-150.

6
Pepsi-Cola Bottling Co. of the Phil, Inc. vs. City of Butuan, L-22814, August 28, 1968, 24 SCRA 793-96.
7
Rubi v. Prov. Brd. of Mindoro, 39 Phil. 702 (1919).

8
Cooley, ante, at 190.
9
466
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. This is not to say though that the constitutional injunction
10
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. Due process is usually violated where the tax imposed is
11
for a private as distinguished from a public purpose; a tax is imposed on property outside the
State, i.e., extra-territorial 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. The reason is that the State has exclusively reserved the same for its own prerogative.
13
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. Double taxation becomes obnoxious only where the
14
_______________
10
Idem, at 198-200.
11
Malcolm, Philippine Constitutional Law, 513-14.
12
Cooley, ante, at 334.
13
See footnote 1.
14
Pepsi-Cola Bottling Co. of the Phil. Inc. vs. City of Butuan, L-22814. August 28, 1968, 24 SCRA 793-96. See Sec,
22, Art. VI, 1935
467
VOL. 69, FEBRUARY 27, 1976 467
taxpayer is taxed twice for the benefit of the same governmental entity or by the same 15
jurisdiction for the same purpose, but not in a case where one tax is imposed by the State and the
16
other by the city or municipality. 17
2. The plaintiff-appellant submits that Ordinance Nos. 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, Plaintiff-appellant in its brief admitted that defendants-appellees are only seeking to
18
enforce Ordinance No. 27, series of 1962. Even the stipulation of facts confirms the fact that the
Acting Municipal Treasurer of Tanauan, Leyte sought to 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 1962 is being enforced by defendants-
appellees. Even the Provincial Fiscal. Constitution and Sec. 17 (1), Art. VIII, 1973 Constitution.
_______________
Commissioner of Internal Revenue v. Lednicky, L-18169, July 31, 1964, 11 SCRA 609.

15
SMB, Inc. v. City of Cebu, L-20312, February 26, 1972, 43 SCRA 280.

16
Punzalan v. Mun. Bd. of City of Manila, 50 O.G. 2485; Manufacturers Life Ins. Co. v. Meer, 89 Phil. 351 (1951).
17
18
McQuillin, Municipal Corporations, 3rd. Ed., Vol. 6, at 206-210.
468
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,
excepting those which are mentioned therein.” As long as the tax 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 expresio unius est exclucio
alterius, and exceptio firmat regulum in casibus non excepti. The limitation applies, particularly,
19
to the prohibition against municipalities and municipal districts to impose “any percentage tax on
sales or other taxes in any form based thereon nor impose taxes on articles subject to specific
tax, except gasoline, under the provisions of the National Internal Revenue Code.” 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. But, the imposition of “a tax of one
20
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
_______________
Villanueva v. City of Iloilo, L-26521, December 28, 1968, 26 SCRA 585-86; Nin Bay Mining Co. v. Mun. of Roxas,
19
Palawan, L-20125, July 20, 1965, 14 SCRA 663-64.

Arabay, Inc. v. CFI of Zamboanga del Norte, et al., L-27684, September 10, 1975.
20
SMB, Inc. v. City of Cebu, ante, Footnote 16.

21
469
VOL. 69, FEBRUARY 27, 1976 469
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. Soft 22
drink is not one of those specified.

3. The tax of one centavo (P0.01) on each gallon (128 fluid ounces, U.S.) of volume capacity
on all soft drinks, produced or manufactured, or an equivalent of 1-1/2 centavos per case, cannot 23
be considered unjust and unfair. An increase in the tax alone would not support the claim that
24
the tax is oppressive, unjust and confiscatory. Municipal corporations are allowed much
discretion in determining the rates of imposable taxes. This is in line with the constitutional
25
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). Unless the amount is so excessive as to be prohibitive, courts will go slow in writing off
26
an ordinance as unreasonable, Reluctance should not deter compliance with an ordinance such
27
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
_______________
Shell Co., of P.I. Ltd. v. Vaño, 94 Phil. 394-95 (1954); Sections 123-148, NIRC; RA No. 953, Narcotic Drugs Law,
22
June 20, 1953.

Brief, defendants-appellees, at 14. A regular bottle of Pepsi-Cola soft drinks contains 8 oz., or 192 oz. per case of 24
23
bottles; a family-size contains 26 oz., or 312 oz. per case of 12 bottles.

See Pepsi-Cola Bottling Co. of the Phil., Inc. v. City of Butuan, ante, Footnote 14, where tax rate is P.10 per case of
24
24 bottles; City of Bacolod v. Gruet, L-18290, January 31, 1983, 7 SCRA 168-69, where the tax is P.03 on every case of
bottled Coca-Cola.
Northern Philippines Tobacco Corp. v. Mun. of Agoo, La Union, L-26447, January 30, 1971, 31 SCRA 308.
25
William Lines, Inc. v. City of Ozamis, L-35048, April 23, 1974, 56 SCRA 593, Second Division, per Fernando, J.
26
Victorias Milling Co. v. Mun. of Victorias, L-21183, September 27, 1968, 25 SCRA 205.
27
Procter & Gamble Trading Co. v. Mun. of Medina, Misamis Oriental, L-29125, January 31, 1973, 43 SCRA 133-34.
28
470
and/or mineral waters under Ordinance No. 54, series of 1964, as amended by Ordinance No. 41,
series of 1968, of defendant Municipality, appears not to affect the resolution of the validity of
29
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, Leyte, series of 1962, repealing 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 Conception Jr., JJ., concur.
Fernando, J., concurs in a separate opinion.
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 certainly 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
_______________
29
Subject of plaintiff-appellant’s Motion for Admission and Consideration of Essential Newly Discovered Evidence,
dated April 30, 1969.
471
VOL. 69, FEBRUARY 27, 1976 471
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” That was not the case under the 1935 Charter, The only limitation
2
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 “exercise general supervision over all local governments as
may be provided by law * * *.” As far as legislative power over local government was
3
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 1989, there was a statute that enlarged the scope of the municipal taxing
power. Thereafter, in 1959 such competence was further expanded in the Local Autonomy
4
Act. Nevertheless, as late as December of 1964, five years after its enactment of the Local
5
Autonomy Act, this Court, through Justice Dizon, in Golden Ribbon Lumber Co. v. City of
Butuan, reaffirmed the traditional concept in these words; “The rule is well-settled that
6
municipal corporations, unlike sovereign states, are 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
______________
1
L-24756, October 31, 1968, 25 SCRA 938.
2
Article XI, Section 5 of the present Constitution.
3
Article VII, Section 10 of the 1935 Constitution.
4
Commonwealth Act 472 entitled: “An Act Revising the General Authority of Municipal Councils and Municipal
District Councils to Levy Taxes, Subject to Certain Limitations.”
5
Republic Act No. 2264.
6
L-18534, December 24, 1964, 12 SCRA 611.
7
Ibid, 619. Cf. Cuunjieng v. Patstone, 42 Phil. 818 (1922); De Linan v. Municipal Council of Daet, 44 Phil.
792 (1923); Arquiza Luta v. Municipality of Zamboanga, 50 Phil. 748 (1927; Hercules Lumber Co. v. Zamboanga, 55
Phil. 653 (1931); Yeo Loby v. Zamboanga, 55
472
Taxation, according to Justice Paredes in the earlier case of Tan v. Municipality of Pagbilao, “is 8
an attribute of sovereignty which municipal corporations do not enjoy.” That case left no doubt
9
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.” As the 10
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. Thus: “As to why double
11
taxation is not violative of due process, Justice Holmes made clear in this language: ‘The
objection to the taxation as double may be laid down on one side. * * * The 14th Amendment
[the due process clause] no more forbids double taxation than it does doubling the amount of a
tax, short of confiscation or proceedings unconstitutional on other grounds.’ 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 de grace to the bogey of
double taxation as a constitutional bar to the exercise of the taxing power. It would seem though
that in the United States, as with us, its ghost, as noted by an eminent critic, still stalks the
juridical 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
_______________
Phil. 656 (1931); People v. Carreon, 65 Phil. 588 (1939); Yap Tak Wing v. Municipal Board, 68 Phil.
511 (1939); Eastern Theatrical Co. v. Alfonso, 83 Phil. 852 (1949); De la Rosa v. City of Baguio, 91 Phil
720 (1052); Medina v. City of Baguio, 91 Phil. 854 (1952); Standard-Vacuum Oil Co. v. Antigua, 96 Phil.
909 (1955); Municipal Government of Pagsanjan v. Reyes, 98 Phil. 654 (1956); We Wa Yu v. City of Lipa, 99 Phil.
975 (1956); Municipality of Cotabato v. Santos, 105 Phil. 963 (1959).
8
L-14264, April 30, 1963, 7 SCRA 887.
9
Ibid, 892.
10
Ibid.
11
L-24756, October 31, 1968, 25 SCRA 938.
12
Ibid, 943-944.
473
VOL. 69, FEBRUARY 27, 1976 473
So I would view the issues in this suit and accordingly concur in the result.
Notes.—A municipal ordinance imposing a tax “for the selling and distribution of refined and
manufactured oils” based on the monthly allocation of the taxpayer is a sales tax ordinance.
(Arabay vs. Court of First Instance of Zamboanga, 66 SCRA 617).
Pursuant to a proviso to Section 2 of R.A. 2264, municipalities “shall, in no case, impose any
percentage tax on sales or other taxes on articles subject to specific tax, except gasoline, under
the provisions of the National Internal Revenue Code.” Under the foregoing proviso, two courses
of action in the exercise of their taxing powers are denied to municipalities, to wit, (1) to levy
any sales tax in whatever form; and (2) to levy any tax on articles subject to specific tax under
the National Internal Revenue Code. It is not difficult to see that these two prohibitions overlap
in the sense that while the first clause of the said proviso forbids the levying of sales taxes of
whatever form or guise, the second clause of the same proviso forbids the levying of “taxes”
without any distinction as to the kind of tax, i.e., ‘whether percentage tax, sales tax, specific tax
or license tax, although this latter prohibition applies only to a limited class of articles, viz, those
subject to the specific tax under the Tax Code, Such overlap would probably carry or connote no
legal significance but for the exclusion of gasoline from the prohibition contained in the second
clause of the mentioned proviso. A reasonable and practical interpretation of the terms of the
proviso in question results in the conclusion that Congress, in excluding gasoline from the
general disability imposed on municipalities to exact any kind of taxes on articles subject to
specific tax under the Tax Code, deliberately and intentionally meant to put it within, the power
of such local governments to impose whatever type or form of taxes the latter may deem proper
to levy on gasoline, including a sales tax or one in that form. (Arabay, Inc. vs. Court of First
Instance of Zamboanga, 66 SCRA 623).
Where a municipality which enacted a tax ordinance beyond its power is converted to a city,
the city becomes obligated to refund the tax illegally imposed by its predecessor, (San Miguel
Corporation vs. The Municipal Council of Mandaue, Cebu, 52 SCRA 43; Laoag Producers’
Coop. Mktg. Ass’n, vs. Municipality
474

People vs. Reyes
of Laoag, Ilocos Norte, 37 SCRA 594; City of Naga vs. Court of Appeals, 24 SCRA 594).
——o0o——
b. Taxation is for a public purpose
G.R. No. 166006. March 14, 2008.*

PLANTERS PRODUCTS, INC., petitioner, vs. FERTIPHIL CORPORATION, respondent.
Judicial Review; Locus Standi; In private suits, locus standi requires a litigant to be a “real party
in interest,” which is defined as “the party who stands to be benefited or injured by the judgment in the
suit or the party entitled to the avails of the suit”; In this jurisdiction, We have adopted the “direct injury
test” to determine locus standi in public suits; The “direct injury test” in public suits is similar to the
“real party in interest” rule for private suits under Section 2, Rule 3 of the 1997 Rules of Civil
Procedure.—The doctrine of locus standi or the right of appearance in a court of justice has been
adequately discussed by this Court in a catena of cases. Succinctly put, the doctrine requires a litigant to
have a material interest in the outcome of a case. In private suits, locus standi requires a litigant to be a
“real party in interest,” which is defined as “the party who stands to be benefited or injured by the
judgment in the suit or the party entitled to the avails of the suit.” In public suits, this Court recognizes the
difficulty of applying the doctrine especially when plaintiff asserts a public right on behalf of the general
public because of conflicting public policy issues. On one end, there is the right of the ordinary citizen to
petition the courts to be freed from unlawful government intrusion and illegal official action. At the other
end, there is the public policy precluding excessive judicial interference in official acts, which may
unnecessarily hinder the delivery of basic public services. In this jurisdiction, We have adopted the
“direct injury test” to determine locus standi in public suits. In People v. Vera, 65 Phil. 56 (1937), it was
held that a person who impugns the validity of a statute must have “a personal and substantial interest in
the case such that he has sustained, or will sustain direct injury as a result.” The “direct injury test” in
public suits is similar to the “real party in interest” rule for private suits under Section 2, Rule 3 of the
1997 Rules of Civil Procedure. Recognizing that a strict application of the “direct injury” test may
hamper public interest, this Court relaxed the requirement in cases of “transcendental importance” or with
“far reaching implications.” Being a mere procedural
_______________
* THIRD DIVISION.
486

86
Planters Products, Inc. vs. Fertiphil Corporation
technicality, it has also been held that locus standi may be waived in the public interest.
Same; Same; The fact of payment by a seller of the levy imposed by Letter of Instruction (LOI) 1465
is sufficient injury—the harm occasioned on its business is sufficient injury for purposes of locus standi.
—Whether or not the complaint for collection is characterized as a private or public suit, Fertiphil
has locus standi to file it. Fertiphil suffered a direct injury from the enforcement of LOI No. 1465. It was
required, and it did pay, the P10 levy imposed for every bag of fertilizer sold on the domestic market. It
may be true that Fertiphil has passed some or all of the levy to the ultimate consumer, but that does not
disqualify it from attacking the constitutionality of the LOI or from seeking a refund. As seller, it bore the
ultimate burden of paying the levy. It faced the possibility of severe sanctions for failure to pay the levy.
The fact of payment is sufficient injury to Fertiphil. Moreover, Fertiphil suffered harm from the
enforcement of the LOI because it was compelled to factor in its product the levy. The levy certainly
rendered the fertilizer products of Fertiphil and other domestic sellers much more expensive. The harm to
their business consists not only in fewer clients because of the increased price, but also in adopting
alternative corporate strategies to meet the demands of LOI No. 1465. Fertiphil and other fertilizer sellers
may have shouldered all or part of the levy just to be competitive in the market. The harm occasioned on
the business of Fertiphil is sufficient injury for purposes of locus standi.
Same; Same; The doctrine of standing, being a mere procedural technicality, should be waived, if at
all, to adequately thresh out an important constitutional issue.—Even assuming arguendo that there is no
direct injury, We find that the liberal policy consistently adopted by this Court on locus standi must
apply. The issues raised by Fertiphil are of paramount public importance. It involves not only the
constitutionality of a tax law but, more importantly, the use of taxes for public purpose. Former President
Marcos issued LOI No. 1465 with the intention of rehabilitating an ailing private company. This is clear
from the text of the LOI. PPI is expressly named in the LOI as the direct beneficiary of the levy. Worse,
the levy was made dependent and conditional upon PPI becoming financially viable. The LOI provided
that “the capital contribution shall be collected until adequate capital is raised to make PPI viable .” The
constitu-487
VOL. 548, MARCH 14, 2008 48

7
tionality of the levy is already in doubt on a plain reading of the statute. It is Our constitutional duty
to squarely resolve the issue as the final arbiter of all justiciable controversies. The doctrine of standing,
being a mere procedural technicality, should be waived, if at all, to adequately thresh out an important
constitutional issue.
Same; Jurisdictions; Regular courts have jurisdiction over cases involving the validity or
constitutionality of a rule or regulation issued by administrative agencies.—In the recent case of Equi-
Asia Placement, Inc. v. Department of Foreign Affairs, 502 SCRA 295 (2006), this Court reiterated:
There is no denying that regular courts have jurisdiction over cases involving the validity or
constitutionality of a rule or regulation issued by administrative agencies. Such jurisdiction, however, is
not limited to the Court of Appeals or to this Court alone for even the regional trial courts can take
cognizance of actions assailing a specific rule or set of rules promulgated by administrative bodies.
Indeed, the Constitution vests the power of judicial review or the power to declare a law, treaty,
international or executive agreement, presidential decree, order, instruction, ordinance, or regulation in
the courts, including the regional trial courts.
Same; Same; Judicial review of official acts on the ground of unconstitutionality may be sought or
availed of through any of the actions cognizable by courts of justice, not necessarily in a suit
for declaratory relief.—Judicial review of official acts on the ground of unconstitutionality may be
sought or availed of through any of the actions cognizable by courts of justice, not necessarily in a suit for
declaratory relief. Such review may be had in criminal actions, as in People v. Ferrer, 48 SCRA 382
(1972), involving the constitutionality of the now defunct Anti-Subversion law, or in ordinary actions, as
in Krivenko v. Register of Deeds, 79 Phil. 461 (1947), involving the constitutionality of laws prohibiting
aliens from acquiring public lands. The constitutional issue, however, (a) must be properly raised and
presented in the case, and (b) its resolution is necessary to a determination of the case, i.e., the issue of
constitutionality must be the very lis mota presented.
Same; Lis Mota; The constitutionality of Letter of Instruction (LOI) No. 1465 is also the very lis
mota of the complaint for collection.—The constitutionality of LOI No. 1465 is also the very lis mota of
the complaint for collection. Fertiphil filed the complaint to compel 488

88
PPI to refund the levies paid under the statute on the ground that the law imposing the levy is
unconstitutional. The thesis is that an unconstitutional law is void. It has no legal effect. Being void,
Fertiphil had no legal obligation to pay the levy. Necessarily, all levies duly paid pursuant to an
unconstitutional law should be refunded under the civil code principle against unjust enrichment. The
refund is a mere consequence of the law being declared unconstitutional. The RTC surely cannot order
PPI to refund Fertiphil if it does not declare the LOI unconstitutional. It is the unconstitutionality of the
LOI which triggers the refund. The issue of constitutionality is the very lis mota of the complaint with the
RTC.
Taxation; Police Power; Words and Phrases; 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. —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.
Same; 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.—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 489
VOL. 548, MARCH 14, 2008 48
9
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.”
Same; Words and Phrases; Public purpose is the heart of a tax law; Public purpose is an elastic
concept that can be hammered to fit modern standards—it does not only pertain to those purposes which
are traditionally viewed as essentially government functions, such as building roads and delivery of basic
services, but also includes those purposes designed to promote social justice; While the categories of
what may constitute a public purpose are continually expanding in light of the expansion of government
functions, the inherent requirement that taxes can only be exacted for a public purpose still stands.—The
term “public purpose” is not defined. It is an elastic concept that can be hammered to fit modern
standards. Jurisprudence states that “public purpose” should be given a broad interpretation. It does not
only pertain to those purposes which are traditionally viewed as essentially government functions, such as
building roads and delivery of basic services, but also includes those purposes designed to promote social
justice. Thus, public money may now be used for the relocation of illegal settlers, low-cost housing and
urban or agrarian reform. While the categories of what may constitute a public purpose are continually
expanding in light of the expansion of government functions, the inherent requirement that taxes can only
be exacted for a public purpose still stands. Public purpose is the heart of a tax law. When a tax law is
only a mask to exact funds from the public when its true intent is to give undue benefit and advantage to a
private enterprise, that law will not satisfy the requirement of “public purpose.” The purpose of a law is
evident from its text or inferable from other secondary sources. Here, We agree with the RTC and that
CA that the levy imposed under LOI No. 1465 was not for a public purpose. 490

90
Same; It is utterly repulsive that a tax law would expressly name a private company as the ultimate
beneficiary of the taxes to be levied from the public—it is a clear case of crony capitalism.—It is a basic
rule of statutory construction that the text of a statute should be given a literal meaning. In this case, the
text of the LOI is plain that the levy was imposed in order to raise capital for PPI. The framers of the LOI
did not even hide the insidious purpose of the law. They were cavalier enough to name PPI as the ultimate
beneficiary of the taxes levied under the LOI. We find it utterly repulsive that a tax law would expressly
name a private company as the ultimate beneficiary of the taxes to be levied from the public. This is a
clear case of crony capitalism.
Police Power; Test for Valid Exercise; Letter of Instruction (LOI) No. 1695 is invalid because it did
not promote public interest.—Even if We consider LOI No. 1695 enacted under the police power of the
State, it would still be invalid for failing to comply with the test of “lawful subjects” and “lawful means.”
Jurisprudence states the test as follows: (1) the interest of the public generally, as distinguished from
those of particular class, requires its exercise; and (2) the means employed are reasonably necessary for
the accomplishment of the purpose and not unduly oppressive upon individuals. For the same reasons as
discussed, LOI No. 1695 is invalid because it did not promote public interest. The law was enacted to
give undue advantage to a private corporation.
Statutes; Operative Fact Doctrine; The general rule is that an unconstitutional law is void—it
produces no rights, imposes no duties and affords no protection, it has no legal effect, and it is, in legal
contemplation, inoperative as if it has not been passed.—The general rule is that an unconstitutional law
is void. It produces no rights, imposes no duties and affords no protection. It has no legal effect. It is, in
legal contemplation, inoperative as if it has not been passed. Being void, Fertiphil is not required to pay
the levy. All levies paid should be refunded in accordance with the general civil code principle against
unjust enrichment. The general rule is supported by Article 7 of the Civil Code, which provides: ART. 7.
Laws are repealed only by subsequent ones, and their violation or non-observance shall not be excused by
disuse or custom or practice to the contrary. When the courts declare a law to be inconsistent with the
Constitution, the former shall be void and the latter shall govern.491
VOL. 548, MARCH 14, 2008 49

1
Same; Same; Unjust Enrichment; The doctrine of operative fact, as an exception to the general rule,
only applies as a matter of equity and fair play—there is nothing iniquitous in ordering the beneficiary of
an unconstitutional law where it unduly benefited from it, otherwise it would be unjustly enriched at the
expense of others.—The doctrine of operative fact, as an exception to the general rule, only applies as a
matter of equity and fair play. It nullifies the effects of an unconstitutional law by recognizing that the
existence of a statute prior to a determination of unconstitutionality is an operative fact and may have
consequences which cannot always be ignored. The past cannot always be erased by a new judicial
declaration. The doctrine is applicable when a declaration of unconstitutionality will impose an undue
burden on those who have relied on the invalid law. Thus, it was applied to a criminal case when a
declaration of unconstitutionality would put the accused in double jeopardy or would put in limbo the acts
done by a municipality in reliance upon a law creating it. Here, We do not find anything iniquitous in
ordering PPI to refund the amounts paid by Fertiphil under LOI No. 1465. It unduly benefited from the
levy. It was proven during the trial that the levies paid were remitted and deposited to its bank account.
Quite the reverse, it would be inequitable and unjust not to order a refund. To do so would unjustly enrich
PPI at the expense of Fertiphil. Article 22 of the Civil Code explicitly provides that “every person who,
through an act of performance by another comes into possession of something at the expense of the latter
without just or legal ground shall return the same to him.” We cannot allow PPI to profit from an
unconstitutional law. Justice and equity dictate that PPI must refund the amounts paid by Fertiphil.
PETITION for review on certiorari of a decision of the Court of Appeals.

Malaya, Sanchez, Francisco, Añover Law Offices for petitioner.
Madrid & Associates for respondent.
492
REYES, R.T., J.:
THE Regional Trial Courts (RTC) have the authority and jurisdiction to consider the
constitutionality of statutes, executive orders, presidential decrees and other issuances. The
Constitution vests that power not only in the Supreme Court but in all Regional Trial Courts.
The principle is relevant in this petition for review on certiorari of the Decision1 of the Court
of Appeals (CA) affirming with modification that of the RTC in Makati City, 2 finding petitioner
Planters Products, Inc. (PPI) liable to private respondent Fertiphil Corporation (Fertiphil) for the
levies it paid under Letter of Instruction (LOI) No. 1465.
The Facts
Petitioner PPI and private respondent Fertiphil are private corporations incorporated under
Philippine laws.3 They are both engaged in the importation and distribution of fertilizers,
pesticides and agricultural chemicals.
On June 3, 1985, then 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.4 The LOI provides:
“3. The Administrator of the Fertilizer Pesticide Authority to include in its fertilizer pricing formula
a capital contribution component of not less than P10 per bag. This capital contribution shall be
collected until adequate capital is raised to make PPI viable. Such
_______________
1 Rollo, pp. 51-59. Penned by Associate Justice Conrado M. Vasquez, Jr., with Associate Justices Bienvenido L. Reyes and
Arsenio L. Magpale, concurring.
2 Id., at pp. 75-77. Penned by Judge Teofilo L. Guadiz, Jr.
3 Id., at p. 8.
4 Id., at p. 75.
493
VOL. 548, MARCH 14, 2008 493

capital contribution shall be applied by FPA to all domestic sales of fertilizers in the Philippines.” (Italics 5
supplied)
Pursuant to the LOI, Fertiphil paid P10 for every bag of fertilizer it sold in the domestic
market to the Fertilizer and Pesticide Authority (FPA). FPA then remitted the amount collected
to the Far East Bank and Trust Company, the depositary bank of PPI. Fertiphil paid P6,689,144
to FPA from July 8, 1985 to January 24, 1986.6
After the 1986 Edsa Revolution, FPA voluntarily stopped the imposition of the P10 levy.
With the return of democracy, Fertiphil demanded from PPI a refund of the amounts it paid
under LOI No. 1465, but PPI refused to accede to the demand.7
Fertiphil filed a complaint for collection and damages8 against FPA and PPI with the RTC in
Makati. It questioned the constitutionality of LOI No. 1465 for being unjust, unreasonable,
oppressive, invalid and an unlawful imposition that amounted to a denial of due process of
law.9 Fertiphil alleged that the LOI solely favored PPI, a privately owned corporation, which
used the proceeds to maintain its monopoly of the fertilizer industry.
In its Answer,10 FPA, through the Solicitor General, countered that the issuance of LOI No.
1465 was a valid exercise of the police power of the State in ensuring the stability of the fertilizer
industry in the country. It also averred that Fertiphil did not sustain any damage from the LOI
because the burden imposed by the levy fell on the ultimate consumer, not the seller.
_______________
5 Id., p. 155.
6 Id., at p. 76.
7 Id.
8 Id., at pp. 195-202.
9 Id., at p. 196.
10 Id., at pp. 66-73, 277.
494
RTC Disposition
On November 20, 1991, the RTC rendered judgment in favor of Fertiphil, disposing as
follows:
“WHEREFORE, in view of the foregoing, the Court hereby renders judgment in favor of the plaintiff
and against the defendant Planters Product, Inc., ordering the latter to pay the former:
1) the sum of P6,698,144.00 with interest at 12% from the time of judicial demand;
2) the sum of P100,000 as attorney’s fees;
3) the cost of suit.
SO ORDERED.” 11
Ruling that the imposition of the P10 CRC was an exercise of the State’s inherent power of
taxation, the RTC invalidated the levy for violating the basic principle that taxes can only be
levied for public purpose, viz.:
“It is apparent that the imposition of P10 per fertilizer bag sold in the country by LOI 1465 is
purportedly in the exercise of the power of taxation. It is a settled principle that the power of taxation by
the state is plenary. Comprehensive and supreme, the principal check upon its abuse resting in the
responsibility of the members of the legislature to their constituents. However, there are two kinds of
limitations on the power of taxation: the inherent limitations and the constitutional limitations.
One of the inherent limitations is that a tax may be levied only for public purposes:
The power to tax can be resorted to only for a constitutionally valid public purpose. By the same token,
taxes may not be levied for purely private purposes, for building up of private fortunes, or for the
redress of private wrongs. They cannot be levied for the improvement of private property, or for the
benefit, and promotion of private enterprises, except where the aid is incident to the public benefit. It
is well-settled principle of constitutional law that no general tax can be levied except
_______________
11 Id., at p. 77.
495
VOL. 548, MARCH 14, 2008 495

for the purpose of raising money which is to be expended for public use. Funds cannot be exacted under
the guise of taxation to promote a purpose that is not of public interest. Without such limitation, the
power to tax could be exercised or employed as an authority to destroy the economy of the people. A
tax, however, is not held void on the ground of want of public interest unless the want of such interest
is clear. (71 Am. Jur. pp. 371-372)
In the case at bar, the plaintiff paid the amount of P6,698,144.00 to the Fertilizer and Pesticide
Authority pursuant to the P10 per bag of fertilizer sold imposition under LOI 1465 which, in turn,
remitted the amount to the defendant Planters Products, Inc. thru the latter’s depository bank, Far East
Bank and Trust Co. Thus, by virtue of LOI 1465 the plaintiff, Fertiphil Corporation, which is a private
domestic corporation, became poorer by the amount of P6,698,144.00 and the defendant, Planters
Product, Inc., another private domestic corporation, became richer by the amount of P6,698,144.00.
Tested by the standards of constitutionality as set forth in the afore-quoted jurisprudence, it is quite
evident that LOI 1465 insofar as it imposes the amount of P10 per fertilizer bag sold in the country and
orders that the said amount should go to the defendant Planters Product, Inc. is unlawful because it
violates the mandate that a tax can be levied only for a public purpose and not to benefit, aid and promote
a private enterprise such as Planters Product, Inc.”
12
PPI moved for reconsideration but its motion was denied. 13 PPI then filed a notice of appeal
with the RTC but it failed to pay the requisite appeal docket fee. In a separate but related
proceeding, this Court14 allowed the appeal of PPI and remanded the case to the CA for proper
disposition.
_______________
12 Id., at pp. 76-77.

13 Id., at p. 14.
14 Id., at pp. 83-93. G.R. No. 156278, entitled “Planters Products, Inc. v. Fertiphil Corporation.”
496
CA Decision
On November 28, 2003, the CA handed down its decision affirming with modification that of
the RTC, with the following fallo:
“IN VIEW OF ALL THE FOREGOING, the decision appealed from is hereby AFFIRMED, subject
to the MODIFICATION that the award of attorney’s fees is hereby DELETED.” 15
In affirming the RTC decision, the CA ruled that the lis mota of the complaint for collection
was the constitutionality of LOI No. 1465, thus:
“The question then is whether it was proper for the trial court to exercise its power to judicially
determine the constitutionality of the subject statute in the instant case.
As a rule, where the controversy can be settled on other grounds, the courts will not resolve the
constitutionality of a law (Lim v. Pacquing, 240 SCRA 649 [1995]). The policy of the courts is to avoid
ruling on constitutional questions and to presume that the acts of political departments are valid, absent a
clear and unmistakable showing to the contrary.
However, the courts are not precluded from exercising such power when the following requisites are
obtaining in a controversy before it: First, there must be before the court an actual case calling for the
exercise of judicial review. Second, the question must be ripe for adjudication. Third, the person
challenging the validity of the act must have standing to challenge. Fourth, the question of
constitutionality must have been raised at the earliest opportunity; and lastly, the issue of constitutionality
must be the very lis mota of the case (Integrated Bar of the Philippines v. Zamora, 338 SCRA 81 [2000]).
Indisputably, the present case was primarily instituted for collection and damages. However, a perusal
of the complaint also reveals that the instant action is founded on the claim that the levy imposed was an
unlawful and unconstitutional special assessment.
_______________
15 Id., at p. 59.
497
VOL. 548, MARCH 14, 2008 497

Consequently, the requisite that the constitutionality of the law in question be the very lis mota of the case
is present, making it proper for the trial court to rule on the constitutionality of LOI 1465.” 16
The CA held that even on the assumption that LOI No. 1465 was issued under the police
power of the state, it is still unconstitutional because it did not promote public welfare. The CA
explained:
“In declaring LOI 1465 unconstitutional, the trial court held that the levy imposed under the said law
was an invalid exercise of the State’s power of taxation inasmuch as it violated the inherent and
constitutional prescription that taxes be levied only for public purposes. It reasoned out that the amount
collected under the levy was remitted to the depository bank of PPI, which the latter used to advance its
private interest.
On the other hand, appellant submits that the subject statute’s passage was a valid exercise of police
power. In addition, it disputes the court a quo’s findings arguing that the collections under LOI 1465 was
for the benefit of Planters Foundation, Incorporated (PFI), a foundation created by law to hold in trust for
millions of farmers, the stock ownership of PPI.
Of the three fundamental powers of the State, the exercise of police power has been characterized as
the most essential, insistent and the least limitable of powers, extending as it does to all the great public
needs. It may be exercised as long as the activity or the property sought to be regulated has some
relevance to public welfare (Constitutional Law, by Isagani A. Cruz, p. 38, 1995 Edition).
Vast as the power is, however, it must be exercised within the limits set by the Constitution, which
requires the concurrence of a lawful subject and a lawful method. Thus, our courts have laid down the test
to determine the validity of a police measure as follows: (1) the interests of the public generally, as
distinguished from those of a particular class, requires its exercise; and (2) the means employed are
reasonably necessary for the accomplishment of the purpose and not unduly oppressive upon individuals
(National Development Company v. Philippine Veterans Bank, 192 SCRA 257 [1990]).
_______________
16 Id., at pp. 54-55.
498

It is upon applying this established tests that We sustain the trial court’s holding LOI 1465
unconstitutional. To be sure, ensuring the continued supply and distribution of fertilizer in the country is
an undertaking imbued with public interest. However, the method by which LOI 1465 sought to achieve
this is by no means a measure that will promote the public welfare. The government’s commitment to
support the successful rehabilitation and continued viability of PPI, a private corporation, is an
unmistakable attempt to mask the subject statute’s impartiality. There is no way to treat the self-interest
of a favored entity, like PPI, as identical with the general interest of the country’s farmers or even the
Filipino people in general. Well to stress, substantive due process exacts fairness and equal protection
disallows distinction where none is needed. When a statute’s public purpose is spoiled by private interest,
the use of police power becomes a travesty which must be struck down for being an arbitrary exercise of
government power. To rule in favor of appellant would contravene the general principle that revenues
derived from taxes cannot be used for purely private purposes or for the exclusive benefit of private
individuals.” 17
The CA did not accept PPI’s claim that the levy imposed under LOI No. 1465 was for the
benefit of Planters Foundation, Inc., a foundation created to hold in trust the stock ownership of
PPI. The CA stated:
“Appellant next claims that the collections under LOI 1465 was for the benefit of Planters Foundation,
Incorporated (PFI), a foundation created by law to hold in trust for millions of farmers, the stock
ownership of PFI on the strength of Letter of Undertaking (LOU) issued by then Prime Minister Cesar
Virata on April 18, 1985 and affirmed by the Secretary of Justice in an Opinion dated October 12, 1987,
to wit:
“2. Upon the effective date of this Letter of Undertaking, the Republic shall cause FPA to include in
its fertilizer pricing formula a capital recovery component, the proceeds of which will be used
initially for the purpose of funding the unpaid portion of the outstanding capital stock of Planters
presently held in trust by Planters Foundation, Inc. (Planters
_______________
17 Id., at pp. 129-130.
499
VOL. 548, MARCH 14, 2008 499

Foundation), which unpaid capital is estimated at approximately P206 million (subject to
validation by Planters and Planters Foundation) (such unpaid portion of the outstanding capital
stock of Planters being hereafter referred to as the ‘Unpaid Capital’), and subsequently for such
capital increases as may be required for the continuing viability of Planters.
The capital recovery component shall be in the minimum amount of P10 per bag, which will be added
to the price of all domestic sales of fertilizer in the Philippines by any importer and/or fertilizer
mother company. In this connection, the Republic hereby acknowledges that the advances by
Planters to Planters Foundation which were applied to the payment of the Planters shares now held
in trust by Planters Foundation, have been assigned to, among others, the Creditors. Accordingly,
the Republic, through FPA, hereby agrees to deposit the proceeds of the capital recovery
component in the special trust account designated in the notice dated April 2, 1985, addressed by
counsel for the Creditors to Planters Foundation. Such proceeds shall be deposited by FPA on or
before the 15th day of each month.
The capital recovery component shall continue to be charged and collected until payment in full of (a)
the Unpaid Capital and/or (b) any shortfall in the payment of the Subsidy Receivables, (c) any
carrying cost accruing from the date hereof on the amounts which may be outstanding from time to
time of the Unpaid Capital and/or the Subsidy Receivables and (d) the capital increases
contemplated in paragraph 2 hereof. For the purpose of the foregoing clause (c), the ‘carrying cost’
shall be at such rate as will represent the full and reasonable cost to Planters of servicing its debts,
taking into account both its peso and foreign currency-denominated obligations.” (Records, pp. 42-
43)
Appellant’s proposition is open to question, to say the least. The LOU issued by then Prime Minister
Virata taken together with the Justice Secretary’s Opinion does not preponderantly demonstrate that the
collections made were held in trust in favor of millions of farmers. Unfortunately for appellant, in the
absence of sufficient evidence to establish its claims, this Court is constrained to rely on what is explicitly
provided in LOI 1465—that one of the500

primary aims in imposing the levy is to support the successful rehabilitation and continued viability of
PPI.” 18
PPI moved for reconsideration but its motion was denied. 19 It then filed the present petition
with this Court.
Issues
Petitioner PPI raises four issues for Our consideration, viz.:

I
THE CONSTITUTIONALITY OF LOI 1465 CANNOT BE COLLATERALLY ATTACKED AND BE
DECREED VIA A DEFAULT JUDGMENT IN A CASE FILED FOR COLLECTION AND DAMAGES
WHERE THE ISSUE OF CONSTITUTIONALITY IS NOT THE VERY LIS MOTA OF THE
CASE. NEITHER CAN LOI 1465 BE CHALLENGED BY ANY PERSON OR ENTITY WHICH HAS NO
STANDING TO DO SO.
II
LOI 1465, BEING A LAW IMPLEMENTED FOR THE PURPOSE OF ASSURING THE FERTILIZER
SUPPLY AND DISTRIBUTION IN THE COUNTRY, AND FOR BENEFITING A FOUNDATION
CREATED BY LAW TO HOLD IN TRUST FOR MILLIONS OF FARMERS THEIR STOCK
OWNERSHIP IN PPI CONSTITUTES A VALID LEGISLATION PURSUANT TO THE EXERCISE OF
TAXATION AND POLICE POWER FOR PUBLIC PURPOSES.
III
THE AMOUNT COLLECTED UNDER THE CAPITAL RECOVERY COMPONENT WAS REMITTED
TO THE GOVERNMENT, AND BECAME GOVERNMENT FUNDS PURSUANT TO AN EFFECTIVE
AND VALIDLY ENACTED LAW WHICH IMPOSED DUTIES AND CONFERRED RIGHTS BY VIRTUE
OF THE PRINCIPLE OF “OPERATIVE FACT” PRIOR TO ANY DECLARATION OF
UNCONSTITUTIONALITY OF LOI 1465.
_______________
18 Id., at pp. 55-58.

19 Id., at pp. 61-62.
501
VOL. 548, MARCH 14, 2008 501

IV
THE PRINCIPLE OF UNJUST VEXATION (SHOULD BE ENRICHMENT) FINDS NO APPLICATION
IN THE INSTANT CASE. (Italics supplied)
20
Our Ruling
We shall first tackle the procedural issues of locus standi and the jurisdiction of the RTC to
resolve constitutional issues.
Fertiphil has locus standi because
it suffered direct injury; doctrine
of standing is a mere procedural
technicality which may be waived.
PPI argues that Fertiphil has no locus standi to question the constitutionality of LOI No. 1465
because it does not have a “personal and substantial interest in the case or will sustain direct
injury as a result of its enforcement.” 21 It asserts that Fertiphil did not suffer any damage from the
CRC imposition because “incidence of the levy fell on the ultimate consumer or the farmers
themselves, not on the seller fertilizer company.”22
We cannot agree. The doctrine of locus standi or the right of appearance in a court of justice
has been adequately discussed by this Court in a catena of cases. Succinctly put, the doctrine
requires a litigant to have a material interest in the outcome of a case. In private suits, locus
standi requires a litigant to be a “real party in interest,” which is defined as “the party who stands
to be benefited or injured by the judg-
_______________
20 Id., at p. 15.
21 Id., at p. 21.
22 Id.
502
ment in the suit or the party entitled to the avails of the suit.”23
In public suits, this Court recognizes the difficulty of applying the doctrine especially when
plaintiff asserts a public right on behalf of the general public because of conflicting public policy
issues24 On one end, there is the right of the ordinary citizen to petition the courts to be freed
from unlawful government intrusion and illegal official action. At the other end, there is the
public policy precluding excessive judicial interference in official acts, which may unnecessarily
hinder the delivery of basic public services.
In this jurisdiction, We have adopted the “direct injury test” to determine locus standi in
public suits. In People v. Vera,25 it was held that a person who impugns the validity of a statute
must have “a personal and substantial interest in the case such that he has sustained, or will
sustain direct injury as a result.” The “direct injury test” in public suits is similar to the “real
party in interest” rule for private suits under Section 2, Rule 3 of the 1997 Rules of Civil
Procedure.26
Recognizing that a strict application of the “direct injury” test may hamper public interest,
this Court relaxed the requirement in cases of “transcendental importance” or with “far reaching
implications.” Being a mere procedural techni-
_______________
23 Rules of Civil Procedure (1997), Rule 3, Sec. 2 provides:

“A real party-in-interest is the party who stands to be benefited or injured by the judgment in the suit, or the party entitled
to the avails of the suit. Unless otherwise authorized by law of these Rules, every action must be prosecuted or defended in the
name of the real party-in-interest.”
24 David v. Macapagal-Arroyo, G.R. Nos. 171396, 171409, 171485, 171483, 171400, 171489 & 171424, May 3,
2006, 489 SCRA 160.
25 65 Phil. 56 (1937).
26 See note 23.
503
VOL. 548, MARCH 14, 2008 503
cality, it has also been held that locus standi may be waived in the public interest.27
Whether or not the complaint for collection is characterized as a private or public suit,
Fertiphil has locus standi to file it. Fertiphil suffered a direct injury from the enforcement of LOI
No. 1465. It was required, and it did pay, the P10 levy imposed for every bag of fertilizer sold on
the domestic market. It may be true that Fertiphil has passed some or all of the levy to the
ultimate consumer, but that does not disqualify it from attacking the constitutionality of the LOI
or from seeking a refund. As seller, it bore the ultimate burden of paying the levy. It faced the
possibility of severe sanctions for failure to pay the levy. The fact of payment is sufficient injury
to Fertiphil.
Moreover, Fertiphil suffered harm from the enforcement of the LOI because it was compelled
to factor in its product the levy. The levy certainly rendered the fertilizer products of Fertiphil
and other domestic sellers much more expensive. The harm to their business consists not only in
fewer clients because of the increased price, but also in adopting alternative corporate strategies
to meet the demands of LOI No. 1465. Fertiphil and other fertilizer sellers may have shouldered
all or part of the levy just to be competitive in the market. The harm occasioned on the business
of Fertiphil is sufficient injury for purposes of locus standi.
Even assuming arguendo that there is no direct injury, We find that the liberal policy
consistently adopted by this Court on locus standi must apply. The issues raised by Fertiphil are
of paramount public importance. It involves not only the constitutionality of a tax law but, more
importantly, the use of taxes for public purpose. Former President Marcos issued LOI No. 1465
with the intention of rehabilitating an ailing private company. This is clear from the text of the
LOI. PPI is expressly named in the LOI as the direct beneficiary of the levy.
_______________
27 See note 24.
504
Worse, the levy was made dependent and conditional upon PPI becoming financially viable. The
LOI provided that “the capital contribution shall be collected until adequate capital is raised to
make PPI viable.”
The constitutionality of the levy is already in doubt on a plain reading of the statute. It is Our
constitutional duty to squarely resolve the issue as the final arbiter of all justiciable
controversies. The doctrine of standing, being a mere procedural technicality, should be waived,
if at all, to adequately thresh out an important constitutional issue.
RTC may resolve constitutional is-
sues; the constitutional issue was
adequately raised in the complaint;
it is the lis mota of the case.
PPI insists that the RTC and the CA erred in ruling on the constitutionality of the LOI. It
asserts that the constitutionality of the LOI cannot be collaterally attacked in a complaint for
collection.28 Alternatively, the resolution of the constitutional issue is not necessary for a
determination of the complaint for collection.29
Fertiphil counters that the constitutionality of the LOI was adequately pleaded in its
complaint. It claims that the constitutionality of LOI No. 1465 is the very lis mota of the case
because the trial court cannot determine its claim without resolving the issue.30
It is settled that the RTC has jurisdiction to resolve the constitutionality of a statute,
presidential decree or an executive order. This is clear from Section 5, Article VIII of the 1987
Constitution, which provides:
_______________
28 Rollo, p. 17.
29 Id., at p. 18.
30 Id., at p. 290.
505
VOL. 548, MARCH 14, 2008 505
“SECTION 5. The Supreme Court shall have the following powers:
x x x x
(2) Review, revise, reverse, modify, or affirm on appeal or certiorari, as the law or the Rules of
Court may provide, final judgments and orders of lower courts in:
(a) All cases in which the constitutionality or validity of any treaty, international or executive
agreement, law, presidential decree, proclamation, order, instruction, ordinance, or regulation is in
question.” (Italics supplied)
In Mirasol v. Court of Appeals,31 this Court recognized the power of the RTC to resolve
constitutional issues, thus:
“On the first issue. It is settled that Regional Trial Courts have the authority and jurisdiction to
consider the constitutionality of a statute, presidential decree, or executive order. The Constitution vests
the power of judicial review or the power to declare a law, treaty, international or executive agreement,
presidential decree, order, instruction, ordinance, or regulation not only in this Court, but in all Regional
Trial Courts.”32
In the recent case of Equi-Asia Placement, Inc. v. Department of Foreign Affairs,33 this Court
reiterated:
“There is no denying that regular courts have jurisdiction over cases involving the validity or
constitutionality of a rule or regulation issued by administrative agencies. Such jurisdiction, however, is
not limited to the Court of Appeals or to this Court alone for even the regional trial courts can take
cognizance of actions assailing a specific rule or set of rules promulgated by administrative bodies.
Indeed, the Constitution vests the power of judicial review or the power to declare a law, treaty,
international or executive agreement,
_______________
31 G.R. No. 128448, February 1, 2001, 351 SCRA 44.

32 Mirasol v. Court of Appeals, id., at p. 51.
33 G.R. No. 152214, September 19, 2006, 502 SCRA 295.
506

presidential decree, order, instruction, ordinance, or regulation in the courts, including the regional trial
courts.”34
Judicial review of official acts on the ground of unconstitutionality may be sought or availed
of through any of the actions cognizable by courts of justice, not necessarily in a suit for
declaratory relief. Such review may be had in criminal actions, as in People v. Ferrer35 involving
the constitutionality of the now defunct Anti-Subversion law, or in ordinary actions, as
in Krivenko v. Register of Deeds36 involving the constitutionality of laws prohibiting aliens from
acquiring public lands. The constitutional issue, however, (a) must be properly raised and
presented in the case, and (b) its resolution is necessary to a determination of the case, i.e., the
issue of constitutionality must be the very lis mota presented.37
Contrary to PPI’s claim, the constitutionality of LOI No. 1465 was properly and adequately
raised in the complaint for collection filed with the RTC. The pertinent portions of the complaint
allege:
“6. The CRC of P10 per bag levied under LOI 1465 on domestic sales of all grades of fertilizer in
the Philippines, is unlawful, unjust, uncalled for, unreasonable, inequitable and oppressive because:
x x x x
(c) It favors only one private domestic corporation, i.e., defendant PPPI, and imposed at the expense
and disadvantage of the other fertilizer importers/distributors who were themselves in tight business
situation and were then exerting all efforts and maximizing management and marketing skills to remain
viable;
_______________
34 Equi-Asia Placement, Inc. v. Department of Foreign Affairs, id., at p. 309.

35 G.R. Nos. L-32613-14, December 27, 1972, 48 SCRA 382.
36 79 Phil. 461 (1947).
37 Tropical Homes, Inc. v. National Housing Authority, G.R. No. L-48672, July 31, 1987, 152 SCRA 540.
507
VOL. 548, MARCH 14, 2008 507

x x x x
(e) It was a glaring example of crony capitalism, a forced program through which the PPI,
having been presumptuously masqueraded as “the” fertilizer industry itself, was the sole and
anointed beneficiary;
7. The CRC was an unlawful; and unconstitutional special assessment and its imposition is
tantamount to illegal exaction amounting to a denial of due process since the persons of entities which
had to bear the burden of paying the CRC derived no benefit therefrom; that on the contrary it was used
by PPI in trying to regain its former despicable monopoly of the fertilizer industry to the detriment of
other distributors and importers.” (Italics supplied)
38
The constitutionality of LOI No. 1465 is also the very lis mota of the complaint for collection.
Fertiphil filed the complaint to compel PPI to refund the levies paid under the statute on the
ground that the law imposing the levy is unconstitutional. The thesis is that an unconstitutional
law is void. It has no legal effect. Being void, Fertiphil had no legal obligation to pay the levy.
Necessarily, all levies duly paid pursuant to an unconstitutional law should be refunded under the
civil code principle against unjust enrichment. The refund is a mere consequence of the law
being declared unconstitutional. The RTC surely cannot order PPI to refund Fertiphil if it does
not declare the LOI unconstitutional. It is the unconstitutionality of the LOI which triggers the
refund. The issue of constitutionality is the very lis mota of the complaint with the RTC.
The P10 levy under LOI No. 1465 is
an exercise of the power of taxation.
At any rate, the Court holds that the RTC and the CA did not err in ruling against the
constitutionality of the LOI.
PPI insists that LOI No. 1465 is a valid exercise either of the police power or the power of
taxation. It claims that the LOI was implemented for the purpose of assuring the fertil-
_______________
38 Rollo, pp. 197-198.
508
izer supply and distribution in the country and for benefiting a foundation created by law to hold
in trust for millions of farmers their stock ownership in PPI.
Fertiphil counters that the LOI is unconstitutional because it was enacted to give benefit to a
private company. The levy was imposed to pay the corporate debt of PPI. Fertiphil also argues
that, even if the LOI is enacted under the police power, it is still unconstitutional because it did
not promote the general welfare of the people or public interest.
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,39 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. 40 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,41 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.42
_______________
39 Edu v. Ericta, G.R. No. L-32096, October 24, 1970, 35 SCRA 481.
40 Lim v. Pacquing, G.R. Nos. 115044 & 117263, January 27, 1995, 240 SCRA 649.
41 Lutz v. Araneta, 98 Phil. 148 (1956).
42 Philippine Airlines, Inc. v. Edu, G.R. No. L-41383, August 15, 1988, 164 SCRA 320.
509
VOL. 548, MARCH 14, 2008 509
In Philippine Airlines, Inc. v. Edu,43 it was held that the imposition of a vehicle registration fee
is not an exercise by the State of its police power, but of its taxation power, thus:
“It is clear from the provisions of Section 73 of Commonwealth Act 123 and Section 61 of the Land
Transportation and Traffic Code that the legislative intent and purpose behind the law requiring owners of
vehicles to pay for their registration is mainly to raise funds for the construction and maintenance of
highways and to a much lesser degree, pay for the operating expenses of the administering
agency. x x x Fees may be properly regarded as taxes even though they also serve as an instrument of
regulation.
Taxation may be made the implement of the state’s police power (Lutz v. Araneta, 98 Phil. 148). If the
purpose is primarily revenue, or if revenue is, at least, one of the real and substantial purposes, then the
exaction is properly called a tax. Such is the case of motor vehicle registration fees. The same provision
appears as Section 59(b) in the Land Transportation Code. It is patent therefrom that the legislators had in
mind a regulatory tax as the law refers to the imposition on the registration, operation or ownership of a
motor vehicle as a “tax or fee.” x x x Simply put, if the exaction under Rep. Act 4136 were merely a
regulatory fee, the imposition in Rep. Act 5448 need not be an “additional” tax. Rep. Act 4136 also
speaks of other “fees” such as the special permit fees for certain types of motor vehicles (Sec. 10) and
additional fees for change of registration (Sec. 11). These are not to be understood as taxes because such
fees are very minimal to be revenue-raising. Thus, they are not mentioned by Sec. 59(b) of the Code as
taxes like the motor vehicle registration fee and chauffeurs’ license fee. Such fees are to go into the
expenditures of the Land Transportation Commission as provided for in the last proviso of Sec.
61.” (Italics supplied)
44
The P10 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
_______________
43 Supra.
44 Philippine Airlines, Inc. v. Edu, supra note 42, at pp. 327-329.
510
price of a bag of fertilizer by as much as five percent. 45 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 pur-
pose. The P10 levy is unconstitutional
because it was not for a public purpose.
The levy was imposed to give undue bene-
fit 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.46 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.”47
The term “public purpose” is not defined. It is an elastic concept that can be hammered to fit
modern standards. Jurisprudence states that “public purpose” should be given a broad
interpretation. It does not only pertain to those purposes which are traditionally viewed as
essentially government functions, such as building roads and delivery of basic
_______________
45 Rollo, p. 197.
46 Cruz, I., Constitutional Law, 1998 ed., p. 90.
47 Bernas, J., The 1987 Constitution of the Republic of the Philippines: A Commentary, 1996 ed., p. 714.
511
VOL. 548, MARCH 14, 2008 511
services, but also includes those purposes designed to promote social justice. Thus, public money
may now be used for the relocation of illegal settlers, low-cost housing and urban or agrarian
reform.
While the categories of what may constitute a public purpose are continually expanding in
light of the expansion of government functions, the inherent requirement that taxes can only be
exacted for a public purpose still stands. Public purpose is the heart of a tax law. When a tax law
is only a mask to exact funds from the public when its true intent is to give undue benefit and
advantage to a private enterprise, that law will not satisfy the requirement of “public purpose.”
The purpose of a law is evident from its text or inferable from other secondary sources. Here,
We agree with the RTC and that CA that the levy imposed under LOI No. 1465 was not for a
public purpose.
First, the LOI expressly provided that the levy be imposed to benefit PPI, a private company.
The purpose is explicit from Clause 3 of the law, thus:
“3. The Administrator of the Fertilizer Pesticide Authority to include in its fertilizer pricing formula
a capital contribution component of not less than P10 per bag. This capital contribution shall be
collected until adequate capital is raised to make PPI viable. Such capital contribution shall be applied by
FPA to all domestic sales of fertilizers in the Philippines.” (Italics supplied)
48
It is a basic rule of statutory construction that the text of a statute should be given a literal
meaning. In this case, the text of the LOI is plain that the levy was imposed in order to raise
capital for PPI. The framers of the LOI did not even hide the insidious purpose of the law. They
were cavalier enough to name PPI as the ultimate beneficiary of the taxes levied under the LOI.
We find it utterly repulsive that a tax law would expressly name a private company as the
ultimate
_______________
48 Rollo, p. 155.
512
beneficiary of the taxes to be levied from the public. This is a clear case of crony capitalism.
Second, the LOI provides that the imposition of the P10 levy was conditional and dependent
upon PPI becoming financially “viable.” This suggests that the levy was actually imposed to
benefit PPI. The LOI notably does not fix a maximum amount when PPI is deemed financially
“viable.” Worse, the liability of Fertiphil and other domestic sellers of fertilizer to pay the levy is
made indefinite. They are required to continuously pay the levy until adequate capital is raised
for PPI.
Third, the RTC and the CA held that the levies paid under the LOI were directly remitted and
deposited by FPA to Far East Bank and Trust Company, the depositary bank of PPI. 49 This
proves that PPI benefited from the LOI. It is also proves that the main purpose of the law was to
give undue benefit and advantage to PPI.
Fourth, the levy was used to pay the corporate debts of PPI. A reading of the Letter of
Understanding50 dated May 18, 1985 signed by then Prime Minister Cesar Virata reveals that PPI
was in deep financial problem because of its huge corporate debts. There were pending petitions
for rehabilitation against PPI before the Securities and Exchange Commission. The government
guaranteed payment of PPI’s debts to its foreign creditors. To fund the payment, President
Marcos issued LOI No. 1465. The pertinent portions of the letter of understanding read:

Republic of the Philippines
Office of the Prime Minister
Manila
LETTER OF UNDERTAKING
May 18, 1985
_______________
49 Id., at pp. 52, 75-76.

50 Id., at pp. 150-154.
513
VOL. 548, MARCH 14, 2008 513

TO : THE BANKING AND FINANCIAL INSTITUTIONS
LISTED IN ANNEX A HERETO WHICH ARE
CREDITORS (COLLECTIVELY, THE “CREDITORS”)
OF PLANTERS PRODUCTS, INC. (“PLANTERS”)
Gentlemen:
This has reference to Planters which is the principal importer and distributor of fertilizer,
pesticides and agricultural chemicals in the Philippines. As regards Planters, the Philippine
Government confirms its awareness of the following: (1) that Planters has outstanding
obligations in foreign currency and/or pesos, to the Creditors, (2) that Planters is currently
experiencing financial difficulties, and (3) that there are presently pending with the Securities
and Exchange Commission of the Philippines a petition filed at Planters’ own behest for the
suspension of payment of all its obligations, and a separate petition filed by Manufacturers
Hanover Trust Company, Manila Offshore Branch for the appointment of a rehabilitation
receiver for Planters.
In connection with the foregoing, the Republic of the Philippines (the “Republic”) confirms
that it considers and continues to consider Planters as a major fertilizer distributor. Accordingly,
for and in consideration of your expressed willingness to consider and participate in the effort to
rehabilitate Planters, the Republic hereby manifests its full and unqualified support of the
successful rehabilitation and continuing viability of Planters, and to that end, hereby binds and
obligates itself to the creditors and Planters, as follows:
x x x x
2. Upon the effective date of this Letter of Undertaking, the Republic shall cause FPA
to include in its fertilizer pricing formula a capital recovery component, the proceeds of which
will be used initially for the purpose of funding the unpaid portion of the outstanding capital
stock of Planters presently held in trust by Planters Foundation, Inc. (“Planters Foundation”),
which unpaid capital is estimated at approximately P206 million (subject to validation by
Planters and Planters Foundation) such unpaid portion of the outstanding capital stock of
Planters being hereafter referred to as the “Unpaid Capital”), and subsequently for such capital
increases as may be required for the continuing viability of Planters.
x x x x
514

The capital recovery component shall continue to be charged and collected until payment in
full of (a) the Unpaid Capital and/or (b) any shortfall in the payment of the Subsidy Receivables,
(c) any carrying cost accruing from the date hereof on the amounts which may be outstanding
from time to time of the Unpaid Capital and/or the Subsidy Receivables, and (d) the capital
increases contemplated in paragraph 2 hereof. For the purpose of the foregoing clause (c), the
“carrying cost” shall be at such rate as will represent the full and reasonable cost to Planters of
servicing its debts, taking into account both its peso and foreign currency-denominated
obligations.
REPUBLIC OF THE PHILIPPINES
By:
(signed)
CESAR E. A. VIRATA
Prime Minister and Minister of Finance51
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.
All told, the RTC and the CA did not err in holding that the levy imposed under LOI No.
1465 was not for a public purpose. LOI No. 1465 failed to comply with the public purpose
requirement for tax laws.
The LOI is still unconstitutional even
if enacted under the police power; it
did not promote public interest.
Even if We consider LOI No. 1695 enacted under the police power of the State, it would still
be invalid for failing to comply with the test of “lawful subjects” and “lawful means.”
Jurisprudence states the test as follows: (1) the interest of the
_______________
51 Id.
515
VOL. 548, MARCH 14, 2008 515
public generally, as distinguished from those of particular class, requires its exercise; and (2) the
means employed are reasonably necessary for the accomplishment of the purpose and not unduly
oppressive upon individuals.52
For the same reasons as discussed, LOI No. 1695 is invalid because it did not promote public
interest. The law was enacted to give undue advantage to a private corporation. We quote with
approval the CA ratiocination on this point, thus:
“It is upon applying this established tests that We sustain the trial court’s holding LOI 1465
unconstitutional. To be sure, ensuring the continued supply and distribution of fertilizer in the country is
an undertaking imbued with public interest. However, the method by which LOI 1465 sought to achieve
this is by no means a measure that will promote the public welfare. The government’s commitment to
support the successful rehabilitation and continued viability of PPI, a private corporation, is an
unmistakable attempt to mask the subject statute’s impartiality. There is no way to treat the self-interest
of a favored entity, like PPI, as identical with the general interest of the country’s farmers or even the
Filipino people in general. Well to stress, substantive due process exacts fairness and equal protection
disallows distinction where none is needed. When a statute’s public purpose is spoiled by private interest,
the use of police power becomes a travesty which must be struck down for being an arbitrary exercise of
government power. To rule in favor of appellant would contravene the general principle that revenues
derived from taxes cannot be used for purely private purposes or for the exclusive benefit of private
individuals.” (Italics supplied)
The general rule is that an unconsti-

tutional law is void; the doctrine of
operative fact is inapplicable.
PPI also argues that Fertiphil cannot seek a refund even if LOI No. 1465 is declared
unconstitu-
_______________
52 Id., at pp. 55-58.
516
tional. It banks on the doctrine of operative fact, which provides that an unconstitutional law has
an effect before being declared unconstitutional. PPI wants to retain the levies paid under LOI
No. 1465 even if it is subsequently declared to be unconstitutional.
We cannot agree. It is settled that no question, issue or argument will be entertained on
appeal, unless it has been raised in the court a quo.53 PPI did not raise the applicability of the
doctrine of operative fact with the RTC and the CA. It cannot belatedly raise the issue with Us in
order to extricate itself from the dire effects of an unconstitutional law.
At any rate, We find the doctrine inapplicable. The general rule is that an unconstitutional law
is void. It produces no rights, imposes no duties and affords no protection. It has no legal effect.
It is, in legal contemplation, inoperative as if it has not been passed. 54 Being void, Fertiphil is not
required to pay the levy. All levies paid should be refunded in accordance with the general civil
code principle against unjust enrichment. The general rule is supported by Article 7 of the Civil
Code, which provides:
“ART. 7. Laws are repealed only by subsequent ones, and their violation or non-observance shall
not be excused by disuse or custom or practice to the contrary.
When the courts declare a law to be inconsistent with the Constitution, the former shall be void and
the latter shall govern.”
The doctrine of operative fact, as an exception to the general rule, only applies as a matter of
equity and fair play.55 It nullifies the effects of an unconstitutional law by recognizing that the
existence of a statute prior to a determination of unconstitutionality is an operative fact and may
have conse-
_______________
53 Cojuangco, Jr. v. Court of Appeals, G.R. No. 119398, July 2, 1999, 309 SCRA 602, 614-615.
54 See note 46, at pp. 33-34.
55 Republic v. Court of Appeals, G.R. No. 79732, November 8, 1993, 227 SCRA 509.
517
VOL. 548, MARCH 14, 2008 517
quences which cannot always be ignored. The past cannot always be erased by a new judicial
declaration.56
The doctrine is applicable when a declaration of unconstitutionality will impose an undue
burden on those who have relied on the invalid law. Thus, it was applied to a criminal case when
a declaration of unconstitutionality would put the accused in double jeopardy 57 or would put in
limbo the acts done by a municipality in reliance upon a law creating it.58
Here, We do not find anything iniquitous in ordering PPI to refund the amounts paid by
Fertiphil under LOI No. 1465. It unduly benefited from the levy. It was proven during the trial
that the levies paid were remitted and deposited to its bank account. Quite the reverse, it would
be inequitable and unjust not to order a refund. To do so would unjustly enrich PPI at the
expense of Fertiphil. Article 22 of the Civil Code explicitly provides that “every person who,
through an act of performance by another comes into possession of something at the expense of
the latter without just or legal ground shall return the same to him.” We cannot allow PPI to
profit from an unconstitutional law. Justice and equity dictate that PPI must refund the amounts
paid by Fertiphil.
WHEREFORE, the petition is DENIED. The Court of Appeals Decision dated November 28,
2003 is AFFIRMED.
SO ORDERED.
Ynares-Santiago (Chairperson), Austria-Martinez, Chico-Nazario and Nachura,
JJ., concur.
Petition denied, judgment affirmed.

_______________
56 Peralta v. Civil Service Commission, G.R. No. 95832, August 10, 1992, 212 SCRA 425.
57 Tan v. Barrios, G.R. Nos. 85481-82, October 18, 1990, 190 SCRA 686, citing Aquino, Jr. v. Military Commission
No. 2, G.R. No. L-37364, May 9, 1975, 63 SCRA 546.
58 Id., citing Municipality of Malabang v. Benito, G.R. No. L-28113, March 28, 1969, 27 SCRA 533.
518
Notes.—Only the Court en banc has the power to declare a law unconstitutional. (Lim vs.
Pacquing, 240 SCRA 649 [1995])
The Court shudders at the thought of upholding tax liability on the basis of the standard of
“full appreciative living values,” a phrase that defies statutory explication, commonsensical
meaning, the English language, or even definition from Google. The exercise of the power of
taxation constitutes a deprivation of property under the due process clause, and the taxpayer’s
right to due process is violated when arbitrary or oppressive methods are used in assessing and
collecting taxes. (Yamane vs. BA Lepanto Condominium Corporation, 474 SCRA 278 [2005])
——o0o——
c. Taxation is territorial
G.R. Nos. 141104 & 148763. June 8, 2007. X *

ATLAS CONSOLIDATED MINING AND DEVELOPMENT
CORPORATION, petitioner, vs. COMMISSIONER OF
INTERNAL REVENUE, respondent.
Taxation; Value-Added Tax; Tax Credit; Tax Refund; Prescription; The two-year prescriptive period for
filing the application for refund/credit of input Value-Added Tax (VAT) on zero-rated sales shall be
determined from the close of the quarter when such sales were made.—The prescriptive period for filing
an application for tax refund/credit of input VAT on zero-rated sales made in 1990 and 1992 was
governed by Section 106(b) and (c) of the Tax Code of 1977, as amended, which provided that—SEC.
106. Refunds or tax credits of input tax.—x x x. (b) Zero-rated or effectively zero-rated sales.—Any
person, except those covered by paragraph (a) above, whose sales are zero-rated may, within two years
after the close of the quarter when such sales were made, apply for the issuance of a tax credit certificate
or refund of the input taxes attributable to such sales to the extent that such input tax has not been applied
against output tax. x x x x (e) Period within which refund of input taxes may be made by the
Commissioner.—The Commissioner shall refund input taxes within 60 days from the date the application
for refund was filed with him or his duly authorized representative. No refund of input taxes shall be
allowed unless the VAT-registered person files an application for refund within the period prescribed in
paragraphs (a), (b) and (c) as the case may be. By a plain reading of the foregoing provision, the two-year
prescriptive period for filing the application for refund/credit of input VAT on zero-rated sales shall be
determined from the close of the quarter when such sales were made.
Same; Same; Same; Same; Same; Unlike corporate income tax, which is reported and paid on

installment every quarter, but is eventually subjected to a final adjustment at the end of the taxable year,
Value-Added Tax (VAT) is computed and paid on a purely quarterly basis without need for a final
adjustment at the end of the taxable year; Even in the absence of a final adjustment return, the
determina-
_______________
*
THIRD DIVISION.
74
74
SUPREME COURT REPORTS ANNOTATED

Atlas Consolidated Mining and Development Corporation vs. Commissioner of Internal
Revenue
tion of any output VAT payable necessarily requires that the VAT-registered taxpayer make adjustments
in its VAT return every quarter, taking into consideration the input VAT which are creditable for the
present quarter or had been carried over from the previous quarters.—It is true that unlike corporate
income tax, which is reported and paid on installment every quarter, but is eventually subjected to a final
adjustment at the end of the taxable year, VAT is computed and paid on a purely quarterly basis without
need for a final adjustment at the end of the taxable year. However, it is also equally true that until and
unless the VAT-registered taxpayer prepares and submits to the BIR its quarterly VAT return, there is no
way of knowing with certainty just how much input VAT the taxpayer may apply against its output VAT;
how much output VAT it is due to pay for the quarter or how much excess input VAT it may carry-over
to the following quarter; or how much of its input VAT it may claim as refund/credit. It should be
recalled that not only may a VAT-registered taxpayer directly apply against his output VAT due the input
VAT it had paid on its importation or local purchases of goods and services during the quarter; the
taxpayer is also given the option to either (1) carry over any excess input VAT to the succeeding quarters
for application against its future output VAT liabilities, or (2) file an application for refund or issuance of
a tax credit certificate covering the amount of such input VAT. Hence, even in the absence of a final
adjustment return, the determination of any output VAT payable necessarily requires that the VAT-
registered taxpayer make adjustments in its VAT return every quarter, taking into consideration the input
VAT which are creditable for the present quarter or had been carried over from the previous quarters.
Same; Same; Same; Same; Same; It is more practical and reasonable to count the two-year prescriptive

period for filing a claim for refund/credit of input Value-Added Tax (VAT) on zero-rated sales from the
date of filing of the return and payment of the tax due which, according to the law then existing, should
be made within 20 days from the end of each quarter.—When claiming refund/credit, the VAT-registered
taxpayer must be able to establish that it does have refundable or creditable input VAT, and the same has
not been applied against its output VAT liabilities—information which are supposed to be reflected in the
taxpayer’s VAT returns. Thus, an application for refund/credit must be accompanied by copies of the
taxpayer’s VAT return/s for the taxable quarter/s concerned. Lastly,
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although the taxpayer’s refundable or creditable input VAT may not be considered as illegally or
erroneously collected, its refund/credit is a privilege extended to qualified and registered taxpayers by the
very VAT system adopted by the Legislature. Such input VAT, the same as any illegally or erroneously
collected national internal revenue tax, consists of monetary amounts which are currently in the hands of
the government but must rightfully be returned to the taxpayer. Therefore, whether claiming refund/credit
of illegally or erroneously collected national internal revenue tax, or input VAT, the taxpayer must be
given equal opportunity for filing and pursuing its claim. For the foregoing reasons, it is more practical
and reasonable to count the two-year prescriptive period for filing a claim for refund/credit of input VAT
on zero-rated sales from the date of filing of the return and payment of the tax due which, according to the
law then existing, should be made within 20 days from the end of each quarter.
Same; Same; Same; Same; Same; Section 106(e) of the Tax Code of 1977, as amended, explicitly

provided that no refund of input Value-Added Tax (VAT) shall be allowed unless the VAT-registered
taxpayer filed an application for refund with respondent Commissioner within the two-year prescriptive
period.—Even though it may seem that petitioner corporation filed in time its judicial claim with the
CTA, there is no showing that it had previously filed an administrative claim with the BIR. Section 106(e)
of the Tax Code of 1977, as amended, explicitly provided that no refund of input VAT shall be allowed
unless the VAT-registered taxpayer filed an application for refund with respondent Commissioner within
the two-year prescriptive period. The application of petitioner corporation for refund/credit of its input
VAT for the first quarter of 1992 was not only unsigned by its supposed authorized representative, Ma.
Paz R. Semilla, Manager-Finance and Treasury, but it was not dated, stamped, and initialed by the BIR
official who purportedly received the same.
Same; Same; Same; Same; A zero-rated sale is still considered a taxable transaction for VAT purposes,
although the Value-Added Tax (VAT) rate applied is 0%—a sale by a VAT-registered taxpayer of goods
and/or services taxed at 0% shall not result in any output VAT, while the input VAT on its purchases of
goods or services related to such zero-rated sale shall be available as tax credit or refund.—
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Under Section 100(a) of the Tax Code of 1977, as amended, a 10% VAT was imposed on the gross
selling price or gross value in money of goods sold, bartered or exchanged. Yet, the same provision
subjected the following sales made by VAT-registered persons to 0% VAT—(1) Export sales; and (2)
Sales to persons or entities whose exemption under special laws or international agreements to which the
Philippines is a signatory effectively subjects such sales to zerorate. “Export Sales” means the sale and
shipment or exportation of goods from the Philippines to a foreign country, irrespective of any shipping
arrangement that may be agreed upon which may influence or determine the transfer of ownership of the
goods so exported, or foreign currency denominated sales. “Foreign currency denominated sales,” means
sales to nonresidents of goods assembled or manufactured in the Philippines, for delivery to residents in
the Philippines and paid for in convertible foreign currency remitted through the banking system in the
Philippines. These are termed zero-rated sales. A zero-rated sale is still considered a taxable transaction
for VAT purposes, although the VAT rate applied is 0%. A sale by a VAT-registered taxpayer of goods
and/or services taxed at 0% shall not result in any output VAT, while the input VAT on its purchases of
goods or services related to such zero-rated sale shall be available as tax credit or refund.
Same; Same; Same; Same; Export Processing Zones; Although sales to export-oriented Board of
Investments (BOI)-registered enterprises and sales to Export Processing Zone Authority (EPZA)-
registered enterprises located within export processing zones were both deemed export sales, which,
under Section 100(a) of the Tax Code of 1977, as amended, shall be subject to 0% VAT distinction must
be made between these two types of sales because each may have different substantiation requirements.—
Section 2 of Revenue Regulations No. 2-88, should not have been applied to the zero-rating of the sales
made by petitioner corporation to PASAR and PHILPHOS. At the onset, it must be emphasized that
PASAR and PHILPHOS, in addition to being registered with the BOI, were also registered with the
EPZA and located within an export-processing zone. Petitioner corporation does not claim that its sales to
PASAR and PHILPHOS are zero-rated on the basis that said sales were made to exportoriented BOI-
registered corporations, but rather, on the basis that the sales were made to EPZA-registered enterprises
operating within export processing zones. Although sales to export-oriented
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BOI-registered enterprises and sales to EPZA-registered enterprises located within export processing
zones were both deemed export sales, which, under Section 100(a) of the Tax Code of 1977, as amended,
shall be subject to 0% VAT distinction must be made between these two types of sales because each may
have different substantiation requirements.
Same; Same; Same; Same; Same; Merchandise purchased by a registered zone enterprise from the

customs territory and subsequently brought into the zone, shall be considered as export sales and the
exporter thereof shall be entitled to the benefits allowed by law for such transaction.—Without actual
exportation, Article 23 of the Omnibus Investments Code of 1987 also considers constructive exportation
as export sales. Among other types of constructive exportation specifically identified by the said
provision are sales to export processing zones. Sales to export processing zones are subjected to special
tax treatment. Article 77 of the same Code establishes the tax treatment of goods or merchandise brought
into the export processing zones. Of particular relevance herein is paragraph 2, which provides that
“Merchandise purchased by a registered zone enterprise from the customs territory and subsequently
brought into the zone, shall be considered as export sales and the exporter thereof shall be entitled to the
benefits allowed by law for such transaction.”
Same; Same; Same; Same; Same; Words and Phrases; According to the Destination Principle, goods

and services are taxed only in the country where these are consumed, and in connection with the said
principle, the Cross Border Doctrine mandates that no VAT shall be imposed to form part of the cost of
the goods destined for consumption outside the territorial border of the taxing authority; Sales to
enterprises operating within the export processing zones are export sales, which, under the Tax Code of
1977, as amended, were subject to 0% VAT.—Such tax treatment of goods brought into the export
processing zones are only consistent with the Destination Principle and Cross Border Doctrine to which
the Philippine VAT system adheres. According to the Destination Principle, goods and services are taxed
only in the country where these are consumed. In connection with the said principle, the Cross Border
Doctrine mandates that no VAT shall be imposed to form part of the cost of the goods destined for
consumption outside the territorial border of the taxing authority. Hence, actual export of goods and
services from the
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Philippines to a foreign country must be free of VAT, while those destined for use or consumption within
the Philippines shall be imposed with 10% VAT. Export processing zones are to be managed as a separate
customs territory from the rest of the Philippines and, thus, for tax purposes, are effectively considered as
foreign territory. For this reason, sales by persons from the Philippine customs territory to those inside the
export processing zones are already taxed as exports. Plainly, sales to enterprises operating within the
export processing zones are export sales, which, under the Tax Code of 1977, as amended, were subject to
0% VAT. It is on this ground that petitioner corporation is claiming refund/credit of the input VAT on its
zero-rated sales to PASAR and PHILPHOS.
Same; Same; Same; Same; Burden of Proof; The taxpayerclaimant has the burden of proving the legal

and factual bases of its claim for tax credit or refund, but once it has submitted all the required
documents, it is the function of the BIR to assess these documents with purposeful dispatch.—There can
be no dispute that the taxpayer-claimant has the burden of proving the legal and factual bases of its claim
for tax credit or refund, but once it has submitted all the required documents, it is the function of the BIR
to assess these documents with purposeful dispatch. It therefore falls upon herein petitioner corporation to
first establish that its sales qualify for VAT zero-rating under the existing laws (legal basis), and then to
present sufficient evidence that said sales were actually made and resulted in refundable or creditable
input VAT in the amount being claimed (factual basis).
Same; Same; Same; Same; Same; Applications for refund/credit of input VAT with the BIR must comply
with the appropriate revenue regulations.—Applications for refund/credit of input VAT with the BIR
must comply with the appropriate revenue regulations. As this Court has already ruled, Revenue
Regulations No. 2-88 is not relevant to the applications for refund/credit of input VAT filed by petitioner
corporation; nonetheless, the said applications must have been in accordance with Revenue Regulations
No. 3-88, amending Section 16 of Revenue Regulations No. 5-87, which provided as follows—x x x In
case the application for refund/credit of input VAT was denied or remained unacted upon by the BIR, and
before the lapse of the two-year prescriptive period, the taxpayer-applicant may already file a Petition for
Review before the CTA. If the taxpayer’s
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claim is supported by voluminous documents, such as receipts, invoices, vouchers or long accounts, their
presentation before the CTA shall be governed by CTA Circular No. 1-95, as amended, reproduced in full
below—In the interest of speedy administration of justice, the Court hereby promulgates the following
rules governing the presentation of voluminous documents and/or long accounts, such as receipts,
invoices and vouchers, as evidence to establish certain facts pursuant to Section 3(c), Rule 130 of the
Rules of Court and the doctrine enunciated in Compania Maritima vs. Allied Free Workers Union (77
SCRA 24), as well as Section 8 of Republic Act No. 1125:1. The party who desires to introduce as
evidence such voluminous documents must, after motion and approval by the Court, present: (a) a
Summary containing, among others, a chronological listing of the numbers, dates and amounts covered by
the invoices or receipts and the amount/s of tax paid; and (b) a Certification of an independent Certified
Public Accountant attesting to the correctness of the contents of the summary after making an
examination, evaluation and audit of the voluminous receipts and invoices. The name of the accountant or
partner of the firm in charge must be stated in the motion so that he/she can be commissioned by the
Court to conduct the audit and, thereafter, testify in Court relative to such summary and certification
pursuant to Rule 32 of the Rules of Court. 2. The method of individual presentation of each and every
receipt, invoice or account for marking, identification and comparison with the originals thereof need not
be done before the Court or Clerk of Court anymore after the introduction of the summary and CPA
certification. It is enough that the receipts, invoices, vouchers or other documents covering the said
accounts or payments to be introduced in evidence must be pre-marked by the party concerned and
submitted to the Court in order to be made accessible to the adverse party who desires to check and verify
the correctness of the summary and CPA certification. Likewise, the originals of the voluminous receipts,
invoices or accounts must be ready for verification and comparison in case doubt on the authenticity
thereof is raised during the hearing or resolution of the formal offer of evidence.
Same; Same; Same; Same; Questions of Law and Questions of Fact; Words and Phrases; There is a

question of law in a given case when the doubt or difference arises as to what the law is on a certain state
of facts, and there is a question of fact when the doubt or difference arises as to the truth or falsehood of
alleged facts.—The distinc-
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tion between a question of law and a question of fact is clear-cut. It has been held that “[t]here is a
question of law in a given case when the doubt or difference arises as to what the law is on a certain state
of facts; there is a question of fact when the doubt or difference arises as to the truth or falsehood of
alleged facts.” Whether petitioner corporation actually made zero-rated sales; whether it paid input VAT
on these sales in the amount it had declared in its returns; whether all the input VAT subject of its
applications for refund/credit can be attributed to its zero-rated sales; and whether it had not previously
applied the input VAT against its output VAT liabilities, are all questions of fact which could only be
answered after reviewing, examining, evaluating, or weighing the probative value of the evidence it
presented, and which this Court does not have the jurisdiction to do in the present Petitions for Review
on Certiorari under Rule 45 of the revised Rules of Court.
Actions; Pleadings and Practice; New Trial; Affidavits of Merit; The facts which should otherwise be set
forth in a separate affidavit of merit may, with equal effect, be alleged and incorporated in the motion
itself, and this will be deemed a substantial compliance with the formal requirements of the law,
provided, of course, that the movant, or other individual with personal knowledge of the facts, take oath
as to the truth thereof, in effect converting the entire motion for new trial into an affidavit; Where the
ground for the motion was premised on said counsel’s excusable negligence or mistake, then the obvious
conclusion is that such counsel who prepared and verified the motion for re-opening or new trial had
personal knowledge of the facts relating to such negligence or mistake.—On the matter of the denial of
the motion of the petitioner corporation for the re-opening of its cases and/or holding of new trial based
on the technicality that said motion was unaccompanied by an affidavit of merit, this Court rules in favor
of the petitioner corporation. The facts which should otherwise be set forth in a separate affidavit of merit
may, with equal effect, be alleged and incorporated in the motion itself; and this will be deemed a
substantial compliance with the formal requirements of the law, provided, of course, that the movant, or
other individual with personal knowledge of the facts, take oath as to the truth thereof, in effect
converting the entire motion for new trial into an affidavit. The motion of petitioner corporation was
prepared and verified by its counsel, and since the ground for the motion was premised on said counsel’s
excusable negligence or mistake, then the
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obvious conclusion is that he had personal knowledge of the facts relating to such negligence or mistake.
Hence, it can be said that the motion of petitioner corporation for the re-opening of its cases and/or
holding of new trial was in substantial compliance with the formal requirements of the revised Rules of
Court.
Court of Tax Appeals; The rule that the grant or denial of motions for new trial rests on the discretion of
the trial court, may likewise be extended to the CTA.—In G.R. No. 141104, petitioner corporation invokes
the Resolution, dated 20 July 1998, by the CTA in another case, CTA Case No. 5296, involving the claim
of petitioner corporation for refund/credit of input VAT for the third quarter of 1993. The said Resolution
allowed the re-opening of CTA Case No. 5296, earlier dismissed by the CTA, to give the petitioner
corporation the opportunity to present the missing export documents. The rule that the grant or denial of
motions for new trial rests on the discretion of the trial court, may likewise be extended to the CTA.
When the denial of the motion rests upon the discretion of a lower court, this Court will not interfere with
its exercise, unless there is proof of grave abuse thereof. That the CTA granted the motion for re-opening
of one case for the presentation of additional evidence and, yet, deny a similar motion in another case
filed by the same party, does not necessarily demonstrate grave abuse of discretion or arbitrariness on the
part of the CTA. Although the cases involve identical parties, the causes of action and the evidence to
support the same can very well be different.
Same; Attorneys; Under Section 1, Rule 37 of the Revised Rules of Court, the “negligence” must be
excusable and generally imputable to the party because if it is imputable to the counsel, it is binding on
the client.—Assuming for the sake of argument that the nonpresentation of the required documents was
due to the fault of the counsel of petitioner corporation, this Court finds that it does not constitute
excusable negligence or mistake which would warrant the re-opening of the cases and/or holding of new
trial. Under Section 1, Rule 37 of the Revised Rules of Court, the “negligence” must be excusable and
generally imputable to the party because if it is imputable to the counsel, it is binding on the client. To
follow a contrary rule and allow a party to disown his counsel’s conduct would render proceedings
indefinite, tentative, and subject to re-opening by the mere subterfuge of replacing the counsel. What the
aggrieved
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litigant should do is seek administrative sanctions against the erring counsel and not ask for the reversal
of the court’s ruling.
Same; Same; Blunders and mistakes made in the conduct of the proceedings in the trial court as a result
of the ignorance, inexperience or incompetence of counsel do not qualify as a ground for new trial.—As
elucidated by this Court in another case, the general rule is that the client is bound by the action of his
counsel in the conduct of his case and he cannot therefore complain that the result of the litigation might
have been otherwise had his counsel proceeded differently. It has been held time and again that blunders
and mistakes made in the conduct of the proceedings in the trial court as a result of the ignorance,
inexperience or incompetence of counsel do not qualify as a ground for new trial. If such were to be
admitted as valid reasons for re-opening cases, there would never be an end to litigation so long as a new
counsel could be employed to allege and show that the prior counsel had not been sufficiently diligent,
experienced or learned.
Words and Phrases; Negligence, to be “excusable,” must be one which ordinary diligence and prudence
could not have guarded against—a judgment call made by the counsel as to which evidence to present in
support of his client’s cause, which later proved to be unwise, is not necessarily negligent.—Negligence,
to be “excusable,” must be one which ordinary diligence and prudence could not have guarded against.
Revenue Regulations No. 3-88, which was issued on 15 February 1988, had been in effect more than two
years prior to the filing by petitioner corporation of its earliest application for refund/credit of input VAT
involved herein on 21 August 1990. CTA Circular No. 1-95 was issued only on 25 January 1995, after
petitioner corporation had filed its Petitions before the CTA, but still during the pendency of the cases of
petitioner corporation before the tax court. The counsel of petitioner corporation does not allege
ignorance of the foregoing administrative regulation and tax court circular, only that he no longer deemed
it necessary to present the documents required therein because of the presentation of alleged unrebutted
evidence of the zero-rated sales of petitioner corporation. It was a judgment call made by the counsel as to
which evidence to present in support of his client’s cause, later proved to be unwise, but not necessarily
negligent.
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Same; “Mistake,” as it is referred to in Section 1, Rule 37, must be a mistake of fact, not of law, which
relates to the case.—Neither is there any merit in the contention of petitioner corporation that the non-
presentation of the required documentary evidence was due to the excusable mistake of its counsel, a
ground under Section 1, Rule 37 of the revised Rules of Court for the grant of a new trial. “Mistake,” as it
is referred to in the said rule, must be a mistake of fact, not of law, which relates to the case. In the
present case, the supposed mistake made by the counsel of petitioner corporation is one of law, for it was
grounded on his interpretation and evaluation that Revenue Regulations No. 3-88 and CTA Circular No.
1-95, as amended, did not apply to his client’s cases and that there was no need to comply with the
documentary requirements set forth therein. And although the counsel of petitioner corporation advocated
an erroneous legal position, the effects thereof, which did not amount to a deprivation of his client’s right
to be heard, must bind petitioner corporation. The question is not whether petitioner corporation
succeeded in establishing its interests, but whether it had the opportunity to present its side.
Litigation is a not a “trial and error” proceeding—a party who moves for a new trial on the ground of
mistake must show that ordinary prudence could not have guarded against it; A new trial is not a refuge
for the obstinate.—Litigation is a not a “trial and error” proceeding. A party who moves for a new trial on
the ground of mistake must show that ordinary prudence could not have guarded against it. A new trial is
not a refuge for the obstinate. Ordinary prudence in these cases would have dictated the presentation of all
available evidence that would have supported the claims for refund/credit of input VAT of petitioner
corporation. Without sound legal basis, counsel for petitioner corporation concluded that Revenue
Regulations No. 3-88, and later on, CTA Circular No. 1-95, as amended, did not apply to its client’s
claims. The obstinacy of petitioner corporation and its counsel is demonstrated in their failure, nay,
refusal, to comply with the appropriate administrative regulations and tax court circular in pursuing the
claims for refund/credit, now subject of G.R. Nos. 141104 and 148763, even though these were separately
instituted in a span of more than two years. It is also evident in the failure of petitioner corporation to
address the issue and to present additional evidence despite being given the opportunity to do so by the
Court of Appeals.
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PETITIONS for review on certiorari of the decisions of the Court of Appeals.

Siguion Reyna, Montecillo and Ongsiako for petitioner.
The Solicitor General for respondent.
CHICO-NAZARIO, J.:
Before this Court are the consolidated cases involving the unsuccessful claims of herein petitioner Atlas
Consolidated Mining and Development Corporation (petitioner corporation) for the refund/credit of the
input Value Added Tax (VAT) on its purchases of capital goods and on its zero-rated sales in the taxable
quarters of the years 1990 and 1992, the denial of which by the Court of Tax Appeals (CTA), was
affirmed by the Court of Appeals.
Petitioner corporation is engaged in the business of mining, production, and sale of various mineral
products, such as gold, pyrite, and copper concentrates. It is a VAT-registered taxpayer. It was initially
issued VAT Registration No. 32-A-6-002224, dated 1 January 1988, but it had to register anew with the
appropriate revenue district office (RDO) of the Bureau of Internal Revenue (BIR) when it moved its
principal place of business, and it was re-issued VAT Registration No. 32-0-004622, dated 15 August
1990. X
1
G.R. No. 141104

Petitioner corporation filed with the BIR its VAT Return for the first quarter of 1992. It alleged that it
2
likewise filed with the BIR the corresponding application for the re-X
_______________
See Atlas Consolidated Mining and Development Corporation v. Commissioner of Internal Revenue, 376 Phil. 495,
1
508; 318 SCRA 386, 399 (1999).
2
Records (G.R. No. 141104), p. 4.
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fund/credit of its input VAT on its purchases of capital goods and on its zero-rated sales in the amount of
P26,030,460.00. When its application for refund/credit remained unresolved by the BIR, petitioner
3
corporation filed on 20 April 1994 its Petition for Review with the CTA, docketed as CTA Case No.
5102. Asserting that it was a “zero-rated VAT person,” it prayed that the CTA order herein respondent
Commissioner of Internal Revenue (respondent Commissioner) to refund/credit petitioner corporation
with the amount of P26,030,460.00, representing the input VAT it had paid for the first quarter of 1992.
The respondent Commissioner opposed and sought the dismissal of the petition for review of petitioner
corporation for failure to state a cause of action. After due trial, the CTA promulgated its Decision on 244
November 1997 with the following disposition—X
“WHEREFORE, in view of the foregoing, the instant claim for refund is hereby DENIED on the ground
of prescription, insufficiency of evidence and failure to comply with Section 230 of the Tax Code, as
amended. Accordingly, the petition at bar is hereby DISMISSED for lack of merit.”
The CTA denied the motion for reconsideration of petitioner corporation in a Resolution dated 15 April
5
1998.X
When the case was elevated to the Court of Appeals as CA-G.R. SP No. 47607, the appellate court, in its
Decision, datedX
6
_______________
3
Id., at p. 5.
Penned by Presiding Judge Ernesto D. Acosta with Associate Judges Ramon O. De Veyra and Amancio Q. Saga,
4
concurring; Rollo (G.R. No. 141104), pp. 67-86.
5
concurring; id., at pp. 88-92.
6
Penned by Associate Justice Artemon D. Luna with Associate Justices Conchita Carpio-Morales (now an Associate
Justice of the Supreme Court) and Bernardo P. Abesamis, concurring; id., at pp. 32-42.
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6 July 1999, dismissed the appeal of petitioner corporation, finding no reversible error in the CTA
Decision, dated 24 November 1997. The subsequent motion for reconsideration of petitioner corporation
was also denied by the Court of Appeals in its Resolution, dated 14 December 1999.X
7
Thus, petitioner corporation comes before this Court, via a Petition for Review on Certiorari under Rule
45 of the Revised Rules of Court, assigning the following errors committed by the Court of Appeals—
THE COURT OF APPEALS ERRED IN AFFIRMING THE REQUIREMENT OF REVENUE

REGULATIONS NO. 2-88 THAT AT LEAST 70% OF THE SALES OF THE [BOARD OF
INVESTMENTS (BOI)]-REGISTERED FIRM MUST CONSIST OF EXPORTS FOR ZERO-RATING
TO APPLY.
II
THE COURT OF APPEALS ERRED IN AFFIRMING THAT PETITIONER FAILED TO SUBMIT

SUFFICIENT EVIDENCE SINCE FAILURE TO SUBMIT PHOTOCOPIES OF VAT INVOICES AND
RECEIPTS IS NOT A FATAL DEFECT.
III
THE COURT OF APPEALS ERRED IN RULING THAT THE JUDICIAL CLAIM WAS FILED
BEYOND THE PRESCRIPTIVE PERIOD SINCE THE JUDICIAL CLAIM WAS FILED WITHIN
TWO (2) YEARS FROM THE FILING OF THE VAT RETURN.
IV
THE COURT OF APPEALS ERRED IN NOT ORDERING CTA TO ALLOW THE RE-OPENING OF
THE CASE FOR PETITIONER TO PRESENT ADDITIONAL EVIDENCE. X 8
_______________
7
Penned by Associate Justice Bernardo P. Abesamis with Associate Justices Conchita Carpio-Morales (now an Associate
Justice of the Supreme Court) and Bernardo Ll. Salas, concurring; id., at pp. 44-45.
8
Rollo (G.R. No. 141104), pp. 14-23.
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G.R. No. 148763 involves almost the same set of facts as in G.R. No. 141104 presented above, except
that it relates to the claims of petitioner corporation for refund/credit of input VAT on its purchases of
capital goods and on its zero-rated sales made in the last three taxable quarters of 1990.
Petitioner corporation filed with the BIR its VAT Returns for the second, third, and fourth quarters of
1990, on 20 July 1990, 18 October 1990, and 20 January 1991, respectively. It submitted separate
applications to the BIR for the refund/credit of the input VAT paid on its purchases of capital goods and
on its zero-rated sales, the details of which are presented as follows—
Date of Application
Period Covered
Amount Applied For
21 August 1990
2nd Quarter, 1990
P 54,014,722.04
21 November 1990
3rd Quarter, 1990
75,304,774.77
19 February 1991
4th Quarter, 1990

43,829,766.10
When the BIR failed to act on its applications for refund/ credit, petitioner corporation filed with the CTA
the following petitions for review—
Date Filed
Period Covered
CTA Case No.
20 July 1992
2nd Quarter, 1990
4831
9 October 1992
3rd Quarter, 1990
4859
14 January 1993
4th Quarter, 1990
4944
which were eventually consolidated. The respondent Commissioner contested the foregoing Petitions and
prayed for the dismissal thereof. The CTA ruled in favor of respondent
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Commissioner and in its Decision, dated 30 October 1997, dismissed the Petitions mainly on the ground
9
that the prescriptive periods for filing the same had expired. In a Resolution, dated 15 January 1998, the
10
CTA denied the motion for reconsideration of petitioner corporation since the latter presented no new
matter not already discussed in the court’s prior Decision. In the same Resolution, the CTA also denied
the alternative prayer of petitioner corporation for a new trial since it did not fall under any of the grounds
cited under Section 1, Rule 37 of the Revised Rules of Court, and it was not supported by affidavits of
merits required by Section 2 of the same Rule.X
Petitioner corporation appealed its case to the Court of Appeals, where it was docketed as CA-G.R. SP
No. 46718. On 15 September 2000, the Court of Appeals rendered its Decision, finding that although
11
petitioner corporation timely filed its Petitions for Review with the CTA, it still failed to substantiate its
claims for the refund/credit of its input VAT for the last three quarters of 1990. In its Resolution, dated12
27 June 2001, the appellate court denied the motion for reconsideration of petitioner corporation, finding
no cogent reason to reverse its previous Decision.X
Aggrieved, petitioner corporation filed with this Court another Petition for Review on Certiorari under
Rule 45 of the Revised Rules of Court, docketed as G.R. No. 148763, raising the following issues—
_______________
9
concurring; CA Rollo (G.R. No. 148763), pp. 49-66.
10
Id., at p. 67.
Penned by Associate Justice Andres B. Reyes, Jr. with Associate Justices Quirino D. Abad-Santos, Jr. and Romeo A.
11
Brawner, concurring; Rollo (G.R. No. 148763), pp. 37-46.
Penned by Associate Justice Andres B. Reyes, Jr. with Associate Justices Buenaventura J. Guerrero and Romeo A.
12
Brawner, concurring; id., at p. 48.
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A.
WHETHER OR NOT THE COURT OF APPEALS ERRED IN HOLDING THAT PETITIONER’S

CLAIM IS BARRED UNDER REVENUE REGULATIONS NOS. 2-88 AND 3-88 I.E., FOR FAILURE
TO PTOVE [sic] THE 70% THRESHOLD FOR ZERO-RATING TO APPLY AND FOR FAILURE TO
ESTABLISH THE FACTUAL BASIS FOR THE INSTANT CLAIM.
B.
WHETHER OR NOT THE COURT OF APPEALS ERRED IN FINDING THAT THERE IS NO BASIS
TO GRANT PETITIONER’S MOTION FOR NEW TRIAL.
There being similarity of parties, subject matter, and issues, G.R. Nos. 141104 and 148763 were
consolidated pursuant to a Resolution, dated 4 September 2006, issued by this Court. The ruling of this
Court in these cases hinges on how it will resolve the following key issues: (1) prescription of the claims
of petitioner corporation for input VAT refund/credit; (2) validity and applicability of Revenue
Regulations No. 2-88 imposing upon petitioner corporation, as a requirement for the VAT zero-rating of
its sales, the burden of proving that the buyer companies were not just BOI-registered but also exporting
70% of their total annual production; (3) sufficiency of evidence presented by petitioner corporation to
establish that it is indeed entitled to input VAT refund/credit; and (4) legal ground for granting the motion
of petitioner corporation for re-opening of its cases or holding of new trial before the CTA so it could be
given the opportunity to present the required evidence.
Prescription
The prescriptive period for filing an application for tax refund/credit of input VAT on zero-rated sales
made in 1990 and 1992 was governed by Section 106(b) and (c) of the Tax Code of 1977, as amended,
which provided that—
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“SEC. 106. Refunds or tax credits of input tax.—x x x.
(b) Zero-rated or effectively zero-rated sales.—Any person, except those covered by paragraph (a) above,
whose sales are zerorated may, within two years after the close of the quarter when such sales were made,
apply for the issuance of a tax credit certificate or refund of the input taxes attributable to such sales to the
extent that such input tax has not been applied against output tax.
xxxx
(e) Period within which refund of input taxes may be made by the Commissioner.—The Commissioner
shall refund input taxes within 60 days from the date the application for refund was filed with him or his
duly authorized representative. No refund of input taxes shall be allowed unless the VAT-registered
person files an application for refund within the period prescribed in paragraphs (a), (b) and (c) as the
case may be.”
By a plain reading of the foregoing provision, the two-year prescriptive period for filing the application
for refund/credit of input VAT on zero-rated sales shall be determined from the close of the quarter when
such sales were made.
Petitioner contends, however, that the said two-year prescriptive period should be counted, not from the
close of the quarter when the zero-rated sales were made, but from the date of filing of the quarterly VAT
return and payment of the tax due 20 days thereafter, in accordance with Section 110(b) of the Tax Code
of 1977, as amended, quoted as follows—
“SEC. 110. Return and payment of value-added tax.—x x x.
(b) Time for filing of return and payment of tax.—The return shall be filed and the tax paid within 20 days
following the end of each quarter specifically prescribed for a VAT-registered person under regulations to
be promulgated by the Secretary of Finance: Provided, however, That any person whose registration is
cancelled in accordance with paragraph (e) of Section 107 shall file a return within 20 days from the
cancellation of such registration.”
It is already well-settled that the two-year prescriptive period for instituting a suit or proceeding for
recovery of corporate income tax erroneously or illegally paid under Section
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230 of the Tax Code of 1977, as amended, was to be counted from the filing of the final adjustment
13
return. This Court already set out in ACCRA Investments Corporation v. Court of Appeals, the rationale
14
for such a rule, thus—X
“Clearly, there is the need to file a return first before a claim for refund can prosper inasmuch as the
respondent Commissioner by his own rules and regulations mandates that the corporate taxpayer opting to
ask for a refund must show in its final adjustment return the income it received from all sources and the
amount of withholding taxes remitted by its withholding agents to the Bureau of Internal Revenue. The
petitioner corporation filed its final adjustment return for its 1981 taxable year on April 15, 1982. In our
Resolution dated April 10, 1989 in the case of Commissioner of Internal Revenue v. Asia Australia
Express, Ltd. (G.R. No. 85956), we ruled that the
_______________
SEC. 230. Recovery of tax erroneously or illegally collected.—No suit or proceeding shall be maintained in any court for the
13
recovery of any national internal revenue tax hereafter alleged to have been erroneously or illegally assessed or collected, or of
any penalty claimed to have been collected without authority, or of any sum alleged to have been excessive or in any manner
wrongfully collected, until a claim for refund or credit has been duly filed with the Commissioner; but such suit or proceeding
may be maintained whether or not such tax, penalty, or sum has been paid under protest or duress.
In any case, no such suit or proceeding shall be begun after the expiration of two years from the date of payment of the tax or
penalty regardless of any supervening cause that may arise after payment; Provided, however, That the Commissioner may, even
without a written claim therefor, refund or credit any tax, where on the face of the return upon which payment was made, such
payment appears clearly to have been erroneously paid.
Forfeiture of refund.—A refund check or warrant issued in accordance with the pertinent provisions of this Code which shall
remain unclaimed or uncashed within five (5) years from the date the said warrant or check was mailed or delivered shall be
forfeited in favor of the government and the amount thereof shall revert to the General Fund.
14
G.R. No. 96322, 20 December 1991, 204 SCRA 957, 963-964.
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two-year prescriptive period within which to claim a refund commences to run, at the earliest, on the date
of the filing of the adjusted final tax return. Hence, the petitioner corporation had until April 15, 1984
within which to file its claim for refund.
Considering that ACCRAIN filed its claim for refund as early as December 29, 1983 with the respondent
Commissioner who failed to take any action thereon and considering further that the nonresolution of its
claim for refund with the said Commissioner prompted ACCRAIN to reiterate its claim before the Court
of Tax Appeals through a petition for review on April 13, 1984, the respondent appellate court manifestly
committed a reversible error in affirming the holding of the tax court that ACCRAIN’s claim for refund
was barred by prescription.
It bears emphasis at this point that the rationale in computing the two-year prescriptive period with
respect to the petitioner corporation’s claim for refund from the time it filed its final adjustment return is
the fact that it was only then that ACCRAIN could ascertain whether it made profits or incurred losses in
its business operations. The “date of payment”, therefore, in ACCRAIN’s case was when its tax liability,
if any, fell due upon its filing of its final adjustment return on April 15, 1982.
In another case, Commissioner of Internal Revenue v. TMX Sales, Inc., this Court further expounded on
15
the same matter—X
“A re-examination of the aforesaid minute resolution of the Court in the Pacific Procon case is warranted
under the circumstances to lay down a categorical pronouncement on the question as to when the two-
year prescriptive period in cases of quarterly corporate income tax commences to run. A full-blown
decision in this regard is rendered more imperative in the light of the reversal by the Court of Tax
Appeals in the instant case of its previous ruling in the Pacific Procon case.
Section 292 (now Section 230) of the National Internal Revenue Code should be interpreted in relation to
the other provisions of the Tax Code in order to give effect the legislative intent and to
_______________
15
G.R. No. 83736, 15 January 1992, 205 SCRA 184, 187-192.
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avoid an application of the law which may lead to inconvenience and absurdity. In the case of People vs.
Rivera (59 Phil. 236 [1933]), this Court stated that statutes should receive a sensible construction, such as
will give effect to the legislative intention and so as to avoid an unjust or an absurd
conclusion. INTERPRETATIO TALIS IN AMBIGUIS SEMPER FRIENDA EST, UT EVITATUR
INCONVENIENS ET ABSURDUM. Where there is ambiguity, such interpretation as will avoid
inconvenience and absurdity is to be adopted. Furthermore, courts must give effect to the general
legislative intent that can be discovered from or is unraveled by the four corners of the statute, and in
order to discover said intent, the whole statute, and not only a particular provision thereof, should be
considered. (Manila Lodge No. 761, et al. vs. Court of Appeals, et al., 73 SCRA 162 [1976]) Every
section, provision or clause of the statute must be expounded by reference to each other in order to arrive
at the effect contemplated by the legislature. The intention of the legislator must be ascertained from the
whole text of the law and every part of the act is to be taken into view. (Chartered Bank vs. Imperial, 48
Phil. 931 [1921]; Lopez vs. El Hoger Filipino, 47 Phil. 249, cited in Aboitiz Shipping Corporation vs. City
of Cebu, 13 SCRA 449 [1965]).
Thus, in resolving the instant case, it is necessary that we consider not only Section 292 (now Section
230) of the National Internal Revenue Code but also the other provisions of the Tax Code, particularly
Sections 84, 85 (now both incorporated as Section 68), Section 86 (now Section 70) and Section 87 (now
Section 69) on Quarterly Corporate Income Tax Payment and Section 321 (now Section 232) on keeping
of books of accounts. All these provisions of the Tax Code should be harmonized with each other.
xxxx
Therefore, the filing of a quarterly income tax returns required in Section 85 (now Section 68) and
implemented per BIR Form 1702-Q and payment of quarterly income tax should only be considered mere
installments of the annual tax due. These quarterly tax payments which are computed based on the
cumulative figures of gross receipts and deductions in order to arrive at a net taxable income, should be
treated as advances or portions of the annual income tax due, to be adjusted at the end of the calendar or
fiscal year. This is reinforced by Section 87 (now Section 69) which provides for the filing of adjustment
returns and final payment of income tax. Consequently, the two-year prescriptive period provided in
Section 292
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(now Section 230) of the Tax Code should be computed from the time of filing the Adjustment Return or
Annual Income Tax Return and final payment of income tax.
In the case of Collector of Internal Revenue vs. Antonio Prieto (2 SCRA 1007 [1961]), this Court held
that when a tax is paid in installments, the prescriptive period of two years provided in Section 306
(Section 292) of the National Internal Revenue Code should be counted from the date of the final
payment. This ruling is reiterated in Commissioner of Internal Revenue vs. Carlos Palanca (18 SCRA
496 [1966]), wherein this Court stated that where the tax account was paid on installment, the
computation of the two-year prescriptive period under Section 306 (Section 292) of the Tax Code, should
be from the date of the last installment.
In the instant case, TMX Sales, Inc. filed a suit for a refund on March 14, 1984. Since the two-year
prescriptive period should be counted from the filing of the Adjustment Return on April 15, 1982, TMX
Sales, Inc. is not yet barred by prescription.”
The very same reasons set forth in the afore-cited cases concerning the two-year prescriptive period for
claims for refund of illegally or erroneously collected income tax may also apply to the Petitions at bar
involving the same prescriptive period for claims for refund/credit of input VAT on zero-rated sales.
It is true that unlike corporate income tax, which is reported and paid on installment every quarter, but is
eventually subjected to a final adjustment at the end of the taxable year, VAT is computed and paid on a
purely quarterly basis without need for a final adjustment at the end of the taxable year. However, it is
also equally true that until and unless the VAT-registered taxpayer prepares and submits to the BIR its
quarterly VAT return, there is no way of knowing with certainty just how much input VAT the taxpayer 16
may applyX
_______________
Input VAT means the value-added tax paid by a VAT-registered person in the course of his trade or business on
16
importation of goods or local purchases of goods or services from a VAT-registered person. (Section 104, Tax Code of
1977, as amended).
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against its output VAT; how much output VAT it is due to pay for the quarter or how much excess input
17
VAT it may carry-over to the following quarter; or how much of its input VAT it may claim as
refund/credit. It should be recalled that not only may a VAT-registered taxpayer directly apply against his
output VAT due the input VAT it had paid on its importation or local purchases of goods and services
during the quarter; the taxpayer is also given the option to either (1) carry over any excess input VAT to
the succeeding quarters for application against its future output VAT liabilities, or (2) file an application
for refund or issuance of a tax credit certificate covering the amount of such input VAT. Hence, even in
18
the absence of a final adjustment return, the determination of any output VAT payable necessarily
requires that the VAT-registered taxpayer make adjustments in its VAT return every quarter, taking into
consideration the input VAT which are creditable for the present quarter or had been carried over from
the previous quarters.X
Moreover, when claiming refund/credit, the VAT-registered taxpayer must be able to establish that it does
have refundable or creditable input VAT, and the same has not been applied against its output VAT
liabilities—information which are supposed to be reflected in the taxpayer’s VAT returns. Thus, an
application for refund/credit must be accompanied by copies of the taxpayer’s VAT return/s for the
taxable quarter/s concerned.
Lastly, although the taxpayer’s refundable or creditable input VAT may not be considered as illegally or
erroneously collected, its refund/credit is a privilege extended to qualified and registered taxpayers by the
very VAT system adopted by
_______________
Output VAT refers to VAT due on the sale of taxable goods or services by any person registered or required to register
17
under Section 107 of the Tax Code of 1977, as amended (Section 104, Tax Code of 1977, as amended).
18
See Section 104 of the Tax Code of 1977, as amended, on Tax Credits.
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the Legislature. Such input VAT, the same as any illegally or erroneously collected national internal
revenue tax, consists of monetary amounts which are currently in the hands of the government but must
rightfully be returned to the taxpayer. Therefore, whether claiming refund/credit of illegally or
erroneously collected national internal revenue tax, or input VAT, the taxpayer must be given equal
opportunity for filing and pursuing its claim.
For the foregoing reasons, it is more practical and reasonable to count the two-year prescriptive period for
filing a claim for refund/credit of input VAT on zero-rated sales from the date of filing of the return and
payment of the tax due which, according to the law then existing, should be made within 20 days from the
end of each quarter. Having established thus, the relevant dates in the instant cases are summarized and
reproduced below—
Period Covered
Date of Filing
(Return w/BIR)
Date of Filing
(Application w/BIR)
Date of Filing
(Case w/CTA)
2nd Quarter, 1990
20 July 1990
21 August 1990
20 July 1992
3rd Quarter, 1990
18 October 1990
21 November 1990
9 October 1992
4th Quarter, 1990
20 January 1991
19 February 1991
14 January 1993
1st Quarter, 1992
20 April 1992
-
20 April 1994
The above table readily shows that the administrative and judicial claims of petitioner corporation for
refund of its input VAT on its zero-rated sales for the last three quarters of 1990 were all filed within the
prescriptive period.
However, the same cannot be said for the claim of petitioner corporation for refund of its input VAT on
its zero-rated sales for the first quarter of 1992. Even though it may seem that petitioner corporation filed
in time its judicial claim with the CTA, there is no showing that it had previously filed an administrative
claim with the BIR. Section 106(e) of the Tax Code of 1977, as amended, explicitly provided that no
refund of input VAT shall be allowed unless the VAT-registered taxpayer filed an application for refund
with respondent Com-
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missioner within the two-year prescriptive period. The application of petitioner corporation for
refund/credit of its input VAT for the first quarter of 1992 was not only unsigned by its supposed
authorized representative, Ma. Paz R. Semilla, Manager-Finance and Treasury, but it was not dated,
stamped, and initialed by the BIR official who purportedly received the same. The CTA, in its
Decision, dated 24 November 1997, in CTA Case No. 5102, made the following observations—X
19
“This Court, likewise, rejects any probative value of the Application for Tax Credit/Refund of VAT Paid
(BIR Form No. 2552) [Exhibit “B’] formally offered in evidence by the petitioner on account of the fact
that it does not bear the BIR stamp showing the date when such application was filed together with the
signature or initial of the receiving officer of respondent’s Bureau. Worse still, it does not show the date
of application and the signature of a certain Ma. Paz R. Semilla indicated in the form who appears to be
petitioner’s authorized filer.
A review of the records reveal that the original of the aforecited application was lost during the time
petitioner transferred its office (TSN, p. 6, Hearing of December 9, 1994). Attempt was made to prove
that petitioner exerted efforts to recover the original copy, but to no avail. Despite this, however, We
observe that petitioner completely failed to establish the missing dates and signatures abovementioned.
On this score, said application has no probative value in demonstrating the fact of its filing within two
years after the [filing of the VAT return for the quarter] when petitioner’s sales of goods were made as
prescribed under Section 106(b) of the Tax Code. We believe thus that petitioner failed to file an
application for refund in due form and within the legal period set by law at the administrative level.
Hence, the case at bar has failed to satisfy the requirement on the prior filing of an application for refund
with the respondent before the commencement of a judicial claim for refund, as prescribed under Section
230 of the Tax Code. This fact constitutes another one of the many reasons for not granting petitioner’s
judicial claim.”
_______________
19
Supra note 4 at pp. 83-84.
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As pointed out by the CTA, in serious doubt is not only the fact of whether petitioner corporation timely
filed its administrative claim for refund of its input VAT for the first quarter of 1992, but also whether
petitioner corporation actually filed such administrative claim in the first place. For failing to prove that it
had earlier filed with the BIR an application for refund/credit of its input VAT for the first quarter of
1992, within the period prescribed by law, then the case instituted by petitioner corporation with the CTA
for the refund/credit of the very same tax cannot prosper.
Revenue Regulations No. 2-88 and the 70% export requirement

Under Section 100(a) of the Tax Code of 1977, as amended, a 10% VAT was imposed on the gross
selling price or gross value in money of goods sold, bartered or exchanged. Yet, the same provision
subjected the following sales made by VATregistered persons to 0% VAT—
1. (1)Export sales; and

2. 3.
4. (2)Sales to persons or entities whose exemption under

special laws or international agreements to which the
Philippines is a signatory effectively subjects such sales
to zero-rate.
“Export Sales” means the sale and shipment or exportation of goods from the Philippines to a foreign
country, irrespective of any shipping arrangement that may be agreed upon which may influence or
determine the transfer of ownership of the goods so exported, or foreign currency denominated sales.
“Foreign currency denominated sales,” means sales to nonresidents of goods assembled or manufactured
in the Philippines, for delivery to residents in the Philippines and paid for in convertible foreign currency
remitted through the banking system in the Philippines.
These are termed zero-rated sales. A zero-rated sale is still considered a taxable transaction for VAT
purposes, although the VAT rate applied is 0%. A sale by a VAT-registered taxpayer of goods and/or
services taxed at 0% shall not result in any output VAT, while the input VAT on its purchases of
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goods or services related to such zero-rated sale shall be available as tax credit or refund. X
20
Petitioner corporation questions the validity of Revenue Regulations No. 2-88 averring that the said
regulations imposed additional requirements, not found in the law itself, for the zero-rating of its sales to
Philippine Smelting and Refining Corporation (PASAR) and Philippine Phosphate, Inc. (PHILPHOS),
both of which are registered not only with the BOI, but also with the then Export Processing Zone
Authority (EPZA). X21
The contentious provisions of Revenue Regulations No. 2-88 read—
“SEC. 2. Zero-rating.—(a) Sales of raw materials to BOIregistered exporters.—Sales of raw materials to

export-oriented BOIregistered enterprises whose export sales, under rules and regulations of the Board of
Investments, exceed seventy percent (70%) of total annual production, shall be subject to zero-rate under
the following conditions:
1. “(1)The seller shall file an application with the BIR, ATTN.: Division, applying for
zero-rating for each and every separate buyer, in accordance with Section 8(d) of
Revenue Regulations No. 5-87. The application should be accompanied with a
favorable recommendation from the Board of Investments.”
2. “(2)The raw materials sold are to be used exclusively by the buyer in the manufacture,
processing or repacking of his own registered export product;
3. 4.
5. 6.
7. 8.
9. 10.
11. 12.
13. “(3)The words “Zero-Rated Sales” shall be prominently

indicated in the sales invoice. The exporter (buyer) can
no longer claim from the Bureau of Internal Revenue or
any other government office tax credits on their zero-
rated purchases;
_______________
20
Section 8(a), Revenue Regulations No. 5-87; See also Sections 106(a) and (b) of the Tax Code of 1977, as amended.
21
Now the Philippine Export Processing Zone Authority, under Republic Act No. 7916.
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(b) Sales of raw materials to foreign buyer.—Sales of raw materials to a nonresident foreign buyer for
delivery to a resident local export-oriented BOI-registered enterprise to be used in manufacturing,
processing or repacking of the said buyer’s goods and paid for in foreign currency, inwardly remitted in
accordance with Central Bank rules and regulations shall be subject to zero-rate.”
It is the position of the respondent Commissioner, affirmed by the CTA and the Court of Appeals, that
Section 2 of Revenue Regulations No. 2-88 should be applied in the cases at bar; and to be entitled to the
zero-rating of its sales to PASAR and PHILPHOS, petitioner corporation, as a VAT-registered seller,
must be able to prove not only that PASAR and PHILPHOS are BOI-registered corporations, but also that
more than 70% of the total annual production of these corporations are actually exported. Revenue
Regulations No. 2-88 merely echoed the requirement imposed by the BOI on exportoriented corporations
registered with it.
While this Court is not prepared to strike down the validity of Revenue Regulations No. 2-88, it finds that
its application must be limited and placed in the proper context. Note that Section 2 of Revenue
Regulations No. 2-88 referred only to the zero-rated sales of raw materials to export-oriented
BOIregistered enterprises whose export sales, under BOI rules and regulations, should exceed seventy
percent (70%) of their total annual production.
Section 2 of Revenue Regulations No. 2-88, should not have been applied to the zero-rating of the sales
made by petitioner corporation to PASAR and PHILPHOS. At the onset, it must be emphasized that
PASAR and PHILPHOS, in addition to being registered with the BOI, were also registered with the
EPZA and located within an export-processing zone. Petitioner corporation does not claim that its sales to
PASAR and PHILPHOS are zero-rated on the basis that said sales were made to export-oriented BOI-
registered corporations, but rather, on the basis that the sales were made to EPZAregistered enterprises
operating within export processing
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zones. Although sales to export-oriented BOI-registered enterprises and sales to EPZA-registered
enterprises located within export processing zones were both deemed export sales, which, under Section
100(a) of the Tax Code of 1977, as amended, shall be subject to 0% VAT distinction must be made
between these two types of sales because each may have different substantiation requirements.
The Tax Code of 1977, as amended, gave a limited definition of export sales, to wit: “The sale and
shipment or exportation of goods from the Philippines to a foreign country, irrespective of any shipping
arrangement that may be agreed upon which may influence or determine the transfer of ownership of the
goods so exported, or foreign currency denominated sales.” Executive Order No. 226, otherwise known
as the Omnibus Investments Code of 1987—which, in the years concerned (i.e., 1990 and 1992),
governed enterprises registered with both the BOI and EPZA, provided a more comprehensive definition
of export sales, as quoted below:
“ART. 23. “Export sales” shall mean the Philippine port F.O.B. value, determined from invoices, bills of
lading, inward letters of credit, landing certificates, and other commercial documents, of export products
exported directly by a registered export producer or the net selling price of export product sold by a
registered export producer or to an export trader that subsequently exports the same: Provided, That sales
of export products to another producer or to an export trader shall only be deemed export sales
when actually exported by the latter, as evidenced by landing certificates of similar commercial
documents: Provided, further, That without actual exportation the following shall be
considered constructively exported for purposes of this provision: (1) sales to bonded manufacturing
warehouses of export-oriented manufacturers; (2) sales to export processing zones; (3) sales to registered
export traders operating bonded trading warehouses supplying raw materials used in the manufacture of
export products under guidelines to be set by the Board in consultation with the Bureau of Internal
Revenue and the Bureau of Customs; (4) sales to foreign military bases, diplomatic missions and other
agencies and/or instrumentalities granted tax immunities, of locally manufactured, assembled or repacked
products whether paid
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for in foreign currency or not: Provided, further, That export sales of registered export trader may include
commission income; and Provided, finally, That exportation of goods on consignment shall not be
deemed export sales until the export products consigned are in fact sold by the consignee.
Sales of locally manufactured or assembled goods for household and personal use to Filipinos abroad and
other non-residents of the Philippines as well as returning Overseas Filipinos under the Internal Export
Program of the government and paid for in convertible foreign currency inwardly remitted through the
Philippine banking systems shall also be considered export sales.” (Italics ours.)
The afore-cited provision of the Omnibus Investments Code of 1987 recognizes as export sales the sales
of export products to another producer or to an export trader, provided that the export products are
actually exported. For purposes of VAT zero-rating, such producer or export trader must be registered
with the BOI and is required to actually export more than 70% of its annual production.
Without actual exportation, Article 23 of the Omnibus Investments Code of 1987 also considers
constructive exportation as export sales. Among other types of constructive exportation specifically
identified by the said provision are sales to export processing zones. Sales to export processing zones are
subjected to special tax treatment. Article 77 of the same Code establishes the tax treatment of goods or
merchandise brought into the export processing zones. Of particular relevance herein is paragraph 2,
which provides that “Merchandise purchased by a registered zone enterprise from the customs territory
and subsequently brought into the zone, shall be considered as export sales and the exporter thereof shall
be entitled to the benefits allowed by law for such transaction.”
Such tax treatment of goods brought into the export processing zones are only consistent with the
Destination Principle and Cross Border Doctrine to which the Philippine VAT
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system adheres. According to the Destination Principle, goods and services are taxed only in the country
22
where these are consumed. In connection with the said principle, the Cross Border Doctrine mandates
23
that no VAT shall be imposed to form part of the cost of the goods destined for consumption outside the
territorial border of the taxing authority. Hence, actual export of goods and services from the Philippines
to a foreign country must be free of VAT, while those destined for use or consumption within the
Philippines shall be imposed with 10% VAT. Export processing zones are to be managed as a separate
24 25
customs territory from the rest of the Philippines and, thus, for tax purposes, are effectively considered as
foreign territory. For this reason, sales by persons from the Philippine customs territory to those inside the
export processing zones are already taxed as exports.X
Plainly, sales to enterprises operating within the export processing zones are export sales, which, under
the Tax Code of 1977, as amended, were subject to 0% VAT. It is on this ground that petitioner
corporation is claiming refund/credit of the input VAT on its zero-rated sales to PASAR and PHIL-
PHOS.
The distinction made by this Court in the preceding paragraphs between the zero-rated sales to export-
oriented BOI-
_______________
Commissioner of Internal Revenue v. Seagate Technology (Philippines), G.R. No. 153866, 11 February 2005, 451 SCRA
22
133, 144.
VICTOR A. DEOFERIO,JR. AND VICTORINO C. MAMALATEO, THE VALUE ADDED TAX IN THE

23
PHILIPPINES, p. 422 (2000 Ed.).
24
Now 12%, under the Tax Code of 1997, as amended by Republic Act No. 9337.
Republic Act No. 7916, as amended, established what are called special economic zones (ECOZONES), referring to
25
areas with highly developed or which have the potential to be developed into agro-industrial, tourist/recreational,
commercial, banking, investment, and financial centers. An ECOZONE may contain any of the following: industrial
estates (Ies), export processing zones (EPZs), free trade zones, and tourist/recreational centers. (Section 4)
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registered enterprises and zero-rated sales to EPZAregistered enterprises operating within export
processing zones is actually supported by subsequent development in tax laws and regulations. In
Revenue Regulations No. 7-95, the Consolidated VAT Regulations, as amended, the BIR defined with
26
more precision what are zero-rated export sales—X
1. “(1)The sale and actual shipment of goods from the Philippines to a foreign country,
irrespective of any shipping arrangement that may be agreed upon which may influence
or determine the transfer of ownership of the goods so exported paid for in acceptable
foreign currency or its equivalent in goods or services, and accounted for in accordance
with the rules and regulations of the Bangko Sentral ng Pilipinas (BSP);
2. (2)The sale of raw materials or packaging materials to a nonresident buyer for delivery
to a resident local export-oriented enterprise to be used in manufacturing, processing,
packing or repacking in the Philippines of the said buyer’s goods and paid for in
acceptable foreign currency and accounted for in accordance with the rules and
regulations of the Bangko Sentral ng Pilipinas (BSP);
3. (3)The sale of raw materials or packaging materials to an export-oriented enterprise
whose export sales exceed seventy percent (70%) of total annual production;
Any enterprise whose export sales exceed 70% of the total annual production of the
preceding taxable year shall be considered an export-oriented enterprise upon
accreditation as such under the provisions of the Export Development Act (R.A. 7844)
and its implementing rules and regulations;
4. (4)Sale of gold to the Bangko Sentral ng Pilipinas (BSP); and
5. 6.
7. (5)Those considered export sales under Articles 23 and

77 of Executive Order No. 226, otherwise known as the
Omnibus Investments Code of 1987, and other special
laws, e.g. Republic Act No. 7227, otherwise known as
the Bases Conversion and Development Act of 1992.”
_______________
26
Section 4.100.2.
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The Tax Code of 1997, as amended, later adopted the foregoing definition of export sales, which are
27
subject to 0% VAT.X
This Court then reiterates its conclusion that Section 2 of Revenue Regulations No. 2-88, which applied
to zero-rated export sales to export-oriented BOI-registered enterprises, should not be applied to the
applications for refund/credit of input VAT filed by petitioner corporation since it based its applications
on the zero-rating of export sales to enterprises registered with the EPZA and located within export
processing zones.
Sufficiency of evidence
There can be no dispute that the taxpayer-claimant has the burden of proving the legal and factual bases
of its claim for tax credit or refund, but once it has submitted all the required documents, it is the function
of the BIR to assess these documents with purposeful dispatch. It therefore falls upon herein petitioner
28
corporation to first establish that its sales qualify for VAT zero-rating under the existing laws (legal
basis), and then to present sufficient evidence that said sales were actually made and resulted in
refundable or creditable input VAT in the amount being claimed (factual basis).X
It would initially appear that the applications for refund/credit filed by petitioner corporation cover only
input VAT on its purportedly zero-rated sales to PASAR and PHILPHOS; however, a more thorough
perusal of its applications, VAT returns, pleadings, and other records of these cases would reveal that it is
also claiming refund/credit of its input
_______________
Section 106(A)(2)(a). Republic Act No. 9337 amending the Tax Code of 1997 added a sixth paragraph, listing “The sale
27
of goods, supplies, equipment and fuel to persons engaged in international shipping or international air transport
operations,” also as export sales.
28
Philex Mining Corp. v. Commissioner of Internal Revenue, 356 Phil. 189, 201-202; 294 SCRA 687, 698 (1998).
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VAT on purchases of capital goods and sales of gold to the Central Bank of the Philippines (CBP).
This Court finds that the claims for refund/credit of input VAT of petitioner corporation have sufficient
legal bases.
As has been extensively discussed herein, Section 106(b)(2), in relation to Section 100(a)(2) of the Tax
Code of 1977, as amended, allowed the refund/credit of input VAT on export sales to enterprises
operating within export processing zones and registered with the EPZA, since such export sales were
deemed to be effectively zero-rated sales. The fact that PASAR and PHILPHOS, to whom petitioner
29
corporation sold its products, were operating inside an export processing zone and duly registered with
EPZA, was never raised as an issue herein. Moreover, the same fact was already judicially recognized in
the case Atlas Consolidated Mining & Development Corporation v. Commissioner of Internal
Revenue. Section 106(c) of the same Code likewise permitted a VAT-registered taxpayer to apply for
30
refund/credit of the input VAT paid onX
_______________
Under the Tax Code of 1977, as amended, sales to enterprises located within export processing zones and registered with
29
EPZA were considered export sales by virtue of the Omnibus Investments Code, a special law. Thus, they were subjected
to 0% VAT rate under Section 100(a)(2) of the Tax Code of 1977, as amended, and refund/credit of input VAT thereon
was allowed under Section 106(b)(2) of the same Code on effectively zero-rated sales. Sales to EPZA enterprises were not
yet directly recognized by the Tax Code of 1977, as amended, as export sales, the input VAT on which may be
refunded/credited under a separate provision, Section 106(b)(1). However, under the Tax Code of 1997, as amended, sales
to enterprises within export processing zones are already explicitly recognized as zero-rated export sales in Section 106(A)
(2)(a), the input VAT on which may be refunded/credited under Section 112(A), which now governs the refund/credit of
input VAT on all zero-rated and effectively zero-rated sales. The Tax Code of 1997, as amended, already eliminated the
separate paragraph on the refund/credit of input VAT on export sales.
30
Supra note 1.
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capital goods imported or locally purchased to the extent that such input VAT has not been applied
against its output VAT. Meanwhile, the effective zero-rating of sales of gold to the CBP from 1989 to
1991 was already affirmed by this Court in Commissioner of Internal Revenue v. Benguet
31
Corporation, wherein it ruled that—X

32
“At the time when the subject transactions were consummated, the prevailing BIR regulations relied upon
by respondent ordained that gold sales to the Central Bank were zero-rated. The BIR interpreted Sec. 100
of the NIRC in relation to Sec. 2 of E.O. No. 581 s. 1980 which prescribed that gold sold to the Central
Bank shall be considered export and therefore shall be subject to the export and premium duties. In
coming out with this interpretation, the BIR also considered Sec. 169 of Central Bank Circular No. 960
which states that all sales of gold to the Central Bank are considered constructive exports. x x x.”
This Court now comes to the question of whether petitioner corporation has sufficiently established the
factual bases for its applications for refund/credit of input VAT. It is in this regard that petitioner
corporation has failed, both in the administrative and judicial level.
Applications for refund/credit of input VAT with the BIR must comply with the appropriate revenue
regulations. As this Court has already ruled, Revenue Regulations No. 2-88 is not relevant to the
applications for refund/credit of input VAT filed by petitioner corporation; nonetheless, the said
applications must have been in accordance with Revenue Regulations No. 3-88, amending Section 16 of
Revenue Regulations No. 5-87, which provided as follows—
“SECTION 16. Refunds or tax credits of input tax.—
_______________
Petitioner corporation applied for refund/credit of its input VAT on its sales of gold to the Central Bank of the
31
Philippines (CBP) in the second, third, and fourth quarters of 1990, subject of the Petition in G.R. No. 148763.
32
G.R. Nos. 134587 and 134588, 8 July 2005, 463 SCRA 28, 47.
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xxxx
(c) Claims for tax credits/refunds.—Application for Tax Credit/Refund of Value-Added Tax Paid (BIR
Form No. 2552) shall be filed with the Revenue District Office of the city or municipality where the
principal place of business of the applicant is located or directly with the Commissioner, Attention: VAT
Division.
A photocopy of the purchase invoice or receipt evidencing the value added tax paid shall be submitted
together with the application. The original copy of the said invoice/receipt, however, shall be presented
for cancellation prior to the issuance of the Tax Credit Certificate or refund. In addition, the following
documents shall be attached whenever applicable:
xxxx
“3. Effectively zero-rated sale of goods and services.
1. “i)photo copy of approved application for zero-rate if filing for the first time.
2. “ii)sales invoice or receipt showing name of the person or entity to whom the sale of
goods or services were delivered, date of delivery, amount of consideration, and
description of goods or services delivered.
3. “iii)evidence of actual receipt of goods or services.
“4. Purchase of capital goods.
1. “i)original copy of invoice or receipt showing the date of purchase, purchase price,
amount of value-added tax paid and description of the capital equipment locally
purchased.
2. 3.
4. “ii)with respect to capital equipment imported, the

photo copy of import entry document for internal
revenue tax purposes and the confirmation receipt
issued by the Bureau of Customs for the payment of the
value-added tax.
“5. In applicable cases,
where the applicant’s zero-rated transactions are regulated by certain government agencies, a statement
therefrom showing the amount and description of sale of goods and services, name of persons or entities
(except in case of exports) to whom the goods or services were sold, and date of transaction shall also be
submitted.
In all cases, the amount of refund or tax credit that may be granted shall be limited to the amount of the
value-added tax (VAT)
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paid directly and entirely attributable to the zero-rated transaction during the period covered by the
application for credit or refund.
Where the applicant is engaged in zero-rated and other taxable and exempt sales of goods and services,
and the VAT paid (inputs) on purchases of goods and services cannot be directly attributed to any of the
aforementioned transactions, the following formula shall be used to determine the creditable or
refundable input tax for zerorated sale:
Amount of Zero-rated Sale

Total Sales
Total Amount of Input Taxes
= Amount Creditable/Refundable
In case the application for refund/credit of input VAT was denied or remained unacted upon by the BIR,
and before the lapse of the two-year prescriptive period, the taxpayerapplicant may already file a Petition
for Review before the CTA. If the taxpayer’s claim is supported by voluminous documents, such as
receipts, invoices, vouchers or long accounts, their presentation before the CTA shall be governed by
CTA Circular No. 1-95, as amended, reproduced in full below—
“In the interest of speedy administration of justice, the Court hereby promulgates the following rules
governing the presentation of voluminous documents and/or long accounts, such as receipts, invoices and
vouchers, as evidence to establish certain facts pursuant to Section 3(c), Rule 130 of the Rules of Court
and the doctrine enunciated in Compania Maritima vs. Allied Free Workers Union (77 SCRA 24), as well
as Section 8 of Republic Act No. 1125:
1. 1.The party who desires to introduce as evidence such voluminous documents must,
after motion and approval by the Court, present:
1. 2.
3. (a)a Summary containing, among others, a

chronological listing of the numbers, dates and amounts
covered by the invoices or receipts and the amount/s of
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1. tax paid; and (b) a Certification of an independent Certified Public Accountant attesting
to the correctness of the contents of the summary after making an examination,
evaluation and audit of the voluminous receipts and invoices. The name of the
accountant or partner of the firm in charge must be stated in the motion so that he/she
can be commissioned by the Court to conduct the audit and, thereafter, testify in Court
relative to such summary and certification pursuant to Rule 32 of the Rules of Court.
1. 2.
3. 4.
5. 6.
7. 8.
9. 10.
11. 2.The method of individual presentation of each and

every receipt, invoice or account for marking,
identification and comparison with the originals thereof
need not be done before the Court or Clerk of Court
anymore after the introduction of the summary and
CPA certification. It is enough that the receipts,
invoices, vouchers or other documents covering the
said accounts or payments to be introduced in evidence
must be pre-marked by the party concerned and
submitted to the Court in order to be made accessible to
the adverse party who desires to check and verify the
correctness of the summary and CPA certification.
Likewise, the originals of the voluminous receipts,
invoices or accounts must be ready for verification and
comparison in case doubt on the authenticity thereof is
raised during the hearing or resolution of the formal
offer of evidence.”
Since CTA Cases No. 4831, 4859, 4944, and 5102, were still pending before the CTA when the said
33 34
Circular was issued, then petitioner corporation must have complied therewith during the course of the
trial of the said cases.X
In Commissioner of Internal Revenue v. Manila Mining Corporation, this Court denied the claim of
35
therein respondent, Manila Mining Corporation, for refund of the input VAT on its supposed zero-rated
sales of gold to the CBP because itX
_______________
33
The Decision in these consolidated cases was promulgated only on 30 October 1997.
34
The Decision in this case was promulgated only on 24 November 1997.
35
G.R. No. 153204, 31 August 2005, 468 SCRA 571.
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was unable to substantiate its claim. In the same case, this Court emphasized the importance of complying
with the substantiation requirements for claiming refund/credit of input VAT on zero-rated sales, to wit—
“For a judicial claim for refund to prosper, however, respondent must not only prove that it is a VAT
registered entity and that it filed its claims within the prescriptive period. It must substantiate the input
VAT paid by purchase invoices or official receipts.
This respondent failed to do.
Revenue Regulations No. 3-88 amending Revenue Regulations No. 5-87 provides the requirements in
claiming tax credits/refunds.
xxxx
Under Section 8 of RA 1125, the CTA is described as a court of record. As cases filed before it are
litigated de novo, party litigants should prove every minute aspect of their cases. No evidentiary value can
be given the purchase invoices or receipts submitted to the BIR as the rules on documentary evidence
require that these documents must be formally offered before the CTA.
This Court thus notes with approval the following findings of the CTA:
x x x [S]ale of gold to the Central Bank should not be subject to the 10% VAT-output tax but this does not ipso
facto mean that [the seller] is entitled to the amount of refund sought as it is required by law to present evidence
showing the input taxes it paid during the year in question. What is being claimed in the instant petition is the refund
of the input taxes paid by the herein petitioner on its purchase of goods and services. Hence, it is necessary for the
Petitioner to show proof that it had indeed paid the input taxes during the year 1991. In the case at bar, Petitioner
failed to discharge this duty. It did not adduce in evidence the sales invoice, receipts or other documents showing
the input value added tax on the purchase of goods and services.
xxx
Section 8 of Republic Act 1125 (An Act Creating the Court of Tax Appeals) provides categorically
that the Court of Tax Appeals shall be a court of record and as such it is required to conduct a formal
trial (trial de novo) where the parties must present
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their evidence accordingly if they desire the Court to take such evidence into consideration. (Emphasis
and italics supplied)
A “sales or commercial invoice” is a written account of goods sold or services rendered indicating the
prices charged therefor or a list by whatever name it is known which is used in the ordinary course of
business evidencing sale and transfer or agreement to sell or transfer goods and services.
A “receipt” on the other hand is a written acknowledgment of the fact of payment in money or other
settlement between seller and buyer of goods, debtor or creditor, or person rendering services and client
or customer.
These sales invoices or receipts issued by the supplier are necessary to substantiate the actual amount or
quantity of goods sold and their selling price, and taken collectively are the best means to prove the input
VAT payments.” X 36
Although the foregoing decision focused only on the proof required for the applicant for refund/credit to
establish the input VAT payments it had made on its purchases from suppliers, Revenue Regulations No.
3-88 also required it to present evidence proving actual zero-rated VAT sales to qualified buyers, such as
(1) photocopy of the approved application for zero-rate if filing for the first time; (2) sales invoice or
receipt showing the name of the person or entity to whom the goods or services were delivered, date of
delivery, amount of consideration, and description of goods or services delivered; and (3) the evidence of
actual receipt of goods or services.
Also worth noting in the same decision is the weight given by this Court to the certification by the
independent certified public accountant (CPA), thus—
“Respondent contends, however, that the certification of the independent CPA attesting to the correctness
of the contents of the summary of suppliers’ invoices or receipts which were examined, evaluated and
audited by said CPA in accordance with CTA Circular
_______________
36
Id., at pp. 587-590.
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No. 1-95 as amended by CTA Circular No. 10-97 should substantiate its claims.
There is nothing, however, in CTA Circular No. 1-95, as amended by CTA Circular No. 10-97, which
either expressly or impliedly suggests that summaries and schedules of input VAT payments, even if
certified by an independent CPA, suffice as evidence of input VAT payments.
xxxx
The circular, in the interest of speedy administration of justice, was promulgated to avoid the time-
consuming procedure of presenting, identifying and marking of documents before the Court. It does not
relieve respondent of its imperative task of pre-marking photocopies of sales receipts and invoices
and submitting the same to the court after the independent CPA shall have examined and compared them
with the originals. Without presenting these pre-marked documents as evidence—from which the
summary and schedules were based, the court cannot verify the authenticity and veracity of the
independent auditor’s conclusions.
There is, moreover, a need to subject these invoices or receipts to examination by the CTA in order to
confirm whether they are VAT invoices. Under Section 21 of Revenue Regulation, No. 5-87, all
purchases covered by invoices other than a VAT invoice shall not be entitled to a refund of input VAT.
xxxx
While the CTA is not governed strictly by technical rules of evidence, as rules of procedure are not ends
in themselves but are primarily intended as tools in the administration of justice, the presentation of the
purchase receipts and/or invoices is not mere procedural technicality which may be disregarded
considering that it is the only means by which the CTA may ascertain and verify the truth of the
respondent’s claims.
The records further show that respondent miserably failed to substantiate its claims for input VAT refund
for the first semester of 1991. Except for the summary and schedules of input VAT payments prepared by
respondent itself, no other evidence was adduced in support of its claim.
As for respondent’s claim for input VAT refund for the second semester of 1991, it employed the services
of Joaquin Cunanan & Co.
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on account of which it (Joaquin Cunanan & Co.) executed a certification that:
We have examined the information shown below concerning the input tax payments made by the Makati Office of
Manila Mining Corporation for the period from July 1 to December 31, 1991. Our examination included inspection
of the pertinent suppliers’ invoices and official receipts and such other auditing procedures as we considered
necessary in the circumstances. x x x
As the certification merely stated that it used “auditing procedures considered necessary” and not auditing
procedures which are in accordance with generally accepted auditing principles and standards, and that
the examination was made on “input tax payments by the Manila Mining Corporation,” without
specifying that the said input tax payments are attributable to the sales of gold to the Central Bank, this
Court cannot rely thereon and regard it as sufficient proof of the respondent’s input VAT payments for
the second semester.” X 37
As for the Petition in G.R. No. 141104, involving the input VAT of petitioner corporation on its zero-
rated sales in the first quarter of 1992, this Court already found that the petitioner corporation failed to
comply with Section 106(b) of the Tax Code of 1977, as amended, imposing the two-year prescriptive
period for the filing of the application for refund/credit thereof. This bars the grant of the application for
refund/credit, whether administratively or judicially, by express mandate of Section 106(e) of the same
Code.
Granting arguendo that the application of petitioner corporation for the refund/credit of the input VAT on
its zero-rated sales in the first quarter of 1992 was actually and timely filed, petitioner corporation still
failed to present together with its application the required supporting documents, whether before the BIR
or the CTA. As the Court of Appeals ruled—
_______________
37
Id., at pp. 590-594.
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“In actions involving claims for refund of taxes assessed and collected, the burden of proof rests on the
taxpayer. As clearly discussed in the CTA’s decision, petitioner failed to substantiate its claim for tax
refunds. Thus:
“We note, however, that in the cases at bar, petitioner has relied totally on Revenue Regulations No. 2-88 in
determining compliance with the documentary requirements for a successful refund or issuance of tax credit.
Unmentioned is the applicable and specific amendment later introduced by Revenue Regulations No. 3-88 dated
April 7, 1988 (issued barely after two months from the promulgation of Revenue Regulations No. 2-88 on February
15, 1988), which amended Section 16 of Revenue Regulations No. 5-87 on refunds or tax credits of input tax. x x x.
xxxx
“A thorough examination of the evidence submitted by the petitioner before this court reveals outright the failure to
satisfy documentary requirements laid down under the above-cited regulations. Specifically, petitioner was not able
to present the following documents, to wit:
1. “a)sales invoices or receipts;

2. “b)purchase invoices or receipts;
3. “c)evidence of actual receipt of goods;
4. “d)BOI statement showing the amount and description of sale of goods, etc.
5. “e)original or attested copies of invoice or receipt on capital equipment locally purchased; and
6. 7.
8. 9.
10. 11.
12. 13.
14. 15.
16. “f)photocopy of import entry document and confirmation

receipt on imported capital equipment.
“There is the need to examine the sales invoices or receipts in order to ascertain the actual amount or quantity of
goods sold and their selling price. Without them, this Court cannot verify the correctness of petitioner’s claim
inasmuch as the regulations require that the input taxes being sought for refund should be limited to the portion that
is directly and entirely attributable to the particular zero-rated transaction. In
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this instance, the best evidence of such transaction are the said sales invoices or receipts.
“Also, even if sales invoices are produced, there is the further need to submit evidence that such goods were
actually received by the buyer, in this case, by CBP, Philp[h]os and PASAR.
xxxx
“Lastly, this Court cannot determine whether there were actual local and imported purchase of capital goods as
well as domestic purchase of non-capital goods without the required purchase invoice or receipt, as the case may
be, and confirmation receipts.
“There is, thus, the imperative need to submit before this Court the original or attested photocopies of petitioner’s
invoices or receipts, confirmation receipts and import entry documents in order that a full ascertainment of the
claimed amount may be achieved.
“Petitioner should have taken the foresight to introduce in evidence all of the missing documents abovementioned.
Cases filed before this Court are litigated de novo. This means that party litigants should endeavor to prove at the
first instance every minute aspect of their cases strictly in accordance with the Rules of Court, most especially on
documentary evidence.” (pp. 37-42, Rollo)
Tax refunds are in the nature of tax exemptions. It is regarded as in derogation of the sovereign authority,
and should be construed in strictissimi juris against the person or entity claiming the exemption. The
taxpayer who claims for exemption must justify his claim by the clearest grant of organic or statute law
and should not be permitted to stand on vague implications (Asiatic Petroleum Co. v. Llanes, 49 Phil.
466; Northern Phil. Tobacco Corp. v. Mun. of Agoo, La Union, 31 SCRA 304; Reagan v.
Commissioner, 30 SCRA 968; Asturias Sugar Central, Inc. v. Commissioner of Customs, 29 SCRA
617; Davao Light and Power Co., Inc. v. Commissioner of Customs, 44 SCRA 122).
There is no cogent reason to fault the CTA’s conclusion that the SGV’s certificate is “self-destructive,” as
it finds comfort in the very SGV’s stand, as follows:
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“It is our understanding that the above procedure are sufficient for the purpose of the Company. We make no
presentation regarding the sufficiency of these procedures for such purpose. We did not compare the total of the
input tax claimed each quarter against the pertinent VAT returns and books of accounts. The above procedures do
not constitute an audit made in accordance with generally accepted auditing standards. Accordingly, we do not
express an opinion on the company’s claim for input VAT refund or credit. Had we performed additional
procedures, or had we made an audit in accordance with generally accepted auditing standards, other matters might
have come to our attention that we would have accordingly reported on.”
The SGV’s “disclaimer of opinion” carries much weight as it is petitioner’s independent auditor. Indeed,
SGV expressed that it “did not compare the total of the input tax claimed each quarter against the VAT
returns and books of accounts.” X 38
Moving on to the Petition in G.R. No. 148763, concerning the input VAT of petitioner corporation on its
zero-rated sales in the second, third, and fourth quarters of 1990, the appellate court likewise found that
petitioner corporation failed to sufficiently establish its claims. Already disregarding the declarations
made by the Court of Appeals on its erroneous application of Revenue Regulations No. 2-88, quoted
hereunder is the rest of the findings of the appellate court after evaluating the evidence submitted in
accordance with the requirements under Revenue Regulations No. 3-88—
“The Secretary of Finance validly adopted Revenue Regulations [No.] x x x 3-98 pursuant to Sec. 245 of
the National Internal Revenue Code, which recognized his power to “promulgate all needful rules and
regulations for the effective enforcement of the provisions of this Code.” Thus, it is incumbent upon a
taxpayer intending to file a claim for refund of input VATs or the issuance of a tax credit certificate with
the BIR x x x to prove sales to such buyers as required by Revenue Regulations No. 3-98. Logically, the
same evi-
_______________
38
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dence should be presented in support of an action to recover taxes which have been paid.
x x x Neither has [herein petitioner corporation] presented sales invoices or receipts showing sales of
gold, copper concentrates, and pyrite to the CBP, [PASAR], and [PHILPHOS], respectively, and the dates
and amounts of the same, nor any evidence of actual receipt by the said buyers of the mineral products. It
merely presented receipts of purchases from suppliers on which input VATs were allegedly paid. Thus,
the Court of Tax Appeals correctly denied the claims for refund of input VATs or the issuance of tax
credit certificates of petitioner [corporation]. Significantly, in the resolution, dated 7 June 2000, this Court
directed the parties to file memoranda discussing, among others, the submission of proof for “its
[petitioner’s] sales of gold, copper concentrates, and pyrite to buyers.” Nevertheless, the parties, including
the petitioner, failed to address this issue, thereby necessitating the affirmance of the ruling of the Court
of Tax Appeals on this point.” X39
This Court is, therefore, bound by the foregoing facts, as found by the appellate court, for well-settled is
the general rule that the jurisdiction of this Court in cases brought before it from the Court of Appeals, by
way of a Petition for Review on Certiorari under Rule 45 of the Revised Rules of Court, is limited to
reviewing or revising errors of law; findings of fact of the latter are conclusive. This Court is not a trier
40
of facts. It is not its function to review, examine and evaluate or weigh the probative value of the evidence
presented. X41
The distinction between a question of law and a question of fact is clear-cut. It has been held that “[t]here
is a question of law in a given case when the doubt or difference arises as to what the law is on a certain
state of facts; there is a question
_______________
39
40
Sps. Rosario v. Court of Appeals, 369 Phil. 729, 738; 310 SCRA 464, 472 (1999).
41
Bautista v. Puyat Vinyl Products, Inc., 416 Phil. 305, 309; 363 SCRA 794, 798 (2001).
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of fact when the doubt or difference arises as to the truth or falsehood of alleged facts.” X 42
Whether petitioner corporation actually made zero-rated sales; whether it paid input VAT on these sales
in the amount it had declared in its returns; whether all the input VAT subject of its applications for
refund/credit can be attributed to its zero-rated sales; and whether it had not previously applied the input
VAT against its output VAT liabilities, are all questions of fact which could only be answered after
reviewing, examining, evaluating, or weighing the probative value of the evidence it presented, and which
this Court does not have the jurisdiction to do in the present Petitions for Review on Certiorari under
Rule 45 of the revised Rules of Court.
Granting that there are exceptions to the general rule, when this Court looked into questions of fact under
particular circumstances, none of these exist in the instant cases. The Court of Appeals, in both cases,
43
found a dearth of evidence to support the claims for refund/credit of the input VAT of petitioner
corporation, and the records bear out this finding. Peti-X
_______________
42
Commissioner of Internal Revenue v. Court of Appeals, 358 Phil. 562, 575; 298 SCRA 83, 91 (1998).
The following have been identified as exceptional circumstances: (1) when the findings are grounded entirely on
43
speculation, surmises, or conjectures; (2) when the interference made is manifestly mistaken, absurd, or impossible; (3)
when there is grave abuse of discretion; (4) when the judgment is based on a misapprehension of facts; (5) when the
findings of fact are conflicting; (6) when in making its findings, the Court of Appeals went beyond the issues of the case,
or its findings are contrary to the admissions of both the appellant and the appellee; (7) when the findings are contrary to
those of the trial court; (8) when the findings are conclusions without citation of specific evidence on which they are
based; (9) when the facts set forth in the petition as well as in the petitioner’s main and reply briefs are not disputed by the
respondent; and (10) when the findings of fact are premised on the supposed absence of evidence and contradicted by the
evidence on record. [Sps. Sta. Maria v. Court of Appeals, 349 Phil. 275, 282-283; 285 SCRA 351, 357-358 (1998)].
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tioner corporation itself cannot dispute its non-compliance with the requirements set forth in Revenue
Regulations No. 3-88 and CTA Circular No. 1-95, as amended. It concentrated its arguments on its
assertion that the substantiation requirements under Revenue Regulations No. 2-88 should not have
applied to it, while being conspicuously silent on the evidentiary requirements mandated by other relevant
regulations.
Re-opening of cases/holding of new trial before the CTA

This Court now faces the final issue of whether the prayer of petitioner corporation for the re-opening of
its cases or holding of new trial before the CTA for the reception of additional evidence, may be granted.
Petitioner corporation prays that the Court exercise its discretion on the matter in its favor, consistent with
the policy that rules of procedure be liberally construed in pursuance of substantive justice.
This Court, however, cannot grant the prayer of petitioner corporation.
An aggrieved party may file a motion for new trial or reconsideration of a judgment already rendered in
accordance with Section 1, Rule 37 of the revised Rules of Court, which provides—
“SECTION 1. Grounds of and period for filing motion for new trial or reconsideration.—Within the
period for taking an appeal, the aggrieved party may move the trial court to set aside the judgment or final
order and grant a new trial for one or more of the following causes materially affecting the substantial
rights of said party:
1. (a)Fraud, accident, mistake or excusable negligence which ordinary prudence could not
have guarded against and by reason of which such aggrieved party has probably been
impaired in his rights; or
2. 3.
4. 5.
6. 7.
8. 9.
10. 11.
12. 13.
14. 15.
16. (b)Newly discovered evidence, which he could not,

with reasonable diligence, have discovered and
produced at the trial, and which if presented would
probably alter the result.
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Within the same period, the aggrieved party may also move fore reconsideration upon the grounds that
the damages awarded are excessive, that the evidence is insufficient to justify the decision or final order,
or that the decision or final order is contrary to law.”
In G.R. No. 148763, petitioner corporation attempts to justify its motion for the re-opening of its cases
and/or holding of new trial before the CTA by contending that the “[f]ailure of its counsel to adduce the
necessary evidence should be construed as excusable negligence or mistake which should constitute basis
for such re-opening of trial as for a new trial, as counsel was of the belief that such evidence was rendered
unnecessary by the presentation of unrebutted evidence indicating that respondent [Commissioner] has
acknowledged the sale of [sic] PASAR and [PHILPHOS] to be zero-rated.” The CTA denied such
44
motion on the ground that it was not accompanied by an affidavit of merit as required by Section 2, Rule
37 of the revised Rules of Court. The Court of Appeals affirmed the denial of the motion, but apart from
this technical defect, it also found that there was no justification to grant the same.X
On the matter of the denial of the motion of the petitioner corporation for the re-opening of its cases
and/or holding of new trial based on the technicality that said motion was unaccompanied by an affidavit
of merit, this Court rules in favor of the petitioner corporation. The facts which should otherwise be set
forth in a separate affidavit of merit may, with equal effect, be alleged and incorporated in the motion
itself; and this will be deemed a substantial compliance with the formal requirements of the law,
provided, of course, that the movant, or other individual with personal knowledge of the facts, take oath
as to the truth thereof, in effect converting the entire motion for new trial into an affidavit. The motionX
45
_______________
44
Rollo (G.R. No. 148763), p. 26.
45
Circle Financial Corporation v. Court of Appeals, G.R. No. 77315, 22 April 1991, 196 SCRA 166, 171.
122
122

Revenue
of petitioner corporation was prepared and verified by its counsel, and since the ground for the motion
was premised on said counsel’s excusable negligence or mistake, then the obvious conclusion is that he
had personal knowledge of the facts relating to such negligence or mistake. Hence, it can be said that the
motion of petitioner corporation for the re-opening of its cases and/or holding of new trial was in
substantial compliance with the formal requirements of the revised Rules of Court.
Even so, this Court finds no sufficient ground for granting the motion of petitioner corporation for the re-
opening of its cases and/or holding of new trial.
In G.R. No. 141104, petitioner corporation invokes the Resolution, dated 20 July 1998, by the CTA in
46
another case, CTA Case No. 5296, involving the claim of petitioner corporation for refund/credit of input
VAT for the third quarter of 1993. The said Resolution allowed the re-opening of CTA Case No. 5296,
earlier dismissed by the CTA, to give the petitioner corporation the opportunity to present the missing
export documents.X
The rule that the grant or denial of motions for new trial rests on the discretion of the trial court, may
47
likewise be extended to the CTA. When the denial of the motion rests upon the discretion of a lower
court, this Court will not interfere with its exercise, unless there is proof of grave abuse thereof. X 48
That the CTA granted the motion for re-opening of one case for the presentation of additional evidence
and, yet, deny a
_______________
Signed by Presiding Judge Ernesto D. Acosta and Associate Judges Amancio Q. Saga and Ramon O. De Veyra, Rollo,
46
148-160 (G.R. No. 141104).
47
Baring v. Cabahug, 127 Phil. 84, 86; 20 SCRA 696, 698 (1967).
Galvez v. Court of Appeals, 149 Phil. 377, 384-385; 42 SCRA 278, 286 (1971); Northern Luzon Transportation, Co.,
48
Inc. v. Sambrano, 66 Phil. 60, 62-63 (1938).
123
VOL. 524, JUNE 8, 2007
123
Revenue
similar motion in another case filed by the same party, does not necessarily demonstrate grave abuse of
discretion or arbitrariness on the part of the CTA. Although the cases involve identical parties, the causes
of action and the evidence to support the same can very well be different. As can be gleaned from the
Resolution, dated 20 July 1998, in CTA Case No. 5296, petitioner corporation was claiming refund/credit
of the input VAT on its zero-rated sales, consisting of actual export sales, to Mitsubishi Metal
Corporation in Tokyo, Japan. The CTA took into account the presentation by petitioner corporation of
inward remittances of its export sales for the quarter involved, its Supply Contract with Mitsubishi Metal
Corporation, its 1993 Annual Report showing its sales to the said foreign corporation, and its application
for refund. In contrast, the present Petitions involve the claims of petitioner corporation for refund/credit
of the input VAT on its purchases of capital goods and on its effectively zero-rated sales to CBP and
EPZA-registered enterprises PASAR and PHILPHOS for the second, third, and fourth quarters of 1990
and first quarter of 1992. There being a difference as to the bases of the claims of petitioner corporation
for refund/credit of input VAT in CTA Case No. 5926 and in the Petitions at bar, then, there are resulting
variances as to the evidence required to support them.
Moreover, the very same Resolution, dated 20 July 1998, in CTA Case No. 5296, invoked by petitioner
corporation, emphasizes that the decision of the CTA to allow petitioner corporation to present evidence
“is applicable pro hac vice or in this occasion only as it is the finding of [the CTA] that petitioner
[corporation] has established a few of the aforementioned material points regarding the possible existence
of the export documents together with the prior and succeeding returns for the quarters involved, x x x”
[Emphasis supplied.] Therefore, the CTA, in the present cases, cannot be bound by its ruling in CTA Case
No. 5296, when these cases do not involve the exact same circumstances that compelled it to
124
124

Revenue
grant the motion of petitioner corporation for re-opening of CTA Case No. 5296.
Finally, assuming for the sake of argument that the nonpresentation of the required documents was due to
the fault of the counsel of petitioner corporation, this Court finds that it does not constitute excusable
negligence or mistake which would warrant the re-opening of the cases and/or holding of new trial.
Under Section 1, Rule 37 of the Revised Rules of Court, the “negligence” must be excusable and
generally imputable to the party because if it is imputable to the counsel, it is binding on the client. To
follow a contrary rule and allow a party to disown his counsel’s conduct would render proceedings
indefinite, tentative, and subject to re-opening by the mere subterfuge of replacing the counsel. What the
aggrieved litigant should do is seek administrative sanctions against the erring counsel and not ask for the
reversal of the court’s ruling. X49
As elucidated by this Court in another case, the general rule is that the client is bound by the action of his
50
counsel in the conduct of his case and he cannot therefore complain that the result of the litigation might
have been otherwise had his counsel proceeded differently. It has been held time and again that blunders
and mistakes made in the conduct of the proceedings in the trial court as a result of the ignorance,
inexperience or incompetence of counsel do not qualify as a ground for new trial. If such were to be
admitted as valid reasons for re-opening cases, there would never be an end to litigation so long as a new
counsel could be employed to allege and show that the prior counsel had not been sufficiently diligent,
experienced or learned.X
_______________
49
Que v. Court of Appeals, G.R. No. 150739, 18 August 2005, 467 SCRA 358, 369.
50
Rivera v. Court of Appeals, 452 Phil. 1014, 1024-1025; 405 SCRA 61, 69 (2003).
125
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125

Revenue
Moreover, negligence, to be “excusable,” must be one which ordinary diligence and prudence could not
have guarded against. Revenue Regulations No. 3-88, which was issued on 15 February 1988, had been
51
in effect more than two years prior to the filing by petitioner corporation of its earliest application for
refund/credit of input VAT involved herein on 21 August 1990. CTA Circular No. 1-95 was issued only
on 25 January 1995, after petitioner corporation had filed its Petitions before the CTA, but still during the
pendency of the cases of petitioner corporation before the tax court. The counsel of petitioner corporation
does not allege ignorance of the foregoing administrative regulation and tax court circular, only that he no
longer deemed it necessary to present the documents required therein because of the presentation of
alleged unrebutted evidence of the zero-rated sales of petitioner corporation. It was a judgment call made
by the counsel as to which evidence to present in support of his client’s cause, later proved to be unwise,
but not necessarily negligent.X
Neither is there any merit in the contention of petitioner corporation that the non-presentation of the
required documentary evidence was due to the excusable mistake of its counsel, a ground under Section
1, Rule 37 of the revised Rules of Court for the grant of a new trial. “Mistake,” as it is referred to in the
said rule, must be a mistake of fact, not of law, which relates to the case. In the present case, the
52
supposed mistake made by the counsel of petitioner corporation is one of law, for it was grounded on his
interpretation and evaluation that Revenue Regulations No. 3-88 and CTA Circular No. 1-95, as
amended, did not apply to his client’s cases and that there was no need to comply with the documentary
requirements set forth therein. And although the counsel of petitioner corporation advocated an erroneous
legal position,X
_______________
51
Insular Life Savings and Trust Company v. Runes, Jr., G.R. No. 152530, 12 August 2004, 436 SCRA 317, 324-325.
52
Supra note 46.
126
126

Revenue
the effects thereof, which did not amount to a deprivation of his client’s right to be heard, must bind
petitioner corporation. The question is not whether petitioner corporation succeeded in establishing its
interests, but whether it had the opportunity to present its side. X 53
Besides, litigation is a not a “trial and error” proceeding. A party who moves for a new trial on the ground
of mistake must show that ordinary prudence could not have guarded against it. A new trial is not a refuge
for the obstinate. Ordinary prudence in these cases would have dictated the presentation of all available
54
evidence that would have supported the claims for refund/credit of input VAT of petitioner corporation.
Without sound legal basis, counsel for petitioner corporation concluded that Revenue Regulations No. 3-
88, and later on, CTA Circular No. 1-95, as amended, did not apply to its client’s claims. The obstinacy of
petitioner corporation and its counsel is demonstrated in their failure, nay, refusal, to comply with the
appropriate administrative regulations and tax court circular in pursuing the claims for refund/credit, now
subject of G.R. Nos. 141104 and 148763, even though these were separately instituted in a span of more
than two years. It is also evident in the failure of petitioner corporation to address the issue and to present
additional evidence despite being given the opportunity to do so by the Court of Appeals. As pointed out
by the appellate court, in its Decision, dated 15 September 2000, in CA-G.R. SP No. 46718—X
“x x x Significantly, in the resolution, dated 7 June 2000, this Court directed the parties to file memoranda
discussing, among others, the submission of proof for “its [petitioner’s] sales of gold, copper
concentrates, and pyrite to buyers.” Nevertheless, the parties, including the petitioner, failed to address
this issue, thereby necessitating the affirmance of the ruling of the Court of Tax Appeals on this point.” X 55
_______________
53
Baring v. Cabahug, supra note 47.
54
Viking Industrial Corporation v. Court of Appeals, G.R. No. 143794, 13 July 2004, 434 SCRA 223, 231.
55
127
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Revenue
Summary
Hence, although this Court agreed with the petitioner corporation that the two-year prescriptive period for
the filing of claims for refund/credit of input VAT must be counted from the date of filing of the quarterly
VAT return, and that sales to EPZA-registered enterprises operating within economic processing zones
were effectively zero-rated and were not covered by Revenue Regulations No. 2-88, it still denies the
claims of petitioner corporation for refund of its input VAT on its purchases of capital goods and
effectively zero-rated sales during the second, third, and fourth quarters of 1990 and the first quarter of
1992, for not being established and substantiated by appropriate and sufficient evidence. Petitioner
corporation is also not entitled to the re-opening of its cases and/or holding of new trial since the non-
presentation of the required documentary evidence before the BIR and the CTA by its counsel does not
constitute excusable negligence or mistake as contemplated in Section 1, Rule 37 of the revised Rules of
Court.
WHEREFORE, premises considered, the instant Petitions for Review are hereby DENIED, and the
Decisions, dated 6 July 1999 and 15 September 2000, of the Court of Appeals in CA-G.R. SP Nos. 47607
and 46718, respectively, are hereby AFFIRMED. Costs against petitioner.
Ynares-Santiago (Chairperson), Austria-Martinez and Nachura, JJ., concur.
Petitions denied.
Notes.—Tax credit generally refers to an amount that is subtracted directly from one’s total tax liability,
an allowance against the tax itself, or a deduction from what is owed. Tax deduction is defined as a
subtraction from income for tax purposes, or an amount that is allowed by law to reduce income prior to
the application of the tax rate to compute the
128
128
City Assessor of Cebu City vs. Association of Benevola de Cebu, Inc.

amount of tax which is due. (Commissioner of Internal Revenue vs. Central Luzon Drug
Corporation, 456 SCRA 414 [2005])
In the Philippines, the value-added system of sales taxation has long been in existence, albeit in a
different mode—prior to 1978, the system was a single-stage tax computed under the “cost deduction
method” and was payable only by the original sellers, then the single-stage system was subsequently
modified, and a mixture of the “cost deduction method” and “tax credit method” was used to determine
the value-added tax payable; Under the “tax credit method,” an entity can credit against or subtract from
the VAT charged on its sales or outputs the VAT paid on its purchases, inputs and imports. (Abakada
Guro Party List vs. Ermita, 469 SCRA 1 [2005])
——o0o——
d. Taxation is subject to international comity
G.R. No. 54908. January 22, 1990. *
COMMISSIONER OF INTERNAL REVENUE, petitioner, vs. MITSUBISHI METAL

CORPORATION, ATLAS CONSOLIDATED MINING AND DEVELOPMENT
CORPORATION and the COURT OF TAX APPEALS, respondents.
G.R. No. 80041. January 22, 1990. *
COMMISSIONER OF INTERNAL REVENUE, petitioner, vs. MITSUBISHI METAL

CORPORATION, ATLAS CONSOLIDATED MINING AND DEVELOPMENT
CORPORATION and the COURT OF TAX APPEALS, respondents.
Civil Procedure; Evidence; Admissions; Respondent erred in hold-ing in CTA Case No. 2801 that
petitioner should be deemed to have admitted the allegations of the private respondents when it submitted
the case on the basis of the pleadings and records of the
_______________
* SECOND DIVISION.
215
VOL. 181, JANUARY 22, 1990 2

15
Commissioner of Internal Revenue vs. Mitsubishi Metal
Corp.
bureau.—Prefatorily, it must be noted that respondent court erred in holding in CTA Case No. 2801
that petitioner should be deemed to have admitted the allegations of the private respondents when it
submitted the case on the basis of the pleadings and records of the bureau. There is nothing to indicate
such admission on the part of petitioner nor can we accept respondent court’s pronouncement that
petitioner did not offer to prove the truth of its allegations. The records of the Bureau of Internal Revenue
relevant to the case were duly submitted and admitted as petitioner’s supporting evidence. Additionally, a
hearing was conducted, with presentation of evidence, and the findings of respondent court were based
not only on the pleadings but on the evidence adduced by the parties. There could, therefore, not have
been a judgment on the pleadings, with the theorized admissions imputed to petitioner, as mistakenly held
by respondent court.
Same; Same; Findings of fact of the Court of Tax Appeals are entitled to the highest respect and
can only be disturbed on appeal if they are not supported by substantial evidence or if there is a showing
of gross error or abuse on the part of the tax court.—Time and again, we have ruled that findings of fact
of the Court of Tax Appeals are entitled to the highest respect and can only be disturbed on appeal if they
are not supported by substantial evidence or if there is a showing of gross error or abuse on the part of the
tax court. Thus, ordinarily, we could give due consideration to the holding of respondent court that Mitsu-
bishi is a mere agent of Eximbank. Compelling circumstances obtaining and proven in these cases,
however, warrant a departure from said general rule, since we are convinced that there is a
misapprehension of facts on the part of the tax court to the extent that its conclusions are speculative in
nature.
Same; Same; Same; The agreement is strictly between Mitsubishi as creditor in the contract of loan
and Atlas as the seller of the copper concentrates; Mitsubishi was not a mere agent in said transaction.—
The loan and sales contract between Mitsubishi and Atlas does not contain any direct or inferential
reference to Eximbank whatsoever. The agreement is strictly between Mitsubishi as creditor in the
contract of loan and Atlas as the seller of the copper concentrates. From the categorical language used in
the document, one prestation was in consideration of the other. The specific terms and the reciprocal
nature of their obligations make it implausible, if not vacuous, to give credit to the cavalier assertion that
Mitsubishi was a mere agent in said transaction.
216

16
Commissioner of Internal Revenue vs. Mitsubishi Metal
Corp.
Taxation; Rule is settled that laws granting exemption from tax are construed strictissimi juris
against the taxpayer and liberally in favor of the taxing power.—It is too settled a rule in this jurisdiction,
as to dispense with the need for citations, that laws granting exemption from tax are construed strictissimi
juris against the taxpayer and liberally in favor of the taxing power. Taxation is the rule and exemption is
the exception. The burden of proof rests upon the party claiming exemption to prove that it is in fact
covered by the exemption so claimed, which onus petitioners have failed to discharge. Significantly,
private respondents are not even among the entities which, under Section 29 (b) (7) (A) of the tax code,
are entitled to exemption and which should indispensably be the party in interest in this case.
PETITION to review the decisions of the Court of Tax Appeals.

Gadioma Law Offices for respondents.
REGALADO, J.:
These cases, involving the same issue being contested by the same parties and having originated
from the same factual antecedents generating the claims for tax credit of private respondents, the
same were consolidated by resolution of this Court dated May 31, 1989 and are jointly decided
herein.
The records reflect that on April 17, 1970, Atlas Consolidated Mining and Development
Corporation (hereinafter, Atlas) entered into a Loan and Sales Contract with Mitsubishi Metal
Corporation (Mitsubishi, for brevity), a Japanese corporation licensed to engage in business in
the Philippines, for purposes of the projected expansion of the productive capacity of the
former’s mines in Toledo, Cebu. Under said contract, Mitsubishi agreed to extend a loan to Atlas
‘in the amount of $20,000,000.00, United States currency, for the installation of a new
concentrator for copper production. Atlas, in turn, undertook to sell to Mitsubishi all the copper
concentrates produced from said machine for a period of fifteen (15) years. It was contemplated
that $9,000,000.00 of said loan was to be used for the purchase of the concentrator machinery
from Japan. 1
______________
Rollo, G.R. No. 54908, 21; G.R. No. 80041, 14.
1
217
VOL. 181, JANUARY 22, 1990 217
Commissioner of Internal Revenue vs. Mitsubishi Metal Corp.
Mitsubishi thereafter applied for a loan with the ExportImport Bank of Japan (Eximbank, for
short) obviously for purposes of its obligation under said contract. Its loan application was
approved on May 26, 1970 in the sum of P 4 4,320,000,000.00, at about the same time as the
approval of its loan for ¥ 2 2,880,000,000.00 from a consortium of Japanese banks. The total
amount of both loans is equivalent to $ 20,000,000.00 in United States currency at the then
prevailing exchange rate. The records in the Bureau of Internal Revenue show that the approval
of the loan by Eximbank to Mitsubishi was subject to the condition that Mitsubishi would use the
amount as a loan to Atlas and as a consideration for importing copper concentrates from Atlas,
and that Mitsubishi had to pay back the total amount of loan by September 30, 1981. 2
Pursuant to the contract between Atlas and Mitsubishi, interest payments were made by the
former to the latter totalling P13,143,966.79 for the years 1974 and 1975. The corresponding
15% tax thereon in the amount of P1,971,595.01 was withheld pursuant to Section 24 (b) (1) and
Section 53 (b) (2) of the National Internal Revenue Code, as amended by Presidential Decree
No. 131, and duly remitted to the Government. 3
On March 5, 1976, private respondents filed a claim for tax credit requesting that the sum of
P1,971,595.01 be applied against their existing and future tax liabilities. Parenthetically, it was
later noted by respondent Court of Tax Appeals in its decision that on August 27, 1976,
Mitsubishi executed a waiver and disclaimer of its interest in the claim for tax credit in favor of
Atlas. 4
The petitioner not having acted on the claim for tax credit, on April 23, 1976 private
respondents filed a petition for review with respondent court, docketed therein as CTA Case No.
2801. The petition was grounded on the claim that Mitsubishi was a mere agent of Eximbank,
5
which is a financing institution owned, controlled and financed by the Japanese Government.
Such governmental status of Eximbank, if it may be so called, is
______________
Ibid., G.R. No. 80041, 15, 49.

2
Ibid., G.R. No. 54908, 45-46.

3
Ibid., id., 33-39.
4
Ibid., id., 48.
5
218
the basis for private respondents’ claim for exemption from paying the tax on the interest
payments on the loan as earlier stated. It was further claimed that the interest payments on the
loan from the consortium of Japanese banks were likewise exempt because said loan supposedly
came from or were financed by Eximbank. The provision of the National Internal Revenue Code
relied upon is Section 29 (b) (7) (A), which excludes from gross income:
6
“(A) Income received from their investments in the Philippines in loans, stocks, bonds or other domestic
securities, or from interest on their deposits in banks in the Philippines by (1) foreign governments, (2)
financing institutions owned, controlled, or enjoying refinancing from them, and (3) international or
regional financing institutions established by governments.”
Petitioner filed an answer on July 9, 1976. The case was set for hearing on April 6, 1977 but was
later reset upon manifestation of petitioner that the claim for tax credit of the alleged erroneous
payment was still being reviewed by the Appellate Division of the Bureau of Internal Revenue.
The records show that on November 16, 1976, the said division recommended to petitioner the
approval of private respondent’s claim. However, before action could be taken thereon,
respondent court scheduled the case for hearing on September 30, 1977, during which trial
private respondents presented their evidence while petitioner submitted his case on the basis of
the records of the Bureau of Internal Revenue and the pleadings. 7
On April 18, 1980, respondent court promulgated its decision ordering petitioner to grant a
tax credit in favor of Atlas in the amount of P1,971,595.01. Interestingly, the tax court held that
petitioner admitted the material averments of private respondents when he supposedly prayed
“for judgment on the pleadings without offering proof as to the truth of his
allegations.” Furthermore, the court declared that all papers and documents pertaining to the loan
8
of ¥ 44,320,000,000.00 obtained by Mitsu-

______________
Now, Sec. 28 (b) (8) (A).

6
Rollo, G.R. No. 54908, 41-42.

7
Ibid., id., 42.
8
219
VOL. 181, JANUARY 22, 1990 219
bishi from Eximbank show that this was the same amount given to Atlas. It also observed that
the money for the loans from the consortium of private Japanese banks in the sum of ¥
22,880,000,000.00 “originated” from Eximbank. From these, respondent court concluded that the
ultimate creditor of Atlas was Eximbank with Mitsubishi acting as a mere “arranger or conduit
through which the loans flowed from the creditor Export-Import Bank of Japan to the debtor
Atlas Consolidated Mining & Development Corporation.” 9
A motion for reconsideration having been denied on August 20, 1980, petitioner interposed
an appeal to this Court, docketed herein as G.R. No. 54908.
While CTA Case No. 2801 was still pending before the tax court, the corresponding 15% tax
on the amount of P439,167.95 on the P2,927,789.06 interest payments for the years 1977 and
1978 was withheld and remitted to the Government. Atlas again filed a claim for tax credit with
the petitioner, repeating the same basis for exemption.
On June 25, 1979, Mitsubishi and Atlas filed a petition for review with the Court of Tax
Appeals docketed as CTA Case No. 3015. Petitioner filed his answer thereto on August 14,
1979, and, in a letter to private respondents dated November 12, 1979, denied said claim for tax
credit for lack of factual or legal basis.
10
On January 15, 1981, relying on its prior ruling in CTA Case No. 2801, respondent court
rendered judgment ordering the petitioner to credit Atlas the aforesaid amount of tax paid. A
motion for reconsideration, filed on March 10, 1981, was denied by respondent court in a
resolution dated September 7, 1987. A notice of appeal was filed on September 22, 1987 by
petitioner with respondent court and a petition for review was filed with this Court on December
19, 1987. Said later case is now before us as G.R. No. 80041 and is consolidated with G.R. No.
54908.
The principal issue in both petitions is whether or not the interest income from the loans
extended to Atlas by Mitsubishi is excludible from gross income taxation pursuant to Section 29
(b) (7) (A) of the tax code and, therefore, exempt from withhold-
____________
9
Ibid., id., 51-52.
10
Ibid., G.R. No. 80041, 17.
220
ing tax. Apropos thereto, the focal question is whether or not Mitsubishi is a mere conduit of
Eximbank which will then be considered as the creditor whose investments in the Philippines on
loans are exempt from taxes under the code.
Prefatorily, it must be noted that respondent court erred in holding in CTA Case No. 2801
that petitioner should be deemed to have admitted the allegations of the private respondents
when it submitted the case on the basis of the pleadings and records of the bureau. There is
nothing to indicate such admission on the part of petitioner nor can we accept respondent court’s
pronouncement that petitioner did not offer to prove the truth of its allegations. The records of
the Bureau of Internal Revenue relevant to the case were duly submitted and admitted as
petitioner’s supporting evidence. Additionally, a hearing was conducted, with presentation of
evidence, and the findings of respondent court were based not only on the pleadings but on the
evidence adduced by the parties. There could, therefore, not have been a judgment on the
pleadings, with the theorized admissions imputed to petitioner, as mistakenly held by respondent
court.
Time and again, we have ruled that findings of fact of the Court of Tax Appeals are entitled to
the highest respect and can only be disturbed on appeal if they are not supported by substantial
evidence or if there is a showing of gross error or abuse on the part of the tax court. Thus, 11
ordinarily, we could give due consideration to the holding of respondent court that Mitsubishi is
a mere agent of Eximbank. Compelling circumstances obtaining and proven in these cases,
however, warrant a departure from said general rule, since we are convinced that there is a
misapprehension of facts on the part of the tax court to the extent that its conclusions are
speculative in nature.
The loan and sales contract between Mitsubishi and Atlas does not contain any direct or
inferential reference to Eximbank whatsoever. The agreement is strictly between Mitsubishi as
creditor in the contract of loan and Atlas as the seller of the
_____________
11
Nasiad, et al. vs. Court of Tax Appeals, 61 SCRA 238 (1974); Raymundo vs. de Joya, et al., 101 SCRA
495 (1980); Commissioner of Internal Revenue vs. Arnoldus Carpentry Shop, Inc., et al., 159 SCRA 199 (1988).
221
VOL. 181, JANUARY 22, 1990 221
copper concentrates. From the categorical language used in the document, one prestation was in
consideration of the other. The specific terms and the reciprocal nature of their obligations make
it implausible, if not vacuous, to give credit to the cavalier assertion that Mitsubishi was a mere
agent in said transaction.
Surely, Eximbank had nothing to do with the sale of the copper concentrates since all that
Mitsubishi stated in its loan application with the former was that the amount being procured
would be used as a loan to and in consideration for importing copper concentrates from
Atlas. Such an innocuous statement of purpose could not have been intended for, nor could it
12
legally constitute, a contract of agency. If that had been the purpose as respondent court believes,
said corporations would have specifically so stated, especially considering their experience and
expertise in financial transactions, not to speak of the amount involved and its purchasing value
in 1970.
A thorough analysis of the factual and legal ambience of these cases impels us to give weight
to the following arguments of petitioner:
“The nature of the above contract shows that the same is not just a simple contract of loan. It is not a mere
creditor-debtor relationship. It is more of a reciprocal obligation between ATLAS and MITSUBISHI
where the latter shall provide the funds in the installation of a new concentrator at the former’s Toledo
mines in Cebu, while ATLAS in consideration of which, shall sell to MITSUBISHI, for a term of 15
years, the entire copper concentrate that will be produced by the installed concentrator.
“Suffice it to say, the selling of the copper concentrate to MITSUBISHI within the specified term was
the consideration of the granting of the amount of $20 million to ATLAS. MITSUBISHI, in order to
fulfill its part of the contract, had to obtain funds. Hence, it had to secure a loan or loans from other
sources. And from what sources, it is immaterial as far as ATLAS in concerned. In this case,
MITSUBISHI obtained the $20 million from the EXIMBANK of Japan and the consortium of Japanese
banks financed through the EXIMBANK of Japan.
“When MITSUBISHI therefore secured such loans, it was in its own independent capacity as a private
entity and not as a conduit of
_____________
Rollo, G.R. 80041, 15.

12
222
the consortium of Japanese banks or the EXIMBANK of Japan. While the loans were secured by
MITSUBISHI primarily ‘as a loan to and in consideration for importing copper concentrates from
ATLAS,’ the fact remains that it was a loan by EXIMBANK of Japan to MITSUBISHI and not to
ATLAS.
“Thus, the transaction between MITSUBISHI and EXIMBANK of Japan was a distinct and separate
contract from that entered into by MITSUBISHI and ATLAS. Surely, in the latter contract, it is not
EXIMBANK that was intended to be benefited. It is MITSUBISHI which stood to profit. Besides, the
Loan and Sales Contract cannot be any clearer. The only signatories to the same were MITSUBISHI and
ATLAS. Nowhere in the contract can it be inferred that MITSUBISHI acted for and in behalf of
EXIMBANK of Japan nor of any entity, private or public, for that matter.
“Corollary to this, it may well be stated that in this jurisdiction, well-settled is the rule that when a
contract of loan is completed, the money ceases to be the property of the former owner and becomes the
sole property of the obligor (Tolentino and Manio vs. Gonzales Sy, 50 Phil. 558).
“In the case at bar, when MITSUBISHI obtained the loan of $20 million from EXIMBANK of Japan,
said amount ceased to be the property of the bank and became the property of MITSUBISHI.
“The conclusion is indubitable: MITSUBISHI, and NOT EXIMBANK, is the sole creditor of ATLAS,
the former being the owner of the $20 million upon completion of its loan contract with EXIMBANK of
Japan.
“The interest income of the loan paid by ATLAS to MITSUBISHI is therefore entirely different from
the interest income paid by MITSUBISHI to EXIMBANK of Japan. What was the subject of the 15%
withholding tax is not the interest income paid by MITSUBISHI to EXIMBANK but the interest income
earned by MITSUBISHI from the loan to ATLAS. x x x” 13
To repeat, the contract between Eximbank and Mitsubishi is entirely different. It is complete in
itself, does not appear to be suppletory or collateral to another contract and is, therefore, not to be
distorted by other considerations aliunde. The application for the loan was approved on May 20,
1970, or more than a month after the contract between Mitsubishi and Atlas was entered into on
April 17, 1970. It is true that under the contract
_______________
13
Ibid., G.R. No. 54908, 23-25.
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VOL. 181, JANUARY 22, 1990 223
of loan with Eximbank, Mitsubishi agreed to use the amount as a loan to and in consideration for
importing copper concentrates from Atlas, but all that this proves is the justification for the loan
as represented by Mitsubishi, a standard banking practice for evaluating the prospects of due
repayment. There is nothing wrong with such stipulation as the parties in a contract are free to
agree on such lawful terms and conditions as they see fit. Limiting the disbursement of the
amount borrowed to a certain person or to a certain purpose is not unusual, especially in the case
of Eximbank which, aside from protecting its financial exposure, must see to it that the same are
in line with the provisions and objectives of its charter.
Respondents postulate that Mitsubishi had to be a conduit because Eximbank’s charter
prevents it from making loans except to Japanese individuals and corporations. We are not
impressed. Not only is there a failure to establish such submission by adequate evidence but it
posits the unfair and unexplained imputation that, for reasons subject only of surmise, said
financing institution would deliberately circumvent its own charter to accommodate an alien
borrower through a manipulated subterfuge, but with it as a principal and the real obligee.
The allegation that the interest paid by Atlas was remitted in full by Mitsubishi to Eximbank,
assuming the truth thereof, is too tenuous and conjectural to support the proposition that
Mitsubishi is a mere conduit. Furthermore, the remittance of the interest payments may also be
logically viewed as an arrangement in paying Mitsubishi’s obligation to Eximbank. Whatever
arrangement was agreed upon by Eximbank and Mitsubishi as to the manner or procedure for the
payment of the latter’s obligation is their own concern. It should also be noted that Eximbank’s
loan to Mitsubishi imposes interest at the rate of 75% per annum, while Mitsubishi’s contract
with Atlas merely states that the “interest on the amount of the loan shall be the actual cost
beginning from and including other dates of releases against loan.” 14
It is too settled a rule in this jurisdiction, as to dispense with the need for citations, that laws
granting exemption from tax
______________
14
Ibid., G.R. No. 80041, 15, 27.
224
are construed strictissimi juris against the taxpayer and liberally in favor of the taxing power.
Taxation is the rule and exemption is the exception. The burden of proof rests upon the party
claiming exemption to prove that it is in fact covered by the exemption so claimed, which onus
petitioners have failed to discharge. Significantly, private respondents are not even among the
entities which, under Section 29 (b) (7) (A) of the tax code, are entitled to exemption and which
should indispensably be the party in interest in this case.
Definitely, the taxability of a party cannot be blandly glossed over on the basis of a supposed
“broad, pragmatic analysis” alone without substantial supportive evidence, lest governmental
operations suffer due to diminution of much needed funds. Nor can we close this discussion
without taking cognizance of petitioner’s warning, of pervasive relevance at this time, that while
international comity is invoked in this case on the nebulous representation that the funds
involved in the loans are those of a foreign government, scrupulous care must be taken to avoid
opening the floodgates to the violation of our tax laws. Otherwise, the mere expedient of having
a Philippine corporation enter into a contract for loans or other domestic securities with private
foreign entities, which in turn will negotiate independently with their governments, could be
availed of to take advantage of the tax exemption law under discussion.
WHEREFORE, the decisions of the Court of Tax Appeals in CTA Cases Nos. 2801 and
3015, dated April 18, 1980 and January 15, 1981, respectively, are hereby REVERSED and SET
ASIDE.
SO ORDERED.
Melencio-Herrera (Chairman), Paras, Padilla and Sar-miento, JJ., concur.
Decision reversed and set aside.
Note.—A request addressed to the Secretary of Finance for reconsideration of the decision of
the Commissioner of Internal Revenue does not suspend the running of the period for appeal.
(Dy Pac & Co. vs. Court of Tax Appeals, 78 SCRA 442.)
——o0o——
G.R. Nos. 193383-84. January 14, 2015.*

CBK POWER COMPANY LIMITED, petitioner, vs. COMMISSIONER OF INTERNAL
REVENUE, respondent.
G.R. Nos. 193407-08. January 14, 2015.*

COMMISSIONER OF INTERNAL REVENUE, petitioner, vs. CBK POWER COMPANY
LIMITED, respondent.
International Law; Pacta Sunt Servanda; The time-honored international principle of pacta sunt
servanda demands the performance in good faith of treaty obligations on the part of the states that enter
into the agreement.—The Philippine Constitution provides for adherence to the general principles of
international law as part of the law of the land. The time-honored international principle of pacta sunt
servanda demands the performance in good faith of treaty obligations on the part of the states that enter
into the agreement. In this jurisdiction, treaties have the force and effect of law.
Taxation; Tax Refunds; As the Supreme Court (SC) exhorted in Republic v. GST Philippines, Inc.,
707 SCRA 695 (2013), while the taxpayer has an obligation to honestly pay the right taxes, the
government has a corollary duty to implement tax laws in good faith; to discharge its duty to collect what
is due to it; and to justly return what has been erroneously and excessively given to it. —It bears
reiterating that the application for a tax treaty relief from the BIR should merely operate to confirm the
entitlement of the taxpayer to the relief. Since CBK Power had requested for confirmation from the ITAD
on June 8, 2001 and October 28, 2002 before it filed on April 14, 2003 its administrative claim for refund
of its excess final withholding taxes, the same should be deemed substantial compliance with RMO No.
1-2000, as in Deutsche Bank AG Manila Branch v. Commissioner of Internal Revenue, 704 SCRA 216
(2013). To rule otherwise would defeat the purpose of Section 229 of the NIRC in providing the taxpayer
a remedy for erroneously paid tax solely on the ground of failure to make prior application for tax
_______________
* FIRST DIVISION.
94
CBK Power Company Limited vs. Commissioner of Internal
Revenue
treaty relief. As the Court exhorted in Republic v. GST Philippines, Inc., 707 SCRA 695 (2013),
while the taxpayer has an obligation to honestly pay the right taxes, the government has a corollary duty
to implement tax laws in good faith; to discharge its duty to collect what is due to it; and to justly return
what has been erroneously and excessively given to it.
Same; Same; Sections 204 and 229 of the National Internal Revenue Code (NIRC) pertain to the
refund of erroneously or illegally collected taxes.—Sections 204 and 229 of the NIRC pertain to the
refund of erroneously or illegally collected taxes. Section 204 applies to administrative claims for refund,
while Section 229 to judicial claims for refund. In both instances, the taxpayer’s claim must be filed
within two (2) years from the date of payment of the tax or penalty. However, Section 229 of the NIRC
further states the condition that a judicial claim for refund may not be maintained until a claim for refund
or credit has been duly filed with the Commissioner.
PETITIONS for review on certiorari of the decision and resolution of the Court of Tax
Appeals En Banc.
Sycip, Salazar, Hernandez & Gatmaitan for CBK Power, Co., Ltd.

PERLAS-BERNABE, J.:

Assailed in these consolidated petitions for review on certiorari1 are the Decision2 dated
March 29, 2010 and the Resolution3 dated August 16, 2010 of the Court of Tax Appeals
_______________
1 Rollo (G.R. Nos. 193383-84), pp. 53-84; Rollo (G.R. Nos. 193407-08), pp. 8-37.

2 Id., at pp. 96-119; id., at pp. 43-66. Penned by Associate Justice Erlinda P. Uy, with Associate Justices Juanito C.
Castañeda, Jr., Lovell R. Bautista, Caesar A. Casanova, and Olga Palanca-Enriquez, concurring. Presiding Justice Ernesto
D. Acosta was on leave.
3 Id., at pp. 122-135; id., at pp. 69-82. Penned by Associate Justice Erlinda P. Uy, with Presiding Justice Ernesto D.
Acosta and Associate Justices Lovell R. Bautista, Caesar A. Casanova, and Olga
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(CTA) En Banc in C.T.A. E.B. Nos. 469 and 494, which affirmed the Decision 4 dated August
28, 2008, the Amended Decision5 dated February 12, 2009, and the Resolution6 dated May 7,
2009 of the CTA First Division in CTA Case Nos. 6699, 6884, and 7166 granting CBK Power
Company Limited (CBK Power) a refund of its excess final withholding tax for the taxable years
2001 to 2003.

The Facts

CBK Power is a limited partnership duly organized and existing under the laws of the
Philippines, and primarily engaged in the development and operation of the Caliraya, Botocan,
and Kalayaan hydroelectric power-generating plants in Laguna (CBK Project). It is registered
with the Board of Investments (BOI) as engaged in a preferred pioneer area of investment under
the Omnibus Investment Code of 1987.7
To finance the CBK Project, CBK Power obtained in August 2000 a syndicated loan from
several foreign banks,8 i.e., BNP Paribas, Dai-ichi Kangyo Bank, Limited, Industrial Bank of
Japan, Limited, and Societe General (original lenders), acting through an Inter-Creditor Agent,
Dai-ichi Kangyo Bank, a Japanese bank that subsequently merged with the Industrial Bank of
Japan, Limited (Industrial Bank of Japan) and the Fuji Bank, Limited (Fuji Bank), with the
merged entity being named as Mizuho Corporate Bank (Mizuho Bank). One of the merged
banks, Fuji Bank, had a branch in
_______________
Palanca-Enriquez, concurring. Associate Justice Juanito C. Castañeda, Jr. was on leave.

4 Id., at pp. 274-292; id., at pp. 295-313. Penned by Associate Justice Caesar A. Casanova, with Presiding Justice
Ernesto D. Acosta and Associate Justice Lovell R. Bautista, concurring.
5 Id., at pp. 309-313; id., at pp. 315-319.
6 Id., at pp. 346-350; id., at pp. 324-328.
7 Id., at p. 98.
8 Id., at p. 99.
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the Philippines, which became a branch of Mizuho Bank as a result of the merger. The
Industrial Bank of Japan and Mizuho Bank are residents of Japan for purposes of income
taxation, and recognized as such under the relevant provisions of the income tax treaties between
the Philippines and Japan.9
Certain portions of the loan were subsequently assigned by the original lenders to various
other banks, including Fortis Bank (Nederland) N.V. (Fortis-Netherlands) and Raiffesen Zentral
Bank Osterreich AG (Raiffesen Bank). Fortis-Netherlands, in turn, assigned its portion of the
loan to Fortis Bank S.A./N.V. (Fortis-Belgium), a resident of Belgium. Fortis-Netherlands and
Raiffesen Bank, on the other hand, are residents of Netherlands and Austria, respectively.10
In February 2001, CBK Power borrowed money from Industrial Bank of Japan, Fortis-
Netherlands, Raiffesen Bank, Fortis-Belgium, and Mizuho Bank for which it remitted interest
payments from May 2001 to May 2003.11 It allegedly withheld final taxes from said payments
based on the following rates, and paid the same to the Revenue District Office No. 55 of the
Bureau of Internal Revenue (BIR): (a) fifteen percent (15%) for Fortis-Belgium, Fortis-
Netherlands, and Raiffesen Bank; and (b) twenty percent (20%) for Industrial Bank of Japan and
Mizuho Bank.12
However, according to CBK Power, under the relevant tax treaties between the Philippines
and the respective countries in which each of the banks is a resident, the interest income derived
by the aforementioned banks are subject only to a preferential tax rate of 10%, viz.:13
_______________
9 Id., at pp. 99-100.

10 Id.
11 Id., at pp. 274 and 276-277.
12 Id., at pp. 100-101.
13 Id., at p. 101.
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Accordingly, on April 14, 2003, CBK Power filed a claim for refund of its excess final
withholding taxes allegedly erroneously withheld and collected for the years 2001 and 2002 with
the BIR Revenue Region No. 9. The claim for refund of excess final withholding taxes in 2003
was subsequently filed on March 4, 2005.14
The Commissioner of Internal Revenue’s (Commissioner) inaction on said claims prompted
CBK Power to file petitions for review before the CTA, viz.:15
(1) CTA Case No. 6699 was filed by CBK Power on June 6, 2003 seeking the refund of excess final
withholding tax in the total amount of P6,393,267.20 covering the year 2001 with respect to interest
income derived by [Fortis-Belgium], Industrial Bank of Japan, and [Raiffesen Bank]. An Answer was
filed by the Commissioner on July 25, 2003.
(2) CTA Case No. 6884 was filed by CBK Power on March 5, 2004 seeking for the refund of the
amount of
_______________
14 Id.
15 Id., at pp. 101-102.
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P8,136,174.31 covering [the] year 2002 with respect to interest income derived by [Fortis-Belgium],
Industrial Bank of Japan, [Mizuho Bank], and [Raiffesen Bank]. The Commissioner filed his Answer on
May 7, 2004.
x x x x
(3) CTA Case No. 7166 was filed by CBK [Power] on March 9, 2005 seeking for the refund of [the
amount of] P1,143,517.21 covering [the] year 2003 with respect to interest income derived by [Fortis-
Belgium], and [Raiffesen Bank]. The Commissioner filed his Answer on May 9, 2005. (Emphases
supplied)

CTA Case Nos. 6699 and 6884 were consolidated first on June 18, 2004. Subsequently,
however, all three cases — CTA Case Nos. 6699, 6884, and 7166 — were consolidated in a
Resolution dated August 3, 2005.16

The CTA First Division’s Rulings

In a Decision17 August 28, 2008, the CTA First Division granted the dated petitions and
ordered the refund of the amount of P15,672,958.42 upon a finding that the relevant tax treaties
were applicable to the case.18 It cited DA-ITAD Ruling No. 099-0319 dated July 16, 2003, issued
by the BIR, confirming CBK Power’s claim that the interest payments it made to Industrial Bank
of Japan and Raiffesen Bank were subject to a final withholding tax rate of only 10% of the
gross amount of interest, pursuant to Article 11 of the Republic of the Philippines (RP)-Austria
and RP-Japan tax treaties. However, in DA-ITAD Ruling No. 126-0320 dated August 18, 2003,
also issued by the BIR, interest payments to Fortis-
_______________
16 Id.
17 Id., at pp. 122-135; Rollo (G.R. Nos. 193407-08), pp. 69-82.
18 Id., at pp. 290-292.
19 Id., at pp. 136-141. Signed by Assistant Commissioner Milagros V. Regalado.
20 Id., at pp. 142-143.
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Belgium were likewise subjected to the same rate pursuant to the Protocol Amending the RP-
Belgium Tax Treaty, the provisions of which apply on income derived or which accrued
beginning January 1, 2000. With respect to interest payments made to Fortis-Netherlands before
it assigned its portion of the loan to Fortis-Belgium, the CTA First Division likewise granted the
preferential rate.21
The CTA First Division categorically declared in the August 28, 2008 Decision that the
required International Tax Affairs Division (ITAD) ruling was not a condition sine qua non for
the entitlement of the tax relief sought by CBK Power, 22 however, upon motion for
reconsideration23 filed by the Commissioner, the CTA First Division amended its earlier decision
by reducing the amount of the refund from P15,672,958.42 to P14,835,720.39 on the ground that
CBK Power failed to obtain an ITAD ruling with respect to its transactions with Fortis-
Netherlands.24 In its Amended Decision25 dated February 12, 2009, the CTA First Division
adopted26 the ruling in the case of Mirant (Philippines) Operations Corporation (formerly:
Southern Energy Asia-Pacific Operations [Phils.], Inc.) v. Commissioner of Internal
Revenue (Mirant),27 cited by the Commissioner in his motion for recon-
_______________
21 Id., at pp. 289-290.

22 Id., at p. 290.
23 Id., at pp. 293-300.
24 Id., at pp. 312-313.
25 Id., at pp. 309-313; id., at pp. 315-319.
26 Id., at p. 312.
27 C.T.A. E.B. No. 40, June 7, 2005. The pertinent portions of Mirant read:
However, it must be remembered that a foreign corporation wishing to avail of the benefits of the tax treaty should
invoke the provisions of the tax treaty and prove that indeed the provisions of the tax treaty applies to it, before the
benefits may be extended to such corporation. In other words, a resident or nonresident foreign corporation shall be taxed
according to the provisions of the National

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sideration, where the Court categorically pronounced in its Resolution dated February 18,
2008 that an ITAD ruling must be obtained prior to availing a preferential tax rate.
CBK Power moved for the reconsideration 28 of the Amended Decision dated February 12,
2009, arguing in the main that the Mirant case, which was resolved in a minute resolution, did
not establish a legal precedent. The motion was denied, however, in a Resolution 29 dated May 7,
2009 for lack of merit.
Undaunted, CBK Power elevated the matter to the CTA En Banc on petition for
review,30 docketed as C.T.A E.B. No. 494. The Commissioner likewise filed his own petition for
review,31 which was docketed as C.T.A. E.B. No. 469. Said petitions were subsequently
consolidated.32
_______________
Internal Revenue Code, unless it is shown that the treaty provisions apply to the said corporation, and that, in cases the
same are applicable, the option to avail of the tax benefits under the tax treaty has been successfully invoked.
Under Revenue Memorandum Order 01-2000 of the Bureau of Internal Revenue, it is provided that the availment of a
tax treaty provision must be preceded by an application for a tax treaty relief with its International Tax Affairs Division
(ITAD). This is to prevent any erroneous interpretation and/or application of the treaty provisions with which the
Philippines is a signatory to. The implementation of the said Revenue Memorandum Order is in harmony with the
objectives of the contracting state to ensure that the granting of the benefits under the tax treaties are enjoyed by the
persons or corporations duly entitled to the same.
(See footnote no. 9 of Deutsche Bank AG Manila Branch v. Commissioner of Internal Revenue, G.R. No. 188550,
August 19, 2013, 704 SCRA 216, 221)
28 Rollo (G.R. Nos. 193383-84), pp. 314-330.
30 Id., at pp. 364-396.
31 Id., at pp. 351-363.
32 Id., at p. 104.
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CBK Power raised the lone issue of whether or not an ITAD ruling is required before it can
avail of the preferential tax rate. On the other hand, the Commissioner claimed that CBK Power
failed to exhaust administrative remedies when it filed its petitions before the CTA First
Division, and that said petitions were not filed within the two-year prescriptive period for
initiating judicial claims for refund.33

The CTA En Banc’s Ruling

In a Decision34 dated March 29, 2010, the CTA En Banc affirmed the ruling of the CTA First
Division that a prior application with the ITAD is indeed required by Revenue Memorandum
Order (RMO) 1-2000,35 which administrative issuance
_______________
33 Id., at pp. 104-105.

35 Revenue Memorandum Order No. 1-2000 issued January 4, 2000 prescribes the procedures for processing tax
treaty relief applications, amending RMO No. 10-92 dated February 1, 1992. The Order covers exclusively applications
for tax treaty relief, including claims or requests for tax exemption, preferential tax treaty rate and refund or credit of taxes
on income derived or to be derived by the taxpayer under existing tax treaties. The processing for tax treaty relief shall be
transferred from Law Division to the International Tax Affairs Division (ITAD). Any availment of the tax treaty relief
shall be preceded by an application by filing BIR Form No. 0901 (Application for Relief from Double Taxation) with
ITAD at least 15 days before the transaction (i.e., payment of dividends, royalties, etc.), accompanied by supporting
documents justifying the relief. Consequently, BIR Form Nos. TC 001 and TC 002 prescribed under RMO No. 10-92 are
declared obsolete. Claims for tax credit/refund pertinent to the tax treaty relief requested shall be filed with ITAD within
the two-year period prescribed by Section 229 of the NIRC, as amended under RA 8424. The Tax Credit Certificate (TCC)
for this purpose shall be issued for the account of the “nonresident taxpayer/recipient of the income.” Issuance of the TCC
shall be done by the Appellate Division upon receipt of endorsement memo from ITAD recommending the issuance of
such. The release of the signed
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has the force and effect of law and is just as binding as a tax treaty. The CTA En Banc declared
the Mirant case as without any binding effect on CBK Power, having been resolved by this
Court merely through minute resolutions, and relied instead on the mandatory wording of RMO
1-2000, as follows:36

III. Policies:
x x x x
2. Any availment of the tax treaty relief shall be preceded by an application by filing BIR Form No.
0901 (Application for Relief from Double Taxation) with ITAD at least 15 days before the
transaction i.e., payment of dividends, royalties, etc., accompanied by supporting documents justifying
the relief. x x x.

The CTA En Banc further held that CBK Power’s petitions for review were filed within the
two-year prescriptive period provided under Section 22937 of the National Internal Revenue
_______________
TCC to the taxpayer/applicant, however, shall be done by ITAD. (<ftp://ftp.bir.gov.ph/webadmin1/others/18649RMO

%201.htm> [visited December 19, 2014])
36 Rollo (G.R. Nos. 193383-84), pp. 91-92.
37 SEC. 229. Recovery of Tax Erroneously or Illegally Collected.—No suit or proceeding shall be maintained in
any court for the recovery of any national internal revenue tax hereafter alleged to have been erroneously or illegally
assessed or collected, or of any penalty claimed to have been collected without authority, or of any sum alleged to have
been excessively or in any manner wrongfully collected, until a claim for refund or credit has been duly filed with the
Commissioner; but such suit or proceeding may be maintained, whether or not such tax, penalty, or sum has been paid
under protest or duress.
In any case, no such suit or proceeding shall be filed after the expiration of two (2) years from the date of payment of
the tax or penalty regardless of any supervening cause that may arise after payment: Provided, however, That the
Commissioner may, even
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Code of 199738 (NIRC), and that it was proper for CBK Power to have filed said petitions
without awaiting the final resolution of its administrative claims for refund before the BIR;
otherwise, it would have completely lost its right to seek judicial recourse if the two-year
prescriptive period lapsed with no judicial claim filed.
CBK Power’s motion for partial reconsideration and the Commissioner’s motion for
reconsideration of the foregoing Decision were both denied in a Resolution39 dated August 16,
2010 for lack of merit; hence, the present consolidated petitions.

The Issues Before the Court

In G.R. Nos. 193383-84, CBK Power submits the sole legal issue of whether the BIR may
add a requirement — prior application for an ITAD ruling — that is not found in the income tax
treaties signed by the Philippines before a taxpayer can avail of preferential tax rates under said
treaties.40
On the other hand, in G.R. Nos. 193407-08, the Commissioner maintains that CBK Power is
not entitled to a refund in the amount of P1,143,517.21 for the period covering taxable year 2003
as it allegedly failed to exhaust administrative remedies before seeking judicial redress.41
_______________
without a written claim therefor, refund or credit any tax, where on the face of the return upon which payment was
made, such payment appears clearly to have been erroneously paid.
38 Republic Act No. 8424, entitled “An Act Amending the National Internal Revenue Code, as Amended, and for
Other Purposes” (January 1, 1998).
39 Rollo (G.R. Nos. 193383-84), pp. 122-135; Rollo (G.R. Nos. 193407-08), pp. 69-82.
40 Id., at p. 53.
41 Id., at p. 23.
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The Court’s Ruling

The Court resolves the foregoing in seriatim.

A. G.R. Nos. 193383-84

The Philippine Constitution provides for adherence to the general principles of international
law as part of the law of the land. The time-honored international principle of pacta sunt
servanda demands the performance in good faith of treaty obligations on the part of the states
that enter into the agreement. In this jurisdiction, treaties have the force and effect of law.42
The issue of whether the failure to strictly comply with RMO No. 1-2000 will deprive
persons or corporations of the benefit of a tax treaty was squarely addressed in the recent case
of Deutsche Bank AG Manila Branch v. Commissioner of Internal Revenue 43 (Deutsche Bank),
where the Court emphasized that the obligation to comply with a tax treaty must take
precedence over the objective of RMO No.
1-2000, viz.:
We recognize the clear intention of the BIR in implementing RMO No. 1-2000, but the CTA’s
outright denial of a tax treaty relief for failure to strictly comply with the prescribed period is not in
harmony with the objectives of the contracting state to ensure that the benefits granted under tax treaties
are enjoyed by duly entitled persons or corporations.
Bearing in mind the rationale of tax treaties, the period of application for the availment of tax treaty
relief as required by RMO No. 1-2000 should not operate to divest entitlement to the relief as it would
constitute a violation of the duty required by good faith in com-
_______________
42 Deutsche Bank AG Manila Branch v. Commissioner of Internal Revenue, supra note 27 at p. 227.

43 Id.
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plying with a tax treaty. The denial of the availment of tax relief for the failure of a taxpayer to apply
within the prescribed period under the administrative issuance would impair the value of the tax treaty.
At most, the application for a tax treaty relief from the BIR should merely operate to confirm the
entitlement of the taxpayer to the relief.
The obligation to comply with a tax treaty must take precedence over the objective of RMO No.
1-2000. Logically, noncompliance with tax treaties has negative implications on international relations,
and unduly discourages foreign investors. While the consequences sought to be prevented by RMO No. 1-
2000 involve an administrative procedure, these may be remedied through other system management
processes, e.g., the imposition of a fine or penalty. But we cannot totally deprive those who are
entitled to the benefit of a treaty for failure to strictly comply with an administrative issuance
requiring prior application for tax treaty relief. (Emphases and underscoring supplied)
44

The objective of RMO No. 1-2000 in requiring the application for treaty relief with the ITAD
before a party’s availment of the preferential rate under a tax treaty is to avert the consequences
of any erroneous interpretation and/or application of treaty provisions, such as claims for
refund/credit for overpayment of taxes, or deficiency tax liabilities for underpayment. 45 However,
as pointed out in Deutsche Bank, the underlying principle of prior application with the BIR
becomes moot in refund cases — as in the present case — where the very basis of the claim
is erroneous or there is excessive payment arising from the non-availment of a tax treaty relief
at the first instance. Just as Deutsche Bank was not faulted by the Court for not complying with
RMO No. 1-2000 prior to
_______________
44 Id., at pp. 228-229.

45 Rollo (G.R. Nos. 193383-84), p. 91.
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the transaction,46 so should CBK Power. In parallel, CBK Power could not have applied for a
tax treaty relief 15 days prior to its payment of the final withholding tax on the interest paid to its
lenders precisely because it erroneously paid said tax on the basis of the regular rate as
prescribed by the NIRC, and not on the preferential tax rate provided under the different treaties.
As stressed by the Court, the prior application requirement under RMO No. 1-2000 then
becomes illogical.47
Not only is the requirement illogical, but it is also an imposition that is not found at all in
the applicable tax treaties. In Deutsche Bank, the Court categorically held that the BIR should
not impose additional requirements that would negate the availment of the reliefs provided for
under international agreements, especially since said tax treaties do not provide for any
prerequisite at all for the availment of the benefits under said agreements.48
It bears reiterating that the application for a tax treaty relief from the BIR should merely
operate to confirm the entitlement of the taxpayer to the relief.49 Since CBK Power had
requested for confirmation from the ITAD on June 8, 2001 and October 28, 200250 before it filed
on April 14, 2003 its administrative claim for refund of its excess final withholding taxes, the
same should be deemed substantial compliance with RMO No. 1-2000, as in Deutsche Bank.
To rule otherwise would defeat the purpose of Section 229 of the NIRC in providing the taxpayer
a remedy for erroneously paid tax solely on the ground of failure to make prior applica-
_______________
46 Deutsche Bank AG Manila Branch v. Commissioner of Internal Revenue, supra note 27 at p. 229.

47 Id., at pp. 229-230.
48 Id., at p. 228.
49 Id., at p. 229.
50 See Rollo (G.R. Nos. 193389-84), p. 136.
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VOL. 746, JANUARY 14, 2015 107
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tion for tax treaty relief.51 As the Court exhorted in Republic v. GST Philippines, Inc.,52 while
the taxpayer has an obligation to honestly pay the right taxes, the government has a corollary
duty to implement tax laws in good faith; to discharge its duty to collect what is due to it; and
to justly return what has been erroneously and excessively given to it.53
In view of the foregoing, the Court holds that the CTA En Banc committed reversible error in
affirming the reduction of the amount of refund to CBK Power from P15,672,958.42 to
P14,835,720.39 to exclude its transactions with Fortis-Netherlands for which no ITAD ruling
was obtained.54 CBK Power’s petition in G.R. Nos. 193383-84 is therefore granted.
The opposite conclusion is, however, reached with respect to the Commissioner’s petition in
G.R. Nos. 193407-08.

B. G.R. Nos. 193407-08

The Commissioner laments55 that he was deprived of the opportunity to act on the
administrative claim for refund of excess final withholding taxes covering taxable year 2003
which CBK Power filed on March 4, 2005, a Friday, then the following Wednesday, March 9,
2005, the latter hastily elevated the case on petition for review before the CTA. He argues 56 that
the failure on the part of CBK Power to give him a reasonable time to act on said claim is
violative of the doctrines of exhaustion of administrative remedies and of primary jurisdiction.
_______________
51 See Deutsche Bank AG Manila Branch v. Commissioner of Internal Revenue, supra note 27 at p. 230.

52 G.R. No. 190872, October 17, 2013, 707 SCRA 695.
53 Id., at p. 696.
54 Rollo (G.R. Nos. 193383-84), p. 312.
55 Rollo (G.R. Nos. 193407-08), p. 29.
56 Id., at pp. 26-32.
108
Revenue
For its part, CBK Power maintains 57 that it would be prejudicial to wait for the
Commissioner’s ruling before it files its judicial claim since it only has 2 years from the payment
of the tax within which to file both its administrative and judicial claims.
The Court rules for CBK Power.
Sections 204 and 229 of the NIRC pertain to the refund of erroneously or illegally collected
taxes. Section 204 applies to administrative claims for refund, while Section 229 to judicial
claims for refund. In both instances, the taxpayer’s claim must be filed within two (2) years from
the date of payment of the tax or penalty. However, Section 229 of the NIRC further states the
condition that a judicial claim for refund may not be maintained until a claim for refund or credit
has been duly filed with the Commissioner. These provisions respectively read:
SEC. 204. Authority of the Commissioner to Compromise, Abate and Refund or Credit Taxes.—
The Commissioner may —
x x x x
(C) Credit or refund taxes erroneously or illegally received or penalties imposed without authority,
refund the value of internal revenue stamps when they are returned in good condition by the purchaser,
and, in his discretion, redeem or change unused stamps that have been rendered unfit for use and refund
their value upon proof of destruction. No credit or refund of taxes or penalties shall be allowed unless
the taxpayer files in writing with the Commissioner a claim for credit or refund within two (2)
years after the payment of the tax or penalty: Provided, however, That a return filed showing an
overpayment shall be considered as a written claim for credit or refund.
x x x x
_______________
57 Id., at p. 344.
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VOL. 746, JANUARY 14, 2015 109
Revenue
SEC. 229. Recovery of Tax Erroneously or Illegally Collected.—No suit or proceeding shall be
maintained in any court for the recovery of any national internal revenue tax hereafter alleged to have
been erroneously or illegally assessed or collected, or of any penalty claimed to have been collected
without authority, of any sum alleged to have been excessively or in any manner wrongfully collected
without authority, or of any sum alleged to have been excessively or in any manner wrongfully
collected, until a claim for refund or credit has been duly filed with the Commissioner; but such suit
or proceeding may be maintained, whether or not such tax, penalty, or sum has been paid under protest or
duress.
In any case, no such suit or proceeding shall be filed after the expiration of two (2) years from
the date of payment of the tax or penalty regardless of any supervening cause that may arise after
payment: x x x. (Emphases and underscoring supplied)

Indubitably, CBK Power’s administrative and judicial claims for refund of its excess final
withholding taxes covering taxable year 2003 were filed within the two-year prescriptive
period, as shown by the table below:58
_______________
58 Rollo (G.R. Nos. 193383-84), p. 285.
110
Revenue
With respect to the remittance filed on March 10, 2003, the Court agrees with the
ratiocination of the CTA En Banc in debunking the alleged failure to exhaust administrative
remedies. Had CBK Power awaited the action of the Commissioner on its claim for refund prior
to taking court action knowing fully well that the prescriptive period was about to end, it would
have lost not only its right to seek judicial recourse but its right to recover the final withholding
taxes it erroneously paid to the government thereby suffering irreparable damage.59
Also, while it may be argued that, for the remittance filed on June 10, 2003 that was to
prescribe on June 10, 2005, CBK Power could have waited for, at the most, three (3) months
from the filing of the administrative claim on March 4, 2005 until the last day of the two-year
prescriptive period ending June 10, 2005, that is, if only to give the BIR at the administrative
level an opportunity to act on said claim, the Court cannot, on that basis alone, deny a legitimate
claim that was, for all intents and purposes, timely filed in accordance with Section 229 of the
NIRC. There was no violation of Section 229 since the law, as worded, only requires that an
administrative claim be priorly filed.
In the foregoing instances, attention must be drawn to the Court’s ruling in P.J. Kiener Co.,
Ltd. v. David60 (Kiener), wherein it was held that in no wise does the law, i.e., Section 306 of the
old Tax Code (now, Section 229 of the NIRC), imply that the Collector of Internal Revenue first
act upon the taxpayer’s claim, and that the taxpayer shall not go to court before he is notified of
the Collector’s action. In Kiener, the Court went on to say that the claim with the Collector of
Internal Revenue was intended primarily as a notice of warning that unless the tax or penalty
alleged to have been collected
_______________
59 Id., at p. 110.
60 92 Phil. 945 (1953).
111
VOL. 746, JANUARY 14, 2015 111
Revenue
erroneously or illegally is refunded, court action will follow, viz.:
The controversy centers on the construction of the aforementioned section of the Tax Code which
reads:
SEC. 306. Recovery of tax erroneously or illegally collected.—No suit or proceeding shall be
maintained in any court for the recovery of any national internal revenue tax hereafter alleged to have
been erroneously or illegally assessed or collected, or of any penalty claimed to have been collected
without authority, or of any sum alleged to have been excessive or in any manner wrongfully collected,
until a claim for refund or credit has been duly filed with the Collector of Internal Revenue; but such suit
or proceeding may be maintained, whether or not such tax, penalty, or sum has been paid under protest or
duress. In any case, no such suit or proceeding shall be begun after the expiration of two years from the
date of payment of the tax or penalty.
The preceding provisions seem at first blush conflicting. It will be noticed that, whereas the first
sentence requires a claim to be filed with the Collector of Internal Revenue before any suit is commenced,
the last makes imperative the bringing of such suit within two years from the date of collection. But the
conflict is only apparent and the two provisions easily yield to reconciliation, which it is the office of
statutory construction to effectuate, where possible, to give effect to the entire enactment.
To this end, and bearing in mind that the Legislature is presumed to have understood the language it
used and to have acted with full idea of what it wanted to accomplish, it is fair and reasonable to say
without doing violence to the context or either of the two provisions, that by the first is meant simply that
the Collector of Internal Revenue shall be given an opportunity to consider
112
Revenue
his mistake, if mistake has been committed, before he is sued, but not, as the appellant contends that
pending consideration of the claim, the period of two years provided in the last clause shall be deemed
interrupted. Nowhere and in no wise does the law imply that the Collector of Internal Revenue must
act upon the claim, or that the taxpayer shall not go to court before he is notified of the Collector’s
action. x x x. We understand the filing of the claim with the Collector of Internal Revenue to be
intended primarily as a notice of warning that unless the tax or penalty alleged to have been
collected erroneously or illegally is refunded, court action will follow. x x x. (Emphases supplied)
61

That being said, the foregoing refund claims of CBK Power should all be granted, and the
petition of the Commissioner in G.R. Nos. 193407-08 be denied for lack of merit.
WHEREFORE, the petition in G.R. Nos. 193383-84 is GRANTED. The Decision dated
March 29, 2010 and the Resolution dated August 16, 2010 of the Court of Tax Appeals
(CTA) En Banc in C.T.A. E.B. Nos. 469 and 494 are hereby REVERSED and SET ASIDE and
a new one entered REINSTATING the Decision of the CTA First Division dated August 28,
2008 ordering the refund in favor of CBK Power Company Limited the amount of
P15,672,958.42 representing its excess final withholding taxes for the taxable years 2001 to
2003. On the other hand, the petition in G.R. Nos. 193407-08 is DENIED for lack of merit.
SO ORDERED.
Sereno (CJ., Chairperson), Leonardo-De Castro, Bersamin and Perez, JJ., concur.
_______________
61 Id., at pp. 946-947.
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VOL. 746, JANUARY 14, 2015 113
Revenue
Petition in G.R. Nos. 193383-84 granted, judgment and resolution reversed and set aside.
Petition in G.R. Nos. 193407-08 denied.
Notes.—While the time-honored principle of pacta sunt servanda demands that the
Philippines honor its obligations under the Extradition Treaty, it does not necessarily mean that
in keeping with its treaty obligations, the Philippines should diminish a potential extraditee’s
rights to life, liberty, and due process; An extraditee should not be deprived of his right to apply
for bail, provided that a certain standard for the grant is satisfactorily met. (Government of Hong
Kong Special Administrative Region vs. Olalia, Jr., 521 SCRA 470 [2007])
Under the basic international law principle of pacta sunt servanda, we have the duty to fulfill
our treaty obligations in good faith. (Commissioner of Internal Revenue vs. Pilipinas Shell
Petroleum Corporation, 717 SCRA 53 [2014])
——o0o——
e. Non-delegability of the power of taxation
G.R. No. 168056. September 1, 2005. X*
ABAKADA GURO PARTY LIST (Formerly AASJAS) OFFICERS SAMSON S.

ALCANTARA and ED VINCENT S. ALBANO, petitioners, vs. THE HONORABLE
EXECUTIVE SECRETARY EDUARDO ERMITA; HONORABLE SECRETARY OF
THE DEPARTMENT OF FINANCE CESAR PURISIMA; and HONORABLE
COMMISSIONER OF INTERNAL REVENUE GUILLERMO PARAYNO, JR.,
respondents.
G.R. No. 168207. September 1, 2005. X*
AQUILINO Q. PIMENTEL, JR., LUISA P. EJERCITO-

ESTRADA, JINGGOY E. ESTRADA, PANFILO M.
LACSON, ALFREDO S. LIM, JAMBY A.S. MADRIGAL,
AND SERGIO
_______________
*
EN BANC.
Abakada Guro Party List vs. Ermita
R. OSMEÑA III, petitioners, vs. EXECUTIVE SECRETARY EDUARDO R. ERMITA,

CESAR V. PURISIMA, SECRETARY OF FINANCE, GUILLERMO L. PARAYNO, JR.,
COMMISSIONER OF THE BUREAU OF INTERNAL REVENUE, respondents.
G.R. No. 168461. September 1, 2005.*
ASSOCIATION OF PILIPINAS SHELL DEALERS, INC.

represented by its President, ROSARIO ANTONIO; PETRON
DEALERS’ ASSOCIATION represented by its President,
RUTH E. BARBIBI; ASSOCIATION OF CALTEX
DEALERS’ OF THE PHILIPPINES represented by its
President, MERCEDITAS A. GARCIA; ROSARIO ANTONIO
doing business under the name and style of “ANB NORTH
SHELL SERVICE STATION”; LOURDES MARTINEZ doing
business under the name and style of “SHELL GATE—N.
DOMINGO”; BETH-ZAIDA TAN doing business under the
name and style of “ADVANCE SHELL STATION”;
REYNALDO P. MONTOYA doing business under the name
and style of “NEW LAMUAN SHELL SERVICE STATION”;
EFREN SOTTO doing business under the name and style of
“RED FIELD SHELL SERVICE STATION”; DONICA
CORPORATION represented by its President, DESI
TOMACRUZ; RUTH E. MARBIBI doing business under the
name and style of “R&R PETRON STATION”; PETER M.
UNGSON doing business under the name and style of
“CLASSIC STAR GASOLINE SERVICE STATION”;
MARIAN SHEILA A. LEE doing business under the name and
style of “NTE GASOLINE & SERVICE STATION”; JULIAN
CESAR P. POSADAS doing business under the name and style
of “STARCARGA ENTERPRISES”; ADORACION MAÑEBO
doing business under the name and style of “CMA
MOTORISTS CENTER”; SUSAN M. ENTRATA doing
business under the name and style of “LEONA’S GASOLINE
STATION and SERVICE CENTER”; CARMELITA
BALDONADO doing business under the name and style of
“FIRST CHOICE SERVICE CENTER”; MERCEDITAS A.
GARCIA
3
VOL. 469, SEPTEMBER 1, 2005
doing business under the name and style of “LORPED SERVICE CENTER”; RHEAMAR
A. RAMOS doing business under the name and style of “RJRAM PTT GAS STATION”;
MA. ISABEL VIOLAGO doing business under the name and style of “VIOLAGO-PTT
SERVICE CENTER”; MOTORISTS’ HEART CORPORATION represented by its Vice-
President for Operations, JOSELITO F. FLORDELIZA; MOTORISTS’ HARVARD
CORPORATION represented by its Vice-President for Operations, JOSELITO F.
FLORDELIZA; MOTORISTS’ HERITAGE CORPORATION represented by its Vice-
President for Operations, JOSELITO F. FLORDELIZA; PHILIPPINE STANDARD OIL
CORPORATION represented by its Vice-President for Operations, JOSELITO F.
FLORDELIZA; ROMEO MANUEL doing business under the name and style of
“ROMMAN GASOLINE STATION”; ANTHONY ALBERT CRUZ III doing business
under the name and style of “TRUE SERVICE STATION,” petitioners, vs. CESAR V.
PURISIMA, in his capacity as Secretary of the Department of Finance and GUILLERMO
L. PARAYNO, JR., in his capacity as Commissioner of Internal Revenue, Respondents.
G.R. No. 168463. September 1, 2005.*
FRANCIS JOSEPH G. ESCUDERO, VINCENT
CRISOLOGO, EMMANUEL JOEL J. VILLANUEVA,
RODOLFO G. PLAZA, DARLENE ANTONINO-CUSTODIO,
OSCAR G. MALAPITAN, BENJAMIN C. AGARAO, JR.
JUAN EDGARDO M. ANGARA, JUSTIN MARC SB.
CHIPECO, FLORENCIO G. NOEL, MUJIV S. HATAMAN,
RENATO B. MAGTUBO, JOSEPH A. SANTIAGO,
TEOFISTO DL. GUINGONA III, RUY ELIAS C. LOPEZ,
RODOLFO Q. AGBAYANI and TEODORO A. CASIÑO,
petitioners, vs. CESAR V. PURISIMA, in his capacity as
Secretary of Finance, GUILLERMO L. PARAYNO, JR., in his
capacity as Commissioner of Internal Revenue, and
EDUARDO R. ERMITA, in his capacity as Executive
Secretary, respondents.
4

G.R. No. 168730. September 1, 2005. *
BATAAN GOVERNOR ENRIQUE T. GARCIA, JR.,

petitioner, vs. HON. EDUARDO R. ERMITA, in his capacity as
the Executive Secretary; HON. MARGARITO TEVES, in his
capacity as Secretary of Finance; HON. JOSE MARIO
BUNAG, in his capacity as the OIC Commissioner of the
Bureau of Internal Revenue; and HON. ALEXANDER
AREVALO, in his capacity as the OIC Commissioner of the
Bureau of Customs, respondents.
Courts; Contempt; Separation of Powers; If it were true that former Finance Secretary Purisima felt that
the media misconstrued his actions, then he should have immediately rectified it and not waited until the
Supreme Court required him to explain before he denied having made such statements which impressed
upon the public’s mind that the issuance of the TRO was the product of the machinations on the Court by
the executive branch.—At the time the reports came out, Purisima did not controvert the truth or falsity of
the statements attributed to him. It was only after the Court issued the show-cause order that Purisima saw
it fit to deny having uttered these statements. By then, it was already impressed upon the public’s mind
that the issuance of the TRO was the product of machinations on the Court by the executive branch. If it
were true that Purisima felt that the media misconstrued his actions, then he should have immediately
rectified it. He should not have waited until the Court required him to explain before he denied having
made such statements. And even then, his denials were made as a result of the Court’s show-cause order
and not by any voluntary act on his part that will show utter regret for having been “misquoted.” Purisima
should know that these press releases placed the Court into dis-honor, disrespect, and public contempt,
diminished public confidence, promoted distrust in the Court, and assailed the integrity of its Members.
The Court already took a beating before Purisima made any disclaimer. The damage has been done, so to
speak.
SPECIAL CIVIL ACTION in the Supreme Court. Contempt.
The facts are stated in the resolution of the Court.

Carlos G. Baniqued and Laura Victoria Yuson-Layug for petitioners in G.R. No. 168461.
Eugenio H. Villareal, Dionisio B. Marasigan, Ma. Rosa-lie Taguian, Agustin C. Bacungan

III and Roland Allan C. Abarquez for petitioners in G.R. No. 168463.
Samson S. Alcantara, Ed Vincent S. Albano and Rene B. Gorospe for petitioners in G.R. No. 168056.
Luis Ma. Gil L. Gana for petitioners in G.R. No. 168207.
The Solicitor General for public respondents.
RESOLUTION
AUSTRIA-MARTINEZ, J.:
In view of the Court’s Resolution dated July 12, 2005, which required Former Finance Secretary Cesar V.
Purisima to show cause why he should not be held in contempt of court for conduct which puts the Court
and its Members into dis-honor, disrepute and discredit, and degrades the administration of justice,
Purisima filed his Compliance thereto, stating that:
“It is not true that I claimed or even insinuated that this Honorable Court was pressured or influenced by
President Gloria Macapagal Arroyo or Malacañang Palace to issue a Temporary Restraining Order
(“TRO”) in the instant cases. What I stated was simply that President Arroyo had on several occasions
discussed with the economic team the possibility of postponing the implementation of Republic Act No.
9337. While I believe that President Arroyo wanted to postpone the implementation of the said law, I
never claimed or insinuated that this Honorable Court was influenced or pressured to issue the TRO
against its implementation.
...
I do not deny that I was extremely disappointed when this Honorable Court issued the TRO, which was a
serious setback to our fiscal consolidation program. And my disappointment grew when I felt that the
Government specifically the Executive branch, was not doing enough to have the TRO lifted. At the
height of my disap-

pointment, and after hearing of rumors that Executive officials may have been instrumental in procuring
the TRO, I did enquire from the other cabinet officials whether Malacañang had a hand in the issuance of
the order. I felt that it was my right and duty as Finance Secretary to make such an inquiry, given that
before the issuance of the TRO, the President had inquired about the possibility of deferring the
implementation of Republic Act No. 9337. But surely, my inquiries whether Malacañang did so, did not
amount to, as it was not intended to have the effect of, claiming outright or necessarily insinuating that
Malacañang did so, or to hold, in any manner, this Honorable Court in contempt.” X 1
Purisima cites the July 11, 2005 edition of the Philippine Star and the July 10, 2005 edition of
the Philippine Daily Inquirer, which reported that Purisima did not directly accuse the President of
influencing the Court in issuing the TRO, and that he would neither confirm nor deny the reports that the
President had a hand in its issuance.
The Court finds Purisima’s explanation unsatisfactory.
The Court reproduces excerpts from some of the reports contained in the newspapers with regard to
Purisima’s statements, to wit:
(1) July 10, 2005, The Philippine Star, Opinion Section (It’s the Economy, Stupid!)
The present political crisis will inevitably boil down to the economy as the real issue that will ultimately bring down
the Arroyo Administration. What we are hearing from people close to the Palace is that the TRO issued by the
Supreme Court on the EVAT is the real reason why 10 Cabinet members, specially Cesar Purisima and Johnny
Santos, resigned. Cesar Purisima further pointed out that her decision-making process has adversely affected the
economy. The frustrated economic team felt that GMA had actually influenced the Supreme Court to issue the TRO
to postpone the bad effects of the EVAT on prices purely for her political survival. If indeed that is true, then it just
confirms that our present political system
_______________
1
Compliance, pp. 2-3.
7

has really gone from bad to worse. What I found disgusting is that the plotters, especially Cesar Purisima, sounded
like Judas Iscariot. They could just have simply resigned without making a spectacle out of it.
(2) July 10, 2005, The Daily Tribune (SC Denies Palace Pressed Issuance of E-VAT TRO)
Reports had claimed that the former economic team of Mrs. Arroyo decided to resign over the weekend due in part
to the administration’s lobbying the SC to issue a restraining order on the e-VAT, apparently to prevent the public
from further seething against the government over the continuous spiraling of the prices of basic goods and services.
...
Finance officials led by Purisima previously expressed dismay over the suspension of the e-VAT as they claimed
that the TRO would cost the government at least P140 million a day in unrealized revenues.
Purisima hinted that Mrs. Arroyo had a hand in the SC’s TRO to save her presidency.
(3) July 11, 2005, Manila Standard Today (Palace Debunks Purisima Claim on EVAT)
Malacañang yesterday branded as “ridiculous” the insinuations that President Gloria Macapagal Arroyo had a hand
in the Supreme Court’s July 1 order suspending the implementation of the Expanded Value-Added Tax Law.
At the same time, Justice Secretary Raul Gonzalez slammed resigned Finance Secretary Cesar Purisima and exTrade
Secretary Juan Santos for claiming that the President had wanted the implementation of the law delayed so she
would not get too much political flak for the tax measure.
(4) July 11, 2005, The Philippine Star, Business Section (The Last Straw that Broke a Cabinet)
For ex-Finance Secretary Cesar Purisima, the implementation of the EVAT law was a major pillar to strengthen the
country’s finances, to get our fiscal house in order. As far as he and the rest of the economic management team he
heads are concerned, they are operating under the fiscal equivalent of a red alert. They have scored some early
victories, like the in

crease in revenue collections in recent months, but they know that they are still far from being in the clear.
That was why Purisima felt truly betrayed when he reportedly got a phone call from an official telling him “yung
hinihingi nyo sa Supreme Court binigay na.” He didn’t have any pending requests from the Court so he wondered,
refusing to accept the reality of his worst fear: The EVAT had been sacrificed by the Palace.
(5) July 12, 2005, The Philippine Daily Inquirer (No GMA Influence on e-VAT freeze-SC)
Bunye made the reaffirmation after Purisima and former Trade Secretary Juan Santos insinuated that the President
might have influenced the Supreme Court to grant the TRO.
At the time the reports came out, Purisima did not contro-vert the truth or falsity of the statements
attributed to him. It was only after the Court issued the show-cause order that Purisima saw it fit to deny
having uttered these statements. By then, it was already impressed upon the public’s mind that the
issuance of the TRO was the product of machinations on the Court by the executive branch.
If it were true that Purisima felt that the media misconstrued his actions, then he should have immediately
rectified it. He should not have waited until the Court required him to explain before he denied having
made such statements. And even then, his denials were made as a result of the Court’s show-cause order
and not by any voluntary act on his part that will show utter regret for having been “misquoted.” Purisima
should know that these press releases placed the Court into dishonor, disrespect, and public contempt,
diminished public confidence, promoted distrust in the Court, and assailed the integrity of its Members.
The Court already took a beating before Purisima made any disclaimer. The damage has been done, so to
speak.
WHEREFORE, Cesar V. Purisima is found GUILTY of indirect contempt of court and FINED in the
amount of Twenty Thousand Pesos (P20,000.00) to be paid within ten (10) days from finality of herein
Resolution.

SO ORDERED.
Davide, Jr. (C.J.), Puno, Panganiban, Quisumbing, Sandoval-Gutierrez, Carpio, Corona, Carpio-
Morales, Callejo, Sr., Azcuna, Tinga, Chico-Nazario and Garcia, JJ., concur.
Ynares-Santiago, J., On Leave.
Cesar V. Purisima meted with P20,000.00 fine for indirect contempt.
Notes.—A publication which tends to impede, obstruct, embarrass or influence the courts in
administering justice in a pending suit or proceeding, constitutes criminal contempt which is summarily
punishable by courts. A publication which tends to degrade the courts and to destroy public confidence in
them or that which tends to bring them in any way into disrepute, constitutes likewise criminal contempt,
and is equally punishable by courts. (Social Weather Stations, Inc. vs. Asuncion, 228 SCRA xi [1993])
Clearly, the public interest involved in freedom of speech and the individual interest of judges (and for
that matter, all other public officials) in the maintenance of private honor and reputation need to be
accommodated one to the other. And the point of adjustment or accommodation between these two
legitimate interests is precisely found in the norm which requires those who, invoking freedom of speech,
publish statements which are clearly defamatory to identifiable judges or other public officials to
exercise bona fide care in ascertaining the truth of the statements they publish. The norm does not require
that a journalist guarantee the truth of what he says or publishes. But the norm does prohibit
the reckless disregard of private reputation by publishing or circulating defamatory statements without
any bona fide effort to ascertain the truth thereof. (In Re: Emil P. Jurado, 243 SCRA 299 [1995])
——o0o——
SOUTHERN CROSS CEMENT CORPORATION,
petitioner, vs. CEMENT MANUFACTURERS ASSOCIATION
OF THE PHILIPPINES, THE SECRETARY OF THE
DEPARTMENT OF TRADE AND INDUSTRY, THE
SECRETARY OF THE DEPARTMENT OF FINANCE and
THE COMMISSIONER OF THE BUREAU OF CUSTOMS,
respondents.
Safeguard Measures Act (SMA) (Republic Act [R.A.] No. 8800); Taxation; Court of Tax
Appeals; Jurisdictions; Words and Phrases; Under Section 29 of R.A. No. 8800, there are three
requisites to enable the CTA to acquire jurisdiction over the petition for review contemplated therein—(i)
there must be a ruling by the DTI Secretary, (ii) the petition must be filed by an interested party adversely
affected by the ruling; and (iii) such ruling must be “in connection with the imposition of a safeguard
measure; “Obviously, there are differences between “a ruling for the imposition of a safeguard
measure,” and one issued “in connection with the imposition of a safeguard measure, “the latter
contemplating not only one kind of ruling but a myriad of rulings issued “in connection with the
imposition of a safeguard measure.”—Under Section 29, there are three requisites to enable the CTA to
acquire jurisdiction over the petition for review contemplated therein: (i) there must be a ruling by the
DTI Secretary; (ii) the petition must be filed by an interested party adversely affected by the ruling; and
(iii) such ruling must be “in connection with the imposition of a safeguard measure.” Obviously, there are
differences between “a ruling for the imposition of a safeguard measure,” and one issued “in connection
with the imposition of a safeguard measure.” The first adverts to a singular type of ruling, namely one
that imposes a safeguard measure. The second does not contemplate only one kind of ruling, but a myriad
of rulings issued “in connection with the imposition of a safeguard measure.”
Same; Same; Same; Same; It is the express provision of Section 29, and not the Supreme Court, that
mandates CTA jurisdiction to be broad enough to encompass more than just a ruling imposing the
safeguard measure; A ruling issued “in connection with” the imposi-
_______________
*
EN BANC.
533
VOL. 465, AUGUST 3, 2005
533
Southern Cross Cement Corporation vs. Cement Manufacturers Association of the

Philippines
tion of a safeguard measure would be one that bears some relation to the imposition of a safeguard
measure—rulings which modify, suspend or terminate a safeguard measure are necessarily in connection
with the imposition of a safeguard measure.—Respondents argue that the Court has given an expansive
interpretation to Section 29, contrary to the established rule requiring strict construction against the
existence of jurisdiction in specialized courts. But it is the express provision of Section 29, and not this
Court, that mandates CTA jurisdiction to be broad enough to encompass more than just a ruling
imposing the safeguard measure. The key phrase remains “in connection with.” It has connotations that
are obvious even to the layman. A ruling issued “in connection with” the imposition of a safeguard
measure would be one that bears some relation to the imposition of a safeguard measure. Obviously, a
ruling imposing a safeguard measure is covered by the phrase “in connection with,” but such ruling is by
no means exclusive. Rulings which modify, suspend or terminate a safeguard measure are necessarily in
connection with the imposition of a safeguard measure. So does a ruling allowing for a provisional
safeguard measure. So too, a ruling by the DTI Secretary refusing to refer the application for a safeguard
measure to the Tariff Commission. It is clear that there is an entire subset of rulings that the DTI
Secretary may issue in connection with the imposition of a safeguard measure, including those that are
provisional, interlocutory, or dispositive in character. By the same token, a ruling not to impose a
safeguard measure is also issued in connection with the imposition of a safeguard measure.
Same; Same; Same; Same; Whether the ruling under review calls for the imposition or non-imposition of
the safeguard measure, the common question for resolution still is whether or not the tariff should be
imposed an—issue definitely fraught with a tax dimension and the determination of which question will
call upon the same kind of expertise that a specialized body as the CTA presumably possesses.—
Philcemcor imputes intelligent design behind the alleged intent of Congress to limit CTA review only to
impositions of the general safeguard measures. It claims that there is a necessary tax implication in case
of an imposition of a tariff where the CTA’s expertise is necessary, but there is no such tax implication,
hence no need for the assumption of jurisdiction by a specialized agency, when the ruling rejects the
imposition of a safeguard measure. But of course, whether the ruling under review calls for the imposition
or
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non-imposition of the safeguard measure, the common question for resolution still is whether or not the
tariff should be imposed—an issue definitely fraught with a tax dimension. The determination of the
question will call upon the same kind of expertise that a specialized body as the CTA presumably
possesses.
Same; Same; Same; Same; Statutory Construction; It is likewise settled in statutory construction that an

interpretation that would cause inconvenience and absurdity is not favored.—In response to the Court’s
observation that the setup proposed by respondents was novel, unusual, cumbersome and unwise, public
respondents invoke the maxim that courts should not be concerned with the wisdom and efficacy of
legislation. But this prescinds from the bogus claim that the CTA may not exercise judicial review over a
decision not to impose a safeguard measure, a prohibition that finds no statutory support. It is likewise
settled in statutory construction that an interpretation that would cause inconvenience and absurdity is not
favored. Respondents do not address the particular illogic that the Court pointed out would ensue if their
position on judicial review were adopted. According to the respondents, while a ruling by the DTI
Secretary imposing a safeguard measure may be elevated on review to the CTA and assailed on the
ground of errors in fact and in law, a ruling denying the imposition of safeguard measures may be assailed
only on the ground that the DTI Secretary committed grave abuse of discretion. As stressed in
the Decision, “[c]ertiorari is a remedy narrow in its scope and inflexible in its character. It is not a general
utility tool in the legal workshop.”
Same; Same; Same; Same; Department of Trade and Industry; Tariff Commission; Considering that the

Tariff Commission is an instrumentality of the government, its actions (as opposed to those undertaken by
the DTI Secretary under the SMA) are not beyond the pale of certiorari jurisdiction.—It is incorrect to
say that the Decision bars any effective remedy should the Tariff Commission act or conclude
erroneously in making its determination whether the factual conditions exist which necessitate the
imposition of the general safeguard measure. If the Tariff Commission makes a negative final
determination, the DTI Secretary, bound as he is by this negative determination, has to render a decision
denying the application for safeguard measures citing the Tariff Commission’s findings as basis.
Necessarily then, such negative determination of the Tariff Commission being an integral part of the DTI
Secretary’s ruling would be
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open for review before the CTA, which again is especially qualified by reason of its expertise to examine
the findings of the Tariff Commission. Moreover, considering that the Tariff Commission is an
instrumentality of the government, its actions (as opposed to those undertaken by the DTI Secretary under
the SMA) are not beyond the pale of certiorari jurisdiction. Unfortunately for Philcemcor, it hinged its
cause on the claim that the DTI Secretary’s actions may be annulled on certiorari, notwithstanding the
explicit grant of judicial review over that cabinet member’s actions under the SMA to the CTA.
Same; Same; Same; Due Process; The due process protection does not shield those who remain
purposely blind to the express rules that ensure the sporting play of procedural law.—Philcemcor argues
that assuming this Court’s interpretation of Section 29 is correct, such ruling should not be given
retroactive effect, otherwise, a gross violation of the right to due process would be had. This erroneously
presumes that it was this Court, and not Congress, which vested jurisdiction on the CTA over rulings of
non-imposition rendered by the DTI Secretary. We have repeatedly stressed that Section 29 expressly
confers CTA jurisdiction over rulings in connection with the imposition of the safeguard measure, and the
reassertion of this point in the Decision was a matter of emphasis, not of contrivance. The due process
protection does not shield those who remain purposely blind to the express rules that ensure the sporting
play of procedural law.
Same; Same; Presidency; Delegation of Powers; Tariff Powers; Concerning as they do the foreign

importation of products into the Philippines, these safeguard measures fall within the ambit of Section
28(2), Article VI of the Constitution.—The safeguard measures imposable under the SMA generally
involve duties on imported products, tariff rate quotas, or quantitative restrictions on the importation of a
product into the country. Concerning as they do the foreign importation of products into the Philippines,
these safeguard measures fall within the ambit of Section 28(2), Article VI of the Constitution, which
states: The Congress may, by law, authorize the President to fix within specified limits, and subject to
such limitations and restrictions as it may impose, tariff rates, import and export quotas, tonnage and
wharfage dues, and other duties or imposts within the framework of the national development program of
the Government.
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Same; Same; Same; Same; Same; Basic Postulates on the Grant of Tariff Powers to the President.—The
Court acknowledges the basic postulates ingrained in the provision, and, hence, governing in this case.
They are: (1) It is Congress which authorizes the President to impose tariff rates, import and export
quotas, tonnage and wharfage dues, and other duties or imposts. Thus, the authority cannot come from
the Finance Department, the National Economic Development Authority, or the World Trade
Organization, no matter how insistent or persistent these bodies may be. (2) The authorization granted to
the President must be embodied in a law. Hence, the justification cannot be supplied simply by inherent
executive powers. It cannot arise from administrative or executive orders promulgated by the executive
branch or from the wisdom or whim of the President. (3) The authorization to the President can be
exercised only within the specified limits set in the law and is further subject to limitations and
restrictions which Congress may impose. Consequently, if Congress specifies that the tariff rates should
not exceed a given amount, the President cannot impose a tariff rate that exceeds such amount. If
Congress stipulates that no duties may be imposed on the importation of corn, the President cannot
impose duties on corn, no matter how actively the local corn producers lobby the President. Even the
most picayune of limits or restrictions imposed by Congress must be observed by the President.
Same; Same; Same; Same; Same; Without Section 28(2), Article VI of the Constitution, the executive

branch has no authority to impose tariffs and other similar tax levies involving the importation of foreign
goods.—There is one fundamental principle that animates these constitutional postulates. These
impositions under Section 28(2), Article VI fall within the realm of the power of taxation, a power which
is within the sole province of the legislature under the Constitution. Without Section 28(2), Article VI, the
executive branch has no authority to impose tariffs and other similar tax levies involving the importation
of foreign goods. Assuming that Section 28(2) Article VI did not exist, the enactment of the SMA by
Congress would be voided on the ground that it would constitute an undue delegation of the legislative
power to tax. The constitutional provision shields such delegation from constitutional infirmity, and
should be recognized as an exceptional grant of legislative power to the President, rather than the
affirmation of an inherent executive power.
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Same; Same; Same; Same; Same; Power of Control; The authority delegated to the President under
Section 28(2), Article VI may be exercised, in accordance with legislative sanction, by the alter egos of
the President, such as department secretaries—for purposes of the President’s exercise of power to
impose tariffs under Article VI, Section 28(2), it is generally the Secretary of Finance who acts as his
alter ego.—The Court recognizes that the authority delegated to the President under Section 28(2),
Article VI may be exercised, in accordance with legislative sanction, by the alter egos of the President,
such as department secretaries. Indeed, for purposes of the President’s exercise of power to impose tariffs
under Article VI, Section 28(2), it is generally the Secretary of Finance who acts as alter ego of the
President. The SMA provides an exceptional instance wherein it is the DTI or Agriculture Secretary who
is tasked by Congress, in their capacities as alter egos of the President, to impose such measures.
Certainly, the DTI Secretary has no inherent power, even as alter ego of the President, to levy tariffs and
imports.
Same; Same; Same; Same; Same; Same; Tariff Commission; Both the Tariff Commission and the DTI

Secretary may be regarded as agents of Congress within their limited respective spheres, as ordained in
the SMA, in the implementation of the said law which significantly draws its strength from the plenary
legislative power of taxation—indeed, even the President may be considered as an agent of Congress for
the purpose of imposing safeguard measures; When Congress tasks the President or his/her alter egos to
impose safeguard measures under the delineated conditions, the President or the alter egos may be
properly deemed as agents of Congress to perform an act that inherently belongs as a matter of right to
the legislature.—Concurrently, the tasking of the Tariff Commission under the SMA should be likewise
construed within the same context as part and parcel of the legislative delegation of its inherent power to
impose tariffs and imposts to the executive branch, subject to limitations and restrictions. In that regard,
both the Tariff Commission and the DTI Secretary may be regarded as agents of Congress within their
limited respective spheres, as ordained in the SMA, in the implementation of the said law which
significantly draws its strength from the plenary legislative power of taxation. Indeed, even the President
may be considered as an agent of Congress for the purpose of imposing safeguard measures. It is
Congress, not the President, which possesses inherent powers to impose tariffs and imposts. With-
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out legislative authorization through statute, the President has no power, authority or right to impose
such safeguard measures because taxation is inherently legislative, not executive. When Congress tasks
the President or his/her alter egos to impose safeguard measures under the delineated conditions, the
President or the alter egos may be properly deemed as agents of Congress to perform an act that
inherently belongs as a matter of right to the legislature. It is basic agency law that the agent may not act
beyond the specifically delegated powers or disregard the restrictions imposed by the principal. In short,
Congress may establish the procedural framework under which such safeguard measures may be
imposed, and assign the various offices in the government bureaucracy respective tasks pursuant to the
imposition of such measures, the task assignment including the factual determination of whether the
necessary conditions exists to warrant such impositions. Under the SMA, Congress assigned the DTI
Secretary and the Tariff Commission their respective functions in the legislature’s scheme of things.
Same; Same; Tariff Commission; The positive final determination by the Tariff Commission operates as

an indispensable requisite to the imposition of the safeguard measure.—There is no question that Section
5 of the SMA operates as a limitation validly imposed by Congress on the presidential authority under the
SMA to impose tariffs and imposts. That the positive final determination operates as an indispensable
requisite to the imposition of the safeguard measure, and that it is the Tariff Commission which makes
such determination, are legal propositions plainly expressed in Section 5 for the easy comprehension for
everyone but respondents.
Same; Same; Same; Statutory Construction; Statutes are not designed for the easy comprehension of the
five-year old child—certainly, general propositions laid down in statutes need not be expressly qualified
by clauses denoting exclusivity in order that they gain efficacy.—Statutes are not designed for the easy
comprehension of the five-year old child. Certainly, general propositions laid down in statutes need not be
expressly qualified by clauses denoting exclusivity in order that they gain efficacy. Indeed, applying this
argument, the President would, under the Constitution, be authorized to declare martial law despite the
absence of the invasion, rebellion or public safety requirement just because the first paragraph of Section
18, Article VII fails to state the magic word “only.”
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Same; Same; Same; Same; Nothing in the SMA obliges the DTI Secretary to adopt the recommendations
made by the Tariff Commission—even if the Tariff Commission makes a positive final determination, the
DTI Secretary may opt not to impose a general safeguard measure, or choose a different type of
safeguard measure other than that recommended by the Tariff Commission.—Nothing in the SMA
obliges the DTI Secretary to adopt the recommendations made by the Tariff Commission. In fact, the
SMA requires that the DTI Secretary establish that the application of such safeguard measures is in the
public interest, notwithstanding the Tariff Commission’s recommendation on the appropriate safeguard
measure upon its positive final determination. Thus, even if the Tariff Commission makes a positive final
determination, the DTI Secretary may opt not to impose a general safeguard measure, or choose a
different type of safeguard measure other than that recommended by the Tariff Commission.
Same; Same; Same; Same; It will not be difficult, especially as to heavily-debated legislation, for two

sides with contrapuntal interpretations of a statute to highlight their respective citations from the
legislative debate in support of their particular views; It is evident from the text of Section 5 that there
must be a positive final determination by the Tariff Commission that a product is being imported into the
country in increased quantities (whether absolute or relative to domestic production), as to be a
substantial cause of serious injury or threat to the domestic industry.—It will not be difficult, especially
as to heavily-debated legislation, for two sides with contrapuntal interpretations of a statute to highlight
their respective citations from the legislative debate in support of their particular views. A futile exercise
of second-guessing is happily avoided if the meaning of the statute is clear on its face. It is evident from
the text of Section 5 that there must be a positive final determination by the Tariff Commission that a
product is being imported into the country in increased quantities (whether absolute or relative to
domestic production), as to be a substantial cause of serious injury or threat to the domestic
industry. Any disputation to the contrary is, at best, the product of wishful thinking.
Same; Same; Same; Same; Public Officers; The Court cannot give controlling effect to the statements of
any public officer in serious denial of his duties if the law otherwise imposes the duty on the public office
or officer.—The Separate Opinion considers as highly per-
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suasive of former Tariff Commission Chairman Abon, who stated that the Commission’s findings are
merely recommendatory. Again, the considered opinion of Chairman Abon is of no operative effect if the
statute plainly states otherwise, and Section 5 bluntly does require a positive final determination by the
Tariff Commission before the DTI Secretary may impose a general safeguard measure. Certainly, the
Court cannot give controlling effect to the statements of any public officer in serious denial of his duties
if the law otherwise imposes the duty on the public office or officer.
Same; Same; Same; Same; Same; Secretary of Justice; The DOJ Secretary is the alter ego of the

President with a stated mandate as the head of the principal law agency of the government.—If we are to
render persuasive effect on the considered opinion of the members of the Executive Branch, it bears
noting that the Secretary of the Department of Justice rendered an Opinion wherein he concluded that the
DTI Secretary could not impose a general safeguard measure if the Tariff Commission made a negative
final determination. Unlike Chairman Abon’s impromptu remarks made during a hearing, the DOJ
Opinion was rendered only after a thorough study of the question after referral to it by the DTI. The DOJ
Secretary is the alter ego of the President with a stated mandate as the head of the principal law agency of
the government. As the DOJ Secretary has no denominated role in the SMA, he was able to render his
Opinion from the vantage of judicious distance. Should not his Opinion, studied and direct to the point as
it is, carry greater weight than the spontaneous remarks of the Tariff Commission’s Chairman which do
not even expressly disavow the binding power of the Commission’s positive final determination?
Same; Same; Administrative Law; Delegation of Powers; The authorization made by Congress in the

SMA to the DTI and Agriculture Secretaries was made in contemplation of their capacities as alter egos
of the President.—Preliminarily, we should note that none of the parties question the designation of the
DTI or Agriculture secretaries under the SMA as the imposing authorities of the safeguard measures,
even though Section 28(2) Article VI states that it is the President to whom the power to impose tariffs
and imposts may be delegated by Congress. The validity of such designation under the SMA should not
be in doubt. We recognize that the authorization made by Congress in the SMA to the DTI and Agricul-
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ture Secretaries was made in contemplation of their capacities as alter egos of the President.
Same; Same; Same; Tariff Commission; Congress in enacting the SMA and prescribing the roles to be

played therein by the Tariff Commission and the DTI Secretary did not envision that the President, or
his/her alter ego, could exercise supervisory powers over the Tariff Commission—the Tariff Commission
does not fall under the administrative supervision of the DTI.—Notwithstanding, Congress in enacting the
SMA and prescribing the roles to be played therein by the Tariff Commission and the DTI Secretary did
not envision that the President, or his/her alter ego, could exercise supervisory powers over the Tariff
Commission. If truly Congress intended to allow the traditional “alter ego” principle to come to fore in
the peculiar setup established by the SMA, it would have assigned the role now played by the DTI
Secretary under the law instead to the NEDA. The Tariff Commission is an attached agency of the
National Economic Development Authority, which in turn is the independent planning agency of the
government. The Tariff Commission does not fall under the administrative supervision of the DTI. On the
other hand, the administrative relationship between the NEDA and the Tariff Commission is established
not only by the Administrative Code, but similarly affirmed by the Tariff and Customs Code.
Same; Same; Same; Same; Only very recently have our statutes directed any significant interplay
between the Tariff Commission and the DTI, with the enactment in 1999 of Republic Act No. 8751 on the
imposition of countervailing duties and Republic Act No. 8752 on the imposition of anti-dumping duties,
and of course the promulgation a year later of the SMA—the long-standing tradition has been for the
Tariff Commission and the DTI to proceed independently in the exercise of their respective functions.—
Under the Tariff and Customs Code, no similar role or influence is allocated to the DTI in the matter of
imposing tariff duties. In fact, the long-standing tradition has been for the Tariff Commission and the DTI
to proceed independently in the exercise of their respective functions. Only very recently have our
statutes directed any significant interplay between the Tariff Commission and the DTI, with the
enactment in 1999 of Republic Act No. 8751 on the imposition of countervailing duties and Republic Act
No. 8752 on the imposition of anti-dumping duties, and of course the promulgation a year later of the
SMA. In all these three laws, the Tariff Commission is tasked, upon referral of the matter by
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the DTI, to determine whether the factual conditions exist to warrant the imposition by the DTI of a
countervailing duty, an anti-dumping duty, or a general safeguard measure, respectively. In all three laws,
the determination by the Tariff Commission that these required factual conditions exist is necessary
before the DTI Secretary may impose the corresponding duty or safeguard measure. And in all three laws,
there is no express provision authorizing the DTI Secretary to reverse the factual determination of the
Tariff Commission.
Same; Same; Same; Same; The SMA indubitably establishes that the Tariff Commission is no mere

flunky of the DTI Secretary when it mandates that the positive final recommendation of the former be
indispensable to the latter’s imposition of a general safeguard measure—what the law indicates instead
is a relationship of interdependence between two bodies independent of each other under the
Administrative Code and the SMA alike; The argument that the usual rules on administrative control and
supervision apply between the Tariff Commission and the DTI as regards safeguard measures is severely
undercut by the plain fact that there is no long-standing tradition of administrative interplay between
these two entities.—In fact, the SMA indubitably establishes that the Tariff Commission is no mere
flunky of the DTI Secretary when it mandates that the positive final recommendation of the former be
indispensable to the latter’s imposition of a general safeguard measure. What the law indicates instead is a
relationship of interdependence between two bodies independent of each other under the Administrative
Code and the SMA alike. Indeed, even the ability of the DTI Secretary to disregard the Tariff
Commission’s recommendations as to the particular safeguard measures to be imposed evinces the
independence from each other of these two bodies. This is properly so for two reasons—the DTI and the
Tariff Commission are independent of each other under the Administrative Code; and impropriety is
avoided in cases wherein the DTI itself is the one seeking the imposition of the general safeguard
measures, pursuant to Section 6 of the SMA. Thus, in ascertaining the appropriate legal milieu governing
the relationship between the DTI and the Tariff Commission, it is imperative to apply foremost, if not
exclusively, the provisions of the SMA. The argument that the usual rules on administrative control and
supervision apply between the Tariff Commission and the DTI as regards safeguard measures is severely
undercut by the plain fact that there
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is no long-standing tradition of administrative interplay between these two entities.
Same; Same; Same; Same; While within the administrative apparatus, the Tariff Commission appears to

be a lower rank relative to the DTI, this does not necessarily mean that the DTI has the intrinsic right,
absent statutory authority, to reverse the findings of the Tariff Commission.—Within the administrative
apparatus, the Tariff Commission appears to be a lower rank relative to the DTI. But does this necessarily
mean that the DTI has the intrinsic right, absent statutory authority, to reverse the findings of the Tariff
Commission? To insist that it does, one would have to concede for instance that, applying the same
doctrinal guide, the Secretary of the Department of Science and Technology (DOST) has the right to
reverse the rulings of the Civil Aeronautics Board (CAB) or the issuances of the Philippine Coconut
Authority (PCA). As with the Tariff Commission-DTI, there is no statutory authority granting the DOST
Secretary the right to overrule the CAB or the PCA, such right presumably arising only from the position
of subordinacy of these bodies to the DOST. To insist on such a right would be to invite department
secretaries to interfere in the exercise of functions by administrative agencies, even in areas wherein such
secretaries are bereft of specialized competencies.
Same; Same; Same; Same; Considering that the power to impose tariffs in the first place is not inherent
in the President but arises only from congressional grant, we should affirm the congressional prerogative
to impose limitations and restrictions on such powers which do not normally belong to the executive in
the first place; Congress in enacting the SMA and prescribing the roles to be played therein by the Tariff
Commission and the DTI Secretary did not envision that the President, or his/her alter ego could exercise
supervisory powers over the Tariff Commission.—The Separate Opinion asserts that the SMA created a
functional relationship between the Tariff Commission and the DTI Secretary, sufficient to allow the DTI
Secretary to exercise alter ego powers to reverse the determination of the Tariff Commission. Again,
considering that the power to impose tariffs in the first place is not inherent in the President but arises
only from congressional grant, we should affirm the congressional prerogative to impose limitations and
restrictions on such powers which do not normally belong to the executive in the first
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place. Nowhere in the SMA does it state that the DTI Secretary may impose general safeguard measures
without a positive final determination by the Tariff Commission, or that the DTI Secretary may reverse or
even review the factual determination made by the Tariff Commission. Congress in enacting the SMA
and prescribing the roles to be played therein by the Tariff Commission and the DTI Secretary did not
envision that the President, or his/her alter ego could exercise supervisory powers over the Tariff
Commission. If truly Congress intended to allow the traditional alter ego principle to come to fore in the
peculiar setup established by the SMA, it would have assigned the role now played by the DTI Secretary
under the law instead to the NEDA, the body to which the Tariff Commission is attached under the
Administrative Code.
Same; Same; Same; Same; The administrative control and supervision exercised by the head of an

executive department should only be over those subordinate offices that are attached to the department,
or which are, under statute, relegated under its supervision and control.—The Court has no issue with
upholding administrative control and supervision exercised by the head of an executive department, but
only over those subordinate offices that are attached to the department, or which are, under statute,
relegated under its supervision and control. To declare that a department secretary, even if acting as alter
ego of the President, may exercise such control or supervision over all executive offices below cabinet
rank would lead to absurd results such as those adverted to above. As applied to this case, there is no legal
justification for the DTI Secretary to exercise control, supervision, review or amendatory powers over the
Tariff Commission and its positive final determination. In passing, we note that there is, admittedly, a
feasible mode by which administrative review of the Tariff Commission’s final determination could be
had, but it is not the procedure adopted by respondents and now suggested for affirmation. This mode
shall be discussed in a forthcoming section.
Same; Same; Same; Same; The definition of the structure of the executive branch of government, and the
corresponding degrees of administrative control and supervision, is not the exclusive preserve of the
executive—it may be effectively be limited by the Constitution, by law, or by judicial decisions.—
The Separate Opinion asserts that the President, or his/her alter ego cannot be made a mere rubber
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stamp of the Tariff Commission since Section 17, Article VII of the Constitution denominates the Chief
Executive exercises control over all executive departments, bureaus and offices. But let us be clear that
such “executive control” is not absolute. The definition of the structure of the executive branch of
government, and the corresponding degrees of administrative control and supervision, is not the exclusive
preserve of the executive. It may be effectively be limited by the Constitution, by law, or by judicial
decisions.
Same; Same; Same; Same; The bare fact is that the administrative superstructure, for all its
unwieldiness, is mere putty in the hands of Congress—the legislature has the concurrent power to
reclassify or redefine the executive bureaucracy, including the relationship between various
administrative agencies, bureaus and departments, and ultimately, even the power to abolish executive
departments and their components, hamstrung only by constitutional limi-tations.—The bare fact is that
the administrative superstructure, for all its unwieldiness, is mere putty in the hands of Congress. The
functions and mandates of the particular executive departments and bureaus are not created by the
President, but by the legislative branch through the Administrative Code. The President is the
administrative head of the executive department, as such obliged to see that every government office is
managed and maintained properly by the persons in charge of it in accordance with pertinent laws and
regulations, and empowered to promulgate rules and issuances that would ensure a more efficient
management of the executive branch, for so long as such issuances are not contrary to law. Yet the
legislature has the concurrent power to reclassify or redefine the executive bureaucracy, including the
relationship between various administrative agencies, bureaus and departments, and ultimately, even the
power to abolish executive departments and their components, hamstrung only by constitutional
limitations. The DTI itself can be abolished with ease by Congress through deleting Title X, Book IV of
the Administrative Code. The Tariff Commission can similarly be abolished through legislative
enactment.
Same; Same; Same; Same; The same Congress, which has the putative authority to abolish the Tariff
Commission or the DTI, is similarly empowered to alter or expand its functions through modalities which
do not align with established norms in the bureaucratic structure.—Congress can enact additional tasks
or responsibilities on
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either the Tariff Commission or the DTI Secretary, such as their respective roles on the imposition of
general safeguard measures under the SMA. In doing so, the same Congress, which has the putative
authority to abolish the Tariff Commission or the DTI, is similarly empowered to alter or expand its
functions through modalities which do not align with established norms in the bureaucratic structure. The
Court is bound to recognize the legislative prerogative to prescribe such modalities, no matter how
atypical they may be, in affirmation of the legislative power to restructure the executive branch of
government.
Same; Same; Same; Same; Statutory Construction; Assuming there is a conflict between the specific

limitation in Section 28 (2), Article VI of the Constitution and the general executive power of control and
supervision, the former prevails in the specific instance of safeguard measures such as tariffs and
imposts, and would thus serve to qualify the general grant to the President of the power to exercise
control and supervision over his/her subalterns.—Assuming there is a conflict between the specific
limitation in Section 28 (2), Article VI of the Constitution and the general executive power of control and
supervision, the former prevails in the specific instance of safeguard measures such as tariffs and imposts,
and would thus serve to qualify the general grant to the President of the power to exercise control and
supervision over his/her subalterns. Thus, if the Congress enacted the law so that the DTI Secretary is
“bound” by the Tariff Commission in the sense the former cannot impose general safeguard measures
absent a final positive determination from the latter the Court is obliged to respect such legislative
prerogative, no matter how such arrangement deviates from traditional norms as may have been enshrined
in jurisprudence. The only ground under which such legislative determination as expressed in statute may
be successfully challenged is if such legislation contravenes the Constitution. No such argument is posed
by the respondents, who do not challenge the validity or constitutionality of the SMA.
Same; Same; Same; Same; International Law; General Agreement on Tariff and Trade (GATT)

Agreement on Safeguards; Our treaty obligations dissuade the State for now from implementing default
protectionist trade measures such as tariffs, and allow the same only under specified conditions; To
insulate the factual determination from political pressure, and to assure that it be conducted
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by an entity especially qualified by reason of its general functions to undertake such investigation,
Congress deemed it necessary to delegate to the Tariff Commission the function of ascertaining whether
or not the those factual conditions exist to warrant the atypical imposition of safeguard measures.—We
see no reason to deviate from these observations, and indeed can add similarly oriented comments.
Corollary to the legislative power to decree policies through legislation is the ability of the legislature to
provide for means in the statute itself to ensure that the said policy is strictly implemented by the body or
office tasked so tasked with the duty. As earlier stated, our treaty obligations dissuade the State for now
from implementing default protectionist trade measures such as tariffs, and allow the same only under
specified conditions. The conditions enumerated under the GATT Agreement on Safeguards for the
application of safeguard measures by a member country are the same as the requisites laid down in
Section 5 of the SMA. To insulate the factual determination from political pressure, and to assure that it
be conducted by an entity especially qualified by reason of its general functions to undertake such
investigation, Congress deemed it necessary to delegate to the Tariff Commission the function of
ascertaining whether or not those factual conditions exist to warrant the atypical imposition of safeguard
measures. After all, the Tariff Commission retains a degree of relative independence by virtue of its
attachment to the National Economic Development Authority, “an independent planning agency of the
government,” and also owing to its vaunted expertise and specialization.
Same; Same; Same; Same; Since there is no convincing demonstration that the SMA contravenes the

Constitution, the Court is wont to respect the administrative regimen propounded by the law, even if it
allots the Tariff Commission a higher degree of puissance than normally expected.—Even assuming that
this prescribed setup made little sense, or seemed “uncommonly silly,” the Court is bound by propriety
not to dispute the wisdom of the legislature as long as its acts do not violate the Constitution. Since there
is no convincing demonstration that the SMA contravenes the Constitution, the Court is wont to respect
the administrative regimen propounded by the law, even if it allots the Tariff Commission a higher degree
of puissance than normally expected. It is for this reason that the traditional conceptions of administrative
review or quasi-judicial power cannot control in this case. Indeed, to apply the latter concept
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would cause the Court to fall into a linguistic trap owing to the multi-faceted denotations the term “quasi-
judicial” has come to acquire.
Same; Same; Same; Same; The Tariff Commission is not empowered to hear actual cases or

controversies lodged directly before it by private parties.—Under the SMA, the Tariff Commission
undertakes formal hearings, receives and evaluates testimony and evidence by interested parties, and
renders a decision is rendered on the basis of the evidence presented, in the form of the final
determination. The final determination requires a conclusion whether the importation of the product under
consideration is causing serious injury or threat to a domestic industry producing like products or directly
competitive products, while evaluating all relevant factors having a bearing on the situation of the
domestic industry. This process aligns conformably with definition provided by Black’s Law Dictionary
of “quasi-judicial” as the “action, discretion, etc., of public administrative officers or bodies, who are
required to investigate facts, or ascertain the existence of facts, hold hearings, weigh evidence, and draw
conclusions from them, as a basis for their official action, and to exercise discretion of a judicial nature.”
However, the Tariff Commission is not empowered to hear actual cases or controversies lodged directly
before it by private parties. It does not have the power to issue writs of injunction or enforcement of its
determination. These considerations militate against a finding of quasi-judicial powers attributable to the
Tariff Commission, considering the pronouncement that “quasi-judicial adjudication would mean a
determination of rights privileges and duties resulting in a decision or order which applies to a specific
situation.”
Same; Same; Same; Same; A declaration that the Tariff Commission possesses quasi-judicial powers,

even if ascertained for the limited purpose of exercising its functions under the SMA, may have the
unfortunate effect of expanding the Commission’s powers beyond that contemplated by law.—A
declaration that the Tariff Commission possesses quasi-judicial powers, even if ascertained for the limited
purpose of exercising its functions under the SMA, may have the unfortunate effect of expanding the
Commission’s powers beyond that contemplated by law. After all, the Tariff Commission is by
convention, a fact-finding body, and its role under the SMA, burdened as it is with factual determination,
is but a mere continuance
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of this tradition. However, Congress through the SMA offers a significant deviation from this traditional
role by tying the decision by the DTI Secretary to impose a safeguard measure to the required positive
factual determination by the Tariff Commission. Congress is not bound by past traditions, or even by the
jurisprudence of this Court, in enacting legislation it may deem as suited for the times. The sole
benchmark for judicial substitution of congressional wisdom is constitutional transgression, a standard
which the respondents do not even attempt to match.
Same; Same; Same; Same; It would be highly irregular to substitute what the law clearly provides for a
dubious setup of no statutory basis that would be readily susceptible to rank chicanery.—Nothing in the
SMA authorizes the DTI Secretary, after making the preliminary determination, to personally oversee the
investigation, hear out the interested parties, or receive evidence. In fact, the SMA does not even require
the Tariff Commission, which is tasked with the custody of the submitted evidence, to turn over to the
DTI Secretary such evidence it had evaluated in order to make its factual determination. Clearly, as
Congress tasked it to be, it is the Tariff Commission and not the DTI Secretary which acquires the
necessary intimate acquaintance with the factual conditions and evidence necessary for the imposition of
the general safeguard measure. Why then favor an interpretation of the SMA that leaves the findings of
the Tariff Commission bereft of operative effect and makes them subservient to the wishes of the DTI
Secretary, a personage with lesser working familiarity with the relevant factual milieu? In fact, the bare
theory of the respondents would effectively allow the DTI Secretary to adopt, under the subterfuge of his
“discretion,” the factual determination of a private investigative group hired by the industry concerned,
and reject the investigative findings of the Tariff Commission as mandated by the SMA. It would be
highly irregular to substitute what the law clearly provides for a dubious setup of no statutory basis that
would be readily susceptible to rank chicanery.
Same; Same; Same; Same; While the general safeguard measures may operate to the better interests of
the domestic cement industries, its deprivation of cheaper cement imports may similarly work to the
detriment of these other domestic industries and correspondingly, the national interest.—The SMA
guarantees the right of all concerned parties to be heard, an elemental requirement of due process,
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by the Tariff Commission in the context of its investigation. The DTI Secretary is not similarly
empowered or tasked to hear out the concerns of other interested parties, and if he/she does so, it arises
purely out of volition and not compulsion under law. Indeed, in this case, it is essential that the position of
other than that of the local cement industry should be given due consideration, cement being an
indispensable need for the operation of other industries such as housing and construction. While the
general safeguard measures may operate to the better interests of the domestic cement industries, its
deprivation of cheaper cement imports may similarly work to the detriment of these other domestic
industries and correspondingly, the national interest. Notably, the Tariff Commission in this case heard
the views on the application of representatives of other allied industries such as the housing, construction,
and cement-bag industries, and other interested parties such as consumer groups and foreign
governments. It is only before the Tariff Commission that their views had been heard, and this is because
it is only the Tariff Commission which is empowered to hear their positions. Since due process requires a
judicious consideration of all relevant factors, the Tariff Commission, which is in a better position to hear
these parties than the DTI Secretary, is similarly more capable to render a determination conformably
with the due process requirements than the DTI Secretary.
Same; Same; Same; Same; There is no evident legislative intent by the authors of the SMA to provide for
a procedure of administrative review.—The Court has been emphatic that a positive final determination
from the Tariff Commission is required in order that the DTI Secretary may impose a general safeguard
measure, and that the DTI Secretary has no power to exercise control and supervision over the Tariff
Commission and its final determination. These conclusions are the necessary consequences of the
applicable provisions of the Constitution, the SMA, and laws such as the Administrative Code. However,
the law is silent though on whether this positive final determination may otherwise be subjected to
administrative review. There is no evident legislative intent by the authors of the SMA to provide for a
procedure of administrative review. If ever there is a procedure for administrative review over the final
determination of the Tariff Commission, such procedure must be done in a manner that does not
contravene or disregard legislative
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prerogatives as expressed in the SMA or the Administrative Code, or fundamental constitutional
limitations.
Same; Same; Same; Same; Even if conceding that the Tariff Commission’s findings may be

administratively reviewed, the DTI Secretary has no authority to review or modify the same.—Fatally for
the present petitions, such administrative review cannot be conducted by the DTI Secretary. Even if
conceding that the Tariff Commission’s findings may be administratively reviewed, the DTI Secretary
has no authority to review or modify the same. We have been emphatic on the reasons—such as that there
is no traditional or statutory basis placing the Commission under the control and supervision of the DTI;
that to allow such would contravene due process, especially if the DTI itself were to apply for the
safeguard measures motu proprio. To hold otherwise would destroy the administrative hierarchy,
contravene constitutional due process, and disregard the limitations or restrictions provided in the SMA.
Same; Same; Same; Same; Assuming administrative review were available, it is the NEDA that may

conduct such review following the principles of administrative law, and the NEDA’s decision in turn is
reviewable by the Office of the President.—Assuming administrative review were available, it is the
NEDA that may conduct such review following the principles of administrative law, and the NEDA’s
decision in turn is reviewable by the Office of the President. The decision of the Office of the President
then effectively substitutes as the determination of the Tariff Commission, which now forms the basis of
the DTI Secretary’s decision, which now would be ripe for judicial review by the CTA under Section 29
of the SMA. This is the only way that administrative review of the Tariff Commission’s determination
may be sustained without violating the SMA and its constitutional restrictions and limitations, as well as
administrative law. In bare theory, the NEDA may review, alter or modify the Tariff Commission’s final
determination, the Commission being an attached agency of the NEDA. Admittedly, there is nothing in
the SMA or any other statute that would prevent the NEDA to exercise such administrative review, and
successively, for the President to exercise in turn review over the NEDA’s decision.
Same; National Economy and Patrimony; Preferential Use of Filipino Labor, Materials and Goods; By
no means does Section 12, Article XII of the Constitution dictate that the Court favor the domes-
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tic industry in all competing claims that it may bring before this Court—if it were so, judicial proceedings
in this country would be rendered a mockery, resolved as they would be, on the basis of the personalities
of the litigants and not their legal positions.—In response to our citation of Section 28(2), Article VI,
respondents elevate two arguments grounded in constitutional law. One is based on another constitutional
provision, Section 12, Article XII, which mandates that “[t]he State shall promote the preferential use of
Filipino labor, domestic materials and locally produced goods and adopt measures that help make them
competitive.” By no means does this provision dictate that the Court favor the domestic industry in all
competing claims that it may bring before this Court. If it were so, judicial proceedings in this country
would be rendered a mockery, resolved as they would be, on the basis of the personalities of the litigants
and not their legal positions.
Same; Same; Same; The duty imposed on by Section 12, Article XII falls primarily with Congress, which
in that regard enacted the SMA, a law designed to protect domestic industries from the possible ill-effects
of our accession to the global trade order.—The duty imposed on by Section 12, Article XII falls
primarily with Congress, which in that regard enacted the SMA, a law designed to protect domestic
industries from the possible ill-effects of our accession to the global trade order. Inconveniently perhaps
for respondents, the SMA also happens to provide for a procedure under which such protective measures
may be enacted. The Court cannot just impose what it deems as the spirit of the law without giving due
regard to its letter.
Same; Same; Same; More accurately, the purpose of the SMA is to provide a process for the protection
or safeguarding of domestic industries that have duly established that there is substantial injury or threat
thereof directly caused by the increased imports—domestic industries are not entitled to safeguard
measures as a matter of right or influence.—In like-minded manner, the Separate Opinion loosely states
that the purpose of the SMA is to protect or safeguard local industries from increased importation of
foreign products. This inaccurately leaves the impression that the SMA ipso facto unravels a protective
cloak that shelters all local industries and producers, no matter the conditions. Indeed, our country has
knowingly chosen to accede to the world trade regime, as expressed in the GATT and
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WTO Agreements, despite the understanding that local industries might suffer ill-effects, especially with
the easier entry of competing foreign products. At the same time, these international agreements were
designed to constrict protectionist trade policies by its member-countries. Hence, the median, as
expressed by the SMA, does allow for the application of protectionist measures such as tariffs, but only
after an elaborate process of investigation that ensures factual basis and indispensable need for such
measures. More accurately, the purpose of the SMA is to provide a process for the protection or
safeguarding of domestic industries that have duly established that there is substantial injury or threat
thereof directly caused by the increased imports. In short, domestic industries are not entitled to safeguard
measures as a matter of right or influence.
Same; Taxation; Police Power; Delegation of Powers; Tariff Powers; The motivation behind many

taxation measures is the implementation of police power goals.—Respondents also make the astounding
argument that the imposition of general safeguard measures should not be seen as a taxation measure, but
instead as an exercise of police power. The vain hope of respondents in divorcing the safeguard measures
from the concept of taxation is to exclude from consideration Section 28(2), Article VI of the
Constitution. This argument can be debunked at length, but it deserves little attention. The motivation
behind many taxation measures is the implementation of police power goals. Progressive income taxes
alleviate the margin between rich and poor; the so-called “sin taxes” on alcohol and tobacco
manufacturers help dissuade the consumers from excessive intake of these potentially harmful products.
Taxation is distinguishable from police power as to the means employed to implement these public good
goals. Those doctrines that are unique to taxation arose from peculiar considerations such as those
especially punitive effects of taxation, and the belief that taxes are the lifeblood of the state. These
considerations necessitated the evolution of taxation as a distinct legal concept from police power. Yet at
the same time, it has been recognized that taxation may be made the implement of the state’s police
power.
Same; Same; Same; Same; Same; Police power, however “illimitable” in theory, is still exercised within

the confines of implementing legislation.—Even assuming that the SMA should be construed exclusively
as a police power measure, the Court recognizes that
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police power is lodged primarily in the national legislature, though it may also be exercised by the
executive branch by virtue of a valid delegation of legislative power. Considering these premises, it is
clear that police power, however “illimitable” in theory, is still exercised within the confines of
implementing legislation. To declare otherwise is to sanction rule by whim instead of rule of law. The
Congress, in enacting the SMA, has delegated the power to impose general safeguard measures to the
executive branch, but at the same time subjected such imposition to limitations, such as the requirement
of a positive final determination by the Tariff Commission under Section 5. For the executive branch to
ignore these boundaries imposed by Congress is to set up an ignoble clash between the two co-equal
branches of government. Considering that the exercise of police power emanates from legislative
authority, there is little question that the prerogative of the legislative branch shall prevail in such a clash.
Judicial Review; Nationalism; Parties well have the right to drape themselves in the colors of the flag yet
these postures hardly advance legal claims, or nationalism for that matter—the fineries of the costume
pageant are no better measure of patriotism than simple obedience to the laws of the Fatherland.—
Respondents well have the right to drape themselves in the colors of the flag. Yet these postures hardly
advance legal claims, or nationalism for that matter. The fineries of the costume pageant are no better
measure of patriotism than simple obedience to the laws of the Fatherland. And even assuming that
respondents are motivated by genuine patriotic impulses, it must be remembered that under the setup
provided by the SMA, it is the facts, and not impulse, that determine whether the protective safeguard
measures should be imposed. As once orated, facts are stubborn things; and whatever may be our wishes,
our inclinations, or the dictates of our passions, they cannot alter the state of facts and evidence.
Same; Same; It is our goal as judges to enforce the law, and not what we might deem as correct
economic policy.—It is our goal as judges to enforce the law, and not what we might deem as correct
economic policy. Towards this end, we should not construe the SMA to unduly favor or disfavor
domestic industries, simply because the law itself provides for a mechanism by virtue of which the claims
of these industries are thoroughly evaluated before they are favored or
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disfavored. What we must do is to simply uphold what the law says. Section 5 says that the DTI Secretary
shall impose the general safeguard measures upon the positive final determination of the Tariff
Commission. Nothing in the whereas clauses or the invisible ink provisions of the SMA can magically
delete the words “positive final determination” and “Tariff Commission” from Section 5.
Courts; Jurisdictions; Jurisdiction is necessarily the power to decide a case, and a court which does not
have the power to adjudicate a case is one that is bereft of jurisdiction.—The Court of
Appeals’ Decision was annulled precisely because the appellate court did not have the power to rule on
the petition in the first place. Jurisdiction is necessarily the power to decide a case, and a court which does
not have the power to adjudicate a case is one that is bereft of jurisdiction. We find no reason to disturb
our earlier finding that the Court of Appeals’ Decision is null and void.
PANGANIBAN, J., Separate Opinion:
Safeguard Measures Act (SMA) (R.A. No. 8800); Judicial Review; I respectfully submit that, absent any
patent violation of laws or grave abuse of discretion, the top trade official should be given the widest
discretion to be able to promote the best interest of the country in the field of trade, industry and
investments.—I respectfully submit that, absent any patent violation of laws or grave abuse of discretion,
the top trade official should be given the widest discretion to be able to promote the best interest of the
country in the field of trade, industry and investments. I believe that this Court should not interfere
unnecessarily in commercial and economic policies, but allow our executive officials to meet head-on the
vicissitudes of international trade competition spawned by globalization, deregulation and liberalization.
As will be demonstrated later on, I firmly submit that law, justice, equity, reason, logic, national interest
and common sense impel the maintenance of this Court’s policy of laissez-faire. In short, the judiciary
should be deferential to the powers residing in, and respectful of the actions taken by, the top government
official who has primary responsibility for the commercial development of the nation.
Same; I respectfully submit that the DTI secretary has the power to impose safeguard measures even if
the Tariff Commission (TC) does not recommend such imposition.—While I agree that the
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CTA has jurisdiction to review the DTI Secretary’s decision either imposing or not imposing a safeguard
measure, I respectfully disagree, however, that the said cabinet official is bound by the recommendations
of the Tariff Commission and may thus impose a safeguard measure only when it so recommends. I
respectfully submit that the DTI Secretary has the power to impose safeguard measures even if the TC
does not recommend such imposition. Same; Judicial Review; While RA 8800 does not explicitly state
which rulings of the DTI secretary are reviewable by way of a petition for review with the CTA, the Rules
of Court and settled jurisprudence provide that only judgments or final orders disposing of the merits of a
case may be the subject of appeals or petitions for review.—It is a legal truism, however, that
interlocutory orders are not subject to an appeal or a petition for review until the main case is finally
resolved on the merits. RA 8800 does not explicitly state which rulings of the DTI secretary are
reviewable by way of a petition for review with the CTA. However, the Rules of Court and settled
jurisprudence provide that only judgments or final orders disposing of the merits of a case may be the
subject of appeals or petitions for review. Since RA 8800 does not amend the extant Rules
(assuming arguendo that Congress had the power to amend the Rules of Court), they must be applied to
the intended appeals.
Same; Same; I agree with the Resolution that the available remedy at this time is to file a new
application for the imposition of a definitive safeguard measure, if warranted under the present
circumstances.—In any event, as the determination of the case is dependent on current pertinent
econometric data and their effects on the domestic industry, the peculiar circumstances make a ruling on
the merits inadvisable at this time. The original application for a safeguard measure was filed way back in
2001, and it has been almost four years since the imposition of the provisional safeguard measure. The
cement import statistics on record may no longer be relevant at present. I agree with the Resolution that
the available remedy at this time is to file a new application for the imposition of a definitive safeguard
measure, if warranted under the present circumstances.
Same; Taxation; While primarily intended to protect domestic industries, safeguard measures are

incidentally revenue-generating and generally in the nature of, though not always equivalent to, tariff
impositions—they may consist of a tariff increase, duty, tariff-rate
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quota, quantitative restriction, adjustment measure or a combination of these.—While primarily intended
to protect domestic industries, safeguard measures are incidentally revenue-generating and generally in
the nature of, though not always equivalent to, tariff impositions. They may consist of a tariff increase,
duty, tariff-rate quota, quantitative restriction, adjustment measure or a combination of these. In the
determination of their imposition, the following factors are to be taken into consideration: rate and
amount of increase in the importation of the product concerned; share of the domestic market taken by the
increased imports; and changes in the level of sales, production, productivity, capacity utilization, profits
and losses, and employment. Most of these factors involve data analysis which, by virtue of the highly
specialized technical expertise of the CTA, must be more familiar to it than to the CA.
Same; Same; Court of Tax Appeals; Jurisdictions; Section 7(a)(7) of RA 9282 merely restates in clearer

language Section 29 of RA 8800—between the enactment of RA 8800 in 2000 and RA 9282 in 2004, there
has been no significant supervening change in circumstances in our economic or trade environments or
even in our judicial structure, which would justify Congress to add to the jurisdiction of the CTA the
review of the non-imposition of a safeguard measure.—Contrary to the contention of the solicitor general,
Section 7(a)(7) of RA 9282 merely restates in clearer language Section 29 of RA 8800. Undeniably, the
imperfect craftsmanship of the latter has spawned some ambiguity. I believe that Congress did not mean
to add, via Section 7(a)(7) of RA 9282, a new matter to the jurisdiction of the CTA. For all along, the
legislative intent has been to vest in the CTA the power to review the imposition or non-imposition of
safeguard measures. Between the enactment of RA 8800 in 2000 and RA 9282 in 2004, there has been no
significant supervening change in circumstances in our economic or trade environments or even in our
judicial structure, which would justify Congress to add to the jurisdiction of the CTA the review of the
non-imposition of a safeguard measure. The only significant intervening event that seems worth
considering is the present proceeding, which precisely reveals an ambiguity that Congress did not intend
when it enacted RA 8800. Section 7(a)(7) of RA 9282 now explicitly expresses the law’s intent.
Same; Courts; Judicial Review; Generally, the Supreme Court cannot review a legally inexistent

judgment.—Because the CA
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wrongly exercised its limited certiorari power, its June 5, 2003 Decision was rendered without
jurisdiction and, hence, null and void. Held to be dead limbs on the judicial tree are void judgments,
which should be disregarded or ignored. Likewise, the DTI Decision dated June 25, 2003, issued pursuant
to the void CA judgment, is necessarily invalid. A void judgment is worthless and has no legal effect. It
cannot be the source of any right or the creator of any obligation. Thus, all acts performed pursuant to it
and all claims emanating from it have no legal effect. Accordingly, the present Petition, which seeks a
review of a void Decision of the CA should, in the ordinary course, also be dismissed. Generally, this
Court cannot review a legally inexistent judgment.
Same; Delegation of Powers; Tariff Powers; Tariff Commission; The theory that Congress may delegate

the power to fix tariffs to both the Tariff Commission and the DTI Secretary “as agents of Congress”
plainly violates Section 28(2) of Article VI of the Constitution.—Under this constitutional provision, to no
other official, except the President, is the authority to fix tariff rates, quotas, imposts and other duties
allowed to be delegated. However, the Resolution authored by Justice Tinga theorizes that Congress may
delegate such power to fix tariffs to both the Tariff Commission and the DTI secretary, “as agents of
Congress.” I believe that this theory plainly violates the aforequoted Section 28(2) of Article VI of the
Constitution. I respectfully submit that the only constitutional way to uphold the DTI secretary’s
imposition of tariffs under RA 8800 is to apply the alter ego principle. In other words, the DTI secretary
imposes safeguard measures (like tariffs, import quotas, quantitative restriction, etc.) only in
representation and as an alter ego of the President in the field of trade and investment matters. Thus, the
law must be construed as delegating to the President—through the latter’s alter ego on trade—the power
to impose safeguard measures.
Same; Same; Same; Same; Power of Control; Since the Tariff Commission is an agency in the Executive

Department, necessarily subject to the control and supervision of the President, its decisions and
recommendations cannot tie the hands of the Chief Executive with finality.—The power of control
includes the right to modify or set aside a decision of a subordinate officer. Since the Tariff Commission
is an agency in the Executive Department, it is necessarily subject to the control and supervision of the
President. Hence, its
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decisions and recommendations cannot tie the hands of the Chief Executive with finality. Consequently,
the DTI head, acting as the President’s agent pursuant to RA 8800, may affirm, modify or reverse the
Tariff Commission’s recommendation. To repeat, such plenary power of control cannot be restricted by a
mere statute passed by Congress.
Same; Same; Same; Same; Same; RA 8800 could not have intended that the alter ego of the President be
a mere rubber stamp who would be compelled to enforce the recommendations of a purely investigatory
agency in the Executive Department.—As the cabinet official and alter ego of the President on trade,
industry and investment-related matters, the DTI head necessarily has sufficient latitude and discretion in
the pursuit of the Department’s mandate. On the other hand, being primarily a fact-finder, the Tariff
Commission is limited to submitting its report and recommendations to the referring agency. In this
scheme of tasking, absent any clear and direct provision of the Constitution, the TC’s mere
recommendation cannot bind the cabinet official, much less the President. As the solicitor general aptly
suggests, RA 8800 could not have intended that the alter ego of the President be a mere rubber stamp who
would be compelled to enforce the recommendations of a purely investigatory agency in the Executive
Department.
Same; Same; Same; Same; More precisely, when the DTI secretary reviews (and ultimately affirms,
modifies or reverses) the recommendation of the Tariff Commission, he or she does so, not as one who is
higher than the Commission in the administrative stratum, but as the alter ego of the President who, by
constitutional fiat, is the only official to whom the authority to impose such measures may be delegated
by Congress.—That the TC was placed under the administrative supervision of the NEDA does not give
the latter the sole power to review the Commission’s reports. Precisely, RA 8800 creates a functional
relationship between the Commission and the DTI secretary. It provides for the administrative interplay
between the two agencies—but only with regard to the application of general safeguard measures. More
precisely, when the DTI secretary reviews (and ultimately affirms, modifies or reverses) the
recommendation of the Commission, he or she does so, not as one who is higher than the Commission in
the administrative stratum, but as the alter ego of the President who, by constitutional fiat, is the only
official to whom
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the authority to impose such measures may be delegated by Congress.
Same; Same; Same; Same; To be consistent with Section 28, Article VI of the Constitution, R.A. 8800
must be understood to mean that in delegating the authority to impose safeguard measures, Congress
designated the DTI secretary, being the President’s subaltern or alter ego on trade matters.—Elementary
is the rule that the power to tax is inherent upon the State, but can be exercised only by Congress, unless
allowed by the Constitution to be conferred upon another qualified government instrumentality. The
power to fix tariff rates also lies in the legislature. However, the delegation of that power to the President
is permissible, under Section 28 of Article VI of the Constitution, as earlier mentioned. RA 8800 must be
construed in harmony with the said constitutional provision. In delegating to the DTI secretary the power
to impose safeguard measures, Congress could have done so only within the constitutional restriction.
The legislature could not have simply chosen the DTI secretary and the Tariff Commission as its agents in
imposing the measure. Its delegation of the power to impose tariffs to whomsoever it chose (other than
the President) was beyond its constitutional authority. To read the law in such a manner would inevitably
result in the statute’s unconstitutionality. To be consistent with the constitutional clause, the law must be
understood to mean that in delegating the authority to impose safeguard measures, Congress designated
the DTI secretary, being the President’s subaltern or alter ego on trade matters. Again, Congress could
not have directly constituted the cabinet official as its own agent, because the Constitution categorically
limited the delegation of such authority to the President. The fundamental law expressly states that
Congress may authorize the President (and names no other official) to impose (subject to limitations and
restrictions that it may specify) tariffs, quotas, duties and other imposts. For the legislature to delegate the
authority to another official or entity, such as the Tariff Commission, and to completely disregard or do
away with the President would be a blatant contravention of the Constitution.
Same; Same; Same; Same; The DTI secretary—as the President’s alter ego on trade matters may
exercise, in the President’s stead, the same prerogative of affirmation, modification or reversal over any
action of the Commission.—Clearly then, in imposing a
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safeguard measure, the DTI secretary acts as the President’s alter ego. Because the President’s power of
control over any office in the Executive Department cannot be restricted or degraded by Congress, by the
same reasoning the exercise by the alter ego of such power of control over actions of the Tariff
Commission cannot be constitutionally curtailed by Congress. Otherwise stated, the President—through
the constitutional power of control over the Executive Department—has the prerogative to affirm, modify
or reverse any action of the Tariff Commission. Thus, the DTI secretary—as the President’s alter ego on
trade matters—may exercise, in the President’s stead, the same prerogative of affirmation, modification
or reversal over any action of the Commission.
Same; Same; Same; Same; Words and Phrases; Public interest is something in which the public or

community at large has some pecuniary interest affecting their legal rights or liabilities, and there are no
definite parameters by which it may be established solely by judicial authorities—its determination is
indubitably a political question, addressed to a policy maker who is answerable to the people, not a fact
finder or investigatory body that has no electoral mandate.—These are the substantial conditions or
limitations specified by the law for the imposition by the DTI head (or, principally, the President) of a
safeguard measure. The Tariff Commission is tasked to determine the presence of the first two conditions
—matters that may be ascertained by factual examination. The final factor is left to the discretion of the
DTI secretary. Public interest is something in which the public or community at large has some pecuniary
interest affecting their legal rights or liabilities. Because it concerns the general public, its determination
is not quantifiable in exact terms. There are no definite parameters by which it may be established solely
by judicial authorities. Its determination is indubitably a political question; thus, it is addressed to a policy
maker who is answerable to the people, not a fact finder or investigatory body that has no electoral
mandate.
Actions; Forum Shopping; The penalties imposed upon erring lawyers who engaged in forum shopping
ranged from severe censure to suspension from the practice of law, in order to make them realize the
seriousness of the consequences and implications of their abuse of the judicial process and disrespect for
judicial authority.—Failure to comply with the non-forum shopping requirements in Section 5 of
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Philippines
Rule 7 does not, however, automatically warrant the dismissal of the case with prejudice. The Rule states
that the dismissal is without prejudice; with prejudice, only upon motion and after hearing. And there
must be evidence that the erring party and counsel committed willful and deliberate acts amounting to
forum shopping as to warrant the summary dismissal of the case and the imposition of direct contempt
and the appropriate administrative sanctions. In previous cases, the penalties imposed upon erring lawyers
who engaged in forum shopping ranged from severe censure to suspension from the practice of law, in
order to make them realize the seriousness of the consequences and implications of their abuse of the
judicial process and disrespect for judicial authority. Based on the foregoing tenets, I believe that
petitioner’s counsels should be sanctioned with severe censure.
Courts; Judicial Review; The principal duty of the judiciary is to adjudicate actual controversies

involving rights and obligations of persons—it has no business interfering in the realm of policy making.
—The principal duty of the judiciary is to adjudicate actual controversies involving rights and obligations
of persons; it has no business interfering in the realm of policy making. Basic is the rule that courts
should adopt a hands-off approach with respect to non-judicial concerns of government. The only ground
upon which they can review apparently policy questions is when an act of an agency or instrumentality of
government, including the Presidency and Congress, is blatantly contrary to law or the Constitution or
clearly tainted with grave abuse of discretion. In these exceptional instances, it becomes the bounden duty
of the Court to nullify the act.
MOTIONS FOR RECONSIDERATION of a decision of the Supreme Court.
The facts are stated in the resolution of the Court.
Tadeo F. Hilado, Gilberto D. Gallos and Tesi Lou Guanzon for petitioner.

Abundio D. Marapao, Jr. for V.T. Lao Construction.
Florentino P. Feliciano and Maria Lourdes A. Sereno for private respondent CMAP.
The Solicitor General for public respondent.
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RESOLUTION
TINGA, J.:
Cement is hardly an exciting subject for litigation. Still, the parties in this case have done their best to put
up a spirited advocacy of their respective positions, throwing in everything including the proverbial
kitchen sink. At present, the burden of passion, if not proof, has shifted to public respondents Department
of Trade and Industry (DTI) and private respondent Philippine Cement Manufacturers Corporation
(Philcemcor), who now seek reconsideration of our Decision dated 8 July 2004 (Decision), which granted
1
the petition of petitioner Southern Cross Cement Corporation (Southern Cross).X
This case, of course, is ultimately not just about cement. For respondents, it is about love of country and
the future of the domestic industry in the face of foreign competition. For this Court, it is about
elementary statutory construction, constitutional limitations on the executive power to impose tariffs and
similar measures, and obedience to the law. Just as much was asserted in the Decision, and the same holds
true with this present Resolution.
An extensive narration of facts can be found in the Decision. As can well be recalled, the case centers on
2
the interpretation of provisions of Republic Act No. 8800, the Safeguard Measures Act (“SMA”), which
was one of the laws enacted by Congress soon after the Philippines ratified the General Agreement on
Tariff and Trade (GATT) and the World TradeX
_______________
1
Since renamed Cement Manufacturers Association of the Philippines. See Rollo, p. 1634. Considering that the Decision
referred to the private respondents by their old name, this Resolution shall do so as well, for the sake of continuity.
See Southern Cross Cement Corporation v. Philippine Cement Manufacturers Corporation, G.R. No. 158540, 8 July
2
2004, 434 SCRA 65, 69-80.
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Philippines
Organization (WTO) Agreement. The SMA provides the structure and mechanics for the imposition of
3
emergency measures, including tariffs, to protect domestic industries and producers from increased
imports which inflict or could inflict serious injury on them. X 4
A brief summary as to how the present petition came to be filed by Southern Cross. Philcemcor, an
association of at least eighteen (18) domestic cement manufacturers filed with the DTI a petition seeking
the imposition of safeguard measures on gray Portland cement, in accordance with the SMA. After the
5
DTI issued a provisional safeguard measure, the application was referred to the Tariff Commission for a
6
formal investigation pursuant to Section 9 of the SMA and its Implementing Rules and Regulations, in
order to determine whether or not to impose a definitive safeguard measure on imports of gray Portland
cement. The Tariff Commission held public hearings and conducted its own investigation, then on 13
March 2002, issued its Formal Investigation Report (“Report”). The Report determined as follows:X
The elements of serious injury and imminent threat of serious injury not having been established, it is
hereby recommended that no definitive general safeguard measure be imposed on the importation of gray
Portland cement. X 7
The DTI sought the opinion of the Secretary of Justice whether it could still impose a definitive safeguard
measure notwithstanding the negative finding of the Tariff Commission. After the Secretary of Justice
opined that the DTI could
_______________
3
See Tañada v. Angara, 338 Phil. 546, 556; 272 SCRA 18, 40 (1997).
4
Supra note 2 at p. 69.
Philcemcor’s application covered gray Portland cement of all types and excluded white Portland cement, aluminous
5
cement, and masonry cement. Rollo, p. 127.
6
In an Order dated 7 November 2001. Rollo, p. 128.
7
Id., at p. 303.
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not do so under the SMA, the DTI Secretary then promulgated a Decision wherein he expressed the
8 9
DTI’s disagreement with the conclusions of the Tariff Commission, but at the same time, ultimately
denying Philcemcor’s application for safeguard measures on the ground that the he was bound to do so in
light of the Tariff Commission’s negative findings. X 10
Philcemcor challenged this Decision of the DTI Secretary by filing with the Court of Appeals a Petition
for Certiorari, Prohibition and Mandamus seeking to set aside the DTI Decision, as well as the Tariff
11
Commission’s Report. It prayed that the Court of Appeals direct the DTI Secretary to disregard the
Report and to render judgment independently of the Report. Philcemcor argued that the DTI Secretary,
vested as he is under the law with the power of review, is not bound to adopt the recommendations of the
Tariff Commission; and, that the Report is void, as it is predicated on a flawed framework, inconsistent
inferences and erroneous methodology. X 12
The Court of Appeals Twelfth Division, in a Decision penned by Court of Appeals Associate Justice Elvi
13
John Asuncion, partially granted Philcemcor’s petition. The appellate court ruled that it had jurisdiction
14
over the petition for certiorari since it alleged grave abuse of discretion. While it refused to annul the
findings of the Tariff Commission, itX 15
_______________
8
Id., at pp. 334-341.
9
Id., at p. 343. Dated 5 April 2003.
10
Id., at p. 343.
11
Id., at pp. 345-416.
Among other claims, Philcemcor alleged that the Tariff Commission arbitrarily ignored the nature of the cement industry
12
in evaluating the injury factors. Rollo, p. 394.
13
Dated 5 June 2003.
14
Rollo, pp. 67-84. And concurred in by Justices P. Aliño-Hormachuelos and E.F. Sundiam.
Citing the rule that factual findings of administrative agencies are binding upon the courts and its corollary, that courts
15
should not interfere in matters addressed to the sound discretion and coming under the special technical knowledge and
training of such agen-
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Philippines
also held that the DTI Secretary was not bound by the factual findings of the Tariff Commission since
such findings are merely recommendatory and they fall within the ambit of the Secretary’s discretionary
review. It determined that the legislative intent is to grant the DTI Secretary the power to make a final
decision on the Tariff Commission’s recommendation. X 16
On 23 June 2003, Southern Cross filed the present petition, arguing that the Court of Appeals has no
jurisdiction over Philcemcor’s petition, as the proper remedy is a petition for review with the CTA
conformably with the SMA, and; that the factual findings of the Tariff Commission on the existence or
non-existence of conditions warranting the imposition of general safeguard measures are binding upon the
DTI Secretary.
Despite the fact that the Court of Appeals’ Decision had not yet become final, its binding force was cited
by the DTI Secretary when he issued a new Decision on 25 June 2003, wherein he ruled that that in light
of the appellate court’s Decision, there was no longer any legal impediment to his deciding Philcemcor’s
application for definitive safeguard measures. He made a determination that, contrary to the findings of
17
the Tariff Commission, the local cement industry had sufferedX
_______________
cies. Rollo, pp. 75-76, citing Litonjua v. Court of Appeals, 286 SCRA 136 (1998), and Sta. Ines Melale Forest Products
Corporation v. Macaraig, 299 SCRA 491 (1998).
16
Id., at p. 82.
Rollo, p. 685. Prior to the promulgation of this new Decision, Southern Cross was already apprehensive that the DTI
17
Secretary might act favorably on Philcemcor’s petition in light of the Court of Appeals ruling. Southern Cross sent a letter
dated 19 June 2003 to DTI Secretary Roxas, informing him that Southern Cross would be appealing the Court of
Appeals Decision to the Supreme Court, and that “[w]e trust that, in accordance with the Rules of Court, you will refrain
from assuming jurisdiction or from taking any action on the Application for Safeguard Measures filed by Philcemcor until
after the Supreme Court shall have finally decided on our appeal x x x.” See Rollo, pp. 679-680.
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serious injury as a result of the import surges. Accordingly, he imposed a definitive safeguard measure
18
on the importation of gray Portland cement, in the form of a definitive safeguard duty in the amount of
P20.60/40 kg. bag for three years on imported gray Portland Cement. X 19
On 7 July 2003, Southern Cross filed with the Court a “Very Urgent Application for a Temporary
Restraining Order and/or A Writ of Preliminary Injunction” (“TRO Application”), seeking to enjoin the
DTI Secretary from enforcing his Decision of 25 June 2003 in view of the pending petition before this
Court. Philcemcor filed an opposition, claiming, among others, that it is not this Court but the CTA that
has jurisdiction over the application under the law.
On 1 August 2003, Southern Cross filed with the CTA a Petition for Review, assailing the DTI
Secretary’s 25 June 2003 Decision which imposed the definite safeguard measure. Yet Southern Cross
did not promptly inform this Court about this filing. The first time the Court would learn about
this Petition with the CTA was when Southern Cross mentioned such fact in a pleading dated 11 August
2003 and filed the next day with this Court. X 20
Philcemcor argued before this Court that Southern Cross had deliberately and willfully resorted to forum
shopping; that the CTA, being a special court of limited jurisdiction, could only review the ruling of the
DTI Secretary when a safeguard measure is imposed; and that the factual findings of the Tariff
Commission are not binding on the DTI Secretary. X 21
_______________
18
Id., at pp. 688-690.
19
Id., at pp. 681-699.
Id., at p. 775. The pleading’s self-explanatory caption was “Reply to PHILCEMCOR’s Opposition (to Petitioner’s
20
Application for a Temporary Restraining Order And/or Writ of Preliminary Injunction).”
21
Id., at pp. 952-1005.
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Philippines
After giving due course to Southern Cross’s Petition, the Court called the case for oral argument on 18
February 2004. At the oral argument, attended by the counsel for Philcemcor and Southern Cross and the
22
Office of the Solicitor General, the Court simplified the issues in this wise: (i) whether the Decision of the
DTI Secretary is appealable to the CTA or the Court of Appeals; (ii) assuming that the Court of Appeals
has jurisdiction, whether its Decision is in accordance with law; and, whether a Temporary Restraining
Order is warranted. X 23
After the parties had filed their respective memoranda, the Court’s Second Division, to which the case
had been assigned, promulgated its Decision granting Southern Cross’s Petition. The Decision was
24
unanimous, without any separate or concurring opinion.X

The Court ruled that the Court of Appeals had no jurisdiction over Philcemcor’s Petition, the proper
remedy under Section 29 of the SMA being a petition for review with the CTA; and that the Court of
Appeals erred in ruling that the DTI Secretary was not bound by the negative determination of the Tariff
Commission and could therefore impose the general safeguard measures, since Section 5 of the SMA
precisely required that the Tariff Commission make a positive final determination before the DTI
Secretary could impose these measures. Anent the argument that Southern Cross had committed forum
shopping, the Court concluded that there was no evident malicious intent to subvert procedural rules so as
to match the standard under Section 5, Rule 7 of the Rules of Court of willful and deliberate forum
shopping. Accord-
_______________
22
In a Resolution dated 4 February 2004. See Rollo, p. 1191.
23
TSN, 18 February 2004, p. 3.
The Decision was penned by the author of this Resolution, and concurred in by Senior Associate Justice Reynato S. Puno
24
(Chairman of the Second Division), Associate Justices Leonardo A. Quisumbing, Alicia Austria-Martinez and Romeo J.
Callejo, Sr.
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ingly, the Decision of the Court of Appeals dated 5 June 2003 was declared null and void.
The Court likewise found it necessary to nullify the Decision of the DTI Secretary dated 25 June 2003,
rendered after the filing of this present Petition. This Decision by the DTI Secretary had cited the
obligatory force of the null and void Court of Appeals’ Decision, notwithstanding the fact that the
decision of the appellate court was not yet final and executory. Considering that the decision of the Court
of Appeals was a nullity to begin with, the inescapable conclusion was that the new decision of the DTI
Secretary, prescinding as it did from the imprimatur of the decision of the Court of Appeals, was a nullity
as well.
After the Decision was reported in the media, there was a flurry of newspaper articles citing alleged
negative reactions to the ruling by the counsel for Philcemcor, the DTI Secretary, and others. Both 25
respondents promptly filed their respective motions for reconsideration.X
On 21 September 2004, the Court En Banc resolved, upon motion of respondents, to accept the petition
and resolve the Motions for Reconsideration. The case was then reheard on oral argument on 1 March
26 27
2005. During the hearing, the Court elicited from the parties their arguments on the twoX
_______________
Southern Cross filed a Manifestation and Motion dated 20 July 2004, alleging a barrage of press releases by Philcemcor,
25
the DTI and their allies critical of this Court’s Decision, characterizing such as a “well-orchestrated and malevolent
scheme obviously intended to coerce and pressure this Honorable Court to reverse the Decision and/or to influence its
resolution.” Without giving credence to these allegations, the Second Division of the Court found it prudent to issue a
Resolution dated 15 September 2004 enjoining the parties and their counsels, whether directly or indirectly, from making
any public comments in any public forum until the case was finally adjudicated. See Rollo, pp. 2582-2585.
26
Rollo, p. 2587.
27
See note 22.
570
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Philippines
central issues as discussed in the assailed Decision, pertaining to the jurisdictional aspect and to the
substantive aspect of whether the DTI Secretary may impose a general safeguard measure despite a
negative determination by the Tariff Commission. The Court chose not to hear argumentation on the
peripheral issue of forum shopping, although this question shall be tackled herein shortly. Another point
28
of concern emerged during oral arguments on the exercise of quasi-judicial powers by the Tariff
Commission, and the parties were required by the Court to discuss in their respective memoranda whether
the Tariff Commission could validly exercise quasi-judicial powers in the exercise of its mandate under
the SMA.X
The Court has likewise been notified that subsequent to the rendition of the Court’s Decision, Philcemcor
filed a Petition for Extension of the Safeguard Measure with the DTI, which has been referred to the
Tariff Commission. In an Urgent Motion dated 21 December 2004, Southern Cross prayed that
29
Philcemcor, the DTI, the Bureau of Customs, and the Tariff Commission be directed to “cease and desist
from taking any and all actions pursuant to or under the null and void CA Decision and DTI Decision,
including proceedings to extend the safeguard measure. In a Manifestation and Motion dated 23 June
30
2004, the Tariff Commission informed the Court that since no prohibitory injunction or order of such
nature had been issued by any court against the Tariff Commission, the Commission proceeded to
complete its investigation on the petition for extension, pursuant to Section 9 of the SMA, but opted to
defer transmittal of its report to the DTI Secretary pending “guidance” from this Court on the propriety of
such a step considering this pending Motion for Reconsideration. In a Resolution dated 5 July 2005, the
Court di-X
_______________
28
See TSN dated 1 March 2005, p. 5.
A copy of this petition was attached as Annex “E” to Southern Cross’ “Urgent Motion” dated 15 December 2004. Rollo,
29
p. 2970.
30
Id.
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rected the parties to maintain the status quo effective of even date, and until further orders from this
Court. The denial of the pending motions for reconsideration will obviously render the pending petition
for extension academic.
I. Jurisdiction of the Court of Tax Appeals

Under Section 29 of the SMA
The first core issue resolved in the assailed Decision was whether the Court of Appeals had jurisdiction
over the special civil action for certiorari filed by Philcemcor assailing the 5 April 2002 Decision of the
DTI Secretary. The general jurisdiction of the Court of Appeals over special civil actions for certiorari is
beyond doubt. The Constitution itself assures that judicial review avails to determine whether or not there
has been a grave abuse of discretion amounting to lack or excess of jurisdiction on the part of any branch
or instrumentality of the Government. At the same time, the special civil action of certiorari is available
only when there is no plain, speedy and adequate remedy in the ordinary course of law. Philcemcor’s
31
recourse of special civil action before the Court of Appeals to challenge the Decision of the DTI Secretary
not to impose the general safeguard measures is not based on the SMA, but on the general rule on
certiorari. Thus, the Court proceeded to inquire whether indeed there was no other plain, speedy and
adequate remedy in the ordinary course of law that would warrant the allowance of Philcemcor’s special
civil action.X
The answer hinged on the proper interpretation of Section 29 of the SMA, which reads:
_______________
See Section 1, Rule 65, 1997 Rules of Civil Procedure. See also Building Care Corp. v. National Labor Relations
31
Commission, 335 Phil. 1131, 1138; 268 SCRA 666, 674 (1997); Bernardo v. Court of Appeals, 341 Phil. 413, 425; 275
SCRA 413 (1997); BF Corporation v. Court of Appeals, 351 Phil. 507, 519; 288 SCRA 267, 279 (1998); Tan v.
Sandiganbayan, 354 Phil. 463, 469; 292 SCRA 452, 457 (1998).
572
572

Philippines
Section 29. Judicial Review.—Any interested party who is adversely affected by the ruling of the
Secretary in connection with the imposition of a safeguard measure may file with the CTA, a petition
for review of such ruling within thirty (30) days from receipt thereof. Provided, however, that the filing of
such petition for review shall not in any way stop, suspend or otherwise toll the imposition or collection
of the appropriate tariff duties or the adoption of other appropriate safeguard measures, as the case may
be.
The petition for review shall comply with the same requirements and shall follow the same rules of
procedure and shall be subject to the same disposition as in appeals in connection with adverse rulings on
tax matters to the Court of Appeals. (Emphasis supplied)X
32
The matter is crucial for if the CTA properly had jurisdiction over the petition challenging the DTI
Secretary’s ruling not to impose a safeguard measure, then the special civil action of certiorari resorted to
instead by Philcemcor would not avail, owing to the existence of a plain, speedy and adequate remedy in
the ordinary course of law. The Court ofX
33
_______________
Before the passage of Republic Act No. 9282 on 30 March 2004, appeals from the decisions of the Court of Tax Appeals
32
was to the Court of Appeals.
Interestingly, while the Separate Opinion accedes to the majority ruling that the Court of Appeals had no jurisdiction
33
over Philcemcor’s petition considering the availability of appeal to the Court of Tax Appeals, it makes the curious
statement that “[a]ccordingly, the present Petition, which seeks a review of a void Decision of the CA should, in the
ordinary course, also be dismissed. Generally, this Court cannot review a legally inexistent judgment.” Separate
Opinion, infra. In support of this proposition, the case of Velarde v. SJS, G.R. No. 159357, 28 April 2004, 428 SCRA 283,
is cited. However, a perusal of Velarde, which was penned by the Separate Opinion’s author, reveals the Court’s actual
statement as follows: “Indeed, the assailed Decision was rendered in clear violation of the Constitution, because it made
no findings of facts and final disposition. Hence, it is void and deemed legally inexistent. Consequently, there is nothing
for this Court to review, affirm, reverse or even just modify.” Velarde, Id. Obviously, the averment in Velarde meant that
the Court
573
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Philippines
Appeals, in asserting that it had jurisdiction, merely cited the general rule on certiorari jurisdiction
without bothering to refer to, or possibly even study, the import of Section 29. In contrast, this Court duly
considered the meaning and ramifications of Section 29, concluding that it provided for a plain, speedy
and adequate remedy that Philcemcor could have resorted to instead of filing the special civil action
before the Court of Appeals.
Philcemcor still holds on to its hypothesis that the petition for review allowed under Section 29 lies only
if the DTI Secretary’s ruling imposes a safeguard measure. If, on the other hand, the DTI Secretary’s
ruling is not to impose a safeguard measure, judicial review under Section 29 could not be resorted to
since the provision refers to rulings “in connection with the imposition” of the safeguard measure, as
opposed to the non-imposition. Since the Decision dated 5 April 2002 resolved against imposing a
safeguard measure, Philcemcor claims that the proper remedial recourse is a petition for certiorari with
the Court of Appeals.
Interestingly, Republic Act No. 9282, promulgated on 30 March 2004, expressly vests unto the CTA
jurisdiction over “[d]ecisions of the Secretary of Trade and Industry, in case of nonagricultural product,
commodity or article . . . involving . . . safeguard measures under Republic Act No. 8800, where either
party may appeal the decision to impose or not to impose said duties.” It is clear that any future attempts
34
to advance the literalist position of the respondents would consequently fail. However, since Republic Act
No. 9282 has no retroactive effect, this Court had to decide whether Section 29 vests jurisdiction on the
CTA over rulings of the DTI Secretary not toX
_______________
would be hard put to review a decision that had no finding of facts to evaluate, or a disposition to reverse, affirm or
modify. However, as transmuted in the Separate Opinion, it would now conclude that a “legally inexistent” or void
decision of the Court of Appeals, or any other court for that matter, cannot be reviewed by this Court.
34
See Section 7, Republic Act No. 9282 (2004).
574
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Philippines
impose a safeguard measure. And the Court, in its assailed Decision, ruled that the CTA is endowed with
such jurisdiction.
Both respondents reiterate their fundamentalist reading that Section 29 authorizes the petition for review
before the CTA only when the DTI Secretary decides to impose a safeguard measure, but not when he
decides not to. In doing so, they fail to address what the Court earlier pointed out would be the absurd
consequences if their interpretation is followed to its logical end. But in affirming, as the Court now does,
its previous holding that the CTA has jurisdiction over petitions for review questioning the non-
imposition of safeguard measures by the DTI Secretary, the Court relies on the plain reading that Section
29 explicitly vests jurisdiction over such petitions on the CTA.
Under Section 29, there are three requisites to enable the CTA to acquire jurisdiction over the petition for
review contemplated therein: (i) there must be a ruling by the DTI Secretary; (ii) the petition must be filed
by an interested party adversely affected by the ruling; and (iii) such ruling must be “in connection with
the imposition of a safeguard measure.” Obviously, there are differences between “a ruling for the
imposition of a safeguard measure,” and one issued “in connection with the imposition of a safeguard
measure.” The first adverts to a singular type of ruling, namely one that imposes a safeguard measure.
The second does not contemplate only one kind of ruling, but a myriad of rulings issued “in connection
with the imposition of a safeguard measure.”
Respondents argue that the Court has given an expansive interpretation to Section 29, contrary to the
established rule requiring strict construction against the existence of jurisdiction in specialized
courts. But it is the express provision of Section 29, and not this Court, that mandates CTA jurisdic-X
35
_______________
35
Rollo, p. 2435.
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tion to be broad enough to encompass more than just a ruling imposing the safeguard measure.
The key phrase remains “in connection with.” It has connotations that are obvious even to the layman. A
ruling issued “in connection with” the imposition of a safeguard measure would be one that bears some
relation to the imposition of a safeguard measure. Obviously, a ruling imposing a safeguard measure is
covered by the phrase “in connection with,” but such ruling is by no means exclusive. Rulings which
modify, suspend or terminate a safeguard measure are necessarily in connection with the imposition of a
safeguard measure. So does a ruling allowing for a provisional safeguard measure. So too, a ruling by the
DTI Secretary refusing to refer the application for a safeguard measure to the Tariff Commission. It is
clear that there is an entire subset of rulings that the DTI Secretary may issue in connection with the
imposition of a safeguard measure, including those that are provisional, interlocutory, or dispositive in
character. By the same token,X
36
_______________
The Separate Opinion characterizes this statement as “loose,” citing the legal truism that interlocutory orders are not
36
subject to an appeal or a petition for review until the main case is finally resolved on the merits. However, Section 29 does
not qualify which rulings of the DTI Secretary are exempt from judicial review by the CTA. On the other hand, the
provision states that all rulings of the DTI Secretary issued in connection with the imposition of a general safeguard
measure, such as on whether provisional safeguard measures are warranted even before the matter is referred to the Tariff
Commission. A ruling imposing a provisional safeguard measure is in a sense interlocutory, since such ruling does not
finally dispose of the case. Although pending factual investigation by the Tariff Commission on referral by the DTI
Secretary, the ruling could produce financial damage and by reason thereof, it is only fair that the party aggrieved may
avail of judicial remedies even during the investigation. The language of Section 29, despite the loose use of the
nomenclature “petition for review,” allows such ruling on a provisional safeguard measure, “interlocutory” as it may be, to
fall within
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Philippines
a ruling not to impose a safeguard measure is also issued in connection with the imposition of a safeguard
measure.
In arriving at the proper interpretation of “in connection with,” the Court referred to the U.S. Supreme
Court cases of Shaw v. Delta Air Lines, Inc. and New York State Blue Cross Plans v. Travelers Ins. Both
37 38
cases considered the interpretation of the phrase “relates to” as used in a federal statute, the Employee
Retirement Security Act of 1974. Respondents criticize the citations on the premise that the cases are not
binding in our jurisdiction and do not involve safeguard measures. The criticisms are off-tangent
considering that our ruling did not call for the application of the Employee Retirement Security Act of
1974 in the Philippine milieu. The American cases are not relied upon as precedents, but as guides of
interpretation. Certainly, if there are applicable local precedents pertaining to the interpretation of the
phrase “in connection with,” then these certainly would have some binding force. But none avail, and
neither do the respondents demonstrate a countervailing holding in Philippine jurisprudence.X
Yet we should consider the claim that an “expansive interpretation” was favored in Shaw because the law
in question was an employee’s benefit law that had to be given an interpretation favorable to its intended
beneficiaries. In the next breath, Philcemcor notes that the U.S. Supreme Court itself was alarmed by the
39
expansive interpretation in Shaw and thus in Blue Cross, the Shaw ruling was reversed and a more
restrictive interpretation was applied based on congressional intent. X 40
_______________
the ambit of review of the CTA, which after all has the specialized competence to adjudge the propriety of the provisional
measure.
37
463 U.S. 85 (1983).
38
514 U.S. 645 (1995).
39
Rollo, p. 2437.
40
Ibid.
577
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Respondents would like to make it appear that the Court acted rashly in applying a discarded precedent
in Shaw, a non-binding foreign precedent nonetheless. But the Court did make the following observation
in its Decision pertaining to Blue Cross:
Now, let us determine the maximum scope and reach of the phrase “in connection with” as used in
Section 29 of the SMA. A literalist reading or linguistic survey may not satisfy. Even the U.S. Supreme
Court in New York State Blue Cross Plans v. Travelers Ins. conceded that the phrases “relate to” or “in
41
connection with” may be extended to the farthest stretch of indeterminacy for, universally, relations or
connections are infinite and stop nowhere. Thus, in the case the U.S. High Court, examining the same
42
phrase of the same provision of law involved in Shaw, resorted to looking at the statute and its
objectives as the alternative to an “uncritical literalism.” A similar inquiry into the other provisions
of the SMA is in order to determine the scope of review accorded therein to the CTA. X 43
In the next four paragraphs of the Decision, encompassing four pages, the Court proceeded to inquire into
the SMA and its objectives as a means to determine the scope of rulings to be deemed as “in connection
with the imposition of a safeguard measure.” Certainly, this Court did not resort to the broadest
interpretation possible of the phrase “in connection with,” but instead sought to bring it into the context of
the scope and objectives of the SMA. The ultimate conclusion of the Court was that the phrase includes
all rulings of the DTI Secretary which arise from the time an application or motu proprio initiation for the
imposition of a safeguard measure is taken. This conclusion was derived from the observation that the
44
imposition of a general safeguard measure is a process, initiated motu proprio or through application,

which under-X
_______________
41
514 U.S. 645 (1995).
42
Id., at p. 656.
43
Southern Cross, supra note 2, at p. 87.
44
Id., at p. 88.
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Philippines
goes several stages upon which the DTI Secretary is obliged or may be called upon to issue a ruling.
It should be emphasized again that by utilizing the phrase “in connection with,” it is the SMA that
expressly vests jurisdiction on the CTA over petitions questioning the non-imposition by the DTI
Secretary of safeguard measures. The Court is simply asserting, as it should, the clear intent of the
legislature in enacting the SMA. Without “in connection with” or a synonymous phrase, the Court would
be compelled to favor the respondents’ position that only rulings imposing safeguard measures may be
elevated on appeal to the CTA. But considering that the statute does make use of the phrase, there is little
sense in delving into alternate scenarios.
Respondents fail to convincingly address the absurd consequences pointed out by the Decision had their
proposed interpretation been adopted. Indeed, suffocated beneath the respondents’ legalistic tinsel is the
elemental question—what sense is there in vesting jurisdiction on the CTA over a decision to impose a
safeguard measure, but not on one choosing not to impose. Of course, it is not for the Court to inquire into
the wisdom of legislative acts, hence the rule that jurisdiction must be expressly vested and not presumed.
Yet ultimately, respondents muddle the issue by making it appear that the Decision has uniquely
expanded the jurisdictional rules. For the respondents, the proper statutory interpretation of the crucial
phrase “in connection with” is to pretend that the phrase did not exist at all in the statute. The Court, in
taking the effort to examine the meaning and extent of the phrase, is merely giving breath to the
legislative will.
The Court likewise stated that the respondents’ position calls for split jurisdiction, which is judicially
abhorred. In rebuttal, the public respondents cite Sections 2313 and 2402 of the Tariff and Customs Code
(TCC), which allegedly provide for a splitting of jurisdiction of the CTA. According to public
respondents, under Section 2313 of the TCC, a decision of the Commissioner of Customs affirming a
decision of the
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Collector of Customs adverse to the government is elevated for review to the Secretary of Finance.
However, under Section 2402 of the TCC, a ruling of the Commissioner of the Bureau of Customs against
a taxpayer must be appealed to the Court of Tax Appeals, and not to the Secretary of Finance.
Strictly speaking, the review by the Secretary of Finance of the decision of the Commissioner of Customs
is not judicial review, since the Secretary of Finance holds an executive and not a judicial office. The
contrast is apparent with the situation in this case, wherein the interpretation favored by the respondents
calls for the exercise of judicial review by two different courts over essentially the same question—
whether the DTI Secretary should impose general safeguard measures. Moreover, as petitioner points out,
the executive department cannot appeal against itself. The Collector of Customs, the Commissioner of
Customs and the Secretary of Finance are all part of the executive branch. If the Collector of Customs
rules against the government, the executive cannot very well bring suit in courts against itself. On the
other hand, if a private person is aggrieved by the decision of the Collector of Customs, he can have
proper recourse before the courts, which now would be called upon to exercise judicial review over the
action of the executive branch.
More fundamentally, the situation involving split review of the decision of the Collector of Customs
under the TCC is not apropos to the case at bar. The TCC in that instance is quite explicit on the
divergent reviewing body or official depending on which party prevailed at the Collector of Customs’
level. On the other hand, there is no such explicit expression of bifurcated appeals in Section 29 of the
SMA.
Public respondents likewise cite Fabian v. Ombudsman as another instance wherein the Court
45
purportedly allowed split jurisdiction. It is argued that the Court, in ruling that it was the Court of Appeals
which possessed appellate authority toX
_______________
45
Cited as 295 SCRA 470 (1998).
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Philippines
review decisions of the Ombudsman in administrative cases while the Court retaining appellate
jurisdiction of decisions of the Ombudsman in non-administrative cases, effectively sanctioned split
jurisdiction between the Court and the Court of Appeals. X 46
Nonetheless, this argument is successfully undercut by Southern Cross, which points out the essential
differences in the power exercised by the Ombudsman in administrative cases and non-administrative
cases relating to criminal complaints. In the former, the Ombudsman may impose an administrative
penalty, while in acting upon a criminal complaint what the Ombudsman undertakes is a preliminary
investigation. Clearly, the capacity in which the Ombudsman takes on in deciding an administrative
complaint is wholly different from that in conducting a preliminary investigation. In contrast, in ruling
upon a safeguard measure, the DTI Secretary acts in one and the same role. The variance between an
order granting or denying an application for a safeguard measure is polar though emanating from the
same equator, and does not arise from the distinct character of the putative actions involved.
Philcemcor imputes intelligent design behind the alleged intent of Congress to limit CTA review only to
impositions of the general safeguard measures. It claims that there is a necessary tax implication in case
of an imposition of a tariff where the CTA’s expertise is necessary, but there is no such tax implication,
hence no need for the assumption of jurisdiction by a specialized agency, when the ruling rejects the
imposition of a safeguard measure. But of course, whether the ruling under review calls for the imposition
or non-imposition of the safeguard measure, the common question for resolution still is whether or not the
tariff should be imposed—an issue definitely fraught with a tax dimension. The determination of
_______________
46
Memorandum for Public Respondents dated 1 April 2005, p. 75.
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the question will call upon the same kind of expertise that a specialized body as the CTA presumably
possesses.
In response to the Court’s observation that the setup proposed by respondents was novel, unusual,
cumbersome and unwise, public respondents invoke the maxim that courts should not be concerned with
the wisdom and efficacy of legislation. But this prescinds from the bogus claim that the CTA may not
47
exercise judicial review over a decision not to impose a safeguard measure, a prohibition that finds no
statutory support. It is likewise settled in statutory construction that an interpretation that would cause
inconvenience and absurdity is not favored. Respondents do not address the particular illogic that the
Court pointed out would ensue if their position on judicial review were adopted. According to the
respondents, while a ruling by the DTI Secretary imposing a safeguard measure may be elevated on
review to the CTA and assailed on the ground of errors in fact and in law, a ruling denying the imposition
of safeguard measures may be assailed only on the ground that the DTI Secretary committed grave abuse
of discretion. As stressed in the Decision, “[c]ertiorari is a remedy narrow in its scope and inflexible in its
character. It is not a general utility tool in the legal workshop.” X
48
It is incorrect to say that the Decision bars any effective remedy should the Tariff Commission act or
conclude erroneously in making its determination whether the factual conditions exist which necessitate
the imposition of the general safeguard measure. If the Tariff Commission makes a negative final
determination, the DTI Secretary, bound as he is by this negative determination, has to render a decision
denying the application for safeguard measures citing the Tariff Commission’s findings as basis.
Necessarily then, such negative determination of the Tariff Commission being an integral
_______________
47
Rollo, p. 2509.
48
Southern Cross, supra note 2, at p. 91.
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Philippines
part of the DTI Secretary’s ruling would be open for review before the CTA, which again is especially
qualified by reason of its expertise to examine the findings of the Tariff Commission. Moreover,
considering that the Tariff Commission is an instrumentality of the government, its actions (as opposed to
those undertaken by the DTI Secretary under the SMA) are not beyond the pale of certiorari jurisdiction.
Unfortunately for Philcemcor, it hinged its cause on the claim that the DTI Secretary’s actions may be
annulled on certiorari, notwithstanding the explicit grant of judicial review over that cabinet member’s
actions under the SMA to the CTA.
Finally on this point, Philcemcor argues that assuming this Court’s interpretation of Section 29 is correct,
such ruling should not be given retroactive effect, otherwise, a gross violation of the right to due process
would be had. This erroneously presumes that it was this Court, and not Congress, which vested
jurisdiction on the CTA over rulings of non-imposition rendered by the DTI Secretary. We have
repeatedly stressed that Section 29 expressly confers CTA jurisdiction over rulings in connection with the
imposition of the safeguard measure, and the reassertion of this point in the Decision was a matter of
emphasis, not of contrivance. The due process protection does not shield those who remain purposely
blind to the express rules that ensure the sporting play of procedural law.
Besides, respondents’ claim would also apply every time this Court is compelled to settle a novel question
of law, or to reverse precedent. In such cases, there would always be litigants whose causes of action
might be vitiated by the application of newly formulated judicial doctrines. Adopting their claim would
unwisely force this Court to treat its dispositions in unprecedented, sometimes landmark decisions not as
resolutions to the live cases or controversies, but as legal doctrine applicable only to future litigations.
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II. Positive Final Determination

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

To Constitutional Authority on the
Delegated Power to Impose
Safeguard Measures
The safeguard measures imposable under the SMA generally involve duties on imported products, tariff
rate quotas, or quantitative restrictions on the importation of a product into the country. Concerning as
they do the foreign importation of products into the Philippines, these safeguard measures fall within the
ambit of Section 28(2), Article VI of the Constitution, which states:
The Congress may, by law, authorize the President to fix within specified limits, and subject to such
limitations and restrictions as it may impose, tariff rates, import and export quotas, tonnage and
wharfage dues, and other duties or imposts within the framework of the national development program of
the Government. X 49
_______________
49
Article VI, Section 28 (2), 1987 Constitution. Emphasis supplied.
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The Court acknowledges the basic postulates ingrained in the provision, and, hence, governing in this
case. They are:
1. (1)It is Congress which authorizes the President to impose tariff rates, import and
export quotas, tonnage and wharfage dues, and other duties or imposts. Thus, the
authority cannot come from the Finance Department, the National Economic
Development Authority, or the World Trade Organization, no matter how insistent or
persistent these bodies may be.
2. (2)The authorization granted to the President must be embodied in a law. Hence, the
justification cannot be supplied simply by inherent executive powers. It cannot arise
from administrative or executive orders promulgated by the executive branch or from
the wisdom or whim of the President.
3. 4.
5. 6.
7. 8.
9. 10.
11. 12.
13. 14.
15. 16.
17. 18.
19. 20.
21. 22.
23. 24.
25. 26.
27. (3)The authorization to the President can be exercised

only within the specified limits set in the law and is
further subject to limitations and restrictions which
Congress may impose. Consequently, if Congress
specifies that the tariff rates should not exceed a given
amount, the President cannot impose a tariff rate that
exceeds such amount. If Congress stipulates that no
duties may be imposed on the importation of corn, the
President cannot impose duties on corn, no matter how
actively the local corn producers lobby the President.
Even the most picayune of limits or restrictions
imposed by Congress must be observed by the
President.
There is one fundamental principle that animates these constitutional postulates. These impositions under
Section 28(2), Article VI fall within the realm of the power of taxation, a power which is within the sole
province of the legislature under the Constitution.
Without Section 28(2), Article VI, the executive branch has no authority to impose tariffs and other
similar tax levies involving the importation of foreign goods. Assuming that Section 28(2) Article VI did
not exist, the enactment of the SMA by Congress would be voided on the ground that it would constitute
an undue delegation of the legislative power to tax. The constitutional provision shields such delegation
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from constitutional infirmity, and should be recognized as an exceptional grant of legislative power to the
President, rather than the affirmation of an inherent executive power.
This being the case, the qualifiers mandated by the Constitution on this presidential authority attain
primordial consideration. First, there must be a law, such as the SMA. Second, there must be specified
limits, a detail which would be filled in by the law. And further, Congress is further empowered to impose
limitations and restrictions on this presidential authority. On this last power, the provision does not
provide for specified conditions, such as that the limitations and restrictions must conform to prior
statutes, internationally accepted practices, accepted jurisprudence, or the considered opinion of members
of the executive branch.
The Court recognizes that the authority delegated to the President under Section 28(2), Article VI may be
exercised, in accordance with legislative sanction, by the alter egos of the President, such as department
secretaries. Indeed, for purposes of the President’s exercise of power to impose tariffs under Article VI,
Section 28(2), it is generally the Secretary of Finance who acts as alter ego of the President. The SMA
provides an exceptional instance wherein it is the DTI or Agriculture Secretary who is tasked by
Congress, in their capacities as alter egos of the President, to impose such measures. Certainly, the DTI
Secretary has no inherent power, even as alter ego of the President, to levy tariffs and imports.
Concurrently, the tasking of the Tariff Commission under the SMA should be likewise construed within
the same context as part and parcel of the legislative delegation of its inherent power to impose tariffs and
imposts to the executive branch, subject to limitations and restrictions. In that regard, both the Tariff
Commission and the DTI Secretary may be regarded as agents of Congress within their limited respective
spheres, as ordained in the SMA, in the implementation of the said law which significantly draws its
strength from the plenary legislative power of taxation. Indeed, even the Presi-
586
586

Philippines
dent may be considered as an agent of Congress for the purpose of imposing safeguard measures. It is
Congress, not the President, which possesses inherent powers to impose tariffs and imposts. Without
legislative authorization through statute, the President has no power, authority or right to impose such
safeguard measures because taxation is inherently legislative, not executive.
When Congress tasks the President or his/her alter egos to impose safeguard measures under the
delineated conditions, the President or the alter egos may be properly deemed as agents of Congress to
perform an act that inherently belongs as a matter of right to the legislature. It is basic agency law that
the agent may not act beyond the specifically delegated powers or disregard the restrictions imposed by
the principal. In short, Congress may establish the procedural framework under which such safeguard
measures may be imposed, and assign the various offices in the government bureaucracy respective tasks
pursuant to the imposition of such measures, the task assignment including the factual determination of
whether the necessary conditions exists to warrant such impositions. Under the SMA, Congress assigned
the DTI Secretary and the Tariff Commission their respective functions in the legislature’s scheme of
50
things.X
_______________
As delineated under the SMA, the DTI (for non-agricultural products) and Agriculture (for agricultural products)
50
Secretaries are authorized under Section 5 to impose the general safeguard measures upon a positive final determination
made by the Tariff Commission. Preliminary to such imposition, the secretaries are authorized under Section 6 to conduct
an initial review of a petition for imposition of such measures, or motu proprio initiate a preliminary safeguard
investigation, and to impose a provisional safeguard measure under Section 7 even before transmittal of the application to
the Tariff Commission for investigation. Upon a positive final determination by the Tariff Commission, the Secretaries
may, under Section 13, now choose which appropriate definitive safeguard measures to adopt. Under Sections 18 and 19,
the DTI and Agriculture Secretaries are similarly tasked, in conjunction with the Tariff Commission,
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There is only one viable ground for challenging the legality of the limitations and restrictions imposed by
Congress under Section 28(2) Article VI, and that is such limitations and restrictions are themselves
violative of the Constitution. Thus, no matter how distasteful or noxious these limitations and restrictions
may seem, the Court has no choice but to uphold their validity unless their constitutional infirmity can be
demonstrated.
What are these limitations and restrictions that are material to the present case? The entire SMA provides
for a limited framework under which the President, through the DTI and Agriculture Secretaries, may
impose safeguard measures in the form of tariffs and similar imposts. The limitation most relevant to this
case is contained in Section 5 of the SMA, captioned “Conditions for the Application of General
Safeguard Measures,” and stating:
The Secretary shall apply a general safeguard measure upon a positive final determination of the
[Tariff] Commission that a product is being imported into the country in increased quantities, whether
absolute or relative to the domestic production, as to be a substantial cause of serious injury or threat
thereof to the domestic industry; however, in the case of non-agricultural products,
_______________
to act upon actions to reduce, modify or terminate the existing safeguard measures, and to extend or reapply such safeguard
measures.
The Tariff Commission is empowered, upon referral of the application by the DTI or Agriculture Secretaries, to conduct its
investigation pursuant to Sections 9 to 11 of the SMA, and to arrive at its final determination of the existence of the factual
conditions listed under Section 5 and 12. It likewise is tasked to investigate the factual basis for actions to reduce, modify,
terminate, extend or reapply the existing safeguard measures under Sections 18 and 19 of the SMA. Its findings are to be
contained in a report submitted to the DTI or Agriculture Secretaries, under Section 14. Finally, pursuant to Section 20, it
likewise conducts an evaluation of the effectiveness of the actions taken by the domestic industry after termination of the
safeguard measures.
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Philippines
the Secretary shall first establish that the application of such safeguard measures will be in the public
interest. X
51
Positive Final Determination

By Tariff Commission Plainly
Required by Section 5 of SMA
There is no question that Section 5 of the SMA operates as a limitation validly imposed by Congress on
the presidential authority under the SMA to impose tariffs and imposts. That the positive final
52
determination operates as an indispensable requisite to the imposition of the safeguard measure, and that
it is the Tariff Commission which makes such determination, are legal propositions plainly expressed in
Section 5 for the easy comprehension for everyone but respondents.X
Philcemcor attributes this Court’s conclusion on the indispensability of the positive final determination to
flawed syllogism in that we read the proposition “if A then B” as if it stated “if A, and only A, then
B.” Translated in practical terms, our conclusion, according to Philcemcor, would have only been
53
justified had Section 5 read “shall apply a general safeguard measure upon, and only upon, a positive final
determination of the Tariff Commission.”X
Statutes are not designed for the easy comprehension of the five-year old child. Certainly, general
propositions laid down in statutes need not be expressly qualified by clauses denoting exclusivity in order
that they gain efficacy. Indeed, applying this argument, the President would, under the Constitution, be
authorized to declare martial law despite the
_______________
51
Section 5, Rep. Act No. 8800. Emphasis supplied.
While Section 5 denominates the DTI or Agriculture Secretary as the officer who imposes the safeguard measures, it
52
should be understood that they do so as alter egos of the President, the person who is allowed by the Constitution to be
delegated the authority to impose tariffs and restrictions. Infra.
53
Rollo, p. 2398.
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absence of the invasion, rebellion or public safety requirement just because the first paragraph of Section
18, Article VII fails to state the magic word “only.” X 54
But let us for the nonce pursue Philcemcor’s logic further. It claims that since Section 5 does not
allegedly limit the circumstances upon which the DTI Secretary may impose general safeguard measures,
it is a worthy pursuit to determine whether the entire context of the SMA, as discerned by all the other
familiar indicators of legislative intent supplied by norms of statutory interpretation, would justify
safeguard measures absent a positive final determination by the Tariff Commission.
The first line of attack employed is on Section 5 itself, it allegedly not being as clear as it sounds. It is
advanced that Section 5 does not relate to the legal ability of either the Tariff Commission or the DTI
Secretary to bind or foreclose review and reversal by one or the other. Such relationship should instead be
governed by domestic administrative law and remedial law. Philcemcor thus would like to cast the
proposition in this manner: Does it run contrary to our legal order to assert, as the Court did in
its Decision, that a body of relative junior competence as the Tariff Commission can bind an
administrative superior and cabinet officer, the DTI Secretary? It is easy to see why Philcemcor would
like to divorce this DTI Secretary-Tariff Commission interaction from the confines of the SMA. Shorn of
context, the notion would seem radical and unjustifiable that the lowly Tariff Commission can bind the
hands and feet of the DTI Secretary.
It can be surmised at once that respondents’ preferred interpretation is based not on the express language
of the SMA,
_______________
See Section 18, Article VII, Constitution, the provision which authorizes the declaration of martial law. The only time
54
the word “only” is used in the provision is in the context of limiting the extent of the suspension of the writ of habeas
corpus. “The suspension of the privilege of the writ shall apply only to persons judicially charged for rebellion or offenses
inherent in or directly connected with invasion.”
590
590

Philippines
but from implications derived in a roundabout manner. Certainly, no provision in the SMA expressly
authorizes the DTI Secretary to impose a general safeguard measure despite the absence of a positive
final recommendation of the Tariff Commission. On the other hand, Section 5 expressly states that the
DTI Secretary “shall apply a general safeguard measure upon a positive final determination of the [Tariff]
Commission.” The causal connection in Section 5 between the imposition by the DTI Secretary of the
general safeguard measure and the positive final determination of the Tariff Commission is patent, and
even respondents do not dispute such connection.
As stated earlier, the Court in its Decision found Section 5 to be clear, plain and free from ambiguity so as
to render unnecessary resort to the congressional records to ascertain legislative intent. Yet respondents,
on the dubitable premise that Section 5 is not as express as it seems, again latch on to the record of
legislative deliberations in asserting that there was no legislative intent to bar the DTI Secretary from
imposing the general safeguard measure anyway despite the absence of a positive final determination by
the Tariff Commission.
Let us take the bait for a moment, and examine respondents’ commonly cited portion of the legislative
record. One would presume, given the intense advocacy for the efficacy of these citations, that they
contain a “smoking gun”—express declarations from the legislators that the DTI Secretary may impose a
general safeguard measure even if the Tariff Commission refuses to render a positive final determination.
Such “smoking gun,” if it exists, would characterize our Decision as disingenuous for ignoring such
contrary expression of intent from the legislators who enacted the SMA. But as with many things, the
anticipation is more dramatic than the truth.
The excerpts cited by respondents are derived from the interpellation of the late Congressman Marcial
Punzalan, Jr.,
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by then (and still is) Congressman Simeon Datumanong. Nowhere in these records is the view expressed
55
that the DTI Secretary may impose the general safeguard measures if the Tariff Commission issues a
negative final determination or otherwise is unable to make a positive final determination. Instead,
respondents hitch on the observations of Congressman Punzalan Jr., that “the results of the [Tariff]
Commission’s findings . . . is subsequently submitted to [the DTI Secretary] for the [DTI Secretary] to
impose or not to impose;” and that “the [DTI Secretary] here is…who would make the final decision on
the recommendation that is made by a more technical body [such as the Tariff Commission].” X 56
There is nothing in the remarks of Congressman Punzalan which contradict our Decision. His
observations fall in accord with the respective roles of the Tariff Commission and the DTI Secretary
under the SMA. Under the SMA, it is the Tariff Commission that conducts an investigation as to whether
the conditions exist to warrant the imposition of the safeguard measures. These conditions are enumerated
in Section 5, namely; that a product is being imported into the country in increased quantities, whether
absolute or relative to the domestic production, as to be a substantial cause of serious injury or threat
thereof to the domestic industry. After the investigation of the Tariff Commission, it submits a report to
the DTI Secretary which states, among others, whether the above-stated conditions for the imposition of
the general safeguard measures exist. Upon a positive final determination that these conditions are
present, the Tariff Commission then is mandated to recommend what appropriate safeguard measures
should be undertaken by the DTI Secretary. Section 13 of the SMA gives five (5) specific options on the
type of
_______________
Conducted on 28 September 1999. Punzalan, who died in May of 2001, was the author of House Bill No. 7613, which
55
eventually became the SMA.
56
Rollo, pp. 14-15.
592
592

Philippines
safeguard measures the Tariff Commission recommends to the DTI Secretary.
At the same time, nothing in the SMA obliges the DTI Secretary to adopt the recommendations made by
the Tariff Commission. In fact, the SMA requires that the DTI Secretary establish that the application of
such safeguard measures is in the public interest, notwithstanding the Tariff Commission’s
recommendation on the appropriate safeguard measure upon its positive final determination. Thus, even if
the Tariff Commission makes a positive final determination, the DTI Secretary may opt not to impose a
general safeguard measure, or choose a different type of safeguard measure other than that recommended
by the Tariff Commission.
Congressman Punzalan was cited as saying that the DTI Secretary makes the decision “to impose or not
to impose,” which is correct since the DTI Secretary may choose not to impose a safeguard measure in
spite of a positive final determination by the Tariff Commission. Congressman Punzalan also correctly
stated that it is the DTI Secretary who makes the final decision “on the recommendation that is made [by
the Tariff Commission],” since the DTI Secretary may choose to impose a general safeguard measure
different from that recommended by the Tariff Commission or not to impose a safeguard measure at all.
Nowhere in these cited deliberations was Congressman Punzalan, or any other member of Congress for
that matter, quoted as saying that the DTI Secretary may ignore a negative determination by the Tariff
Commission as to the existence of the conditions warranting the imposition of general safeguard
measures, and thereafter proceed to impose these measures nonetheless. It is too late in the day to
ascertain from the late Congressman Punzalan himself whether he had made these remarks in order to
assure the other legislators that the DTI Secretary may impose the general safeguard measures
notwithstanding a negative determination by the Tariff Commission. But certainly, the language of
Section 5 is more resolutory to that question than the recorded remarks of Congressman Punzalan.
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Respondents employed considerable effort to becloud Section 5 with undeserved ambiguity in order that a
proper resort to the legislative deliberations may be had. Yet assuming that Section 5 deserves to be
clarified through an inquiry into the legislative record, the excerpts cited by the respondents are far more
ambiguous than the language of the assailed provision regarding the key question of whether the DTI
Secretary may impose safeguard measures in the face of a negative determination by the Tariff
Commission. Moreover, even Southern Cross counters with its own excerpts of the legislative record in
support of their own view. X57
It will not be difficult, especially as to heavily-debated legislation, for two sides with contrapuntal
interpretations of a statute to highlight their respective citations from the legislative debate in support of
their particular views. A futile exercise of second-guessing is happily avoided if the meaning of the
58
statute is clear on its face. It is evident from the text ofX
_______________
Particularly telling are the remarks of then Senator Raul Roco: “But the Secretary does not act alone. There must be a
57
positive finding by the Commission.” Rollo, p. 2818, and that of then Congressman Sergio Apostol: “The final decision is
in the choice of actions to impose rather than in the choice of whether to impose or not despite a positive determination of
injury.” Rollo, p. 2819. Interestingly, Southern Cross likewise cites the comments of Congressman Punzalan similarly
relied on by the petitioner.
As noted in the Decision, “it is easy to selectively cite passages, sometimes out of their proper context, in order to assert
58
a misleading interpretation . . . . Minority or solitary views, anecdotal ruminations, or even the occasional crude
witticisms, may improperly acquire the mantle of legislative intent by the sole virtue of their publication in the
authoritative congressional record.” Southern Cross, supra note 2, at 95. U.S. Supreme Court Justice Antonin Scalia has
been quoted as saying, “We are governed by laws, not the intention of legislators.” Conroy v. Aniskoff, 507 U.S. 511, 519
(1993), Scalia, J., concurring. He added that statements on the legislative floor even by the bill’s author or sponsor are not
ratified by the legislative body as a whole and thus do not reflect more than the individual desire of the person making the
statement. Ibid.
594
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Philippines
Section 5 that there must be a positive final determination by the Tariff Commission that a product is
being imported into the country in increased quantities (whether absolute or relative to domestic
production), as to be a substantial cause of serious injury or threat to the domestic industry. Any
disputation to the contrary is, at best, the product of wishful thinking.
For the same reason that Section 5 is explicit as regards the essentiality of a positive final determination
by the Tariff Commission, there is no need to refer to the Implementing Rules of the SMA to ascertain a
contrary intent. If there is indeed a provision in the Implementing Rules that allows the DTI Secretary to
impose a general safeguard measure even without the positive final determination by the Tariff
Commission, said rule is void as it cannot supplant the express language of the legislature. Respondents
essentially rehash their previous arguments on this point, and there is no reason to consider them anew.
The Decision made it clear that nothing in Rule 13.2 of the Implementing Rules, even though captioned
“Final Determination by the Secretary,” authorizes the DTI Secretary to impose a general safeguard
measure in the absence of a positive final determination by the Tariff Commission. Similarly, the “Rules
59
and Regulations to Govern the Conduct of Investigation by the Tariff Commission Pursuant to Republic
Act No. 8800” now cited by the respondent does not contain any provision that the DTI Secretary may
impose the general safeguard measures in the absence of a positive final determination by the Tariff
Commission.X
Section 13 of the SMA further bolsters the interpretation as argued by Southern Cross and upheld by
the Decision. The first paragraph thereof states that “[u]pon its positive determination, the [Tariff]
Commission shall recommend to the Secretary an appropriate definitive measure . . . ,” clearly referring
to the Tariff Commission as the entity that makes
_______________
59
Southern Cross, supra note 2, at pp. 99-104.
595
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the positive determination. On the other hand, the penultimate paragraph of the same provision states that
“[i]n the event of a negative final determination,” the DTI Secretary is to immediately issue through the
Secretary of Finance, a written instruction to the Commissioner of Customs authorizing the return of the
cash bonds previously collected as a provisional safeguard measure. Since the first paragraph of the same
provision states that it is the Tariff Commission which makes the positive determination, it necessarily
follows that it, and not the DTI Secretary, makes the negative final determination as referred to in the
penultimate paragraph of Section 13. X 60
The Separate Opinion considers as highly persuasive of former Tariff Commission Chairman Abon, who
stated that the Commission’s findings are merely recommendatory. Again, the considered opinion of
61
Chairman Abon is of no operative effect if the statute plainly states otherwise, and Section 5 bluntly does
require a positive final determination by the Tariff Commission before the DTI Secretary may impose a
general safeguard measure. Certainly, the Court cannot giveX
62
_______________
See Section 13, Rep. Act No. 8800. Notably, the duty of the DTI Secretary to immediately issue through the Secretary of
60
Finance, a written instruction to the Commissioner of Customs authorizing the return of the cash bonds is the only role
allocated by the SMA to the DTI Secretary in the event of a negative final determination.
61
Separate Opinion, infra.
In fact, the remarks of Chairman Abon can even be construed the other way. He speaks of the Commission as making
62
recommendations, and indeed the Tariff Commission is obliged to recommend what particular safeguard measures to
implement. The advice of the Commission on this point may be highly persuasive, yet it does not bind the DTI Secretary.
Nor would the Tariff Commission have the power to implement the general safeguard measures. However, the fact
remains that the Tariff Commission must come out with a positive final determination before the DTI Secretary may
impose the general safeguard measures.
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controlling effect to the statements of any public officer in serious denial of his duties if the law otherwise
imposes the duty on the public office or officer.
Nonetheless, if we are to render persuasive effect on the considered opinion of the members of the
Executive Branch, it bears noting that the Secretary of the Department of Justice rendered an Opinion
wherein he concluded that the DTI Secretary could not impose a general safeguard measure if the Tariff
Commission made a negative final determination. Unlike Chairman Abon’s impromptu remarks made
63
during a hearing, the DOJ Opinion was rendered only after a thorough study of the question after referral
to it by the DTI. The DOJ Secretary is the alter ego of the President with a stated mandate as the head of
the principal law agency of the government. As the DOJ Secretary has no denominated role in the SMA,
64
he was able to render his Opinion from the vantage of judicious distance. Should not his Opinion, studied
and direct to the point as it is, carry greater weight than the spontaneous remarks of the Tariff
Commission’s Chairman which do not even expressly disavow the binding power of the Commission’s
positive final determination?X
III. DTI Secretary has No Power of Review
Over Final Determination of the Tariff Commission
We should reemphasize that it is only because of the SMA, a legislative enactment, that the executive
branch has the power to impose safeguard measures. At the same time, by constitutional fiat, the exercise
of such power is subjected to the limitations and restrictions similarly enforced by the SMA. In examining
the relationship of the DTI and the Tariff Commission as established in the SMA, it is essential to
acknowledge and consider these predicates.
_______________
63
Southern Cross, supra note 2 at p. 74.
64
See Section 1, Chapter 1, Title III, Book IV, Administrative Code.
597
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It is necessary to clarify the paradigm established by the SMA and affirmed by the Constitution under
which the Tariff Commission and the DTI operate, especially in light of the suggestions that the Court’s
rulings on the functions of quasi-judicial power find application in this case. Perhaps the reflexive
application of the quasi-judicial doctrine in this case, rooted as it is in jurisprudence, might allow for
some convenience in ruling, yet doing so ultimately betrays ignorance of the fundamental power of
Congress to reorganize the administrative structure of governance in ways it sees fit.
The Separate Opinion operates from wholly different premises which are incomplete. Its main stance,
similar to that of respondents, is that the DTI Secretary, acting as alter ego of the President, may modify
and alter the findings of the Tariff Commission, including the latter’s negative final determination by
substituting it with his own negative final determination to pave the way for his imposition of a safeguard
measure. Fatally, this conclusion is arrived at without considering the fundamental constitutional precept
65
under Section 28(2), Article VI, on the ability of Congress to impose restrictions and limitations in its
delegation to the President to impose tariffs and imposts, as well as the express condition of Section 5 of
the SMA requiring a positive final determination of the Tariff Commission.X
Absent Section 5 of the SMA, the President has no inherent, constitutional, or statutory power to impose a
general safeguard measure. Tellingly, the Separate Opinion does not directly confront the inevitable
question as to how the DTI Secretary may get away with imposing a general safeguard measure absent a
positive final determination from the Tariff Commission without violating Section 5 of the SMA, which
along with Section 13 of the same law, stands as the only direct legal authority for the DTI Secretary to
impose such measures. This is a constitutionally guaranteed limitation of
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65
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Philippines
the highest order, considering that the presidential authority exercised under the SMA is inherently
legislative.
Nonetheless, the Separate Opinion brings to fore the issue of whether the DTI Secretary, acting either
as alter ego of the President or in his capacity as head of an executive department, may review, modify or
otherwise alter the final determination of the Tariff Commission under the SMA. The succeeding
discussion shall focus on that question.
Preliminarily, we should note that none of the parties question the designation of the DTI or Agriculture
secretaries under the SMA as the imposing authorities of the safeguard measures, even though Section
28(2) Article VI states that it is the President to whom the power to impose tariffs and imposts may be
delegated by Congress. The validity of such designation under the SMA should not be in doubt. We
recognize that the authorization made by Congress in the SMA to the DTI and Agriculture Secretaries
was made in contemplation of their capacities as alter egos of the President.
Indeed, in Marc Donnelly & Associates v. Agregado the Court upheld the validity of a Cabinet
66
resolution fixing the schedule of royalty rates on metal exports and providing for their collection even
though Congress, under Commonwealth Act No. 728, had specifically empowered the President and not
any other official of the executive branch, to regulate and curtail the export of metals. In so ruling, the
Court held that the members of the Cabinet were acting as alter egos of the President. In this case,
67
Congress itself authorized the DTI Secretary as alter ego of the President to impose the safeguard
measures. If the Court was previously willing to upholdX
_______________
66
95 Phil. 142 (1954).
“The fact that the resolution was approved by the Cabinet and the collection of the royalty fees was not decreed by virtue
67
of an order issued by the President himself does not, in our opinion, invalidate said resolution because it cannot be
disputed that the act of the Cabinet is deemed to be, and essentially is, the act of the President.” Marc Donnelly v.
Agregado, Id., at pp. 146-147.
599
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the alter ego’s tariff authority despite the absence of explicit legislative grant of such authority on
the alter ego, all the more reason now when Congress itself expressly authorized the alter ego to exercise
these powers to impose safeguard measures.
Notwithstanding, Congress in enacting the SMA and prescribing the roles to be played therein by the
Tariff Commission and the DTI Secretary did not envision that the President, or his/her alter ego, could
exercise supervisory powers over the Tariff Commission. If truly Congress intended to allow the
traditional “alter ego” principle to come to fore in the peculiar setup established by the SMA, it would
have assigned the role now played by the DTI Secretary under the law instead to the NEDA. The Tariff
Commission is an attached agency of the National Economic Development Authority, which in turn is
68
the independent planning agency of the government. X 69
The Tariff Commission does not fall under the administrative supervision of the DTI. On the other hand,
70
the adminis-X
_______________
68
See Section 16, Chapter 4, Subtitle C, Title II, Book V, Administrative Code of 1987.
69
See Section 2, Chapter 1, Subtitle C, Title II, Book V, Administrative Code of 1987.
Respondents point out that the DTI Secretary is a member of the NEDA Board, unto which the powers and functions of
70
the NEDA are vested. See Section 3, Chapter 4, Subtitle C, Title II, Book V, Administrative Code of 1987. While this may
be so, it cannot mean that the DTI Secretary, on his own, can exercise the powers and functions of the NEDA, such as
administrative supervision over its attached agencies. The DTI Secretary is only one of eleven (11) members of the NEDA
Board, and it is only in the capacity of NEDA Board member that the person of the DTI Secretary can execute any act that
would be representative of the NEDA. In such case, such act would require either the concurrence of the other ten (10)
members of the NEDA Board or under a valid delegation of authority by the NEDA Board. Certainly, the DTI Secretary
cannot execute a unilat-
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trative relationship between the NEDA and the Tariff Commission is established not only by the
Administrative Code, but similarly affirmed by the Tariff and Customs Code.
Justice Florentino Feliciano, in his ponencia in Garcia v. Executive Secretary, acknowledged the
71
interplay between the NEDA and the Tariff Commission under the Tariff and Customs Code when he
cited the relevant provisions of that law evidencing such setup. Indeed, under Section 104 of the Tariff
and Customs Code, the rates of duty fixed therein are subject to periodic investigation by the Tariff
Commission and may be revised by the President upon recommendation of the NEDA. Moreover, under 72
Section 401 of the same law, it is upon periodic investigations by the Tariff Commission and
recommendation of the NEDA that the President may cause a gradual reduction of protection levels
granted under the law. X 73
At the same time, under the Tariff and Customs Code, no similar role or influence is allocated to the DTI
in the matter of imposing tariff duties. In fact, the long-standing tradition has been for the Tariff
Commission and the DTI to proceed independently in the exercise of their respective functions. Only very
recently have our statutes directed any significant interplay between the Tariff Commission and the DTI,
with the enactment in 1999 of Republic Act No. 8751 on the imposition of countervailing duties and
Republic Act No. 8752 on the imposition of anti-dumping duties, and of course the promulgation a year
later of the SMA. In all these three laws, the Tariff Commission is tasked, upon referral of the matter by
the DTI, to determine whether the factual conditions exist to warrant the imposition by the DTI of a
countervailing duty, an anti-dumping duty, or a general safeguard measure, re-
_______________
eral act without prior delegated authority from the NEDA board and then claim that such act was executed by the NEDA
or its Board.
71
G.R. No. 101273, 3 July 1992, 211 SCRA 219.
72
See Section 104, Tariff and Customs Code. See also Garcia v. Executive Secretary, Id., at p. 224.
73
See Section 401, Id.
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spectively. In all three laws, the determination by the Tariff Commission that these required factual
conditions exist is necessary before the DTI Secretary may impose the corresponding duty or safeguard
measure. And in all three laws, there is no express provision authorizing the DTI Secretary to reverse the
factual determination of the Tariff Commission. X 74
In fact, the SMA indubitably establishes that the Tariff Commission is no mere flunky of the DTI
Secretary when it mandates that the positive final recommendation of the former be indispensable to the
latter’s imposition of a general safeguard measure. What the law indicates instead is a relationship of
interdependence between two bodies independent of each other under the Administrative Code and the
SMA alike. Indeed, even the ability of the DTI Secretary to disregard the Tariff Commission’s
recommendations as to the particular safeguard measures to be imposed evinces the independence from
each other of these two bodies. This is properly so for two reasons—the DTI and the Tariff Commission
are independent of each other under the Administrative Code; and impropriety is avoided in cases
wherein the DTI itself is the one seeking the imposition of the general safeguard measures, pursuant to
Section 6 of the SMA.
Thus, in ascertaining the appropriate legal milieu governing the relationship between the DTI and the
Tariff Commission, it is imperative to apply foremost, if not exclusively, the
_______________
The similarities in the procedure as laid down in Rep. Act Nos. 8751, 8752 and 8800 are striking indeed, especially as
74
they lay down the common limitation of a positive determination by the Tariff Commission as a requisite to the imposition
of the corresponding duty or safeguard measures. From the beginning, Southern Cross has invoked the provisions Rep.
Act No. 8751 and 8752 as applicable by analogy to the Safeguard Measures Act. The Court is not wont to rely on indirect
analogical justifications if, as in this case, the law is explicit. Still, the analogy is apropos to the Safeguard Measures Act,
and if anything, reveals a common track of mind on the part of the Tenth Congress which enacted all three laws.
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Philippines
provisions of the SMA. The argument that the usual rules on administrative control and supervision apply
between the Tariff Commission and the DTI as regards safeguard measures is severely undercut by the
plain fact that there is no long-standing tradition of administrative interplay between these two entities.
Within the administrative apparatus, the Tariff Commission appears to be a lower rank relative to the
DTI. But does this necessarily mean that the DTI has the intrinsic right, absent statutory authority, to
reverse the findings of the Tariff Commission? To insist that it does, one would have to concede for
instance that, applying the same doctrinal guide, the Secretary of the Department of Science and
Technology (DOST) has the right to reverse the rulings of the Civil Aeronautics Board (CAB) or the
issuances of the Philippine Coconut Authority (PCA). As with the Tariff Commission-DTI, there is no
statutory authority granting the DOST Secretary the right to overrule the CAB or the PCA, such right
presumably arising only from the position of subordinacy of these bodies to the DOST. To insist on such
a right would be to invite department secretaries to interfere in the exercise of functions by administrative
agencies, even in areas wherein such secretaries are bereft of specialized competencies.
The Separate Opinion notes that notwithstanding above, the Secretary of Department of Transportation

and Communication may review the findings of the CAB, the Agriculture Secretary may review those of
the PCA, and that the Secretary of the Department of Environment and Natural Resources may pass upon
decisions of the Mines and Geosciences Board. These three officers may be alter egos of the President,
75
yet their authority to review is limited to those agencies or bureaus which are, pursuant to statutes such as
the Administrative Code of 1987, under the administrative control and supervision of their respective
departments. Thus,X
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75
603
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under the express provision of the Administrative Code expressly provides that the CAB is an attached
agency of the DOTC, and that the PCA is an attached agency of the Department of Agriculture. The
76 77
same law establishes the Mines and Geo-Sciences Bureau as one of the Sectoral Staff Bureaus that forms 78
part of the organizational structure of the DENR. X 79
As repeatedly stated, the Tariff Commission does not fall under the administrative control of the DTI, but
under the NEDA, pursuant to the Administrative Code. The reliance made by the Separate Opinion to
those three examples are thus misplaced.
Nonetheless, the Separate Opinion asserts that the SMA created a functional relationship between the
Tariff Commission and the DTI Secretary, sufficient to allow the DTI Secretary to exercise alter
ego powers to reverse the determination of the Tariff Commission. Again, considering that the power to
impose tariffs in the first place is not inherent in the President but arises only from congressional grant,
we should affirm the congressional prerogative to impose limitations and restrictions on such powers
which do not normally belong to the executive in the first place. Nowhere in the SMA does it state that
the DTI Secretary may impose general safeguard measures without a positive final determination by the
Tariff Commission, or that the DTI Secretary may reverse or even review the factual determination made
by the Tariff Commission.
_______________
76
See Section 23, Chapter 6, Title XV, Book IV, Administrative Code of 1987.
77
See Section 47, Chapter 6, Title IV, Book IV, Administrative Code of 1987.
See Section 16, Chapter 3, Title XIV, Book IV, Administrative Code of 1987, in relation to Chapter 3, Title XIV, Book
78
IV of the same statute.
79
See Section 5, Chapter 1, Title XIV, Book IV, Administrative Code of 1987.
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Philippines
Congress in enacting the SMA and prescribing the roles to be played therein by the Tariff Commission
and the DTI Secretary did not envision that the President, or his/her alter ego could exercise supervisory
powers over the Tariff Commission. If truly Congress intended to allow the traditional alter ego principle
to come to fore in the peculiar setup established by the SMA, it would have assigned the role now played
by the DTI Secretary under the law instead to the NEDA, the body to which the Tariff Commission is
attached under the Administrative Code.
The Court has no issue with upholding administrative control and supervision exercised by the head of an
executive department, but only over those subordinate offices that are attached to the department, or
which are, under statute, relegated under its supervision and control. To declare that a department
secretary, even if acting as alter ego of the President, may exercise such control or supervision over all
execu-tive offices below cabinet rank would lead to absurd results such as those adverted to above. As
applied to this case, there is no legal justification for the DTI Secretary to exercise control, supervision,
review or amendatory powers over the Tariff Commission and its positive final determination. In passing,
we note that there is, admittedly, a feasible mode by which administrative review of the Tariff
Commission’s final determination could be had, but it is not the procedure adopted by respondents and
now suggested for affirmation. This mode shall be discussed in a forthcoming section.
The Separate Opinion asserts that the President, or his/her alter ego cannot be made a mere rubber stamp
of the Tariff Commission since Section 17, Article VII of the Constitution denominates the Chief
Executive exercises control over all executive departments, bureaus and offices. But let us be clear that
80
such “executive control” is not absolute. The definition of the structure of the executive branch of
government,X
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80
605
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and the corresponding degrees of administrative control and supervision, is not the exclusive preserve of
the executive. It may be effectively be limited by the Constitution, by law, or by judicial decisions.
The Separate Opinion cites the respected constitutional law authority Fr. Joaquin Bernas, in support of
the proposition that such plenary power of executive control of the President cannot be restricted by a
mere statute passed by Congress. However, the cited passage from Fr. Bernas actually states, “Since the
Constitution has given the President the power of control, with all its awesome implications, it is the
Constitution alone which can curtail such power.” Does the President have such tariff powers under the
81
Constitution in the first place which may be curtailed by the executive power of control? At the risk of
redundancy, we quote Section 28(2), Article VI: “The Congress may, by law, authorize the President to
fix within specified limits, and subject to such limitations and restrictions as it may impose, tariff rates,
import and export quotas, tonnage and wharfage dues, and other duties or imposts within the framework
of the national development program of the Government.” Clearly the power to impose tariffs belongs to
Congress and not to the President.X
It is within reason to assume the framers of the Constitution deemed it too onerous to spell out all the
possible limitations and restrictions on this presidential authority to impose tariffs. Hence, the
Constitution especially allowed Congress itself to prescribe such limitations and restrictions itself, a
prudent move considering that such authority inherently belongs to Congress and not the President. Since
Congress has no power to amend the Constitution, it should be taken to mean that such limitations and
restrictions should be provided “by mere statute.” Then again, even the presidential authority to impose
tariffs arises only “by mere statute.” Indeed, this presidential privilege is both contingent in nature
_______________
81
See Separate Opinion, infra.
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Philippines
and legislative in origin. These characteristics, when weighed against the aspect of executive control and
supervision, cannot militate against Congress’ exercise of its inherent power to tax.
The bare fact is that the administrative superstructure, for all its unwieldiness, is mere putty in the hands
of Congress. The functions and mandates of the particular executive departments and bureaus are not
created by the President, but by the legislative branch through the Administrative Code. The President is
82
the administrative head of the executive department, as such obliged to see that every government office
is managed and maintained properly by the persons in charge of it in accordance with pertinent laws and
regulations, and empowered to promulgate rules and issuances that would ensure a more efficient
management of the executive branch, for so long as such issuances are not contrary to law. Yet the
83
legislature has the concurrent power to reclassify or redefine the executive bureaucracy, including the
relationship between various administrative agencies, bureaus and departments, and ultimately, even the
power to abolish executive departments and their components, hamstrung only by constitutional
limitations. The DTI itself can be abolished with ease by Congress through deleting Title X, Book IV of
the Administrative Code. The Tariff Commission can similarly be abolished through legislative
enactment. X 84
_______________
Notably, the Administrative Code of 1987, though embodied in an executive order, was promulgated by President
82
Aquino in the exercise of her then extant legislative powers under the aegis of the 1987 Constitution. See Phividec v.
Capitol Steel, G.R. No. 155692, 23 October 2003, 414 SCRA 327, 331; citing Sec. 7, Article XVIII, Constitution.
See Phividec v. Capitol Steel, Id., at p. 332; citing VINCENT G. SINCO, PHILIPPINE POLITICAL LAW 234-235 (11th

83
ed., 1962), as cited by J. Mendoza, dissenting, in Ople v. Torres, 354 Phil. 948, 1014-1015; 293 SCRA 141, 199.
84
Such abolitions of course subject through presidential approval or legislative override of a presidential veto.
607
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At the same time, Congress can enact additional tasks or responsibilities on either the Tariff Commission
or the DTI Secretary, such as their respective roles on the imposition of general safeguard measures under
the SMA. In doing so, the same Congress, which has the putative authority to abolish the Tariff
Commission or the DTI, is similarly empowered to alter or expand its functions through modalities which
do not align with established norms in the bureaucratic structure. The Court is bound to recognize the
legislative prerogative to prescribe such modalities, no matter how atypical they may be, in affirmation of
the legislative power to restructure the executive branch of government.
There are further limitations on the “executive control” adverted to by the Separate Opinion. The
President, in the exercise of executive control, cannot order a subordinate to disobey a final decision of
this Court or any court’s. If the subordinate chooses to disobey, invoking sole allegiance to the President,
the judicial processes can be utilized to compel obeisance. Indeed, when public officers of the executive
department take their oath of office, they swear allegiance and obedience not to the President, but to the
Constitution and the laws of the land. The invocation of executive control must yield when under its
subsumption includes an act that violates the law.
The Separate Opinion concedes that the exercise of executive control and supervision by the President is
bound by the Constitution and law. Still, just three sentences after asserting that the exercise of executive
85
control must be within the bounds of the Constitution and law, the Separate Opinion asserts, “the control
power of the Chief Executive emanates from the Constitution; no act of Congress may validly curtail
it.” Laws are acts of Congress, hence valid confusion arises whether the Separate Opinion truly believes
86
the first proposi-X
_______________
85
86
Ibid.
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Philippines
tion that executive control is bound by law. This is a quagmire for the Separate Opinion to resolve for
itself
The Separate Opinion unduly considers executive control as the ne plus ultra constitutional standard

which must govern in this case. But while the President may generally have the power to control, modify
or set aside the actions of a subordinate, such powers may be constricted by the Constitution, the
legislature, and the judiciary. This is one of the essences of the check-and-balance system in our tri-partite
constitutional democracy. Not one head of a branch of government may operate as a Caesar within his/her
particular fiefdom.
Assuming there is a conflict between the specific limitation in Section 28 (2), Article VI of the
Constitution and the general executive power of control and supervision, the former prevails in the
specific instance of safeguard measures such as tariffs and imposts, and would thus serve to qualify the
general grant to the President of the power to exercise control and supervision over his/her subalterns.
Thus, if the Congress enacted the law so that the DTI Secretary is “bound” by the Tariff Commission in
the sense the former cannot impose general safeguard measures absent a final positive determination from
the latter the Court is obliged to respect such legislative prerogative, no matter how such arrangement
deviates from traditional norms as may have been enshrined in jurisprudence. The only ground under
which such legislative determination as expressed in statute may be successfully challenged is if such
legislation contravenes the Constitution. No such argument is posed by the respondents, who do not
challenge the validity or constitutionality of the SMA.
Given these premises, it is utterly reckless to examine the interrelationship between the Tariff
Commission and the DTI Secretary beyond the context of the SMA, applying instead traditional precepts
on administrative control, review and supervision. For that reason, the Decision deemed inapplicable
respondents’ previous citations of Cariño v. Commissioner
609
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609
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on Human Rights and Lamb v. Phipps, since the executive power adverted to in those cases had not been
limited by constitutional restrictions such as those imposed under Section 28(2), Article VI. X87
A similar observation can be made on the case of Sharp International Marketing v. Court of
Appeals, now cited by Philcemcor, wherein the Court asserted that the Land Bank of the Philippines was
88
required to exercise independent judgment and not merely rubber-stamp deeds of sale entered into by the
Department of Agrarian Reform in connection with the agrarian reform program. Philcemcor attempts to
demonstrate that the DTI Secretary, as with the Land Bank of the Philippines, is required to exercise
independent discretion and is not expected to just merely accede to DAR-approved compensation
packages. Yet again, such grant of independent discretion is expressly called for by statute, particularly
Section 18 of Rep. Act No. 6657 which specifically requires the joint concurrence of “the landowner and
the DAR and the [Land Bank of the Philippines]” on the amount of compensation. Such power of review
by the Land Bank is a consequence of clear statutory language, as is our holding in the Decision that
Section 5 explicitly requires a positive final determination by the Tariff Commission before a general
safeguard measure may be imposed. Moreover, such limitations under the SMA are coated by the
constitutional authority of Section 28(2), Article VI of the Constitution.X
Nonetheless, is this administrative setup, as envisioned by Congress and enshrined into the SMA, truly
noxious to existing legal standards? The Decision acknowledged the internal logic of the statutory
framework, considering that the DTI cannot exercise review powers over an agency such as the Tariff
Commission which is not within its administrative jurisdiction; that the mechanism employed establishes
a
_______________
87
See Southern Cross, supra note 2, at pp. 97-99.
88
G.R. No. 93661, 4 September 1991, 201 SCRA 299.
610
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Philippines
measure of check and balance involving two government offices with different specializations; and that
safeguard measures are the exception rather than the rule, pursuant to our treaty obligations. X89
We see no reason to deviate from these observations, and indeed can add similarly oriented comments.
Corollary to the legislative power to decree policies through legislation is the ability of the legislature to
provide for means in the statute itself to ensure that the said policy is strictly implemented by the body or
office tasked so tasked with the duty. As earlier stated, our treaty obligations dissuade the State for now
from implementing default protectionist trade measures such as tariffs, and allow the same only under
specified conditions. The conditions enumerated under the GATT Agreement on Safeguards for the
90
application of safeguard measures by a member country are the same as the requisites laid down in
Section 5 of the SMA. To insulate the factual determination from political pressure, and to assure that it
91
be conducted by an entity especially qualified by reason of its general functions to undertake such
investigation, Congress deemed it necessary to delegate to the Tariff Commission the function of
ascertaining whether or not those factual conditions exist to warrant the atypical imposition of safeguard
measures. After all, the Tariff Commission retains a degree of relative independence by virtue of its
attachment to the National Eco-X
_______________
89
Southern Cross, supra note 2, at pp. 105-106.
90
See also Id., at p. 106.
Ibid. Philcemcor argues that the WTO Safeguards Agreement do not require that conclusive effect be given to the
91
findings of a first-level fact finding body, or that the Philippines makes it difficult for domestic producers to obtain
safeguard measures. Respondent’s Memorandum dated 4 April 2005, p. 41. The effectiveness of that argument is undercut
by the fact that even assuming that the Safeguards Agreement does not impose such requirements, the SMA enacted by
Congress, the validity of which respondents do not question, may anyway require such impositions, as it does in this case,
based on Section 28(2), Article VI of the Constitution.
611
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nomic Development Authority, “an independent planning agency of the government,” and also owing to92
its vaunted expertise and specialization.X
The matter of imposing a safeguard measure almost always involves not just one industry, but the
national interest as it encompasses other industries as well. Yet in all candor, any decision to impose a
safeguard measure is susceptible to all sorts of external pressures, especially if the domestic industry
concerned is well-organized. Unwarranted impositions of safeguard measures may similarly be
detrimental to the national interest. Congress could not be blamed if it desired to insulate the investigatory
process by assigning it to a body with a putative degree of independence and traditional expertise in
ascertaining factual conditions. Affected industries would have cause to lobby for or against the safeguard
measures. The decision-maker is in the unenviable position of having to bend an ear to listen to all
concerned voices, including those which may speak softly but carry a big stick. Had the law mandated
that the decision be made on the sole discretion of an executive officer, such as the DTI Secretary, it
would be markedly easier for safeguard measures to be imposed or withheld based solely on political
considerations and not on the factual conditions that are supposed to predicate the decision.
Reference of the binding positive final determination to the Tariff Commission is of course, not a fail-safe
means to ensure a bias-free determination. But at least the legislated involvement of the Commission in
the process assures some measure of measure of check and balance involving two different governmental
agencies with disparate specializations. There is no legal or constitutional demand for such a setup, but its
wisdom as policy should be acknowledged. As prescribed by Congress, both the Tariff Commission and
the DTI Secretary
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92
Supra note 69.
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operate within limited frameworks, under which nobody acquires an undue advantage over the other.
We recognize that Congress deemed it necessary to insulate the process in requiring that the factual
determination to be made by an ostensibly independent body of specialized competence, the Tariff
Commission. This prescribed framework, constitutionally sanctioned, is intended to prevent the baseless,
whimsical, or consideration-induced imposition of safeguard measures. It removes from the DTI
Secretary jurisdiction over a matter beyond his putative specialized aptitude, the compilation and analysis
of picayune facts and determination of their limited causal relations, and instead vests in the Secretary the
broad choice on a matter within his unquestionable competence, the selection of what particular safeguard
measure would assist the duly beleaguered local industry yet at the same time conform to national trade
policy. Indeed, the SMA recognizes, and places primary importance on the DTI Secretary’s mandate to
formulate trade policy, in his capacity as the President’s alter ego on trade, industry and investment-
related matters.
At the same time, the statutory limitations on this authorized power of the DTI Secretary must prevail
since the Constitution itself demands the enforceability of those limitations and restrictions as imposed by
Congress. Policy wisdom will not save a law from infirmity if the statutory provisions violate the
Constitution. But since the Constitution itself provides that the President shall be constrained by the limits
and restrictions imposed by Congress and since these limits and restrictions are so clear and categorical,
then the Court has no choice but to uphold the reins. Even assuming that this prescribed setup made little
sense, or seemed “uncommonly silly,” the Court is bound byX
93
_______________
See J. Stewart, dissenting, Griswold v. Connecticut, 381 U.S. 479 (1967); J. Thomas, dissenting, Lawrence v. Texas, 539
93
U.S. 558 (2003).
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propriety not to dispute the wisdom of the legislature as long as its acts do not violate the Constitution.
Since there is no convincing demonstration that the SMA contravenes the Constitution, the Court is wont
to respect the administrative regimen propounded by the law, even if it allots the Tariff Commission a
higher degree of puissance than normally expected. It is for this reason that the traditional conceptions of
administrative review or quasi-judicial power cannot control in this case.
Indeed, to apply the latter concept would cause the Court to fall into a linguistic trap owing to the multi-
faceted denotations the term “quasi-judicial” has come to acquire.
Under the SMA, the Tariff Commission undertakes formal hearings, receives and evaluates testimony
94
and evidence by interested parties, and renders a decision is rendered on the basis of the evidence
95
presented, in the form of the final determination. The final determination requires a conclusion whether
the importation of the product under consideration is causing serious injury or threat to a domestic
industry producing like products or directly competitive products, while evaluating all relevant factors
having a bearing on the situation of the domestic industry. This process aligns conformably with
96
definition provided by Black’s Law Dictionary of “quasi-judicial” as the “action, discretion, etc., of

public ad-X
_______________
94
Section 8, Rep. Act No. 8800.
95
Id.
Including, in particular, the rate and amount of the increase in imports of the products concerned in absolute and relative
96
terms, the share of the domestic market taken by the increased imports, and changes in the level of sales, production,
productivity, capacity utilization, profits and losses, and employment. See Section 12, Rep. Act No. 8800. Moreover, the
Tariff Commission is precluded from making a positive determination unless the investigation demonstrates, on the basis
of objective evidence, the existence of the causal link between the increased imports of the product under consideration
and serious injury or threat thereof to the domestic industry. Id.
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ministrative officers or bodies, who are required to investigate facts, or ascertain the existence of facts,
hold hearings, weigh evidence, and draw conclusions from them, as a basis for their official action, and to
exercise discretion of a judicial nature.” X97
However, the Tariff Commission is not empowered to hear actual cases or controversies lodged directly
before it by private parties. It does not have the power to issue writs of injunction or enforcement of its
determination. These considerations militate against a finding of quasi-judicial powers attributable to the
Tariff Commission, considering the pronouncement that “quasi-judicial adjudication would mean a
determination of rights privileges and duties resulting in a decision or order which applies to a specific
situation.” X
98
Indeed, a declaration that the Tariff Commission possesses quasi-judicial powers, even if ascertained for
the limited purpose of exercising its functions under the SMA, may have the unfortunate effect of
expanding the Commission’s powers beyond that contemplated by law. After all, the Tariff Commission
is by convention, a fact-finding body, and its role under the SMA, burdened as it is with factual
determination, is but a mere continuance of this tradition. However, Congress through the SMA offers a
significant deviation from this traditional role by tying the decision by the DTI Secretary to impose a
safeguard measure to the required positive factual determination by the Tariff Commission. Congress is
not bound by past traditions, or even by the jurisprudence of this Court, in enacting legislation it may
deem as suited for the times. The sole benchmark for judicial substitution of congressional wisdom is
constitutional transgression, a standard which the respondents do not even attempt to match.
_______________
BLACK’S LAW DICTIONARY, Sixth Edition (1990), at p. 1245. Accord H. de Leon & H. de Leon, Jr., Administrative
97
Law: Text and Cases, Third Edition (1998) at p. 144.
98
See Lupangco v. Court of Appeals, G.R. No. L-77372, 29 April 1988, 160 SCRA 848, 856.
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Respondents’ Suggested Interpretation
of the SMA Transgresses Fair Play
Respondents have belabored the argument that the Decision’s interpretation of the SMA, particularly of
the role of the Tariff Commission vis-à-vis the DTI Secretary, is noxious to traditional notions of
administrative control and supervision. But in doing so, they have failed to acknowledge the
congressional prerogative to redefine administrative relationships, a license which falls within the plenary
province of Congress under our representative system of democracy. Moreover, respondents’ own
suggested interpretation falls wayward of expectations of practical fair play.
Adopting respondents’ suggestion that the DTI Secretary may disregard the factual findings of the Tariff
Commission and investigatory process that preceded it, it would seem that the elaborate procedure
undertaken by the Commission under the SMA, with all the attendant guarantees of due process, is but an
inutile spectacle. As Justice Garcia noted during the oral arguments, why would the DTI Secretary bother
with the Tariff Commission and instead conduct the investigation himself. X 99
Certainly, nothing in the SMA authorizes the DTI Secretary, after making the preliminary determination,
to personally oversee the investigation, hear out the interested parties, or receive evidence. In fact, the
100
SMA does not even require the Tariff Commission, which is tasked with the custody of the submitted
evidence, to turn over to the DTI SecretaryX
101
_______________
99
See TSN dated 1 March 2005, p. 171.
Expressly, the DTI Secretary’s role as evaluator of evidence submitted by the concerned parties is limited to the review
100
documentary evidence attached to the verified petition requesting for safeguard measures, but only for the purpose of
determining whether the imposition of a provisional safeguard measure is warranted. See Section 7, Rep. Act No. 8800.
101
See Section 10, Rep. Act No. 8800.
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such evidence it had evaluated in order to make its factual determination. Clearly, as Congress tasked it
102
to be, it is the Tariff Commission and not the DTI Secretary which acquires the necessary intimate
acquaintance with the factual conditions and evidence necessary for the imposition of the general
safeguard measure. Why then favor an interpretation of the SMA that leaves the findings of the Tariff
Commission bereft of operative effect and makes them subservient to the wishes of the DTI Secretary, a
personage with lesser working familiarity with the relevant factual milieu? In fact, the bare theory of the
respondents would effectively allow the DTI Secretary to adopt, under the subterfuge of his “discretion”,
the factual determination of a private investigative group hired by the industry concerned, and reject the
investigative findings of the Tariff Commission as mandated by the SMA. It would be highly irregular to
substitute what the law clearly provides for a dubious setup of no statutory basis that would be readily
susceptible to rank chicanery.X
Moreover, the SMA guarantees the right of all concerned parties to be heard, an elemental requirement of
due process, by the Tariff Commission in the context of its investigation. The DTI Secretary is not
similarly empowered or tasked to hear out the concerns of other interested parties, and if he/she does so, it
arises purely out of volition and not compulsion under law.
_______________
Under Section 14, Rep. Act No. 8800, the enumerated contents of the Report by the Tariff Commission is limited to (a)
102
the investigation report; (b) the proposed recommendations; (c) a copy of the submitted adjustment plan; and (d) the
commitments made by the domestic industry to facilitate positive adjustment to import competition. This is not to mean
that the Tariff Commission is absolutely barred from forwarding such evidence to the DTI Secretary, but the fact that there
is no mandate under Rep. Act No. 8800 for it to do so further bolsters the apparent legislative intent that it is the Tariff
Commission, and not the DTI Secretary, that is empowered to make the necessary factual determinations that precede the
imposition of the general safeguard measures.
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Indeed, in this case, it is essential that the position of other than that of the local cement industry should
be given due consideration, cement being an indispensable need for the operation of other industries such
as housing and construction. While the general safeguard measures may operate to the better interests of
the domestic cement industries, its deprivation of cheaper cement imports may similarly work to the
detriment of these other domestic industries and correspondingly, the national interest. Notably, the Tariff
Commission in this case heard the views on the application of representatives of other allied industries
such as the housing, construction, and cement-bag industries, and other interested parties such as
consumer groups and foreign governments. It is only before the Tariff Commission that their views had
103
been heard, and this is because it is only the Tariff Commission which is empowered to hear their
positions. Since due process requires a judicious consideration of all relevant factors, the Tariff
Commission, which is in a better position to hear these parties than the DTI Secretary, is similarly more
capable to render a determination conformably with the due process requirements than the DTI
Secretary.X
In a similar vein, Southern Cross aptly notes that in instances when it is the DTI Secretary who
initiates motu proprio the application for the safeguard measure pursuant to Section 6 of the SMA,
respondents’ suggested interpretation would result in the awkward situation wherein the DTI Secretary
would rule upon his own application after it had been evaluated by the Tariff Commission. Pertinently
cited is our ruling in Corona v. Court of Appeals that “no man can be at once a litigant and
104
judge.” Certainly, this anomalous situa-X

105
_______________
See Footnotes No. 15 & 16, Southern Cross, supra note 2, at pp. 71-72 for a list of the parties who participated in the
103
investigation conducted by the Tariff Commission.
G.R. No. 97356, 30 September 1992, 214 SCRA 378.

104
“The aggrieved party should not however, be one and the same official upon whose lap the complaint he has filed may
105
eventu-
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tion is avoided if it is the Tariff Commission which is tasked with arriving at the final determination
whether the conditions exist to warrant the general safeguard measures. This is the setup provided for by
the express provisions of the SMA, and the problem would arise only if we adopt the interpretation urged
upon by respondents.
The Possibility for Administrative Review

of the Tariff Commission’s Determination
The Court has been emphatic that a positive final determination from the Tariff Commission is required
in order that the DTI Secretary may impose a general safeguard measure, and that the DTI Secretary has
no power to exercise control and supervision over the Tariff Commission and its final determination.
These conclusions are the necessary consequences of the applicable provisions of the Constitution, the
SMA, and laws such as the Administrative Code. However, the law is silent though on whether this
positive final determination may otherwise be subjected to administrative review.
There is no evident legislative intent by the authors of the SMA to provide for a procedure of
administrative review. If ever there is a procedure for administrative review over the final determination
of the Tariff Commission, such procedure must be done in a manner that does not contravene or disregard
legislative prerogatives as expressed in the SMA or the Administrative Code, or fundamental
constitutional limitations.
In order that such procedure of administrative review would not contravene the law and the constitutional
scheme provided by Section 28(2), Article VI, it is essential to assert that the positive final determination
by the Tariff Commission is indispensable as a requisite for the imposition of a
_______________
ally fall on appeal. Nemo potest esse simul actor et Judex. No man can be at once a litigant and judge.” Id., at p. 389.
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general safeguard measure. The submissions of private respondents and the Separate Opinion cannot be
sustained insofar as they hold that the DTI Secretary can peremptorily ignore or disregard the
determinations made by the Tariff Commission. However, if the mode of administrative review were in
such a manner that the administrative superior of the Tariff Commission were to modify or alter its
determination, then such “reversal” may still be valid within the confines of Section 5 of the SMA, for
technically it is still the Tariff Commission’s determination, administratively revised as it may be, that
would serve as the basis for the DTI Secretary’s action.
However, and fatally for the present petitions, such administrative review cannot be conducted by the DTI
Secretary. Even if conceding that the Tariff Commission’s findings may be administratively reviewed, the
DTI Secretary has no authority to review or modify the same. We have been emphatic on the reasons—
such as that there is no traditional or statutory basis placing the Commission under the control and
supervision of the DTI; that to allow such would contravene due process, especially if the DTI itself were
to apply for the safeguard measures motu proprio. To hold otherwise would destroy the administrative
hierarchy, contravene constitutional due process, and disregard the limitations or restrictions provided in
the SMA.
Instead, assuming administrative review were available, it is the NEDA that may conduct such review
following the principles of administrative law, and the NEDA’s decision in turn is reviewable by the
Office of the President. The decision of the Office of the President then effectively substitutes as the
determination of the Tariff Commission, which now forms the basis of the DTI Secretary’s decision,
which now would be ripe for judicial review by the CTA under Section 29 of the SMA. This is the only
way that administrative review of the Tariff Commission’s determination may be sustained without
violating the SMA and its constitutional restrictions and limitations, as well as administrative law.
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In bare theory, the NEDA may review, alter or modify the Tariff Commission’s final determination, the
Commission being an attached agency of the NEDA. Admittedly, there is nothing in the SMA or any
other statute that would prevent the NEDA to exercise such administrative review, and successively, for
the President to exercise in turn review over the NEDA’s decision.
Nonetheless, in acknowledging this possibility, the Court, without denigrating the bare principle that
administrative officers may exercise control and supervision over the acts of the bodies under its
jurisdiction, realizes that this comes at the expense of a speedy resolution to an application for a safeguard
measure, an application dependent on fluctuating factual conditions. The further delay would foster
uncertainty and insecurity within the industry concerned, as well as with all other allied industries, which
in turn may lead to some measure of economic damage. Delay is certain, since judicial review authorized
by law and not administrative review would have the final say. The fact that the SMA did not expressly
prohibit administrative review of the final determination of the Tariff Commission does not negate the
supreme advantages of engendering exclusive judicial review over questions arising from the imposition
of a general safeguard measure.
In any event, even if we conceded the possibility of administrative review of the Tariff Commission’s
final determination by the NEDA, such would not deny merit to the present petition. It does not change
the fact that the Court of Appeals erred in ruling that the DTI Secretary was not bound by the negative
final determination of the Tariff Commission, or that the DTI Secretary acted without jurisdiction when
he imposed general safeguard measures despite the absence of the statutory positive final determination
of the Commission.
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IV. Court’s Interpretation of SMA

In Harmony with Other
Constitutional Provisions
In response to our citation of Section 28(2), Article VI, respondents elevate two arguments grounded in
constitutional law. One is based on another constitutional provision, Section 12, Article XII, which
mandates that “[t]he State shall promote the preferential use of Filipino labor, domestic materials and
locally produced goods and adopt measures that help make them competitive.” By no means does this
provision dictate that the Court favor the domestic industry in all competing claims that it may bring
before this Court. If it were so, judicial proceedings in this country would be rendered a mockery,
resolved as they would be, on the basis of the personalities of the litigants and not their legal positions.
Moreover, the duty imposed on by Section 12, Article XII falls primarily with Congress, which in that
regard enacted the SMA, a law designed to protect domestic industries from the possible ill-effects of our
accession to the global trade order. Inconveniently perhaps for respondents, the SMA also happens to
provide for a procedure under which such protective measures may be enacted. The Court cannot just
impose what it deems as the spirit of the law without giving due regard to its letter.
In like-minded manner, the Separate Opinion loosely states that the purpose of the SMA is to protect or
safeguard local industries from increased importation of foreign products. This inaccurately leaves the
106
impression that the SMA ipso facto unravels a protective cloak that shelters all local industries and
producers, no matter the conditions. Indeed, our country has knowingly chosen to accede to the world
trade regime, as expressed in the GATT and WTO Agreements, despite the understanding that local
industries might sufferX
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ill-effects, especially with the easier entry of competing foreign products. At the same time, these
international agreements were designed to constrict protectionist trade policies by its member-countries.
Hence, the median, as expressed by the SMA, does allow for the application of protectionist measures
such as tariffs, but only after an elaborate process of investigation that ensures factual basis and
indispensable need for such measures. More accurately, the purpose of the SMA is to provide a process
for the protection or safeguarding of domestic industries that have duly established that there is
substantial injury or threat thereof directly caused by the increased imports. In short, domestic industries
are not entitled to safeguard measures as a matter of right or influence.
Respondents also make the astounding argument that the imposition of general safeguard measures
should not be seen as a taxation measure, but instead as an exercise of police power. The vain hope of
respondents in divorcing the safeguard measures from the concept of taxation is to exclude from
consideration Section 28(2), Article VI of the Constitution.
This argument can be debunked at length, but it deserves little attention. The motivation behind many
taxation measures is the implementation of police power goals. Progressive income taxes alleviate the
margin between rich and poor; the so-called “sin taxes” on alcohol and tobacco manufacturers help
dissuade the consumers from excessive intake of these potentially harmful products. Taxation is
distinguishable from police power as to the means employed to implement these public good goals. Those
doctrines that are unique to taxation arose from peculiar considerations such as those especially punitive
effects of taxation, and the belief thatX
107
_______________
As U.S. Chief Justice Marshall once said, the power to tax involves the power to destroy. McCulloch v. Maryland, 4
107
Wheaton 316, cited in Sison v. Ancheta, G.R. No. L-59431, July 25, 1984, 130 SCRA 654.
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taxes are the lifeblood of the state. These considerations necessitated the evolution of taxation as a
108
distinct legal concept from police power. Yet at the same time, it has been recognized that taxation may
be made the implement of the state’s police power. X 109
Even assuming that the SMA should be construed exclusively as a police power measure, the Court
recognizes that police power is lodged primarily in the national legislature, though it may also be
exercised by the executive branch by virtue of a valid delegation of legislative power. Considering these
110
premises, it is clear that police power, however “illimitable” in theory, is still exercised within the
confines of implementing legislation. To declare otherwise is to sanction rule by whim instead of rule of
law. The Congress, in enacting the SMA, has delegated the power to impose general safeguard measures
to the executive branch, but at the same time subjected such imposition to limitations, such as the
requirement of a positive final determination by the Tariff Commission under Section 5. For the executive
branch to ignore these boundaries imposed by Congress is to set up an ignoble clash between the two co-
equal branches of government. Considering that the exercise of police power emanates from legislative
authority, there is little question that the prerogative of the legislative branch shall prevail in such a
clash.X
_______________
“[T]axes being the lifeblood of the government, their prompt and certain availability is of the essence.” Id., citing Vera
108
v. Fernandez, G.R. No. L-31364, March 30, 1979, 89 SCRA 199.
Lutz v. Araneta, 98 Phil. 148, 152 (1955); citing Great Atl. & Pac. Tea Co. v. Grosjean, 301 U.S. 412, U.S. v. Butler,
109
297 U.S. 1; McCulloch v. Maryland, supra note 96.
See I. Cruz, Constitutional Law, p. 46.

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V. Assailed Decision Consistent

With Ruling in Taada v. Angara
Public respondents allege that the Decision is contrary to our holding in Tañada v. Angara, since the 111
Court noted therein that the GATT itself provides built-in protection from unfair foreign competition and
trade practices, which according to the public respondents, was a reason “why the Honorable [Court]
ruled the way it did.” On the other hand, the Decision “eliminates safeguard measures as a mode of
defense.”X
This is balderdash, as with any and all claims that the Decision allows foreign industries to ride
roughshod over our domestic enterprises. The Decision does not prohibit the imposition of general
safeguard measures to protect domestic industries in need of protection. All it affirms is that the positive
final determination of the Tariff Commission is first required before the general safeguard measures are
imposed and implemented, a neutral proposition that gives no regard to the nationalities of the parties
involved. A positive determination by the Tariff Commission is hardly the elusive Shangri-la of
administrative law. If a particular industry finds it difficult to obtain a positive final determination from
the Tariff Commission, it may be simply because the industry is still sufficiently competitive even in the
face of foreign competition. These safeguard measures are designed to ensure salvation, not avarice.
Respondents well have the right to drape themselves in the colors of the flag. Yet these postures hardly
advance legal claims, or nationalism for that matter. The fineries of the costume pageant are no better
measure of patriotism than simple obedience to the laws of the Fatherland. And even assuming that
respondents are motivated by genuine patriotic impulses, it must be remembered that under the setup
_______________
Supra note 3.
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provided by the SMA, it is the facts, and not impulse, that determine whether the protective safeguard
measures should be imposed. As once orated, facts are stubborn things; and whatever may be our wishes,
our inclinations, or the dictates of our passions, they cannot alter the state of facts and evidence. X
112
It is our goal as judges to enforce the law, and not what we might deem as correct economic policy.
Towards this end, we should not construe the SMA to unduly favor or disfavor domestic industries,
simply because the law itself provides for a mechanism by virtue of which the claims of these industries
are thoroughly evaluated before they are favored or disfavored. What we must do is to simply uphold
what the law says. Section 5 says that the DTI Secretary shall impose the general safeguard measures
upon the positive final determination of the Tariff Commission. Nothing in the whereas clauses or the
invisible ink provisions of the SMA can magically delete the words “positive final determination” and
“Tariff Commission” from Section 5.
VI. On Forum-Shopping
We remain convinced that there was no willful and deliberate forum shopping in this case by Southern
Cross. The causes of action that animate this present petition for review and the petition for review with
the CTA are distinct from each other, even though they relate to similar factual antecedents. Yet it also
appears that contrary to the undertaking signed by the President of Southern Cross, Hironobu Ryu, to
inform this Court of any similar action or proceeding pending before any court, tribunal or agency within
five (5) days from knowledge thereof, Southern Cross informed this Court only on 12 August 2003 of the
petition it had filed with the CTA eleven days earlier. An appropriate sanction is warranted for such
failure, but not the dismissal of the petition.
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Attributed to the American President John Adams.

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VII. Effects of Court’s Resolution

Philcemcor argues that the granting of Southern Cross’s Petition should not necessarily lead to the
voiding of the Decision of the DTI Secretary dated 5 August 2003 imposing the general safeguard
measures. For Philcemcor, the availability of appeal to the CTA as an available and adequate remedy
would have made the Court of Appeals’ Decision merely erroneous or irregular, but not void. Moreover,
the said Decision merely required the DTI Secretary to render a decision, which could have very well
been a decision not to impose a safeguard measure; thus, it could not be said that the annulled decision
resulted from the judgment of the Court of Appeals.
The Court of Appeals’ Decision was annulled precisely because the appellate court did not have the
power to rule on the petition in the first place. Jurisdiction is necessarily the power to decide a case, and a
court which does not have the power to adjudicate a case is one that is bereft of jurisdiction. We find no
reason to disturb our earlier finding that the Court of Appeals’ Decision is null and void.
At the same time, the Court in its Decision paid particular heed to the peculiarities attaching to the 5
August 2003 Decision of the DTI Secretary. In the DTI Secretary’s Decision, he expressly stated that as a
result of the Court of Appeals’ Decision, “there is no legal impediment for the Secretary to decide on the
application.” Yet the truth remained that there was a legal impediment, namely, that the decision of the
appellate court was not yet final and executory. Moreover, it was declared null and void, and since the
DTI Secretary expressly denominated the Court of Appeals’ Decision as his basis for deciding to impose
the safeguard measures, the latter decision must be voided as well. Otherwise put, without the Court of
Appeals’ Decision, the DTI Secretary’s Decision of 5 August 2003 would not have been rendered as well.
Accordingly, the Court reaffirms as a nullity the DTI Secretary’s Decision dated 5 August 2003. As a
necessary consequence, no further action can be taken on Philcemcor’s Peti-
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tion for Extension of the Safeguard Measure. Obviously, if the imposition of the general safeguard
measure is void as we declared it to be, any extension thereof should likewise be fruitless. The proper
remedy instead is to file a new application for the imposition of safeguard measures, subject to the
conditions prescribed by the SMA. Should this step be eventually availed of, it is only hoped that the
parties involved would content themselves in observing the proper procedure, instead of making a
mockery of the rule of law.
WHEREFORE, respondents’ Motions for Reconsideration are DENIED WITH FINALITY.
Respondent DTI Secretary is hereby ENJOINED from taking any further action on the pending Petition
for Extension of the Safeguard Measure.
Hironobu Ryu, President of petitioner Southern Cross Cement Corporation, and Angara Abello
Concepcion Regala & Cruz, counsel petitioner, are hereby given FIVE (5) days from receipt of
this Resolution to EXPLAIN why they should not be meted disciplinary sanction for failing to timely
inform the Court of the filing of Southern Cross’ Petition for Review with the Court of Tax Appeals, as
adverted to earlier in this Resolution.
SO ORDERED.
Puno, Quisumbing, Austria-Martinez, Callejo, Sr., Azcuna, Chico-Nazario and Garcia, JJ., concur.
Davide, Jr. (C.J.), I join Mr. Justice A.V. Panganiban in his Separate Opinion.
Panganiban, J., Please see Separate Opinion (Concurring and Dissenting).X
Ynares-Santiago, J., I join J. Panganiban in his dissent.
Sandoval-Gutierrez, J., I join Justice Panganiban in his Dissent.
Carpio, J., No part. My former law office appeared before DTI for a party.
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Corona, J., On Official Leave.
Carpio-Morales, J., I join the dissent of Justice Panganiban.
SEPARATE OPINION
(Concurring and Dissenting)
PANGANIBAN, J.:
“As a co-equal body, the judiciary has great respect for determinations of the Chief Executive or his
subalterns, especially when the legislature itself has specifically given them enough room on how the law
should be effectively enforced.” X 1
Once again, this Court is faced with a controversy that ultimately affects the economic life of the country.
While on its face, the problem appears to be merely one of legal construction of a statute, its
consequences and implications dig deep into the ability and power of the Executive Department to protect
domestic industries from injurious importations of foreign products.
Indeed, the main substantive issue of this case boils down to the dexterity of the secretary of trade—the
government’s principal official empowered to superintend the nation’s commercial life and to promote
investments—to impose safeguard measures to protect the local cement industry from the onslaught
of unfair foreign competition.
I respectfully submit that, absent any patent violation of laws or grave abuse of discretion, the top trade
official should be given the widest discretion to be able to promote the best interest of the country in the
field of trade, industry and investments. I believe that this Court should not interfere unnecessarily in
commercial and economic policies, but allow
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1
Philippine Association of Service Exporters, Inc. v. Drilon, 163 SCRA 386, 393, June 30, 1988, per Sarmiento, J.
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our executive officials to meet head-on the vicissitudes of international trade competition spawned by
globalization, deregulation and liberalization.
As will be demonstrated later on, I firmly submit that law, justice, equity, reason, logic, national interest
and common sense impel the maintenance of this Court’s policy of laissez-faire. In short, the judiciary
should be deferential to the powers residing in, and respectful of the actions taken by, the top government
official who has primary responsibility for the commercial development of the nation.
Background Information
Before the Court en banc are Motions for Reconsideration of the Decision promulgated by this Court’s
2
Second Division, filed by 1) the Office of the Solicitor General (OSG) on behalf of public respondents
and 2) the Philippine Cement Manufacturers Corporation (Philcemcor). The assailed Decision disposed
3
as follows:X
“WHEREFORE, the petition is GRANTED. The assailed Decision of the Court of Appeals is
DECLARED NULL AND VOID and SET ASIDE. The Decision of the DTI Secretary dated 25 June
2003 is also DECLARED NULL AND VOID and SET ASIDE. No costs.”
In a Resolution dated September 15, 2004, the Special Second Division referred to the Court en banc the
respective Motions to refer the case to the banc, filed by the solicitor general and private respondent. On
September 21, 2004, the full Court resolved to accept the referral.
On March 1, 2005, the 15 members of the Court heard oral arguments on the two main issues involved: 1)
whether a decision of the secretary of the Department of Trade and Industry (DTI) denying the imposition
of a safeguard measure is
_______________
2
434 SCRA 65, July 8, 2004.
3
Now the “Cement Manufacturers Association of the Philippines.”
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Philippines
appealable to the Court of Tax Appeals (CTA); and 2) whether the DTI secretary may impose a general
safeguard measure, only upon a positive final determination by the Tariff Commission (TC).
To recall, the assailed Decision answered both questions in the affirmative. It held that the CTA, not the
4
Court of Ap-X
_______________
4
In brief, the antecedents of the Second Division’s Decision are as follows:
1. 1.May 22, 2001—Private respondent Philcemcor filed before the DTI an application for the
imposition of a safeguard measure on the importation of gray Portland cement.
2. 2.Nov. 7, 2001—DTI issued an Order imposing a provisional measure equivalent to P20.60 per 40-kg
bag of imported gray Portland cement, effective for 200 days from issuance by the Bureau of Customs
(BOC) of the implementing Customs Memorandum Order.
3. 3.Dec. 10, 2001—BOC issued the pertinent Customs Memorandum Order.
4. 4.Mar. 13, 2002—The Tariff Commission came out with its Formal Investigation Report, in which it
concluded that “[t]he elements of serious injury and imminent threat of serious injury not having been
established, it is hereby recommended that no definitive general safeguard measure be imposed on the
importation of gray Portland cement.”
5. 5.Apr. 5, 2002—After noting that it was in disagreement with the TC’s recommendation, the DTI
issued its Decision denying the application for a safeguard measure, in accordance with that
recommendation.
6. 6.Apr. 22, 2002—Philcemcor filed before the CA a Petition for Certiorari, Prohibition and
Mandamus, praying that the DTI Decision and TC Report be set aside; and that the DTI secretary be
directed to render an independent judgment.
7. 8.
9. 7.June 5, 2003—The CA promulgated its Decision holding that

(a) it had jurisdiction over the Petition for Certiorari, allegedly
because of grave abuse of discretion; and (b) the DTI secretary
was not bound by the factual findings of the TC, which were
merely recommendatory. The CA remanded the
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Philippines
peals (CA), had the jurisdiction to review the DTI secretary’s decision, whether imposing a safeguard
measure or not. It explained that the proviso “in connection with the imposition of a safeguard measure”
in Section 29 of Republic Act (RA)X
5
_______________
case to the DTI secretary for the latter to render a final decision in accordance with RA 8800 and the Implementing Rules.
1. 8.June 23, 2003—Southern Cross filed the present Petition, grounded on the following: (1) the CA
had no jurisdiction, the proper remedy being a petition for review with the CTA; and (2) the TC’s
factual findings are binding upon the DTI secretary.
2. 9.June 25, 2003—the DTI secretary issued a new Decision, prescinding from the CA Decision that it
was not bound by the TC recommendation imposing a safeguard duty of P20.60 per 40-kg bag of
imported gray Portland cement for 3 years.
3. 10.July 7, 2003—Southern Cross filed with the SC a Very Urgent Application for a TRO or Writ of
Preliminary Injunction, seeking to enjoin the DTI secretary from enforcing the Department’s June 25,
2003 Decision, in view of the pending Petition before this Court.
4. 11.Aug. 1, 2003—Southern Cross filed with CTA a Petition for Review of the June 25, 2003 DTI
Decision.
5. 6.
7. 8.
9. 12.Subsequently, Philcemcor filed before this Court a

Manifestation and Motion to Dismiss this Petition, on the
ground of forum shopping.
“SEC. 29. Judicial Review.—Any interested party who is adversely affected by the ruling of the Secretary in connection
5
with the imposition of a safeguard measure may file with the Court of Tax Appeals, a petition for review of such ruling
within thirty (30) days from receipt thereof: Provided, however, That the filing of such petition for review shall not in any
way stop, suspend or otherwise toll the imposition or collection of the appropriate tariff duties or the adoption of other
appropriate safeguard measures, as the case may be.
“The petition for review shall comply with the same requirements and shall follow the same rules of procedure and shall
be
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Philippines
8800 pertained to “all rulings of the DTI [s]ecretary x x x which arise from the time an application
or motu proprio initiation for the imposition of a safeguard measure is taken,” including the final decision
6
imposing or not imposing such measure. Because the law clearly provided aggrieved parties with a legal
remedy (petition for review with the CTA), a special civil action for certiorari did not avail. Hence, the
CA Decision was declared void and set aside.X
The Decision of the Second Division also ruled that, pursuant to a literal interpretation of Section 5 of the 7
law (RA 8800), the DTI secretary could impose a safeguard measure only upon a positive final
determination by the Tariff Commission. The Decision differentiated between the power to make a final
determination of the presence of serious injury or threat to the domestic industry and the authority to
impose the safeguard measure. It held that the power to make a final determination was lodged in the
Tariff Commission; and the authority to impose the safeguard, in the DTI secretary.X
The present Resolution written by the esteemed Justice Dante O. Tinga upholds the assailed Decision in
toto. I beg to differ.
While I agree that the CTA has jurisdiction to review the DTI secretary’s decision either imposing or not
imposing a safeguard measure, I respectfully disagree, however, that the
_______________
subject to the same disposition as in appeals in connection with adverse rulings on tax matters to the Court of Appeals.”
6
Emphasis in the original.
7
“SEC. 5. Conditions for the Application of General Safeguard Measures.—The Secretary shall apply a general safeguard
measure upon a positive final determination of the Commission that a product is being imported into the country in
increased quantities, whether absolute or relative to the domestic production, as to be a substantial cause of serious injury
or threat thereof to the domestic industry; however, in the case of non-agricultural products, the Secretary shall first
establish that the application of such safeguard measures will be in the public interest.”
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said cabinet official is bound by the recommendations of the Tariff Commission and may thus impose a
safeguard measure only when it so recommends. I respectfully submit that the DTI secretary has the
power to impose safeguard measures even if the TC does not recommend such imposition.
The First Issue:

Jurisdiction to Review the
Secretary’s Decisions
The OSG’s Position
The OSG avers that the Decision, as far as it disposed of the first issue, “was based solely on an
expansive interpretation of x x x Section 29 of [RA] No. 8800.” This interpretation allegedly undermines
the rule against the presumption of jurisdiction and could bring about erroneous interpretations of
provisions on jurisdiction that would result in fatal consequences for the parties or in endless litigation. X 8
Purportedly, Section 29 expressly limits CTA jurisdiction to cases in which a safeguard measure is
imposed, not when the
_______________
8
Citing Arevalo v. Benedicto, 58 SCRA 186, July 31, 1974, the solicitor general claims as follows:
“x x x. For the want of jurisdiction by a court over the subject matter renders the judgment void and a mere nullity. Considering that a
void judgment is in legal effect no judgment, by which no rights are divested, from which no rights can be obtained, which neither binds
nor bars anyone, and under which all acts performed and all claims flowing out of are void, and considering, further, that the decision,
for want of jurisdiction of the court, is not a decision in contemplation of law, and hence, can never become executory, it follows that
such a void judgment cannot constitute a bar to another case by reason of res judicata. Not being barred by res judicata, there can be no
end to litigation and thus, the administration of justice will severely be prejudiced.” OSG’s Motion for Reconsideration, p. 9.
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634

Philippines
DTI secretary does not impose the measure. Thus, the OSG submits that the CTA had no jurisdiction over
the April 5, 2002 Decision of the DTI secretary; and that it was proper for herein private respondent to
have resorted to a special civil action for certiorari before the CA.
The government counsel further contends that RA 9282, a new law that was enacted on March 30, 2004,
9
now expressly confers upon the CTA jurisdiction over decisions “to impose or not to impose” safeguard
measures. Supposedly, this new explicit provision only shows that RA 8800 did not intend to include a
review of DTI decisions involving the non-imposition of the said measures.X
Private Respondent’s Contentions
Philcemcor similarly contends that Congress limited the power of review of the CTA to the “single
situation of an imposition by the [s]ecretary of safeguard measures to the exclusion of the situation of
non-imposition x x x.”
Respondent also argues that the TC is not a quasi-judicial body; it neither determines private rights nor
decides controversies. Thus, its acts “are per se administratively reviewable.” Otherwise, an error on its
part will have far-ranging consequences, “cut[ting] across sectoral boundaries in the national economy,
and across industry boundaries within each sector of the economy. Thus, its recommendations should be
subject to review by the DTI secretary whose mandate has a macroeconomic scope x x x and who has the
statutory burden of promoting the development of industry and other sectors of the
economy.” Corollarily, not being a quasi-judicial body, its reports are not appealable to either the CTA
10
or the CA, according to Philcemcor.X
_______________
9
An Act Expanding the Jurisdiction of the CTA.
10
Philcemcor’s Memorandum, p. 50.
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Petitioner’s Arguments
Petitioner, on the other hand, agrees with the assailed Decision holding that the DTI secretary’s ruling in
either instance is appealable to the CTA. Petitioner reiterates the interpretation that the phrase “in
connection with” in Section 29 of RA 8800 means “if it has connection with or reference to.” Thus, the
DTI secretary’s Decision not to impose a safeguard measure is reviewable by the CTA, because it relates
or has reference to the imposition of that measure.
This interpretation is allegedly confirmed by RA 9282, Section 7(a)(7) of which provides that the CTA 11
has exclusive appellate jurisdiction over a decision of the DTI secretary “to impose or not to impose”
safeguard measures. Petitioner posits that this provision merely reflects or reiterates Section 29 of RA
8800; it does not constitute an expansion of the CTA jurisdiction. Otherwise, an absurdity would arise: in
case the DTI secretary imposes a definitive safeguard measure, the remedy of the aggrieved party would
be to appeal to the CTA; but in case the decision is not to impose the measure, the remedy would be to
appeal to the CA. X 12
_______________
11
“SEC. 7. Jurisdiction.—The CTA shall exercise:
(a) Exclusive appellate jurisdiction to review by appeal, as herein provided:
x x x x x x x x x
“(7) Decisions of the Secretary of Trade and Industry, in the case of nonagricultural product, commodity or article, and the Secretary of Agriculture in the
case of agricultural product, commodity or article, involving dumping and counter vailing duties under Sections 301 and 302, respectively, of the Tariff and
Customs Code, and safeguard measures under Republic Act No. 8800, where either party may appeal the decision to impose or not to impose said duties.”
The following reasons are mentioned. First, both instances involve a tax aspect or the propriety of enforcing a safeguard
12
measure. Second, in either case, a private party will be aggrieved. Third,
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636

Philippines
My Submission:
The CTA Has Jurisdiction
A CTA Review of the DTI Secretary’s
Rulings Provided for by RA 8800
On the issue of jurisdiction, I agree with the Court’s Resolution penned by Justice Tinga that the DTI
secretary’s decisions—whether imposing safeguard measures or not—are subject to review by the CTA,
pursuant to Section 29 of RA 8800.X
13
The meaning of the phrase in connection with the imposition of a safeguard measure is not same
as imposing a safeguard measure; otherwise, the law would simply have sufficed without the qualifying
connector. Consequently, all final rulings relating to an application for the measure—whether imposing,
extending, terminating or disallowing one—are in connection with the imposition of a safeguard
measure, and thus appealable to the CTA.
Let me clarify, though, a rather loose statement in the Court’s Resolution that the “entire subset of rulings
that the DTI [s]ecretary may issue x x x, including those that are provisional, interlocutory x x x” are in
connection with the imposition of a safeguard measure; and also “the phrase [‘in connection with’]
includes all rulings of the DTI [s]ecretary which arise from the time an application or motu
proprio initiation
_______________
the same issues—the factual basis of and/or the methodology used in the determination—will be raised in either
case. Fourth, the CTA has specialized expertise in tax and customs laws. Fifth, the parties’ right to equal protection of the
law would in effect be violated by the difference between the proceedings before the CTA, which are in the nature of
trial de novo; and those in the CA, which are not. Lastly, there is no sound and cogent reason to split the jurisdiction over
appeals from the DTI secretary’s decision and, indeed, the legislature did not intend any distinction. Philcemcor’s
Memorandum, pp. 48-51.
13
See footnote 5.
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Philippines
for the imposition of a safeguard measure is taken.” Both statements seem to imply
that all aforementioned rulings are therefore appealable to the CTA pursuant to Section 29.
It is a legal truism, however, that interlocutory orders are not subject to an appeal or a petition for review
until the main case is finally resolved on the merits. RA 8800 does not explicitly state which rulings of
14
the DTI secretary are review-able by way of a petition for review with the CTA. However, the Rules of
Court and settled jurisprudence provide that only judgments or final orders disposing of the merits of a
case may be the subject of appeals or petitions for review. Since RA 8800 does not amend the extant
15
Rules (assuming arguendo that Congress had the power to amend the Rules of Court), they must be
applied to the intended appeals.X
In the present case, private respondent did not appeal the DTI secretary’s Decision to either the CTA or
the CA, but instead invoked the CA’s certiorari power under Rule 65 of the Rules of Court, on the ground
of grave abuse of discretion. But one of the requisites of a special civil action for certiorari is that there be
no appeal; or any plain, speedy and adequate remedy in the ordinary course of law. As discussed, RA
16
8800 expressly provides for a legal remedy to question the DTI secretary’s decisions—that of filing a
petition for review to the CTA. Given this expedient and adequate remedy in the ordinary course as
provided by law, private respondent’s recourse to certiorari before the CA must necessarily fail. As a
consequence, it has inopportunely lost its legal route for a judicial review of the DTI ruling.X
_______________
Villegas v. Fernando, 27 SCRA 1119, April 28, 1969; Go v. Court of Appeals, 358 Phil. 214; 297 SCRA 574, October 8,
14
1998; Indiana Aerospace University v. Commission on Higher Education, 356 SCRA 767, April 4, 2001.
15
Augusto v. Risos, 417 SCRA 408, December 10, 2003.
Cuison v. Court of Appeals, 351 Phil. 1089; 289 SCRA 159, April 15, 1998; Del Mar v. Court of Appeals, 429 Phil.
16
19; 379 SCRA 295, March 13, 2002.
638
638

Philippines
In any event, as the determination of the case is dependent on current pertinent econometric data and their
effects on the domestic industry, the peculiar circumstances make a ruling on the merits inadvisable at
this time. The original application for a safeguard measure was filed way back in 2001, and it has been
almost four years since the imposition of the provisional safeguard measure. The cement import statistics
17
on record may no longer be relevant at present. I agree with the Resolution that the available remedy at
this time is to file a new application for the imposition of a definitive safeguard measure, if warranted
under the present circumstances.X
The CTA’s Essential

Technical Expertise
Moreover, I believe that the CTA is the proper and competent body to review the DTI secretary’s
decisions involving safeguard measures. By the very nature of its functions, the CTA is a highly
specialized court specifically created for the purpose of reviewing tax and customs cases. It is dedicated
exclusively to the study and consideration of revenue-related problems and has necessarily developed an
expertise on the subject. Thus, as a general rule, its findings and conclusions are accorded great respect
18
and are generally upheld by thisX
_______________
Under §15 of RA 8800, “[t]he duration of the period of an action taken under the General Safeguard Provisions of [the]
17
Act shall not exceed four (4) years,” including the period in which a provisional safeguard relief under Section 8 was in
effect. In the present case, the provisional safeguard measure took effect on December 10, 2001.
Commissioner of Internal Revenue v. Court of Appeals, 338 Phil. 322; 271 SCRA 605, April 18, 1997 (citing Philippine
18
Refining Company v. Court of Appeals, 256 SCRA 667, May 8, 1996; Commissioner of Internal Revenue v. Wander
Philippines, Inc., 160 SCRA 573, April 15, 1988); Commissioner of Internal Revenue v. General Foods (Phils.), Inc., 401
SCRA 545, April 24, 2003.
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Court, unless there is a clear showing of a reversible error or an improvident exercise of authority.
While primarily intended to protect domestic industries, safeguard measures are incidentally revenue-
generating and generally in the nature of, though not always equivalent to, tariff impositions. They may
consist of a tariff increase, duty, tariff-rate quota, quantitative restriction, adjustment measure or a
combination of these. In the determination of their imposition, the following factors are to be taken into
19
consideration: rate and amount of increase in the importation of the product concerned; share of the
domestic market taken by the increased imports; and changes in the level of sales, production,
productivity, capacity utilization, profits and losses, and employment. Most of these factors involve data
20
analysis which, by virtue of the highly specialized technical expertise of the CTA, must be more familiar
to it than to the CA.X
Thus, as between the two appellate courts, the CTA should have the jurisdiction to review decisions
involving safeguard measures, whether imposed or not. In either case, a review will necessarily entail a
reappraisal of the facts from which the decisions were based. In both instances, a factual reassessment
would encompass the same kind of knowledge and technical expertise. Indeed, it would be absurd if only
a positive decision is reviewable by the CTA, while a negative one is passed on to the CA.
Basic is the rule in statutory construction that laws should be given a sensible construction, so as to give
effect to their rationale and intent and thus avoid an unjust or absurd interpretation. Interpretatio talis in
21
ambiguis semper frienda est, ut evitatur inconveniens et absurdum. When there is ambiguity, an

interpretation that will avoid inconvenience andX
_______________
19
See §§8 & 13, RA 8800.
20
§12, Ibid.
21
Cosico, Jr. v. National Labor Relations Commission, 338 Phil. 1080; 272 SCRA 583, May 23, 1997.
640
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Philippines
absurdity is to be adopted. In other words, a rational interpretation must be effectuated.X

22
Contrary to the contention of the solicitor general, Section 7(a)(7) of RA 9282 merely restates in clearer
language Section 29 of RA 8800. Undeniably, the imperfect craftsmanship of the latter has spawned some
ambiguity. I believe that Congress did not mean to add, via Section 7(a)(7) of RA 9282, a new matter to
the jurisdiction of the CTA. For all along, the legislative intent has been to vest in the CTA the power to
review the imposition or non-imposition of safeguard measures.
Between the enactment of RA 8800 in 2000 and RA 9282 in 2004, there has been no significant
supervening change in circumstances in our economic or trade environments or even in our judicial
structure, which would justify Congress to add to the jurisdiction of the CTA the review of the non-
imposition of a safeguard measure. The only significant intervening event that seems worth considering is
the present proceeding, which precisely reveals an ambiguity that Congress did not intend when it enacted
RA 8800. Section 7(a)(7) of RA 9282 now explicitly expresses the law’s intent.
Consequences of the
CA Decision
Because the CA wrongly exercised its limited certiorari power, its June 5, 2003 Decision was rendered
without jurisdiction and, hence, null and void. Held to be dead limbs onX
23
_______________
22
Ibid. (citing Commissioner of Internal Revenue v. TMX Sales, Inc., 205 SCRA 184, 187, January 15, 1992).
Philippine-Singapore Ports Corp. v. National Labor Relations Commission, 218 SCRA 77, January 29, 1993; Velasco v.
23
Ople, 191 SCRA 636, November 26, 1990; Solid Homes, Inc. v. Payawal, 177 SCRA 72, August 29, 1989; Republic of
the Philippines v. Sangalang, 159 SCRA 515, April 8, 1988; Goodrich Employees Association v. Flores, 73 SCRA 297,
October 5, 1976.
641
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the judicial tree are void judgments, which should be disregarded or ignored. X 24
Likewise, the DTI Decision dated June 25, 2003, issued pursuant to the void CA judgment, is necessarily
invalid. A void judgment is worthless and has no legal effect. It cannot be the source of any right or the
25
creator of any obligation. Thus, all acts performed pursuant to it and all claims emanating from it have no
legal effect. X
26
Accordingly, the present Petition, which seeks a review of a void Decision of the CA should, in the
ordinary course, also be dismissed. Generally, this Court cannot review a legally in-existent judgment. X 27
Exceptions When Supreme Court

May Exercise Jurisdiction
In not a few cases, though, this Court has exercised its discretionary power to take cognizance of a
petition, if compelling reasons or the nature and importance of the issues raised warrant the immediate
exercise of its jurisdiction. For instance, in Pilipinas Kao, Inc. v. Court of Appeals, while recognizing
28 29
that the Board of Investments had primary jurisdiction over the merits of the case, this Court nevertheless
proceeded to exercise its review powers. It justified its act on the basis of “procedural expediency and
consideration of [the]X
_______________
24
Soliweg v. Workmen’s Compensation Commission, 88 SCRA 569, February 27, 1979.
25
Ibid.
26
AFP Mutual Benefit Association, Inc. v. National Labor Relations Commission, 267 SCRA 47, January 28, 1997.
27
Velarde v. Social Justice System, 428 SCRA 283, April 28, 2004.
Del Mar v. Philippine Amusement and Gaming Corporation, 346 SCRA 485, November 29, 2000 (citing Fortich v.
28
Corona, 289 SCRA 624, April 24, 1998; Tano v. Socrates, 278 SCRA 154, August 21, 1997; Ramos v. Court of
Appeals, 269 SCRA 34, March 3, 1997).
29
372 SCRA 548, December 18, 2001.
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Philippines
public interest involved in the questions before us which bear on the certainty and stability of economic
policies and proper implementation thereof.” X 30
Also in Chavez v. Presidential Commission on Good Government, the Court resolved to exercise primary
31
jurisdiction, inasmuch as the petition involved only “constitutional and legal questions concerning public
interest.” It noted that cases that had to be remanded or referred to a lower body as the proper forum, or as
the one that was better equipped to resolve the issues, generally involved factual questions. Such a
remand is merely in accordance with the principle that the Supreme Court is not a trier of facts. But in
taking jurisdiction over the petition, “unnecessary delays and expenses” would be avoided.X
In the present case, it is indisputable that the only issues raised are legal in nature. They relate to the
ability of the Executive Department to exercise its discretionary powers over an economic policy matter.
At the core of the controversy is the correct interpretation of a law enacted to address a primordial
concern of the State. That concern is to serve and protect the Filipino people by developing a self-reliant
32
and independent national economy effectively controlled by them, in the face of global competition
33
brought about by world trade liberalization. It should also be recalled that the State, in promoting
industrialization, is constitutionally mandated to protect Filipino enterprises against unfair foreign
competition and trade practices. The Safeguard Measures Law was precisely enacted to give life to these
34
constitutional policies.X
_______________
30
Id., p. 565, per Kapunan, J.
31
307 SCRA 394, May 19, 1999, per Panganiban, J.
32
§4, Art. II of the Constitution.
33
§19, Ibid.
34
§1, par. 2, Art. XII, Ibid.
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In addition, if the issues before us are left unresolved, they will most likely crop up again in a similar
application under the law. All the parties involved—the DTI, the Tariff Commission and the private
entities—would then still be in a quandary with respect to whether the DTI head is bound by or may
review (and modify or reverse) recommendations of the Commission; as well as whether the latter should
make a final determination or simply submit its recommendations. These questions of law would
ineludibly be brought before this Court again, creating unnecessary delays and expenses—the undesirable
ills sought to be banished by the Court’s oft-repeated policy of administering justice efficiently,
effectively and promptly.
Thus, the Court is well within its powers to resolve the main substantive issue at this time, in view of
higher public interests; and the speedy, efficient and proper administration of substantial justice.
The Second Issue:
Reviewability of the
Tariff Commission’s Report
The OSG’s Position
With respect to the second main issue, the solicitor general avers that the DTI is not bound by the
recommendation of the Tariff Commission. A careful scrutiny of Section 5 of RA 8800 allegedly reveals
“no indication whatsoever that it is only upon a positive final determination by the Tariff Commission
that a general safeguard may be imposed. x x x. Thus, the law necessarily permits instances when general
safeguard measures may be imposed despite the absence of such determination” by the Commission. X 35
_______________
35
OSG’s Motion for Reconsideration, p. 27. Emphasis in the original.
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Philippines
The OSG also argues that RA 8800 must be interpreted in congruence with Section 28(2) of Article VI of
the Constitution, which provides that Congress may delegate to the President the authority to impose
tariff rates. Being a mere agency in the Executive Department whose officials serve at the pleasure of the
President, the Tariff Commission could not have been authorized by the law to impose its views on the
Chief Executive. Neither could the law have intended a situation in which “an alter ego of the President
would be a mere rubber stamp that would be compelled to enforce the recommendations of a mere agency
in the Executive Department.” X 36
Furthermore, the OSG claims that under the charter of the Commission (and likewise under RA 8800),
37
the latter’s functions are primarily investigatory and, at most, recommendatory. The TC has no power to
decide or adjudicate. Hence, the Implementing Rules of RA 8800 required that, after concluding its
formal investigation, the TC should submit a report to the DTI. “[T]he act of submitting documents to
another body necessarily implies the power of the receiving body to review and [to] evaluate the
submitted documents x x x.” Besides, legislative deliberations also reveal that “[t]he intent of Congress
38
is to vest [the] DTI [s]ecretary with the final authority over recommendations of the Tariff Commission.”
Even the TC’s own chairman concedes that the Commission’s report, made after public consultations, is
39
only recommendatory. X 40
Finally, the intent and spirit of the law is purportedly to protect domestic industries from the ill effects of
import
_______________
36
Id., p. 46. Original in boldface and underlined.
37
See §505, Tariff and Customs Code.
OSG’s Motion for Reconsideration, p. 36 (citing Sharp International Marketing v. Court of Appeals, 201 SCRA 299,
38
September 4, 1991). See also Philcemcor’s Memorandum, p. 4.
39
Then Chairman Edgardo Abon.
40
OSG’s Memorandum, p. 50.
645
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Philippines
surges. According to the OSG, to hold the DTI secretary bound to the Tariff Commission’s negative
41
determination would deprive of any remedy a domestic industry suffering from serious injury. X 42
Private Respondent’s Arguments
Private Respondent Philcemcor essentially agrees with the OSG. The former claims that the Decision
misreads Section 5
_______________
“SEC. 2. Declaration of Policy.—The State shall promote the competitiveness of domestic industries and producers
41
based on sound industrial and agricultural development policies, and efficient use of human, natural and technical
resources. In pursuit of this goal and in the public interest, the State shall provide safeguard measures to protect domestic
industries and producers from increased imports which cause or threaten to cause serious injury to those domestic
industries and producers.”
Other reasons proffered by the OSG are the following: First, the Decision emasculates the principle behind safeguard
42
measures; it violates the Constitution, specifically, Section 12 of Article XII, which exhorts the State to favor local labor,
industries and products over foreign ones. RA 8800 gives local industries and the agricultural sector a temporary breathing
space to adjust to imports; yet, the Decision “effectively creates higher, more stringent standards for the availment of
safeguard measures x x x.” This argument has also been raised by Philcemcor. (See its Motion for Reconsideration, pp. 41-
44; and Memorandum, pp. 35-36.) Second, Section 13 of RA 8800 is the controlling provision with respect to “negative
final determinations.” Nowhere in this provision is it stated that the Tariff Commission would render such determinations;
on the contrary, the provision mentions the DTI secretary only; hence, it is to the secretary that the law grants the power to
render a final decision. Third, Section 19 of the law empowers the DTI head to extend the effectivity of a safeguard
measure; this power is merely incidental to the general power of making the final decision on whether to impose definitive
safeguard measures. It would be illogical if the Department secretary were authorized to exercise only incidental
functions, while another body possesses the general power over the same matter.
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of RA 8800 when it interprets “the proposition ‘if A, then B’ as if it stated that ‘if A, and only A, then B.’
” A textual and contextual analysis of related provisions allegedly reveals otherwise. Even the record of
43 44
legislative deliberations does not support the Second Division’s reading of the term “final determination”
by the Tariff Commission. Similarly, the SMA’s implementing rules and regulations and relevant 45
administrative orders, as well as the public statement made by the Commission chairman, uniformly
46 47
state that the TC’s findings and determinations are not binding or conclusive on, but merely
recommendatory to, the DTI secretary.X
The relationship of the Commission and the DTI, according to Philcemcor, is that of recommending
authority and decision-maker, respectively. Accordingly, the DTI secretary may adopt, modify or reject
the TC’s Report.
The Commission supposedly cannot make a determination, much less a decision, that would oust the
secretary of jurisdiction over the application for safeguard measures. For “[t]he law has seen fit to give its
findings no more than the legal effect of a report or recommendation.” In contrast, in the scheme of
48
government, the DTI secretary is allegedly the alter ego of the President in the implementation of the
State’s economic goals and is specifically mandated to achieve the constitutional goals on the national
economy and patrimony. AsX 49
_______________
43
Philcemcor’s (or CMAP’s) Motion for Reconsideration, p. 11; Rollo, Vol. IV, p. 2398.
44
§§5, 6, 7, 8, 13 & 17.
Joint Administrative Order No. 3, Series of 2000, issued by the secretaries of Agriculture, Trade and Industry, and
45
Finance; the Bureau of Customs commissioner and the Tariff Commission chair.
46
E.g., TC Order No. 00-02.
47
Philcemcor’s Motion for Reconsideration, p. 17; Rollo, Vol. IV, p. 2404.
48
Id., p. 16.
49
§§1 & 2, Title X, Book IV of the Administrative Code; Article XII, Constitution.
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the President’s alter ego in the discharge of the executive power to implement the SMA, the DTI
secretary has the power of “supervision and control” over the Commission’s functions under the law.
In Philcemcor’s view, “it is unthinkable that the DTI secretary is not free to adopt his own independent
judgment on” matters that “he considers as erroneous conclusions arising from a flawed framework and
methodology.” The department head’s function would then be reduced to performing purely ministerial
50
acts rather than rendering decisions that require the exercise of discretion. X 51
Petitioner’s Contentions
On the other side of the fence, petitioner insists that the DTI secretary is empowered to impose safeguard
measures
_______________
Philcemcor’s Motion for Reconsideration, supra, pp. 34-35 (citing an official statement of the DTI secretary issued on
50
April 1, 2002); Rollo, pp. 2421-2422.
Other arguments of Philcemcor include the following: First, Congress delegated to the DTI secretary the authority to
51
prescribe safeguard measures, while assigning to the Commission the task of providing the necessary support for that
function; but the ultimate responsibility for the proper exercise of the delegated authority is lodged in the DTI head.
(Motion for Reconsideration, p. 24; Rollo, Vol. IV, p. 2411; and Memorandum, p. 14;) Second, under the doctrine of
implied grant of powers, “all powers necessary for the discharge of the express powers are also granted, unless expressly
withheld.” (Memorandum, p. 7.) The power of the DTI secretary to impose safeguard measures is not legally conditioned
on a positive recommendation by the Commission; referral to the latter of the application and the holding of public
hearings are only part of the due process guarantee. Third, the imposition of safeguard measures is primarily an exercise of
the police power, not the taxing power, of the State. The law’s singular objective is to protect local industries; thus, prior
to the imposition of the measure by the DTI, the Tariff Commission is tasked to ascertain the existence of injury or serious
threat to the local industry.
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only if the Tariff Commission makes a positive final determination of the existence of the “core elements
of a safeguard situation.” Petitioner avers that the presence of those elements is a conditio sine qua
52
non for the imposition of a safeguard measure. The final determination of their existence is allegedly
conferred by law upon the Commission, which was established and exists mainly to evaluate and impose
tariffs. In contrast, the DTI secretary has no competence or institutional experience in dealing with tariff-
related matters. X 53
Petitioner also claims that the Tariff Commission exercises quasi-judicial powers, as RA 8800 requires it
“to make the final determination of the presence or absence of the core elements for the imposition of a
safeguard measure.” Such determination supposedly involves the application of the lawX
54
_______________
52
Petitioner quotes the following from private respondent Philcemcor’s Memorandum:
“The basic obligations of WTO Members under the Agreement on Safeguards are the OBSERVANCE OF DUE PROCESS in the
adoption and application of any safeguard measure, AND THE NECESSITY OF A PRINCIPLED FINDING ON THE PRESENCE
OF THREE CORE ELEMENTS OF A SAFEGUARD SITUATION. These core elements are the following: (a) that products from
one Member (the exporting country) of the WTO are being imported into the territory of another Member of the WTO (the importing
country) in such increased quantities, absolute or relative to domestic production, and (b) under such conditions as to cause or threaten to
cause serious injury to the domestic industry that produces like or directly competitive products; and (c) the causal link between
increased imports and serious injury or threat thereof (Art. 2, para. 1, and Art. 4, para. 2(b), Agreement on Safeguards. x x x.).”
(Emphasis supplied by petitioner.) Petitioner’s Memorandum, p. 9.
53
Petitioner’s Memorandum, p. 16.
54
Id., p. 39. Underscoring in the original.
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to the facts and results in the adjudication of the rights and obligations of the affected parties. X 55
My Submission:
DTI Secretary Not Bound
by the TC’s Recommendations
I agree with the OSG and private respondent.
The Power to Impose Tariffs

Is Essentially Legislative;
It is Delegable Only to the President
Briefly, my submission, which I shall expound on presently, is as follows. The application of safeguard
measures,
_______________
55
Petitioner submits these other contentions:
1. 1)To allow the DTI secretary to reject the positive final determination of the Commission would result
in an anomalous situation when it is the former who initiates the proceeding pursuant to Section 6 of
RA 8800. In that event, the secretary will become the complainant and reviewing body at the same
time, a situation declared abhorrent by the Supreme Court. (Petitioner’s Memorandum, p. 16
[citing Corona v. Court of Appeals, 214 SCRA 378, September 30, 1992]).
2. 2)A modification or reversal by the DTI head of the Commission’s final determination will be a
deprivation of the due process rights of the concerned parties, who will not have the opportunity to be
heard prior to the DTI’s action.
3. 4.
5. 6.
7. 8.
9. 10.
11. 12.
13. 14.
15. 16.
17. 18.
19. 20.
21. 22.
23. 24.
25. 26.
27. 28.
29. 30.
31. 32.
33. 3)Making a distinction as to whether the imposition of a

safeguard measure is an exercise of police power or the power
of taxation only serves to muddle the issues, “for it has been
settled that the taxing power may be used as an implement of
police power.” (Id., p. 22 [citing Lutz v. Araneta, 98 Phil. 148,
December 22, 1955]. Emphasis in the original). In any event,
“police power is lodged primarily in Congress, not the
Executive, and x x x it is only by virtue of a valid delegation by
Congress that it may be exercised by the President x x x.” (Id.,
p. 28 [citing Cruz, Isagani A., Constitutional Law, 1995, p. 44]).
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while primarily intended to protect domestic industries, is essentially in the nature of a tariff imposition.
Pursuant to the Constitution, the imposition of tariffs and taxes is a highly prized legislative
prerogative. Pursuant also to the Constitution, such power to fix tariffs may, as an exception, be
56
delegated by Congress to the President.X
Section 28 of Article VI of the Constitution provides for that exception, as follows:
“Sec. 28. x x x
(2) The Congress may, by law, authorize the President to fix, within specified limits, and subject to such
limitations and restrictions as it may impose, tariff rates, import and export quotas, tonnage and wharfage
dues, and other duties or imposts within the framework of the national development program of the
Government.”
Under this constitutional provision, to no other official, except the President, is the authority to fix tariff
rates, quotas, imposts and other duties allowed to be delegated. However, the Resolution authored by
Justice Tinga theorizes that Congress may delegate such power to fix tariffs to both the Tariff
Commission and the DTI secretary, “as agents of Congress.” I believe that this theory plainly violates the
aforequoted Section 28(2) of Article VI of the Constitution.
I respectfully submit that the only constitutional way to uphold the DTI secretary’s imposition of tariffs
under RA 8800 is to apply the alter ego principle. In other words, the DTI secretary imposes safeguard
measures (like tariffs, import quotas, quantitative restriction, etc.) only in representation and as an alter
ego of the President in the field of trade and investment matters. Thus, the law must be construed as
_______________
City Government of San Pablo, Laguna v. Reyes, 305 SCRA 353, March 25, 1999; Mactan Cebu International Airport
56
Authority v. Marcos, 261 SCRA 667, September 11, 1996.
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delegating to the President—through the latter’s alter ego on trade—the power to impose safeguard
measures.
Under the same Section 28(2) of Article VI of the Constitution, Congress may specify “limitations and
restrictions” on the President’s authority to impose tariff rates. However, such statutory limitations and
restrictions must themselves conform to the fundamental law. They cannot infringe, restrict, limit,
degrade or dilute the constitutional power of the President to control the entire Executive Department.
The power of control includes the right to modify or set aside a decision of a subordinate officer. Since
the Tariff Commission is an agency in the Executive Department, it is necessarily subject to the control
and supervision of the President. Hence, its decisions and recommendations cannot tie the hands of the
Chief Executive with finality. Consequently, the DTI head, acting as the President’s agent pursuant to RA
8800, may affirm, modify or reverse the Tariff Commission’s recommendation. To repeat, such plenary
power of control cannot be restricted by a mere statute passed by Congress. X 57
Let me now discuss my proposition in more detail.
Executive Power Vested

Upon the President
For better clarity, there is a need to put our government’s administrative structure in perspective. Section
1 of Article VII of the Constitution vests executive power upon the President, the highest official of the
land. In the exercise of this power, the President, acting in many capacities, assumes a
_______________
Bernas, Joaquin G., S.J., The Constitution of the Republic of the Philippines, A Commentary (1988), Vol. II, p. 205.
57
(“Since the Constitution has given the President the power of control, with all its awesome implications, it is the
Constitution alone which can curtail such power.”)
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plenitude of authority. Because of the sheer multitude of the tasks of the Chief Executive, however, the
58
heads of the various executive agencies act as the former’s alter egos or agents in the performance of
multifarious executive and administrative functions.X
In Villena v. Secretary of Interior, this Court described the role of the President’s top officials thus:
59
“Without minimizing the importance of the heads of various departments, their personality is in reality
but the projection of that of the President. x x x ‘[E]ach head of a department is, and must be, the
President’s alter ego in the matters of that department where the President is required by law to exercise
authority.’ x x x [Thus,] their acts, performed and promulgated in the regular course of business, are,
unless disapproved or reprobated by the Chief Executive, presumptively the acts of the Chief
Executive.”X
The DTI Head as President’s

Alter Ego on Trade Matters
Executive Order 292 (the Administrative Code of 1987) outlines the administrative structure and
functions of the national government. In the realm of trade, industry and investment-related matters, the
President’s alter ego is the DTI secretary, to whom is given the following mandate:
“Section 2. Mandate.—The Department of Trade and Industry shall be the primary coordinative,
promotive, facilitative and regulatory arm of the Executive Branch of government in the area of trade,
industry and investments. It shall promote and develop an industrialization program effectively controlled
by Filipinos and shall act as catalyst for intensified private sector activity in order to accelerate and
sustain economic growth through; (a) comprehensive industrial growth strategy, (b) a progressive and
socially responsible liberalization program, (c) policies designed for the expansion and
_______________
58
Cruz, Isagani A., Political Law (1998), pp. 185-186.
59
67 Phil. 451, 463, 464, April 21, 1939, per Laurel, J.
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diversification of trade, and (d) policies to protect Filipino enterprises against unfair foreign competition
and trade practices.” X 60
In line with the above mandate, the DTI is tasked under RA 8800 to apply general safeguard measures,
when warranted, to protect domestic industries and producers from increased imports. X 61
On the other hand, the Tariff Commission is primarily tasked to investigate “the administration of, and
the fiscal and industrial effects of the tariff and customs laws of this country x x x [and,] in general,
to investigate the operation of customs and tariff laws, including their relation to the national revenues,
their effect upon the industries and labor of the country, and to submit reports of its investigations x x
x.” It is also tasked to investigate “the tariff relations between the Philippines and foreign countries x x x
62
the effect of export bounties and preferential transportation rates; x x x the volume of importations
compared with domestic production and consumption; [as well as] conditions, causes and effects relating
to competition of foreign industries with those of the Philippines, including dumping and cost of
production.” X 63
Whereas the DTI secretary has to carry out a policy mandate for the President, the Tariff Commission is
but an investigatory arm that submits reports of its investigations as provided under the law. Under RA64
8800, it is tasked to conduct a formal investigation upon the DTI secretary’s referral of an application/a
petition for a safeguard measure. AfterX
65
_______________
60
Title X, Chapter 1, Book IV of EO 292.
61
§2, RA 8800.
62
§505(a) & (h), Tariff and Customs Code. Emphasis supplied.
63
§505(e), (f) & (g); Ibid.
For instance, under Section 506 of the Tariff and Customs Code, the Commission is tasked to give information and
64
assistance to the President and Congress; under Section 401, to recommend to the NEDA a tariff rate increase.
65
§§7 & 9, RA 8800.
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completion of the investigation, it submits to the secretary a report that contains its findings and
recommendations. Nothing in the law explicitly states that its report or conclusions have the effect of
66
finality and irrefutability that shall bind the DTI head, or the President for that matter.X
As the cabinet official and alter ego of the President on trade, industry and investment-related matters,
the DTI head necessarily has sufficient latitude and discretion in the pursuit of the Department’s mandate.
On the other hand, being primarily a fact-finder, the Tariff Commission is limited to submitting its report
and recommendations to the referring agency. In this scheme of tasking, absent any clear and direct
provision of the Constitution, the TC’s mere recommendation cannot bind the cabinet official, much less
the President. As the solicitor general aptly suggests, RA 8800 could not have intended that the alter
ego of the President be a mere rubber stamp who would be compelled to enforce the recommendations of
a purely investigatory agency in the Executive Department. X 67
As Chief Executive of the Republic, the President exercises control over all executive departments,
bureaus and offices. Control is defined as “the power of an officer to alter or modify or nullify or set
68
aside what a subordinate officer ha[s] done in the performance of his duties and to substitute the judgment
of the former for that of the latter.” The President’s power extends to “all executive officers from cabinet
69
member to the lowliest clerk. It is at the heart of the meaning of ‘Chief Executive.’ ” X 70
Pursuant to the power of control over subalterns, the President may modify or set aside a recommended
action of a sub-
_______________
66
§§9 & 14, Ibid.
67
OSG’s Motion for Reconsideration, p. 46.
68
§17, Art. VII of the Constitution.
69
Cruz, supra (citing Mondano v. Silvosa, 97 Phil. 143, May 30, 1955, per Padilla, J.).
70
Bernas, supra, p. 204.
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ordinate office. Indeed, in accordance with its investigatory findings, the Tariff Commission may
recommend to the National Economic Development Authority (NEDA) an increase in tariff rates in
general; and the latter may in turn endorse the tariff increase to the President who, however, is not bound
to impose such increase. The Chief Executive may, in the interest of the public, choose not to follow the
recommended action. So, too, may the alter ego, who merely acts as an extension of the President.
The Tinga Resolution states—erroneously, I submit—that I advocate the President’s exercise of absolute
and plenary control over subordinates, such that the Chief Executive could order them to perform illegal
or irregular acts. I do not, and I have made no such preposterous statement. Needless to state, the exercise
of any power must be within the bounds of the Constitution and law. True, Congress may reorganize the
offices under the Executive Department. It may even abolish or merge some of them. However, it cannot
abolish or restrict the President’s constitutional power of control over executive agencies and officials.
The control power of the Chief Executive emanates from the Constitution; no act of Congress may validly
curtail it.
Neither am I asserting that the President’s subalterns may control actions of subordinate officials or
agencies over which they have no direct functional relationship as established by law. Such outlandish
proposition would truly produce absurd results. Indeed, the secretary of the Department of Science and
Technology (DOST) has no right to reverse the rulings of the Civil Aeronautics Board (CAB) or the
issuances of the Philippine Coconut Authority (PCA), because there is no law granting the DOST
secretary any power to do so.
But, it cannot be denied that the secretary of the Department of Transportation and Communications may
review the rulings of the CAB; of the Department of Agriculture, those of the PCA; and of the
Department of Environment and Natural Resources, the decisions of the Mines and Geosciences Bu-
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reau. In doing so, the heads of these departments act as the agents or alter egos of the President in
their respective spheres of authority.
That the TC was placed under the administrative supervision of the NEDA does not give the latter
the sole power to review the Commission’s reports. Precisely, RA 8800 creates a functional relationship
between the Commission and the DTI secretary. It provides for the administrative interplay between the
two agencies—but only with regard to the application of general safeguard measures. More precisely,
when the DTI secretary reviews (and ultimately affirms, modifies or reverses) the recommendation of the
Commission, he or she does so, not as one who is higher than the Commission in the administrative
stratum, but as the alter ego of the President who, by constitutional fiat, is the only official to whom the
authority to impose such measures may be delegated by Congress.
Authority to Impose Tariffs

Allowed to be Delegated Only
to the President and Subalterns
Elementary is the rule that the power to tax is inherent upon the State, but can be exercised only by
Congress, unless allowed by the Constitution to be conferred upon another qualified government
instrumentality. The power to fix tariff rates also lies in the legislature. However, the delegation of that
71
power to the President is permissible, under Section 28 of Article VI of the Constitution, as earlier
mentioned.X
RA 8800 must be construed in harmony with the said constitutional provision. In delegating to the DTI
secretary the power to impose safeguard measures, Congress could have
_______________
City of Ozamiz v. Lumapas, 65 SCRA 33, July 15, 1975. For instance, under §5, Art. X of the Constitution, on local
71
governments are directly conferred the power of taxation within their respective area jurisdictions.
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done so only within the constitutional restriction. The legislature could not have simply chosen the DTI
secretary and the Tariff Commission as its agents in imposing the measure. Its delegation of the power to
impose tariffs to whomsoever it chose (other than the President) was beyond its constitutional authority.
To read the law in such a manner would inevitably result in the statute’s unconstitutionality.
To be consistent with the constitutional clause, the law must be understood to mean that in delegating the
authority to impose safeguard measures, Congress designated the DTI secretary, being the
President’s subaltern or alter ego on trade matters. Again, Congress could not have directly constituted
the cabinet official as its own agent, because the Constitution categorically limited the delegation of such
authority to the President. The fundamental law expressly states that Congress may authorize the
President (and names no other official) to impose (subject to limitations and restrictions that it may
specify) tariffs, quotas, duties and other imposts. For the legislature to delegate the authority to another
official or entity, such as the Tariff Commission, and to completely disregard or do away with the
President would be a blatant con-travention of the Constitution.
The constitutionality of RA 8800 on this ground has, however, not been raised by the parties. Besides,
courts should hesitate to rule upon a constitutional question if the controversy may be resolved on other
justifiable grounds. In any case, I submit that the law is susceptible of interpretation in such a manner as
72
to remain consistent with the Constitution.X
To reiterate, RA 8800 delegates to the trade secretary, as subaltern of the Chief Executive—not Congress’
own agent—the power to prescribe safeguard measures.
_______________
People v. Pinca, 318 SCRA 270, November 17, 1999 (citing Sotto v. Commission on Elections, 76 Phil 516, 522, April
72
16, 1946); Pimentel Jr. v. House of Representatives Electoral Tribunal, 393 SCRA 227, November 29, 2002.
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Clearly then, in imposing a safeguard measure, the DTI secretary acts as the President’s alter ego.
Because the President’s power of control over any office in the Executive Department cannot be restricted
or degraded by Congress, by the same reasoning the exercise by the alter ego of such power of control
over actions of the Tariff Commission cannot be constitutionally curtailed by Congress. Otherwise stated,
the President—through the constitutional power of control over the Executive Department—has the
prerogative to affirm, modify or reverse any action of the Tariff Commission. Thus, the DTI secretary—
as the President’s alter ego on trade mat-ters—may exercise, in the President’s stead, the same
prerogative of affirmation, modification or reversal over any action of the Commission.
Congress’ Restrictions on the

Imposition of Safeguards
Needless to state, the President’s (and the subalterns’) power of control surely cannot be exercised on
mere whim or caprice. Indeed, in exercising the authority delegated to impose tariffs or other safeguard
measures, the President (and the subalterns) may not do so without rhyme or reason or just to appease
external pressures or political forces. The Chief Executive is indeed bound by the valid restrictions or
limitations laid down in RA 8800.
Section 5 of that law specifies the conditions for the application of safeguard measures, as follows: (1) the
importation of a product in increased quantities, whether absolute or relative to the domestic production;
(2) an actual or a threatened serious injury to the domestic industry as a result ofX
73
_______________
§4(o) of RA 8800 defines serious injury as “a significant impairment in the position of a domestic industry after
73
evaluation by competent authorities of all relevant factors of an objective and quantifiable nature having a bearing on the
situation of the industry concerned, in particular, the rate and amount of the increase of
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increased importation; and, (3) most important, application of the safeguard measure to serve the public
interest.
These are the substantial conditions or limitations specified by the law for the imposition by the DTI head
(or, principally, the President) of a safeguard measure. The Tariff Commission is tasked to determine the
74
presence of the first two conditions—matters that may be ascertained by factual examination. The final
factor is left to the discretion of the DTI secretary. Public interest is something in which the public or
community at large has some pecuniary interest affecting their legal rights or liabilities. Because it75
concerns the general public, its determination is not quantifiable in exact terms. There are no definite
parameters by which it may be established solely by judicial authorities. Its determination is indubitably a
political question; thus, it is addressed to a policy maker who is answerable to the people, not a fact finder
or investigatory body that has no electoral mandate.X
To emphasize, the congressional limitation on the exercise of the delegated authority to impose
safeguards does NOT refer to the final determination or recommendation of the Tariff Commission that
the first two factual conditions are present or absent. Of course, these are important considerations that
are verifiable from the records of the proceedings undertaken by the Commission. These data must be
weighed accordingly. In the same vein, many immeasurable and indirect variables have to be assessed in
ensuring that public interest is subserved. In the final analysis, the decision to impose a safeguard
measure hinges on public interest, which
_______________
imports of the product concerned in absolute and relative terms, the share of the domestic market taken by increased
imports, changes in levels of sales, production, productivity, capacity utilization, profit and losses, and employment.”
74
Procedure-wise, the requirements are stated in §§6, 7, 9 & 10. For other limitations, see §15.
F.B. Moreno, Philippine Legal Dictionary, 3rd ed. (citing Banco Filipino v. Monetary Board, 142 SCRA 533, July 8,
75
1986).
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is a political question best addressed by our people’s elected officials led by the President.
Contemporaneous Administrative
Construction Prevailing
The interpretation of an administrative government agency, which is tasked to implement a statute, is

generally accorded great respect and ordinarily controls the construction of the courts. X 76
The crafting of the implementing rules and regulations (IRR) of RA 8800 was a joint undertaking of
several executive agencies—the Departments of Agriculture, Trade and Industry, and Finance; the Bureau
of Customs; the NEDA; and the Tariff Commission—after consultations with domestic industries. Rule 77
13.2 of the final IRR expressly states as follows:X
“Rule 13.2. Final Determination by the Secretary
“Rule 13.2.a. Within fifteen (15) days from receipt of the Report of the Commission, the Secretary shall
make a decision, taking into consideration the measures recommended by the Commission.”
x x x x x x x x x
Indeed, the very administrative government agencies tasked under the same law to implement its
provisions clearly understood that it is the DTI secretary who makes the final determination or decision.
In making a decision, the secretary merely takes into consideration the recommendations of the Tariff
Commission. On the other hand, the latter, in making its recommendations, does not determine in an
adjudicative manner the rights, privileges and duties of private parties.
_______________
76
Republic v. Sandiganbayan, 355 Phil. 181; 293 SCRA 440, July 31, 1998.
77
See §32, RA 8800.
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Hence, its functions, even under RA 8800, cannot be classified as quasi-judicial. X 78
If RA 8800 intended to transform the Tariff Commission into a quasi-judicial body, as private respondent
asserts, I think no less than the Commission would have been happiest to don the new vest. But, aptly, it
has shown no such pre-sumptuousness. In its own TC Order No. 00-02, it described its task as “fact-
finding and administrative in nature.” In interpreting the requirement of the law, it fully understood that
79
“[b]ased on its findings, the Commission shall submit to the [s]ecretary x x x [its] Investigation Report
[and] proposed recommendations x x x,” among others.X
Commission Chairman Edgardo Abon was clearly cognizant of the TC’s role in the proceedings on the
original application for a safeguard measure. As the solicitor general submits, during the public
consultation conducted by the Commission in relation to this case, its chairman categorically stated that
their (TC members’) “recommendation is but recommendatory. x x x. That’s why the Tariff
Commission’s investigation is called fact-finding. x x x. [B]ut of course the recommendation can be
persuasive because the [s]ecretary will have a strong argument, must really have a very, very strong
arguments (sic) for him to overturn the recommendations. It has a persuasive effect, that’s what [I’m]
saying, but at the end of the day[,] you know . . . the [s]ecretary has, for reason I think in the law the
matter of public interest is left to the discretion of the [s]ecretary x x x.” X
80
Chairman Abon could not have been more precise. Indeed, 1) the role of the Commission is fact-finding
and recommendatory; 2) its recommendation is persuasive (being based on
_______________
See Cariño v. Commission on Human Rights, 204 SCRA 483, December 2, 1991; Presidential Anti-Dollar Salting Task
78
Force v. Court of Appeals, 171 SCRA 348, March 16, 1989.
79
§2.
80
The OSG’s Memorandum, pp. 28-29. See also Philcemcor’s Memorandum, pp. 21-22.
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public consultations); and 3) the secretary must have very strong and substantial reasons to overturn the
Commission’s proposed action.
The last item is important. The DTI secretary could not issue a decision arbitrarily, without substantial
factual and legal bases. In making a final decision—whether to impose or not to impose a safeguard
measure—the secretary is still bound by the conditions laid down in Section 5 of RA 8800. As earlier
mentioned, those limitations are as follows: the importation of a product in increased quantities, whether
absolute or relative to the domestic production; an actual or a threatened serious injury to the domestic
industry as a result of increased importation; and the application of the safeguard measure in the public
interest.
These parameters should allay petitioner’s fear of a violation of due process in case of a reversal by the
secretary of the negative determination by the Commission. Both may have the same factual moorings on
the basis of which they may, however, have contrasting conclusions on the need for a safeguard measure.
In addition, the decision of the secretary, as I have stated at the outset and as provided under RA 8800, is
reviewable by the CTA.
In contrast, under petitioner’s submission (upheld by the Second Division) that the DTI secretary may
impose the measure only upon a positive determination by the Tariff Commission, a violation of due
process would be more probable in case of a negative determination by the latter. Following
the ponencia’s literal interpretation of the law, the aggrieved party (the applicant) in such a situation
would be left with absolutely no recourse. A negative report will then be not reviewable by anyone—not
by the DTI secretary who is bound by it; not by the President, who has no direct role in the proceeding
defined under the law; and not by the courts, which may review only the DTI secretary’s decisions. Such
a
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scheme of things constitutes an utter disregard of the guarantee of due process under the Constitution.
The ponencia even goes further by declaring that “nothing in the SMA obliges the DTI [s]ecretary to
adopt the recommendations made by the Tariff Commission.” If the trade secretary can reject a positive
81
final determination of the Commission, what is the rationale behind binding him to a negative
determination by the same body? I cannot think of more illogic.X
Giving Meaning to the

Intent and Purpose of the Law
Moreover, the object and purpose of RA 8800 should be given utmost consideration and effect. The law
was enacted primarily to protect or safeguard local industries and producers from increased importation
of foreign products, which cause or threaten to cause serious domestic injury. RA 8800 was intended to
secure our local industry from the ill effects of global trade liberalization. It was aimed at protecting
Filipino interests vis-à-vis international trade policies.
Toward these ends, I believe this Court must give domestic industries every opportunity to seek redress
through the most expeditious means possible. On matters concerning policy questions, it must allow the
political departments ample chances to make the proper determinations within their respective spheres of
competencies. Be it remembered that in the imposition of safeguard measures, not only the analysis of
technical data is involved but likewise, and perhaps in a more crucial sense, the determination that it
serves the public interest. The proceeding does not merely relate to the settlement of conflicting claims of
private parties but, more important, the achievement of the national policy to promote the competitiveness
of domestic industries as a whole. In short, we must
_______________
81
Resolution, p. 32.
664
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give essence to the aim of the law to advance the industrial development of the country.
In line with this aim, the doctrine on the exhaustion of administrative remedies should be made to work
out. After all, the administrative agencies of the government, particularly the Department of Trade and
Industry with respect to safeguard measures, possess the necessary knowledge and expertise linked up
with policy concerns. The Department heads, especially because they serve as alter egos of the President,
should not be needlessly restricted in the exercise of their discretion. It is they who best know how to
address properly the nonjudicial interests of the people. Thus, before resorting to courts, all possible
administrative means should be exhausted.
While on the topic of exhaustion of administrative remedies, may I add my personal belief that the
Decision of the secretary of trade should be appealable to the President. After all, the President cannot be
82
deprived of the power to review, modify or reverse actions of his or her alter egos. In the present case, the
Constitution expressly mentions the “President” as the official whom “Congress may, by law, authorize”
to impose “tariff rates, import and export quotas, tonnage and wharfage dues, and other duties or
imports.” Thus, in the Executive Department, the President should have the final say on such matters.
However, I shall not dwell at length on this point because it was not raised as an issue by the parties.X
Peripheral Issue:
Forum Shopping
With respect to the question on forum shopping, I also agree with the Resolution of the Court that
petitioner must answer for its failure to give timely information to the Court
_______________
82
See Valencia v. Court of Appeals, 401 SCRA 666, April 29, 2003.
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of the Petition for Review that the former filed with the CTA while the present case was pending here.
But there being no showing of willful and deliberate forum shopping, the Petition does not deserve
outright dismissal.
It should be recalled that pursuant to the June 5, 2003 Decision of the CA, the DTI secretary immediately
issued on June 25, 2003, a new Decision (this time imposing a definitive safeguard measure),
notwithstanding the Petition for Review filed just two days earlier by Southern Cross Cement before this
Court. Hence, in view of its pending Petition here, petitioner filed with this Court on July 7, 2003, a Very
Urgent Application for a Temporary Restraining Order or Writ of Preliminary Injunction, seeking to
enjoin the DTI secretary from enforcing his new Decision. In addition, pursuant to Section 29 of RA
8800, petitioner filed before the CTA a Petition for Review of the June 25, 2003 DTI Decision. Petitioner
did not, however, give timely information to this Court of the CTA Petition, in which the parties, causes
of action, and reliefs sought were indeed the same as those in the instant Petition. Hence, private
83
respondent filed a Manifestation and Motion to Dismiss this Petition, on the ground of forum shopping.X
Section 5, Rule 7 of the Rules of Court, provides as follows:
“Sec. 5. Certification against forum shopping.—The plaintiff or principal party shall certify under oath in
the complaint or other initiatory pleading asserting a claim for relief, or in a sworn certification annexed
thereto and simultaneously filed therewith: (a) that
_______________
“x x x [T]o determine whether a party violated the rule against forum shopping, the most important factor to ask is whether the
83
elements of litis pendentia are present, or whether a final judgment in one case will amount to res judicata in another. Otherwise
stated, the test for determining forum shopping is whether in the two (or more) cases pending, there is identity of parties, rights or
causes of action, and reliefs sought.” Young v. Keng Seng, 398 SCRA 629, March 5, 2003. See also First Philippine International
Bank v. Court of Appeals, 252 SCRA 259, January 24, 1996.
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he has not theretofore commenced any action or filed any claim involving the same issues in any court,
tribunal or quasi-judicial agency and, to the best of his knowledge, no such other action or claim is
pending therein; (b) if there is such other pending action or claim, a complete statement of the present
status thereof; and (c) if he should thereafter learn that the same or similar action or claim has been filed
or is pending, he shall report that fact within five (5) days therefrom to the court wherein his aforesaid
complaint or initiatory pleading has been filed.
“Failure to comply with the foregoing requirements shall not be curable by mere amendment of the
complaint or other initiatory pleading but shall be cause for the dismissal of the case without prejudice,
unless otherwise provided, upon motion and after hearing. The submission of a false certification or non-
compliance with any of the undertakings therein shall constitute indirect contempt of court, without
prejudice to the corresponding administrative and criminal actions. If the acts of the party or his counsel
clearly constitute willful and deliberate forum shopping, the same shall be ground for summary dismissal
with prejudice and shall constitute direct contempt, as well as a cause for administrative sanctions.”
The foregoing Rule behooved petitioner to inform this Court of any similar action pending before any
court, tribunal or agency within five days from knowledge of the proceeding. Yet, petitioner did so only
after 11 days, without a satisfactory and justifiable explanation.
Forum shopping has been characterized as an act of malpractice that is prohibited, and condemned as
trifling with the courts and abusing their processes. It constitutes improper conduct, because it tends to
degrade the administration of justice. It has also been aptly described as deplorable, because it adds to the
congestion of the already heavily burdened court dockets. X 84
_______________
Chemphil Export & Import Corp. v. Court of Appeals, 251 SCRA 257, 291-292, December 12, 995; Ong v. Court of
84
Appeals, 384 SCRA 139, July 5, 2002.
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Failure to comply with the non-forum shopping requirements in Section 5 of Rule 7 does not, however,
automatically warrant the dismissal of the case with prejudice. The Rule states that the dismissal is
without prejudice; with prejudice, only upon motion and after hearing. And there must be evidence that
85
the erring party and counsel committed willful and deliberate acts amounting to forum shopping as to
warrant the summary dismissal of the case and the imposition of direct contempt and the appropriate
administrative sanctions. In previous cases, the penalties imposed upon erring lawyers who engaged in
86
forum shopping ranged from severe censure to suspension from the practice of law, in order to make them
realize the seriousness of the consequences and implications of their abuse of the judicial process and
disrespect for judicial authority. X87
Based on the foregoing tenets, I believe that petitioner’s counsels should be sanctioned with severe
censure.
Summary
In sum, I submit that the CTA has jurisdiction over the DTI secretary’s decisions issued pursuant to RA
8800. Accordingly, the CA acted arbitrarily in giving due course to private respondent’s Petition for
Certiorari seeking to set aside the DTI secretary’s April 5, 2002 Decision. Therefore, its June 5, 2003
Decision is void and has no legal effect.
_______________
Barroso v. Ampig Jr., 328 SCRA 530, March 17, 2000; Sto. Domingo-David v. Guerrero, 296 SCRA 277, September 25,
85
1998.
86
Barroso v. Ampig Jr., supra.
Top Rate Construction & General Services, Inc. v. Paxton Development Corporation, 410 SCRA 604, September 11,
87
2003 (citing Benguet Electric Cooperative, Inc. v. National Electrification Administration, 193 SCRA 250, January 23,
1991; Villanueva v. Adre, 172 SCRA 876, April 27, 1989; Vda. de Tolentino v. De Guzman, 172 SCRA 555, April 19,
1989.
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Philippines
Having ruled the CA Decision void, this Court should normally dismiss the present Petition. However,
because the remaining issue before it is purely legal and imbued with public interest—touching as it does
upon the economic security of our domestic industries—it is proper for the Court to resolve it once and
for all, as an exception to the general rule. The resolution of this legal issue now would avoid unnecessary
delays and costs, consistent with the Court’s policy of prompt and proper administration of substantial
justice.
The application of a safeguard measure, while primarily intended to protect domestic industries, is
essentially in the nature of a tariff imposition. Pursuant to the Constitution, the imposition of tariffs and
taxes may be exercised only by Congress. However, Section 28 of Article VI of the Constitution provides
for an exception: it allows Congress to authorize the President to fix—subject to such limitations and
restrictions as it may impose—tariff rates, quotas and other duties. To no official, other than the
President, is that power allowed to be delegated.
Consistent with the foregoing principle, RA 8800 must be construed as having delegated the power to
apply safeguard measures to the President, through the alter ego on trade and investment matters—the
DTI secretary.
While Congress may specify limitations in the President’s authority to impose tariffs, such legislative
restrictions must operate within the bounds of the Constitution. These limitations cannot impinge upon,
restrict or overturn the Presi-dent’s constitutional power of control over the entire Executive Department.
The power of control includes the right to modify or set aside a decision of a subordinate officer. The
Tariff Commission, being a mere agency in the Executive Department, is necessarily subject to the
control and supervision of the President. Hence, its decisions and recommendations cannot tie the hands
of the Chief Executive with finality. Consequently, the DTI head, acting as the President’s alter ego
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pursuant to RA 8800, may affirm, modify or reverse the Tariff Commission’s recommendation.
As I have said at the outset, the DTI secretary, as the prime mover of the country’s trade and commercial
affairs, must be given broad latitude in the pursuit of the agency’s mandate. The country’s topmost trade
official, handpicked by the President, is presumed to possess the competence and the erudition to steer the
Department towards the achievement of State goals within the DTI’s sphere. As the Chief Executive’s
alter ego in the area of trade, the secretary must be allowed to exercise ample discretion on matters vested
in the position. And so long as the Department head’s decisions are not reversed or modified by the
President, they should be accorded the highest respect by the courts.
The principal duty of the judiciary is to adjudicate actual controversies involving rights and obligations of
persons; it has no business interfering in the realm of policy making. Basic is the rule that courts should
adopt a hands-off approach with respect to non-judicial concerns of government. The only ground upon
which they can review apparently policy questions is when an act of an agency or instrumentality of
government, including the Presidency and Congress, is blatantly contrary to law or the Constitution or
clearly tainted with grave abuse of discretion. In these exceptional instances, it becomes the bounden
88
duty of the Court to nullify the act. X 89
_______________
There is grave abuse of discretion when an act is done contrary to the Constitution, the law or jurisprudence; or when it
88
is executed whimsically, capriciously or arbitrarily out of malice, ill will or personal bias. Information Technology
Foundation of the Philippines v. Commission on Elections, 419 SCRA 141, January 13, 2004 (citing Republic v.
Cocofed, 372 SCRA 462, 493, December 14, 2001; and Tañada v. Angara, 272 SCRA 18, 79, May 2, 1997.
See Tatad v. Secretary of Energy, 346 Phil 321; 281 SCRA 330, November 5, 1997; Chavez v. Public Estates
89
Authority, 433 Phil. 506; 384 SCRA 152, July 9, 2002; Agan v. Philippine International
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Philippines
Otherwise, the official acts of the Executive and the Legislative Departments are presumed to be regular
and done in good faith. Unless clear and convincing proof is presented to overthrow such presumption,
the Court will resolve every doubt in their favor. X 90
Whether such acts are beneficial or viable is outside the realm of judicial inquiry and review. That matter
is between the elected policy makers and the people. To repeat, the Court’s judicial role comes into play
91
only when those acts are clearly unlawful or unconstitutional or performed with grave abuse of discretion.
In nullifying them, the Court does so merely to uphold the rule of law. For indeed there can be no
meaningful economic and social progress without an effective rule of law in place. X 92
This Court should maintain its deferential stance respecting acts emanating from government agencies,
especially those involving the economy. Far from being an unwanted interloper in economic matters not
within its field of expertise, the Court, in recent Decisions nullifying government contracts, steadfastly93
upholds one of the most revered policy axioms in the business community—the “leveling of the playing
field.” To paraphrase what the Court said in a recentX
94
_______________
Air Terminals Co., Inc., 402 SCRA 84, May 5, 2003, and 420 SCRA 575, January 21, 2004; Francisco, Jr. v. House of
Representatives, 415 SCRA 45, November 10, 2003; Information Technology Foundation of the Philippines v.
Commission on Elections, supra.
90
Tañada v. Angara, 338 Phil. 546, 604-605; 272 SCRA 18, 80, May 2, 1997.
91
Ibid.
See Panganiban, Liberty and Prosperity, a speech delivered before the 10th National Convention of the Integrated Bar of
92
the Philippines in Baguio City on April 20, 2005.
Chavez v. Public Estates Authority, supra; Agan v. Philippine International Air Terminals Co., Inc., supra; Information
93
Technology Foundation of the Philippines v. Commission on Elections, supra.
94
See Panganiban, Leveling the Playing Field, 2004 ed., pp. 46-59.
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case, the “Constitution and the law should be read in broad, life-giving strokes. They should not be used
95
to strangulate economic growth or to serve narrow, parochial interests.” Rather, they should be construed
to grant the President and his or her alter egos sufficient discretion and reasonable leeway to enable them
to secure for our people and our posterity the blessings of prosperity and peace.X
WHEREFORE, I vote to GRANT the Motion in part and to REVERSE the assailed Decision, insofar as it
held that the secretary of the Department of Trade and Industry (DTI) was bound by the recommendations
of the Tariff Commission. More emphatically, I vote to UPHOLD the authority of the secretary to impose
safeguard measures, even if the Tariff Commission does not recommend their imposition. I also vote that,
for violation of the anti-forum shopping rule, petitioner’s counsels should be sanctioned with SEVERE
CENSURE.
Motions for reconsideration denied with finality.
Notes.—Protectionism and isolationism belong to the past—the State must reaffirm its commitment to
the global community and take part in evolving a new international economic order at the dawn of the
new millennium. (Mirpuri vs. Court of Appeals, 318 SCRA 516 [1999]) The Constitution has never
prohibited foreign corporations from acquiring and enjoying “beneficial interest” in the development of
Philippine natural resources. (La Bugal-B’Laan Tribal Association, Inc. vs. Ramos, 445 SCRA 1 [2004])
——o0o——
G.R. No. 127249. February 27, 1998. *

CAMARINES NORTE ELECTRIC COOPERATIVE, INC. (CANORECO); RUBEN N.
BARRAMEDA; ELVIS L. ESPIRITU; MERARDO G. ENERO, JR.; MARCELITO B.
ABAS; and REYNALDO V. ABUNDO, petitioners, vs. HON. RUBEN D. TORRES, in his
capacity as Executive Secretary; REX TANTIONGCO; HONESTO DE JESUS; ANDRES
IBASCO; TEODULO M. MEA; and VICENTE LUKBAN, respondents.
Cooperatives; Republic Act No. 6939; Article 38 of R.A. No. 6938 vests upon the board of directors
the conduct and management of the affairs of cooperatives, and Article 39 provides for the powers of the
board of directors.—Having registered itself with the CDA pursuant to Section 128 of R.A. No. 6938 and
Section 17 of R.A. No. 6939, CANORECO was brought under the coverage of said laws. Article 38 of
R.A. No. 6938 vests upon the board of directors the conduct and management of the affairs of
cooperatives, and Article 39 provides for the powers of the board of directors.
Same; Same; Intra-cooperative disputes shall, as far as practicable, be settled amicably in
accordance with the conciliation or mediation mechanisms embodied in the by-laws of the cooperative,
and in applicable laws, and should such a conciliation/mediation proceeding fail, the matter shall be
settled in a court of competent jurisdiction.—Obviously there was a clear case of intra-cooperative
dispute. Article 121 of the Cooperative Code is explicit on how the dispute should be resolved; thus:
ART. 121. Settlement of Disputes.—Disputes among members, officers, directors, and committee
members, and intra-cooperative disputes shall, as far as practicable, be settled amicably in accordance
with the conciliation or mediation mechanisms embodied in the by-laws of the cooperative, and in
applicable laws. Should such a conciliation/mediation proceeding fail, the matter shall be settled in a
court of competent jurisdiction.
Same; Same; Administrative Law; Judgments; The Office of the President could not, motu proprio
or upon request of a party, supplant or overturn a decision of the Cooperative Development Author-
_______________
*
EN BANC.
667
VOL. 286, FEBRUARY 27, 1998 6

67
Camarines Norte Electric Cooperative, Inc. vs. Torres
ity which had attained finality.—Even granting for the sake of argument that the party aggrieved by
a decision of the CDA could pursue an administrative appeal to the Office of the President on the theory
that the CDA is an agency under its direct supervision and control, still the Office of the President could
not in this case, motu proprio or upon request of a party, supplant or overturn the decision of the CDA.
The record does not disclose that the group of Norberto Ochoa appealed from the decision of the CDA in
CDA-CO Case No. 95-010 to the Office of the President as the head of the Executive Department
exercising supervision and control over said agency. In fact the CDA had already issued a Cease and
Desist Order dated 14 August 1996 ordering Antonio Obias, Norberto Ochoa, Luis Pascua, Felicito Ilan
and their followers “to cease and desist from acting as the Board of Directors and Officers of Camarines
Norte Electric Cooperative (CANORECO) and to refrain from implementing their Resolution calling for
the District V Election on August 17 and 24, 1996.” Consequently, the said decision of the CDA had long
become final and executory when Memorandum Order No. 409 was issued on 3 December 1996. That
Memorandum cannot then be considered as one reversing the decision of the CDA which had attained
finality.
Same; Same; Same; Same; A final resolution or decision of an administrative agency also binds
the Office of the President even if such agency is under the administrative supervision and control of the
latter.—Under Section 15, Chapter III of Book VII of the Administrative Code of 1987 (Executive Order
No. 292), decisions of administrative agencies become final and executory fifteen days after receipt of a
copy thereof by the party adversely affected unless within that period an administrative appeal or judicial
review, if proper, has been perfected. One motion for reconsideration is allowed. A final resolution or
decision of an administrative agency also binds the Office of the President even if such agency is under
the administrative supervision and control of the latter.
Same; Same; Same; Same; Administrative decisions must end sometime, as fully as public policy
demands that finality be written on judicial controversies.—We have stated before, and reiterate it now,
that administrative decisions must end sometime, as fully as public policy demands that finality be written
on judicial controversies. Public interest requires that proceedings already terminated should not be
altered at every step, for the rule of non quieta movere prescribes that what had already been terminated
should not be
668

68
disturbed. A disregard of this principle does not commend itself to sound public policy.
Same; Same; Same; The pertinent laws on cooperatives, namely, R.A. No. 6938, R.A. No. 6939, and
P.D. No. 269 as amended by P.D. No. 1645 do not provide for the President or any other administrative
body to take over the internal management of a cooperative.—Neither can police power be invoked to
clothe with validity the assailed Memorandum Order No. 409. Police power is the power inherent in a
government to enact laws, within constitutional limits, to promote the order, safety, health, morals, and
general welfare of society. It is lodged primarily in the legislature. By virtue of a valid delegation of
legislative power, it may also be exercised by the President and administrative boards, as well as the
lawmaking bodies on all municipal levels, including the barangay. Delegation of legislative powers to the
President is permitted in Sections 23(2) and 28(2) of Article VI of the Constitution. The pertinent laws on
cooperatives, namely, R.A. No. 6938, R.A. No. 6939, and P.D. No. 269 as amended by P.D. No. 1645 do
not provide for the President or any other administrative body to take over the internal management of a
cooperative.
Same; Same; Same; Memorandum Order No. 409 constituting an ad hoc committee to take over
and manage the affairs of an electric cooperative has no constitutional and statutory basis.—We do not
then hesitate to rule that Memorandum Order No. 409 has no constitutional and statutory basis. It violates
the basic underlying principle enshrined in Article 4(2) of R.A. No. 6938 that cooperatives are democratic
organizations and that their affairs shall be administered by persons elected or appointed in a manner
agreed upon by the members. Likewise, it runs counter to the policy set forth in Section 1 of R.A. No.
6939 that the State shall, except as provided in said Act, maintain a policy of non-interference in the
management and operation of cooperatives.
ORIGINAL ACTION in the Supreme Court. Certiorari and Prohibition.

Benjamin A. Moraleda, Jr.; Froilan M. Bacungan & Associates, and Penaflor & Perez
Law Offices for petitioners.
669
VOL. 286, FEBRUARY 27, 1998 669
Nestor C. Barbosa for private respondents.
DAVIDE, JR., J.:
May the Office of the President validly constitute an ad hoc committee to take over and manage
the affairs of an electric cooperative?
This is the key issue in this original action for certiorari and prohibition under Rule 65 of the
Rules of Court wherein the petitioners seek to (a) annul and set aside Memorandum Order No.
409 of the Office of the President dated 3 December 1996 constituting an Ad Hoc Committee to
take over and manage the affairs of the Camarines Norte Electric Cooperative, Inc., (hereafter
CANORECO) “until such time as a general membership meeting can be called to decide the
serious issues affecting the said cooperative and normalcy in operations is restored”; and (b)
prohibit the respondents from performing acts or continuing proceedings pursuant to the
Memorandum Order.
The factual backdrop of this case is not complicated.
Petitioner CANORECO is an electric cooperative organized under the provisions of P.D. No.
269, otherwise known as the National Electrification Administration Decree, as amended by P.D.
No. 1645.
On 10 March 1990, then President Corazon C. Aquino signed into law R.A. No. 6938 and
R.A. No. 6939. The former is the Cooperative Code of the Philippines, while the latter created
the Cooperative Development Authority (CDA) and vested solely upon the CDA the power to
register cooperatives.
Article 122 of the Cooperative Code expressly provides that electric cooperatives shall be
covered by the Code. Article 128 of the said Code and Section 17 of R.A. No. 6939 similarly
provide that cooperatives created under P.D. No. 269, as amended by P.D. No. 1645, shall have
three years within which to qualify and register with the CDA and that after they shall have so
qualified and registered, the provisions of
670
Sections 3 and 5 of P.D. No. 1645 shall no longer be applicable to them. These Sections 3 and 5
read as follows:
SEC. 3. Section 5(a), Chapter II of Presidential Decree No. 269 is hereby amended by adding sub-
paragraph (6) to read as follows:
“(6) To authorize the NEA Administrator to designate, subject to the confirmation of the Board Administrators, an
Acting General Manager and/or Project Supervisor for a Cooperative where vacancies in the said positions occur
and/or when the interest of the Cooperative and the program so requires, and to prescribe the functions of said
Acting General Manager and/or Project Supervisor, which powers shall not be nullified, altered or diminished by
any policy or resolution of the Board of Directors of the Cooperative concerned.”
xxx
SEC. 5. Section 10, Chapter II of Presidential Decree No. 269 is hereby amended to read as follows:
“Section 10. Enforcement Powers and Remedies.—In the exercise of its power of supervision and control over
electric co-operatives and other borrower, supervised or controlled entities, the NEA is empowered to issue orders,
rules and regulations and motu proprio or upon petition of third parties, to conduct investigations, referenda and
other similar actions in all matters affecting said electric cooperatives and other borrower, or supervised or
controlled entities.”
xxx
Finally, the repealing clause (Article 127) of the Cooperative Code provides:
Provided, however, That nothing in this Code shall be interpreted to mean the amendment or repeal of
any provision of Presidential Decree No. 269: Provided, further, That the electric cooperatives which
qualify as such under this Code shall fall under the coverage thereof.
CANORECO registered with the CDA pursuant to R.A. No. 6938 and R.A. No. 6939. On 8
March 1993, the CDA issued a Certificate of Provisional Registration (T-003-93) to
671
VOL. 286, FEBRUARY 27, 1998 671
CANORECO effective for two years. On 1 March 1995, the CDA extended this provisional
1
registration until 4 May 1997. However, on 10 July 1996, CANORECO filed with the CDA its
2
approved amendments to its Articles of Cooperation converting itself from a non-stock to a stock
cooperative pursuant to the provisions of R.A. No. 6938 and the Omnibus Implementing Rules
and Regulations on Electric Cooperatives. On the same date the CDA issued a Certificate of
Registration of the amendments to CANORECO Articles of Cooperation certifying that
3
CANORECO is “registered as a full-[f]ledged cooperative under and by virtue of R.A. 6938.”

Previously, on 11 March 1995, the Board of Directors of CANORECO approved Resolution
4
No. 22 appointing petitioner Reynaldo V. Abundo as permanent General Manager. The Board
was composed of
Ruben N. Barrameda — President
Elvis L. Espiritu — Vice President
Merardo G. Enero, Jr. — Secretary
Marcelito B. Abas — Treasurer
Antonio R. Obias — Director
Luis A. Pascua — Director
Norberto Z. Ochoa — Director
Leonida Z. Manalo — OIC GM/Ex-Officio
On 28 May 1995, Antonio Obias, Norberto Ochoa, Luis Pascua, and Felicito Ilan held a special
meeting of the Board of Directors of CANORECO. The minutes of the meeting showed that 5
President Ruben Barrameda, Vice-President Elvis Espiritu, and Treasurer Marcelito Abas were
absent; that Obias acted as temporary chairman; that the latter informed those present that it was
the responsibility of the Board after the annual meeting to meet and elect the new set
_______________
1
Annex “B” of Petition, Rollo, 34.
2
Annex “C” of Petition, Id., 35.
3
Annex “D” of Petition, Id., 36-37.
4
Annex “E” of Petition, Rollo, 38-39.
5
Annex “F” of Petition, Id., 40-43.
672
of officers, but that despite the fact that he had called the attention of President Barrameda and
Directors Abas and Espiritu for the holding thereof, the three chose not to appear; and that those
present in the special meeting declared all positions in the board vacant and thereafter proceeded
to hold elections by secret balloting with all the directors present considered candidates for the
positions. The following won and were declared as the newly elected officers of the
CANORECO:
President ............................................... Norberto
Ochoa
Vice ....................................... Antonio
President Obias
Secretary ............................................... Felicito Ilan
Treasurer .............................................. Luis Pascua
Thereupon, these newly elected officers approved the following resolutions:
1. 1)Resolution No. 27, c.s.—confirming the election of the new set of officers of
the Board of Directors of CANORECO
2. 2)Resolution No. 28, c.s.—recalling Resolution No. 22, c.s. appointing Mr.
Reynaldo V. Abundo as permanent General Manager in view of the fact that
such appointment was in violation of the provisions of R.A. 6713; declaring the
position of General Manager as vacant; and designating Mr. Oscar Acobera as
Officer-in-Charge
3. 3)Resolution No. 29, c.s.—authorizing the Board President, or in his absence,
the Vice-President, countersigned by the Treasurer, or in his absence, the
Secretary, to be the only officers who can transfer funds from savings to current
accounts; and authorizing the Officer-in-Charge, Mr. Acobera, to issue checks
without countersignature in an amount not to exceed P3,000.00 and in excess
thereof, to be countersigned by the President and/or the Treasurer
4. 4)Resolution No. 30, c.s.—hiring the services of Atty. Juanito Subia as retainer-
lawyer for CANORECO. 6
The petitioners challenged the above resolutions and the election of officers by filing with the
CDA a Petition for Decla-
_______________
Rollo, 41-43.
6
673
VOL. 286, FEBRUARY 27, 1998 673
ration of Nullity of Board Resolutions and Election of Officers with Prayer for Issuance of
Injunction/Temporary Restraining Order, which the CDA docketed as CDA-CO Case No. 95-
010.
In its Resolution of 15 February 1996, the CDA resolved the petition in favor of the
7
petitioners and decreed as follows:

WHEREFORE, premises considered, the Board Meeting of May 28, 1995, participated by the
respondents, and all the Resolutions issued on such occasion, are hereby declared NULL AND VOID AB
INITIO.
Likewise, the election of respondents Norberto Ochoa, Antonio Obias, Felicito Ilan, and Luis Pascua,
as President, Vice-President, Secretary, and Treasurer, respectively, of CANORECO is hereby declared
NULL AND VOID AB INITIO.
Hence, respondents Norberto Ochoa, Antonio Obias, Felicito Ilan, and Luis Pascua are hereby ordered
to refrain from representing themselves as President, Vice-President, Secretary, and Treasurer,
respectively, of CANORECO. The same respondents are further ordered to refrain from acting as
authorized signatories to the bank accounts of CANORECO.
Further respondent Felicito Ilan is hereby ordered to refrain from exercising the duties and functions
of a member of the Board of CANORECO until the election protest is resolved with finality by the proper
forum. In the meantime, the incumbency of petitioner Merardo Enero,Jr. as Director of the CANORECO
Board is hereby recognized.
A status quo is hereby ordered as regards the position of General Manager, being held by Mr.
Reynaldo Abundo, considering that the recall of his appointment was done under a void Resolution, and
that the designation of Mr. Oscar Acodera as Officer-in-Charge, under the same void Resolution, has no
force and effect.
Finally, respondents Antonio Obias, Norberto Ochoa, Luisito Pascua, and petitioners Ruben
Barrameda, Elvis Espiritu, Marcelito Abas and Merardo Enero, Jr. are hereby ordered to work together, as
Board of Directors, for the common good of CANORECO and its consumer-members, and to maintain an
atmosphere of sincere cooperation among the officers and members of CANORECO.
_______________
Annex “G” of Petition, Id., 44-52.

7
674
On 28 June 1996, in defiance of the abovementioned Resolution of the CDA and with the active
participation of some officials of the National Electrification Administration (NEA), the group of
Norberto Ochoa, Antonio Obias, Felicito Ilan, and Luis Pascua forcibly took possession of the
offices of CANORECO and assumed the duties as officers thereof. 8
On 26 September 1996, pursuant to the writ of execution and order to vacate issued by the
CDA, the petitioners were able to reassume control of the CANORECO and to perform their
respective functions. 9
On 3 December 1996, the President of the Philippines issued Memorandum Order No.
409 constituting an Ad Hoc Committee to temporarily take over and manage the affairs of
10
CANORECO. It reads as follows:

To efficiently and effectively address the worsening problem of the Camarines Norte Electric
Cooperative, Inc. (CANORECO) and in order not to prejudice and endanger the interest of the people
who rely on the said cooperative for their supply of electricity, an AD HOC Committee is hereby
constituted to take over and manage the affairs of CANORECO until such time as a general membership
meeting can be called to decide the serious issues affecting the said cooperative and normalcy in
operations is restored. Further, if and when warranted, the present Board of Directors may be called upon
by the Committee for advisory services without prejudice to the receipt of their per diems as may be
authorized by existing rules and regulations.
The AD HOC Committee shall be composed of the following:
REX TANTIONGCO —Chairman

Presidential Assistant on Energy Affairs
HONESTO DE JESUS —Member
Cooperative Development Authority Nominee
ANDRES IBASCO —Member
Cooperative Development Authority Nominee
_______________
8
Rollo, 8.
9
Ibid.
10
Id., 31.
675
VOL. 286, FEBRUARY 27, 1998 675
TEODULO M. MEA —Member
National Electrification Administration Nominee
VICENTE LUKBAN —Member
National Electrification Administration Nominee
The said Committee shall have the following functions:
1. 1.Designate the following upon the recommendation of the Chairman:
1. 1.1an Acting General Manager who shall handle the day-to-day operations of the
Cooperative. In the meantime, the General Manager shall be deemed to be on leave
without prejudice to the payment of his salaries legally due him; and
2. 1.2a Comptroller who shall handle the financial affairs of the Cooperative.
1. 2.Ensure that:
xxx
The AD HOC Committee shall submit a written report to the President, through the Office of the
Executive Secretary, every two (2) weeks from the effectivity of this Order.
A General Membership Meeting shall be called by the AD HOC Committee to determine whether or
not there is a need to change the composition of the membership of the Cooperative’s Board of Directors.
If the need exists, the AD HOC Committee shall call for elections. Once the composition of the Board of
Directors is finally settled, it shall decide on the appointment of a General Manager in accordance with
prescribed laws, rules and regulations. Upon the appointment of a General Manager, the Committee shall
become functus officio.
This Memorandum Order shall take effect immediately.
On 11 December 1996, the petitioners filed this petition wherein they claim that
1. I.THE PRESIDENT HAS NO POWER TO TAKE OVER AND MANAGE OR

TO ORDER THE TAKE-OVER OR MANAGEMENT OF CANORECO.
2. II.[THE] TAKE-OVER OF CANORECO BY THE AD HOC COMMITTEE IS
UNLAWFUL DESPITE DESIGNATION OF
676
1. CANORECO CONSUMERS AS MEMBERS OF AD HOC COMMITTEE.

2. III.[THE] RELEGATION OF PETITIONERS AS MERE ADVISERS TO THE
AD HOC COMMITTEE AMOUNTS TO REMOVAL FROM OFFICE WHICH
THE PRESIDENT HAS NO POWER TO DO. MOREOVER, PETITIONERS’
REMOVAL VIOLATES PETITIONERS’ RIGHT TO DUE PROCESS OF
LAW.
3. IV.THE PRESIDENT IS LIKEWISE WITHOUT POWER TO DESIGNATE
OR ORDER THE DESIGNATION OF AN ACTING GENERAL MANAGER
FOR CANORECO AND TO CONSIDER THE INCUMBENT REYNALDO V.
ABUNDO TO BE ON LEAVE.
The petitioners assert that there is no provision in the Constitution or in a statute expressly, or
even impliedly, authorizing the President or his representatives to take over or order the take-
over of electric cooperatives. Although conceding that while the State, through its police power,
has the right to interfere with private business or commerce, they maintain that the exercise
thereof is generally limited to the regulation of the business or commerce and that the power to
regulate does not include the power to take over, control, manage, or direct the operation of the
business. Accordingly, the creation of the Ad Hoc Committee for the purpose of take-over was
illegal and void.
The petitioners further claim that Memorandum Order No. 409 removed them from their
positions as members of the Board of Directors of CANORECO. The President does not have the
authority to appoint, much less to remove, members of the board of directors of a private
enterprise including electric cooperatives. He cannot rely on his power of supervision over the
NEA to justify the designation of an acting general manager for CANORECO under P.D. No.
269 as amended by P.D. No. 1645, for CANORECO had already registered with the CDA
pursuant to R.A. No. 6938 and R.A. No. 6939; hence, the latter laws now govern the internal
affairs of CANORECO.
On 3 January 1997, the petitioners filed an Urgent Motion for Issuance of a Temporary
Restraining Order.
677
VOL. 286, FEBRUARY 27, 1998 677
On 9 January 1997, the petitioners filed a Manifestation and Motion informing the Court that on
8 January 1997 respondent Rex Tantiongco notified the petitioners that the Ad Hoc Committee
was taking over the affairs and management of CANORECO effective as of that date. They 11
reiterated their plea for the issuance of a temporary restraining order because the Ad
Hoc Committee has taken control of CANORECO and usurped the functions of the individual
petitioners.
In the Resolution dated 13 January 1997, we required respondents to comment on the
petition.
Despite four extensions granted it, the Office of the Solicitor General (OSG) failed to file its
Comment. Hence, in the resolution of 16 July 1997 we deemed the OSG to have waived the
filing of its Comment and declared this case submitted for decision. The OSG’s motion to admit
its Comment, as well as the attached Comment, belatedly filed on 24 July 1997 was merely noted
without action in the resolution of 13 August 1997. We also subsequently denied for lack of
merit its motion for reconsideration.
We find the instant petition impressed with merit.
Having registered itself with the CDA pursuant to Section 128 of R.A. No. 6938 and Section
17 of R.A. No. 6939, CANORECO was brought under the coverage of said laws. Article 38 of
R.A. No. 6938 vests upon the board of directors the conduct and management of the affairs of
cooperatives, and Article 39 provides for the powers of the board of directors. These sections
read:
Article 38. Composition of the Board of Directors.—The conduct and management of the affairs of a
cooperative shall be vested in a board of directors which shall be composed of not less than five (5) nor
more than fifteen (15) members elected by the general assembly for a term fixed in the by-laws but not
exceeding a term of two (2) years and shall hold office until their successors are duly
_______________
11
Rollo, 96.
678
elected and qualified, or until duly removed. However, no director shall serve for more than three (3)
consecutive terms.
Article 39. Powers of the Board of Directors.—The board of directors shall direct and supervise the
business, manage the property of the cooperative and may, by resolution, exercise all such powers of the
cooperative as are not reserved for the general assembly under this Code and the by-laws.
As to the officers of cooperatives, Article 43 of the Code provides:

ART. 43. Officers of the Cooperatives.—The board of directors shall elect from among themselves only
the chairman and vice-chairman, and elect or appoint other officers of the cooperative from outside of the
board in accordance with their by-laws. All officers shall serve during good behavior and shall not be
removed except for cause and after due hearing. Loss of confidence shall not be a valid ground for
removal unless evidenced by acts or omissions causing loss of confidence in the honesty and integrity of
such officer. No two (2) or more persons with relationship up to the third degree of consanguinity or
affinity shall serve as elective or appointive officers in the same board. 12
Under Article 34 of the Code, the general assembly of cooperatives has the exclusive power,
which cannot be delegated, to elect or appoint the members of the board of directors and to
remove them for cause. Article 51 thereof provides for removal of directors and officers as
follows:
_______________
This is a substantial departure from Section 26 of P.D. No. 269 which provided that the officers of a cooperative
12
shall consist of a president, vice-president, secretary and treasurer, who shall be elected annually by and from the board;
that when a person holding such office ceases to be a director, he shall ipso facto cease to hold such office; that the offices
of secretary and of treasurer may be held by the same person; that the board may also elect or appoint such other officers,
agents, or employees as it deems necessary or advisable; and that any officer may be removed from said office and his
successor elected in the manner prescribed in the by-laws.
679
VOL. 286, FEBRUARY 27, 1998 679
ART. 51. Removal.—An elective officer, director, or committee member may be removed by a vote of
two-thirds (2/3) of the voting members present and constituting a quorum, in a regular or special general
assembly meeting called for the purpose. The person involved shall be given an opportunity to be heard at
said assembly.
Memorandum Order No. 409 clearly removed from the Board of Directors of CANORECO the
power to manage the affairs of CANORECO and transferred such power to the Ad
Hoc Committee, albeit temporarily. Considering that (1) the take-over will be “until such time
that a general membership meeting can be called to decide the serious issues affecting the said
cooperative and normalcy in operations is restored, and (2) the date such meeting shall be called
and the determination of whether there is a need to change the composition of the membership of
CANORECO’s Board of Directors are exclusively left to the Ad Hoc Committee, it necessarily
follows that the incumbent directors were, for all intents and purposes, suspended at the least,
and removed, at the most, from their office. The said Memorandum did no less to the lawfully
appointed General Manager by directing that upon the settlement of the issue concerning the
composition of the board of directors the Committee shall decide on the appointment of a general
manager. In the meantime, it authorized the Committee to designate upon the recommendation of
the Chairman an Acting Manager, with the lawfully appointed Manager considered on leave, but
who is, however, entitled to the payment of his salaries.
Nothing in law supported the take-over of the management of the affairs of CANORECO,
and the “suspension,” if not “removal,” of the Board of Directors and the officers thereof.
It must be pointed out that the controversy which resulted in the issuance of the Memorandum
Order stemmed from a struggle between two groups vying for control of the management of
CANORECO. One faction was led by the group of Norberto Ochoa, while the other was
petitioners’ group whose members were, at that time, the incumbent directors and officers. It was
the action of Ochoa and his cohorts in holding a special meeting on 28 May 1995 and then
declaring vacant
680
the positions of cooperative officers and thereafter electing themselves to the positions of
president, vice-president, treasurer, and secretary of CANORECO which compelled the
petitioners to file a petition with the CDA. The CDA thereafter came out with a decision
favorable to the petitioners.
Obviously there was a clear case of intra-cooperative dispute. Article 121 of the Cooperative
Code is explicit on how the dispute should be resolved; thus:
ART. 121. Settlement of Disputes.—Disputes among members, officers, directors, and committee
members, and intra-cooperative disputes shall, as far as practicable, be settled amicably in accordance
with the conciliation or mediation mechanisms embodied in the by-laws of the cooperative, and in
applicable laws.
Should such a conciliation/mediation proceeding fail, the matter shall be settled in a court of
competent jurisdiction.
Complementing this Article is Section 8 of R.A. No. 6939, which provides:

SEC. 8. Mediation and Conciliation.—Upon request of either or both or both parties, the [CDA] shall
mediate and conciliate disputes with the cooperative or between cooperatives: Provided, That if no
mediation or conciliation succeeds within three (3) months from request thereof, a certificate of non-
resolution shall be issued by the commission prior to the filing of appropriate action before the proper
courts.
Even granting for the sake of argument that the party aggrieved by a decision of the CDA could
pursue an administrative appeal to the Office of the President on the theory that the CDA is an
agency under its direct supervision and control, still the Office of the President could not in this
case, motu proprio or upon request of a party, supplant or overturn the decision of the CDA. The
record does not disclose that the group of Norberto Ochoa appealed from the decision of the
CDA in CDA-CO Case No. 95-010 to the Office of the President as the head of the Executive
Department exercising supervision and control over said agency. In fact the CDA had
681
VOL. 286, FEBRUARY 27, 1998 681
already issued a Cease and Desist Order dated 14 August 1996 ordering Antonio Obias, Norberto
Ochoa, Luis Pascua, Felicito Ilan and their followers “to cease and desist from acting as the
Board of Directors and Officers of Camarines Norte Electric Cooperative (CANORECO) and to
refrain from implementing their Resolution calling for the District V Election on August 17 and
24, 1996.” Consequently, the said decision of the CDA had long become final and executory
13
when Memorandum Order No. 409 was issued on 3 December 1996. That Memorandum cannot
then be considered as one reversing the decision of the CDA which had attained finality.
Under Section 15, Chapter III of Book VII of the Administrative Code of 1987 (Executive
Order No. 292), decisions of administrative agencies become final and executory fifteen days
after receipt of a copy thereof by the party adversely affected unless within that period an
administrative appeal or judicial review, if proper, has been perfected. One motion for
reconsideration is allowed. A final resolution or decision of an administrative agency also binds
the Office of the President even if such agency is under the administrative supervision and
control of the latter.
We have stated before, and reiterate it now, that administrative decisions must end sometime,
as fully as public policy demands that finality be written on judicial controversies. Public interest
requires that proceedings already terminated should not be altered at every step, for the rule
of non quieta movere prescribes that what had already been terminated should not be disturbed.
A disregard of this principle does not commend itself to sound public policy. 14
Neither can police power be invoked to clothe with validity the assailed Memorandum Order
No. 409. Police power is the power inherent in a government to enact laws, within constitutional
limits, to promote the order, safety, health, morals,
_______________
13
Rollo, 142.
14
Antique Sawmills, Inc. v. Zayco, 17 SCRA 316, 320-321 [1966].
682
and general welfare of society. It is lodged primarily in the legislature. By virtue of a valid
15
delegation of legislative power, it may also be exercised by the President and administrative
boards, as well as the lawmaking bodies on all municipal levels, including
the barangay. Delegation of legislative powers to the President is permitted in Sections 23(2)
16
and 28(2) of Article VI of the Constitution. The pertinent laws on cooperatives, namely, R.A.
17
No. 6938, R.A. No. 6939, and P.D. No. 269 as amended by P.D. No. 1645 do not provide for the
President or any other administrative body to take over the internal management of a
cooperative. Article 98 of R.A. 6938 instead provides:
ART. 98. Regulation of Public Service Cooperatives.—(1) The internal affairs of public service
cooperatives such as the rights and privileges of members, the rules and procedures for meetings of the
general assembly, board of directors and committees; for the election and qualification of officers,
directors, and committee members;
_______________
15
16 C.J.S. Constitutional Law §195 (1956).
ISAGANI A. CRUZ, CONSTITUTIONAL LAW 44 (1995).
16
These sections read as follows:

17
Sec. 23.
xxx
(2) In times of war or other national emergency, the Congress may, by law, authorize the President, for a limited period and subject to such
restrictions as it may prescribe, to exercise powers necessary and proper to carry out a declared national policy. Unless sooner withdrawn by
resolution of the Congress, such powers shall cease upon the next adjournment thereof.
Sec. 28.
xxx
(2) The Congress may, by law, authorize the president to fix within specified limits, and subject to such limitations and restrictions as it may
impose, tariff rates, import and export quotas, tonnage and wharfage dues, and other duties or imposts within the framework of the national
development program of the Government.
683
VOL. 286, FEBRUARY 27, 1998 683
allocation and distribution of surpluses, and all other matters relating to their internal affairs shall be
governed by this Code.
xxx
We do not then hesitate to rule that Memorandum Order No. 409 has no constitutional and
statutory basis. It violates the basic underlying principle enshrined in Article 4(2) of R.A. No.
6938 that cooperatives are democratic organizations and that their affairs shall be administered
by persons elected or appointed in a manner agreed upon by the members. Likewise, it runs
counter to the policy set forth in Section 1 of R.A. No. 6939 that the State shall, except as
provided in said Act, maintain a policy of non-interference in the management and operation of
cooperatives.
WHEREFORE, the instant petition is GRANTED and Memorandum Order No. 409 of the
President is hereby declared INVALID.
SO ORDERED.
Narvasa (C.J.), Regalado, Romero, Bellosillo, Melo, Puno, Vitug, Kapunan, Mendoza,
Panganiban and Martinez, JJ., concur.
Quisumbing, J., No part. Involved in O.P. Matter.
Purisima, J., No part. Did not take part in the deliberation.
Petition granted; Memorandum Order No. 409 declared invalid.
Note.—The President, under his power of control, may not take direct disciplinary action
against an employee who belongs to the classified service. Control applies only to the acts of a
subordinate and not over the actor or agent. (Ang Angco vs. Castillo, 9 SCRA 619 [1963])
——o0o——
f. Government is exempt from taxation
G.R. No. 150301. October 2, 2007. *
PHILIPPINE FISHERIES DEVELOPMENT AUTHORITY, petitioner, vs. THE

HONORABLE COURT OF APPEALS, THE HONORABLE REGIONAL TRIAL COURT,
BRANCH 169, MALABON, METRO MANILA, THE MUNICIPALITY OF NAVOTAS,
METRO MANILA, HON. FLORANTE M. BARREDO, in his official capacity as
Municipal Treasurer of Navotas, Metro Manila, and HON. NORBERTO E. AZARCON, in
his capacity as Chairman of the Public Auction Sale Committee of Navotas, Metro Manila,
respondents.
Taxation; Local Government Units; Real Property Tax; Philippine Fisheries Development
Authority (PFDA); As a rule, Philippine Fisheries Development Authority (PFDA), being an
instrumentality of the national government, is exempt from real property tax but the exemption does not
extend to the portions of the Fishing Port Complex that it manages and operates that were leased to
taxable or private persons and entities for their beneficial use.—Local government units, pursuant to the
fiscal autonomy granted by the provisions of Republic Act No. 7160 or the 1991 Local Government
Code, can impose realty taxes on juridical persons subject to the limitations enumerated in Section 133 of
the Code: SEC. 133. Common Limitations on the Taxing Power of Local Government Units.—Unless
otherwise provided herein, the exercise of the taxing powers of provinces, cities, municipalities,
and barangays shall not extend to the levy of the following: … (o) taxes, fees, charges of any kind on the
national government, its agencies and instrumentalities, and local government units. Nonetheless, the
above exemption does not apply when the beneficial use of the government property has been granted to a
taxable person. Section 234 (a) of the Code states that real property owned by the Republic of the
Philippines or any of its political subdivisions is exempted from payment of the real property tax “except
when the beneficial use thereof has been granted, for consideration or otherwise, to a taxable person.”
Thus, as a rule, petitioner PFDA, being an instrumentality of the national government, is exempt from
real property tax but the exemption does not
_______________
*
FIRST DIVISION.
491
VOL. 534, OCTOBER 2, 2007 49

1
Philippine Fisheries Development Authority vs. Court of
Appeals
extend to the portions of the NFPC that were leased to taxable or private persons and entities for
their beneficial use.
Same; Same; Same; Same; Reclaimed Lands; Reclaimed lands are lands of the public domain and

cannot, without Congressional fiat, be subject of a sale, public or private.—The land on which the NFPC
property sits is a reclaimed land, which belongs to the State. In Chavez v. Public Estates Authority, 384
SCRA 152 (2002), the Court declared that reclaimed lands are lands of the public domain and cannot,
without Congressional fiat, be subject of a sale, public or private.
PETITION for review on certiorari of the decision and resolution of the Court of Appeals.
The Government Corporate Counsel for Phil. Fisheries Development Authority.
Rodrigo C. Manio and Alberto C. Agra for respondent Municipality of Navotas.
AZCUNA, J.:
This is a petition for review of the decision and resolution of the Court of Appeals (CA), dated
1
July 19, 2001 and September 19, 2001, respectively, in CA-G.R. CV No. 42472, entitled
“Philippine Fisheries Development Authority v. The Municipality of Navotas, Metro Manila, et
al.”
The facts appear as follows:
The controversy arose when respondent Municipality of Navotas assessed the real estate taxes
allegedly due from petitioner Philippine Fisheries Development Authority (PFDA) for the period
1981-1990 on properties under its jurisdiction, management and operation located inside the
Navotas Fishing Port Complex (NFPC).
_______________
1
Under Rule 45 of the Rules of Court.
492
Appeals
The assessed taxes had remained unpaid despite the demands made by the municipality which
prompted it, through Municipal Treasurer Florante M. Barredo, to give notice to petitioner on
October 29, 1990 that the NFPC will be sold at public auction on November 30, 1990 in order
that the municipality will be able to collect on petitioner’s delinquent realty taxes which, as of
June 30, 1990, amounted to P23,128,304.51, inclusive of penalties.
Petitioner sought the deferment of the auction sale claiming that the NFPC is owned by the
Republic of the Philippines, and pursuant to Presidential Decree (P.D.) No. 977, it (PFDA) is not
a taxable entity.
In view of the refusal of PFDA to pay the assessed realty taxes, the matter was referred to the
Department of Finance (DOF). On July 14, 1990 the DOF stated that:
“This Department takes cognizance of the allegations of [the Office of the Mayor of Navotas] that PFDA
has leased its properties to beneficial users, such as “businessmen, private persons and entities who are
taxable persons.” For this reason, it is imperative that the Municipality should conduct an ocular
inspection on the real properties (land and building owned by PFDA) in order to identify the properties
actually leased and the taxable persons enjoying the beneficial use thereof. The ocular inspection is
necessary for reason that the real properties, the use of which has been granted to taxable persons, for
consideration or otherwise, are subject to the payment of real property taxes which must be paid by the
grantees pursuant to the provisions … of the Real Property Tax Code, as amended.
… Therefore, it is imperative to determine who the actual users of the properties concerned [are]. If
used by a non-taxable person other than PFDA itself, it remains to be non-taxable. Otherwise, if said
properties are being used by taxable persons, same becomes taxable properties. For this purpose, it is also
incumbent upon PFDA to furnish the Municipality copies of the deed of lease or other relevant
documents showing the leased properties and their beneficial users for proper assessment.” 2
_______________
2
Rollo, pp. 100-101.
493
VOL. 534, OCTOBER 2, 2007 493
Appeals
Notwithstanding the DOF’s instruction, respondent Municipality proceeded to publish the notice
of sale of NFPC in the November 2, 1990 issue of Balita, a local newspaper.
On November 19, 1990, petitioner instituted Civil Case No. 1524 in the Regional Trial Court
(RTC) of Malabon, Metro Manila against respondent Municipality, its Municipal Treasurer and
the Chairman of the Public Auction Sale Committee. Petitioner asked the RTC to enjoin the
auction of the NFPC on the ground that the properties comprising the NFPC are owned by the
Republic of the Philippines and are, thus, exempt from taxation. According to petitioner, only a
small portion of NFPC which had been leased to private parties may be subjected to real property
tax which should be paid by the latter.
Respondent Municipality, on the other hand, insisted that: 1) the real properties within NFPC
are owned entirely by petitioner which, despite the opportunity given, had failed to submit proof
to the Municipal Assessor that the properties are indeed owned by the Republic of the
Philippines; 2) if the properties in question really belong to the government, then the complaint
should have been instituted in the name of the Republic of the Philippines, represented by the
Office of the Solicitor General; and 3) the complaint is fatally defective because of non-
compliance with a condition precedent, which is, payment of the disputed tax assessment under
protest.
On December 8, 1990, the RTC issued a writ of preliminary injunction enjoining respondent
Municipality from proceeding with the public auction.
On February 19, 1993, however, the RTC dismissed the case and dissolved the writ of
preliminary injunction, thus:
“[T]he plaintiff [petitioner] failed to present convincing evidence to support its claim of realty tax
exemption and ownership of the property by the Republic of the Philippines as mandated by Sec. 9 of
P.D. 464. Notwithstanding receipt of the notices of tax assessments from the defendants [public
respondent], the plaintiff did not avail of the remedies under the law by raising on appeal the said tax
494
Appeals
assessments to the Local Board of Assessment Appeals, then to the Central Board of Assessment Appeals
and ultimately, to the Court of Tax Appeals. Instead, the plaintiff continuously ignored the notices of tax
assessments on the pretext that the properties inside the NFPC are exempt from payment of real estate
taxes as they are owned by the Republic of the Philippines. Assailing the validity of the tax assessments
of the NFPC properties is not the proper recourse for the plaintiff but to pay first the tax assessments
under protest and then raise the same on appeal to the Local Board of Assessment Appeals, then to the
Central Board of Assessment Appeals, then ultimately, to the Court of Tax Appeals pursuant to the Real
Property Tax Code.
The plaintiff failed in this regard, hence … the Municipality, exercising its power to assess and collect
taxes on real properties within its jurisdiction, did the right thing, that is, to schedule the NFPC properties
for public auction. Furthermore, while the plaintiff is insisting that the NFPC properties are owned by the
Republic of the Philippines, and is therefore exempt from payment of real estate taxes, yet it admitted that
there are those lessees who leased portion[s] of the complex, and [it was] even willing to submit [a] list of
these lessees … for proper tax assessments.
...
WHEREFORE, premises considered, judgment is hereby rendered in favor of the defendant [public
respondent Municipality of Navotas] and against the plaintiff, ordering:
1. 1.The DISMISSAL of this case;

2. 2.The preliminary injunction previously issued in this case DISSOLVED; and
3. 3.The plaintiff to pay the defendant [public respondent] Municipality the sum of
P13,767.00 as actual damages.
SO ORDERED.” 3
The CA affirmed the ruling of the RTC in a Decision dated July 19, 2001, the pertinent portions
of which read:
“The thrust of appellant PFDA’s arguments has shoved to the fore the fact that the 67-hectare land on
which the NFPC—Navotas
_______________
3
Id., at pp. 95-96.
495
VOL. 534, OCTOBER 2, 2007 495
Appeals
Fishing Port Complex—stands was reclaimed from the sea which explains why it was bounded on the
North by the Manila Bay, on the East by Roxas Boulevard, on the South by the Manila Bay and on the
West, by the breakwater. Even the Municipality’s counsel, Atty. Victorino Landas; Assessor, Arturo
Coronel; and Treasurer, Florante Barredo have admitted that much, as pointed out by PFDA. Such being
4
the origin of the land, its ownership by the State as property of public dominion can hardly be disputed.
5
The “reclaimed land; breakwaters; piers; wharves and quaywalls; and, fish market building forming
part of the Navotas Fish Port” were furthermore certified by the Undersecretary of Public Works and
Highways as belonging to the national government since they were built using the proceeds of the loan
6
agreement entered into by and between the Republic of the Philippines and the Asian Development Bank
on December 12, 1971. 7
On August 11, 1976, the Philippine Fish Marketing Authority (PFMA) was created as a body
corporate by P.D. No. 977 to carry out—
… the policy of the Government to promote the development of the fishing industry and improve
efficiency in the handling, preserving, marketing and distribution of fish and fishery/aquatic products
through the establishment and operation of fish markets and the efficient operation of fishing ports’
harbors and other marketing facilities. 8
...
The PFMA was furthermore extended exemption from the payment of income tax in this tenor:
The authority shall be exempted from the payment of income tax.
The foregoing exemption may, however, be entirely or partly lifted by the President of the Philippines,
upon recommendation of the Secretary of Finance, not earlier than five years from the ap-
_______________
4
Appellant’s Brief; CA Rollo, pp. 38-39.
5
Article 420, Civil Code; Government v. Cabangis, 53 Phil. 112 (1929).
6
Exhibit “L.”
7
Exhibit “K.”
8
Section 1, Presidential Decree No. 977.
496
Appeals
proval of this Decree, if the President shall find the authority to be self-sustaining and financially capable
to pay such tax after providing for debt service requirements of the authority and its projected capital and
operating expenditures. 9
Meanwhile, harbor operations at the Navotas Fishing Port Complex (NFPC) commenced on January
15, 1997 while the market operation started on April 3, 1977.
On February 8, 1982, P.D. No. 977 was amended by Executive Order No. 772. Insofar as material to
the case at bar, the salient features of the amendments introduced by the E.O. are:
1. (a)The creation of the Philippine Fisheries Development Authority (PFDA) … to

replace the Philippine Fish Marketing Authority (PFMA).
...
2. (b)The capitalization of the PFDA has included the Navotas Fishing Port Complex
(NFPC).
...
3. (c)The NFPC has been transferred to the exclusive jurisdiction, control, administration,
and supervision of the PFDA.
...
There can, therefore, [be] no escaping the conclusion that the appellant PFDA became the owner of
the Navotas Fishing Port Complex as of February 8, 1982. It cannot be any sooner because under P.D.
No. 977, the NFPC was not made part of the capital of the Philippine Fish Marketing Authority (PFMA),
PFDA’s predecessor, as only the Navotas Fish Landing was made part of such capital while the Navotas
Fishing Port and Fish Market were transferred merely to the “exclusive jurisdiction, control,
administration, and supervision” of the PFMA. It was not then altogether clear if the Navotas Fishing Port
Complex (NFPC) was conveyed to the PFMA.
...
Indeed, it is quite true that a property continues to be part of the public domain, and not available for
alienation, private appropriation or ownership, until it is withdrawn from being such by the
_______________
9
Section 10, id.
497
VOL. 534, OCTOBER 2, 2007 497
Appeals
Government through the Executive Department or the Legislative, and that it is not for the President to
10
convey valuable real property of the Government on his own sole will as any such conveyance requires
executive and legislative concurrence. 11
But the stark reality is that at the time E.O. No, 772 was issued on February 8, 1982, President Marcos
was exercising both executive and legislative powers. Hence, his conveyance of the NFPC to form part
12
of the capital of PFDA cannot but be valid. The fact that the PFDA has up to now no certificate of title to
the NFPC nor has the PFDA declared it for tax purposes is of no consequence. Such a certificate is
merely an evidence of ownership and not the title itself, while a tax declaration does not prove nor
13
disprove ownership. What is significant is that the PFDA has openly declared and represented that it
“owns, maintains and operates” the NFPC when it leased a portion thereof to the Frabelle Fishing
Corporation on March 13, 1989.
All told, the PFDA being the owner of the NFPC beginning February 8, 1982 is liable for the realty
taxes due thereon, its tax exemption being only from the payment of income tax. 14
WHEREFORE, the appealed decision is AFFIRMED, without pronouncement as to costs.

SO ORDERED.” 15
Petitioner filed a motion for reconsideration but the same was denied by the CA.
Petitioner now raises the following arguments:
One, the CA acknowledged that the property in question is a reclaimed land. As such, it is a
property of public dominion
_______________
Ignacio v. Director of Lands, 108 Phil. 316 (1960).

10
Laurel v. Garcia, G.R. No. 92013, July 25, 1990, 187 SCRA 797.

11
Legaspi v. Minister of Finance, No. L-58289, 115 SCRA 418 (1982).

12
Noblejas and Noblejas, Registration of Land Titles and Deeds, 1992 ed., p. 4.

13
Supra note 7, Section 10.

14
Rollo, pp. 20-27.

15
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Appeals
(Art. 420, Civil Code) and is owned by the State. Notwithstanding this, the CA erroneously ruled
that the government had validly transferred ownership of the land to PFDA in 1982 when P.D.
No. 977 was amended by E.O. No. 772 by virtue of which the property became part of the assets
of PFDA (Sec. 5 of E.O. No. 772);
Two, as a reclaimed land, the port complex should be considered a reserved land. In NDC v.
Cebu City, the Supreme Court held that a reserved land is a public land that has been withheld
16
or kept back from sale or disposition. The land remains an absolute property of the government.
As its title remains with the State, the reserved land is tax exempt;
Three, in Government v. Cabangis and Lampria v. Director of Lands, this Court declared
17 18
that the land reclaimed from the sea, as a result of the construction by the government of a
breakwater fronting the place where it is situated, belongs to the State in accordance with Article
5 of the Law of Waters of 1866;
Four, petitioner merely operates the area or the NFPC complex in favor of the Republic of the
Philippines. Section 4.A of P.D. No. 977, as amended by E.O. No. 772, provides that PFDA
shall:
“[M]anage, administer, operate, improve and modernize, coordinate and otherwise govern the activities,
operation and facilities in the fishing ports, markets and landings that may hereinafter be placed under, or
transferred to the Authority, and such other fish markets, fishing ports/harbors and infrastructure facilities
as may be established under this Decree; to investigate, prepare, adopt, implement and execute a
comprehensive plan for the overall development of fishing port and market complexes and update such
plan as may be necessary from time to time; to construct or authorize the construction in the land area
under its jurisdiction, of infrastructure facilities, factory buildings, warehouses, cold storage and ice
plants,
_______________
16
G.R. No. 51593, November 5, 1992, 215 SCRA 382.
17
53 Phil. 112 (1929).
18
67 Phil. 338 (1939).
499
VOL. 534, OCTOBER 2, 2007 499
Appeals
and other structures related to the fishing industry or necessary and useful in the conduct of its business or
in the attainment of the purpose and objectives of this Decree; to acquire, hold and dispose real and
personal property in the exercise of its functions and powers.”
Lastly, the NFPC property is intended for public use and public service. As such, it is owned by
the State, hence, exempt from real property tax.
The issue is whether petitioner is liable to pay real property tax.
Local government units, pursuant to the fiscal autonomy granted by the provisions of
Republic Act No. 7160 or the 1991 Local Government Code, can impose realty taxes on juridical
persons subject to the limitations enumerated in Section 133 of the Code:
19
“SEC. 133. Common Limitations on the Taxing Power of Local Government Units.—Unless otherwise
provided herein, the exercise of the taxing powers of provinces, cities, municipalities,
and barangays shall not extend to the levy of the following:
…
(o) taxes, fees, charges of any kind on the national government, its agencies and instrumentalities, and local
government units.”
Nonetheless, the above exemption does not apply when the beneficial use of the government
property has been granted to a taxable person. Section 234 (a) of the Code states that real
property owned by the Republic of the Philippines or any of its political subdivisions is
exempted from payment of the real property tax “except when the beneficial use thereof has been
granted, for consideration or otherwise, to a taxable person.”
_______________
Section 193 of the Local Government Code expressly withdrew the tax exemption of all juridical persons “unless
19
otherwise provided in this Code.”
500
Appeals
Thus, as a rule, petitioner PFDA, being an instrumentality of the national government, is exempt
20
from real property tax but the exemption does not extend to the portions of the NFPC that were
leased to taxable or private persons and entities for their beneficial use.
This is in consonance with the ruling in Philippine Fisheries Development Authority v. Court
of Appeals where this Court held that:
21
“On the basis of the parameters set in the MIAA [Manila International Airport Authority v. Court of
Appeals] case, the Authority should be classified as an instrumentality of the national government. As
22
such, it is generally exempt from payment of real property tax, except those portions which have been
leased to private entities.
In the MIAA case, petitioner Philippine Fisheries Development Authority was cited as among the
instrumentalities of the national government … 23
_______________
A national government instrumentality is an agency of the national government, not integrated within the department
20
framework, vested with special functions or jurisdiction by law, endowed with some, if not all, corporate powers,
administering special funds, and enjoying operational autonomy, usually through a charter (Section 2 [10] of the
Introductory Provisions of the Administrative Code). The PFDA (then Philippine Fish Marketing Authority/ PFMA),
pursuant to P.D. No. 977, as amended by E.O. No. 772, is tasked with the special function of promoting the development
of the country’s fishing industry and improve the efficiency in handling, preserving, marketing, and distribution of fish
and other aquatic products.
G.R. No. 169836, July 31, 2007, 528 SCRA 706.
21
G.R. No. 155650, July 20, 2006, 495 SCRA 591.

22
Some of the national government instrumentalities vested by law with juridical personalities are: Bangko Sentral ng
23
Pilipinas, Philippine Rice Research Institute, Laguna Lake Development Authority, Fisheries Development Authority,
Bases Conversion Development Authority, Philippine Ports Authority, Cagayan de Oro Port
501
VOL. 534, OCTOBER 2, 2007 501
Appeals
Indeed, the Authority is not a GOCC but an instrumentality of the government. The Authority has a
24
capital stock but it is not divided into shares of stocks. Also, it has no stockholders or voting
25
_______________
Authority, San Fernando Port Authority, and Philippine National Railways.

24
For an entity to be considered as a GOCC, it must either be organized as a stock or non-stock corporation. Two requisites
must concur before one may be classified as a stock corporation, namely: (1) that it has capital stock divided into shares, and (2)
that it is authorized to distribute dividends and allotments of surplus and profits to its stockholders. If only one requisite is
present, it cannot be properly classified as a stock corporation. As for non-stock corporations, they must have members and must
not distribute any part of their income to said members (Supra note 21, citing Agbayani, Commentaries and Jurisprudence on the
Commercial Laws of the Philippines, vol. 3, 1998 edition, pp. 54-55).
25
Sec. 5. Capitalization; Sinking Fund.—The Authority shall have an authorized capital stock of Five Hundred Million Pesos
(P500,000,000.00) which shall be fully subscribed by the Republic of the Philippines, and the following amounts shall be paid in:
1. (a)The net assets of the Authority, including the Navotas Fishing Port Complex, the valuation of which
shall be determined jointly with the Office of Budget and Management and the Commission on Audit;
2. (b)The amount corresponding to the balance of the programmed appropriations for the Authority for
calendar year 1981; and
3. (c)The amount corresponding to the programmed appropriations for the Authority for the calendar year
1982 (P.D. No. 977, as amended by E.O. No. 772).
The Authority is authorized to establish a sinking fund necessary to meet such obligations as may be incurred by the
Authority. The annual contributions to the sinking fund shall come from the revenues derived from its fishing port complexes
and, where such revenues are deficient, from such other corporate funds not otherwise intended for any specific purpose as may
be designated by the Board. Unless otherwise directed … shall invest the same in such manner as may be advantageous to the
Authority.
502
Appeals
shares. Hence, it is not a stock corporation. Neither it is a non-stock corporation because it has no
members.
…
The real property tax assessments issued by the City of Iloilo should be upheld only with respect to
the portions leased to private persons. In case the Authority fails to pay the real property taxes due
thereon, said portions cannot be sold at public auction to satisfy the tax delinquency.
…
The port built by the State in the Iloilo fishing complex is a property of public dominion and cannot
therefore be sold at public auction. Article 420 of the Civil Code provides:
ARTICLE 420. The following things are property of public dominion:
1. (1)Those intended for public use, such as roads, canals, rivers, torrents, ports and
bridges constructed by the State, banks, shores, roadsteads, and others of similar
character;
2. (2)Those which belong to the State, without being for public use, and are intended for
some public service or for the development of national wealth.
The Iloilo [F]ishing [P]ort [Complex/IFPC] which was constructed by the State for public use and/or
public service falls within the term “port” in the aforecited provision. Being a property of public
dominion the same cannot be subject to execution or foreclosure sale. … Whether there are 26
improvements in the fishing port complex that should not be construed to be embraced within the term
‘port’ involves evidentiary matters that cannot be addressed in the present case. As for now, considering
that the Authority is a national government instrumentality, any doubt on whether the entire IFPC may be
levied upon to satisfy the tax delinquency should be resolved against the City of Iloilo.”
Similarly, for the same reason, the NFPC cannot be sold at public auction in satisfaction of the
tax delinquency assess-
_______________
Manila International Airport Authority (MIAA) v. Court of Appeals, supra note 22.

26
503
VOL. 534, OCTOBER 2, 2007 503
Appeals
ments made by the Municipality of Navotas on the entire complex.
Additionally, the land on which the NFPC property sits is a reclaimed land, which belongs to
the State. In Chavez v. Public Estates Authority, the Court declared that reclaimed lands are
27
lands of the public domain and cannot, without Congressional fiat, be subject of a sale, public or
private. 28
In light of the above, petitioner is only liable to pay the amount of P62,841,947.79
representing the total taxes due as of December 31, 2001 from PFDA-owned properties that were
leased, as shown in the Summary of Realty Taxes Due Properties Owned and/or Managed by
PFDA as per Realty Tax Order of Payment dated September 16, 2002. 29
WHEREFORE, the petition is GRANTED. The Decision and Resolution of the Court of
Appeals, dated July 19, 2001 and September 19, 2001, respectively, in CA-G.R. CV No. 42472
are SET ASIDE. The Realty Tax Order of Payment issued by respondent Municipality of
Navotas on September 16, 2002 is declared VOID EXCEPT as to the amount of P62,841,947.79
representing the total taxes due as of December 31, 2001 on the properties leased by petitioner to
private parties. Respondent Municipality of Navotas is DIRECTED to refrain from levying on
the Navotas Fishing Port Complex (NFPC) to satisfy the payment of the real property tax
delinquency.
No costs.
SO ORDERED.
Puno (C.J., Chairperson), Sandoval-Gutierrez, Corona and Garcia, JJ., concur.
_______________
G.R. No. 133250, July 9, 2002, 384 SCRA 152.

27
It is axiomatic that when public property is involved, exemption is the rule and taxation, the exception ( Social
28
Security System v. City of Bacolod, G.R. No. L-35726, July 21, 1982, 115 SCRA 412).
29
Rollo, p. 212.
504
Go vs. Abrogar
Petition granted, judgment and resolution set aside.
Notes.—The reclamation of foreshore and submerged lands for the purpose of developing the
reclaimed area into an industrial and trading center with a modern harbor and port facilities for
both domestic and international commerce is an infrastructure project as contemplated under PD
1818. (Garcia vs. Burgos, 291 SCRA 546 [1998])
The bare fact that the port and its facilities and appurtenances are accessible to the general
public does not exempt it from the payment of real property taxes—the said port facilities and
appurtenances are PPA’s corporate patrimonial properties, not for public use, and that the
operation of the port and its facilities and the administration of its buildings are in the nature of
ordinary business. (Philippine Ports Authority vs. City of Iloilo, 442 SCRA 175 [2004])
——o0o——
G.R. No. 184203. November 26, 2014.*

CITY OF LAPU-LAPU, petitioner, vs. PHILIPPINE ECONOMIC ZONE
AUTHORITY, respondent.
G.R. No. 187583. November 26, 2014.*

PROVINCE OF BATAAN, represented by GOVERNOR ENRIQUE T. GARCIA, JR.,
and EMERLINDA S. TALENTO, in her capacity as Provincial Treasurer of Bataan,
petitioners, vs. PHILIPPINE ECONOMIC ZONE AUTHORITY, respondent.
Remedial Law; Civil Procedure; Appeals; Under the Rules of Court, there are three (3) modes of
appeal from Regional Trial Court (RTC) decisions.—Under the Rules of Court, there are three modes of
appeal from Regional Trial Court decisions. The first mode is through an ordinary appeal before the Court
of Appeals where the decision assailed was rendered in the exercise of the Regional Trial Court’s original
jurisdiction. Ordinary appeals are governed by Rule 41, Sections 3 to 13 of the Rules of Court. In
ordinary appeals, questions of fact or mixed questions of fact and law may be raised. The second mode is
through a petition for review before the Court of Appeals where the decision assailed was rendered by the
Regional Trial Court in the exercise of its appellate jurisdiction. Rule 42 of the Rules of Court governs
petitions for review before the Court of Appeals. In petitions for review under Rule 42, questions of fact,
of law, or mixed questions of fact and law may be raised. The third mode is through an appeal
by certiorari before this court under Rule 45 where only questions of law shall be raised.
Same; Same; Same; “Question of Fact” and “Question of Law,” Distinguished.—A question of fact
exists when there is doubt as to the truth or falsity of the alleged facts. On the other hand, there is a
question of law if the appeal raises doubt as to the applicable law on a certain set of facts.
_______________
* SECOND DIVISION.
525
VOL. 742, NOVEMBER 26, 2014 525
City of Lapu-Lapu vs. Philippine Economic Zone Authority

Same; Same; Same; Under Rule 50, Section 2, an improper appeal before the Court of Appeals
(CA) is dismissed outright and shall not be referred to the proper court.—Under Rule 50, Section 2, an
improper appeal before the Court of Appeals is dismissed outright and shall not be referred to the proper
court: 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 to the Court of Appeals shall not be transferred to the appropriate court but shall
be dismissed outright. Rule 50, Section 2 repealed Rule 50, Section 3 of the 1964 Rules of Court, which
provided that improper appeals to the Court of Appeals shall not be dismissed but shall be certified to the
proper court for resolution: Sec. 3. Where appealed case erroneously, brought.—Where the appealed case
has been erroneously brought to the Court of Appeals, it shall not dismiss the appeal, but shall certify the
case to the proper court, with a specific and clear statement of the grounds therefor.
Same; Same; Same; Petition for Review on Certiorari; With respect to appeals by certiorari directly
filed before the Supreme Court (SC) but which raise questions of fact, paragraph 4(b) of Circular No. 2-
90 dated March 9, 1990 states that the SC “retains the option, in the exercise of its sound discretion and
considering the attendant circumstances, either itself to take cognizance of and decide such issues or to
refer them to the Court of Appeals (CA) for determination.”—With respect to appeals
by certiorari directly filed before this court but which raise questions of fact, paragraph 4(b) of Circular
No. 2-90 dated March 9, 1990 states that this court “retains the option, in the exercise of its sound
discretion and considering the attendant circumstances, either itself to take cognizance of and decide such
issues or to refer them to the Court of Appeals for determination.”
Same; Special Civil Actions; Jurisdiction; Courts; Regional Trial Courts; Declaratory Relief; The
court with jurisdiction over petitions for declaratory relief is the Regional Trial Court (RTC), the subject
matter of litigation in an action for declaratory relief being incapable of pecuniary estimation.—The
court with jurisdiction over
526

petitions for declaratory relief is the Regional Trial Court, the subject matter of litigation in an
action for declaratory relief being incapable of pecuniary estimation. Section 19 of the Judiciary
Reorganization Act of 1980 provides: SEC. 19. Jurisdiction in Civil Cases.—Regional Trial Courts shall
exercise exclusive original jurisdiction: (1) In all civil actions in which the subject of litigation is
incapable of pecuniary estimation[.] Consistent with the law, the Rules state that a petition for declaratory
relief is filed “in the appropriate Regional Trial Court.” A special civil action for declaratory relief is filed
for a judicial determination of any question of construction or validity arising from, and for a declaration
of rights and duties, under any of the following subject matters: a deed, will, contract or other written
instrument, statute, executive order or regulation, ordinance, or any other governmental regulation.
However, a declaratory judgment may issue only if there has been “no breach of the documents in
question.” If the contract or statute subject matter of the action has already been breached, the appropriate
ordinary civil action must be filed. If adequate relief is available through another form of action or
proceeding, the other action must be preferred over an action for declaratory relief.
Same; Same; Same; Same; Same; Same; It is required that the parties to the action for declaratory
relief be those whose rights or interests are affected by the contract or statute in question .—It is also
required that the parties to the action for declaratory relief be those whose rights or interests are affected
by the contract or statute in question. “There must be an actual justiciable controversy or the ‘ripening
seeds’ of one” between the parties. The issue between the parties “must be ripe for judicial
determination.” An action for declaratory relief based on theoretical or hypothetical questions cannot be
filed for our courts are not advisory courts.
Same; Same; Same; Jurisdiction over the subject matter is “the power to hear and determine cases
of the general class to which the proceedings in question belong.”—There are several aspects of
jurisdiction. Jurisdiction over the subject matter is “the power to hear and determine cases of the general
class to which the proceedings in question belong.” It is conferred by law, which may either be the
Constitution or a statute. Jurisdiction over the subject matter means “the nature of the cause of action and
the relief sought.” Thus, the cause of action and character of the relief sought as alleged in the
527
VOL. 742, NOVEMBER 26, 2014 527

complaint are examined to determine whether a court had jurisdiction over the subject matter. Any
decision rendered by a court without jurisdiction over the subject matter of the action is void.
Same; Civil Procedure; Jurisdiction; Jurisdiction over the person of the defendant is indispensable
in actions in personam or those actions based on a party’s personal liability.—Another aspect of
jurisdiction is jurisdiction over the person. It is “the power of [a] court to render a personal judgment or to
subject the parties in a particular action to the judgment and other rulings rendered in the action.” A court
automatically acquires jurisdiction over the person of the plaintiff upon the filing of the initiatory
pleading. With respect to the defendant, voluntary appearance in court or a valid service of summons
vests the court with jurisdiction over the defendant’s person. Jurisdiction over the person of the defendant
is indispensable in actions in personam or those actions based on a party’s personal liability. The
proceedings in an action in personam are void if the court had no jurisdiction over the person of the
defendant.
Same; Same; Same; Jurisdiction over the res is necessary in actions in rem or those actions
“directed against the thing or property or status of a person and seek judgments with respect thereto as
against the whole world.”—Jurisdiction over the res or the thing under litigation is acquired either “by
the seizure of the property under legal process, whereby it is brought into actual custody of the law; or as
a result of the institution of legal proceedings, in which the power of the court is recognized and made
effective.” Jurisdiction over the res is necessary in actions in rem or those actions “directed against the
thing or property or status of a person and seek judgments with respect thereto as against the whole
world.” The proceedings in an action in rem are void if the court had no jurisdiction over the thing under
litigation.
Taxation; Assessment; Exhaustion of Administrative Remedies; In case of an erroneous assessment,
the taxpayer must exhaust the administrative remedies provided under the Local Government Code
(LGC) before resorting to judicial action.—Once an assessment has already been issued by the assessor,
the proper remedy of a taxpayer depends on whether the assessment was erroneous or illegal. An
erroneous assessment “presupposes that the taxpayer is subject to the tax but is disputing the correctness
of the amount assessed.” With an erroneous assessment, the taxpayer claims that the local
528

assessor erred in determining any of the items for computing the real property tax, i.e., the value of
the real property or the portion thereof subject to tax and the proper assessment levels. In case of an
erroneous assessment, the taxpayer must exhaust the administrative remedies provided under the Local
Government Code before resorting to judicial action.
Same; Same; Payment under protest and appeal to the Local Board of Assessment Appeals (LBAA)
are “successive administrative remedies to a taxpayer who questions the correctness of an
assessment.”—Payment under protest and appeal to the Local Board of Assessment Appeals are
“successive administrative remedies to a taxpayer who questions the correctness of an assessment.” The
Local Board Assessment Appeals shall not entertain an appeal “without the action of the local assessor”
on the protest. If the taxpayer is still unsatisfied after appealing with the Local Board of Assessment
Appeals, the taxpayer may appeal with the Central Board of Assessment Appeals within 30 days from
receipt of the Local Board’s decision.
Same; Same; In case of an illegal assessment, the taxpayer may directly resort to judicial action
without paying under protest the assessed tax and filing an appeal with the Local and Central Board of
Assessment Appeals (CBAA).—On the other hand, an assessment is illegal if it was made without
authority under the law. In case of an illegal assessment, the taxpayer may directly resort to judicial action
without paying under protest the assessed tax and filing an appeal with the Local and Central Board of
Assessment Appeals.
Remedial Law; Injunction; Words and Phrases; Injunction “is a judicial writ, process or
proceeding whereby a party is ordered to do or refrain from doing a certain act.”—Injunction “is a
judicial writ, process or proceeding whereby a party is ordered to do or refrain from doing a certain act.”
“It may be the main action or merely a provisional remedy for and as incident in the main action.” The
essential requisites of a writ of injunction are: “(1) there must be a right in esse or the existence of a right
to be protected; and (2) the act against which the injunction is directed to constitute a violation of such
right.”
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VOL. 742, NOVEMBER 26, 2014 529

Same; Civil Procedure; Jurisdiction; Objections to jurisdiction cannot be waived and may be
brought at any stage of the proceedings, even on appeal.—Jurisdiction is “the power to hear and
determine cases of the general class to which the proceedings in question belong.” Jurisdiction is a matter
of substantive law. Thus, an action may be filed only with the court or tribunal where the Constitution or
a statute says it can be brought. Objections to jurisdiction cannot be waived and may be brought at any
stage of the proceedings, even on appeal. When a case is filed with a court which has no jurisdiction over
the action, the court shall motu proprio dismiss the case.
Same; Same; Venue; A party’s objections to venue must be brought at the earliest opportunity either
in a motion to dismiss or in the answer; otherwise the objection shall be deemed waived .—Venue is “the
place of trial or geographical location in which an action or proceeding should be brought.” In civil cases,
venue is a matter of procedural law. A party’s objections to venue must be brought at the earliest
opportunity either in a motion to dismiss or in the answer; otherwise the objection shall be deemed
waived. When the venue of a civil action is improperly laid, the court cannot motu proprio dismiss the
case.
Same; Same; Same; The venue of an action depends on whether the action is a real or personal
action.—The venue of an action depends on whether the action is a real or personal action. Should the
action affect title to or possession of real property, or interest therein, it is a real action. The action should
be filed in the proper court which has jurisdiction over the area wherein the real property involved, or a
portion thereof, is situated. If the action is a personal action, the action shall be filed with the proper court
where the plaintiff or any of the principal plaintiffs resides, or where the defendant or any of the principal
defendants resides, or in the case of a nonresident defendant where he may be found, at the election of the
plaintiff.
Same; Same; Judgments; Judgment on the Merits; Words and Phrases; A judgment on the merits is
one which “determines the rights and liabilities of the parties based on the disclosed facts, irrespective of
the formal, technical or dilatory objections.”—Appeal is the remedy “to obtain a reversal or modification
of a judgment on the merits.” A judgment on the merits is one which “determines the rights and liabilities
of the parties based on the disclosed facts,
530

irrespective of the formal, technical or dilatory objections.” It is not even necessary that the case
proceeded to trial. So long as the “judgment is general” and “the parties had a full legal opportunity to be
heard on their respective claims and contentions,” the judgment is on the merits.
Same; Same; Appeals; Petition for Review on Certiorari; An appeal before the Supreme Court (SC)
raising pure questions of law is commenced by filing a petition for review on certiorari under Rule 45 of
the Rules of Court.—In our jurisdiction, the term “certiorari” is used in two ways. An appeal before this
court raising pure questions of law is commenced by filing a petition for review on certiorari under Rule
45 of the Rules of Court. An appeal by certiorari, which continues the proceedings commenced before
the lower courts, is filed to reverse or modify judgments or final orders. Under the Rules, an appeal
by certiorari must be filed within 15 days from notice of the judgment or final order, or of the denial of
the appellant’s motion for new trial or reconsideration.
Same; Special Civil Actions; Certiorari; A petition for certiorari under Rule 65, is an independent
and original action filed to set aside proceedings conducted without or in excess of jurisdiction or with
grave abuse of discretion amounting to lack or excess of jurisdiction.—A petition for certiorari under
Rule 65, on the other hand, is an independent and original action filed to set aside proceedings conducted
without or in excess of jurisdiction or with grave abuse of discretion amounting to lack or excess of
jurisdiction. Under the Rules, a petition for certiorari may only be filed if there is no appeal or any plain,
speedy, or adequate remedy in the ordinary course of law. The petition must be filed within 60 days from
notice of the judgment, order, or resolution.
Taxation; Real Property Taxes; Real property taxes are collected by the Local Treasurer, not by the
Bureau of Internal Revenue (BIR) in charge of collecting national internal revenue taxes, fees, and
charges.—The local tax cases referred to in Section 7, paragraph (a)(3) of Republic Act No. 1125, as
amended, include cases involving real property taxes. Real property taxation is governed by Book II of
the Local Government Code on “Local Taxation and Fiscal Matters.” Real property taxes are collected by
the Local Treasurer, not by the Bureau of Internal Revenue in charge of collecting national internal
revenue taxes, fees, and charges. Section 7, paragraph (a)(5) of Re-
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public Act No. 1125, as amended by Republic Act No. 9282, separately provides for the exclusive
appellate jurisdiction of the Court of Tax Appeals over decisions of the Central Board of Assessment
Appeals involving the assessment or collection of real property taxes.
Remedial Law; Civil Procedure; Courts; Court of Tax Appeals; Jurisdiction; The Supreme Court
(SC) has ruled that the Court of Tax Appeals (CTA), not the Court of Appeals (CA), has the exclusive
original jurisdiction over petitions for certiorari assailing interlocutory orders issued by Regional Trial
Courts (RTCs) in a local tax case.—We have also ruled that the Court of Tax Appeals, not the Court of
Appeals, has the exclusive original jurisdiction over petitions for certiorari assailing interlocutory orders
issued by Regional Trial Courts in a local tax case. We explained in The City of Manila v. Hon. Grecia-
Cuerdo, 715 SCRA 182 (2014), that while the Court of Tax Appeals has no express grant of power to
issue writs of certiorari under Republic Act No. 1125, as amended, the tax court’s judicial power as
defined in the Constitution includes the power to determine “whether or not there has been grave abuse of
discretion amounting to lack or excess of jurisdiction on the part of the [Regional Trial Court] in issuing
an interlocutory order of jurisdiction in cases falling within the exclusive appellate jurisdiction of the tax
court.”
Same; Same; Exhaustion of Administrative Remedies; Exhaustion of administrative remedies under
the Local Government Code (LGC) is necessary in cases of erroneous assessments where the correctness
of the amount assessed is assailed.—Exhaustion of administrative remedies under the Local Government
Code is necessary in cases of erroneous assessments where the correctness of the amount assessed is
assailed. The taxpayer must first pay the tax then file a protest with the Local Treasurer within 30 days
from date of payment of tax. If protest is denied or upon the lapse of the 60-day period to decide the
protest, the taxpayer may appeal to the Local Board of Assessment Appeals within 60 days from the
denial of the protest or the lapse of the 60-day period to decide the protest. The Local Board of
Assessment Appeals has 120 days to decide the appeal.
Taxation; Local Board of Assessment Appeals; If the taxpayer is unsatisfied with the Local Board’s
decision, the taxpayer may appeal before the Central Board of Assessment Appeals (CBAA) within thirty
(30) days from receipt of the Local Board’s decision.—If the taxpayer
532

is unsatisfied with the Local Board’s decision, the taxpayer may appeal before the Central Board of
Assessment Appeals within 30 days from receipt of the Local Board’s decision. The decision of the
Central Board of Assessment Appeals is appealable before the Court of Tax Appeals En Banc. The appeal
before the Court of Tax Appeals shall be filed following the procedure under Rule 43 of the Rules of
Court. The Court of Tax Appeals’ decision may then be appealed before this court through a petition for
review on certiorari under Rule 45 of the Rules of Court raising pure questions of law.
Assessment; Exhaustion of Administrative Remedies; In case of an illegal assessment where the
assessment was issued without authority, exhaustion of administrative remedies is not necessary and the
taxpayer may directly resort to judicial action.—In case of an illegal assessment where the assessment
was issued without authority, exhaustion of administrative remedies is not necessary and the taxpayer
may directly resort to judicial action. The taxpayer shall file a complaint for injunction before the
Regional Trial Court to enjoin the local government unit from collecting real property taxes. The party
unsatisfied with the decision of the Regional Trial Court shall file an appeal, not a petition for certiorari,
before the Court of Tax Appeals, the complaint being a local tax case decided by the Regional Trial
Court. The appeal shall be filed within fifteen (15) days from notice of the trial court’s decision.
Taxation; Notice of Delinquency; Injunction; In case the local government unit (LGU) has issued a
notice of delinquency, the taxpayer may file a complaint for injunction to enjoin the impending sale of the
real property at public auction.—In case the local government unit has issued a notice of delinquency,
the taxpayer may file a complaint for injunction to enjoin the impending sale of the real property at public
auction. In case the local government unit has already sold the property at public auction, the taxpayer
must first deposit with the court the amount for which the real property was sold, together with interest of
2% per month from the date of sale to the time of the institution of action. The taxpayer may then file a
complaint to assail the validity of the public auction. The decisions of the Regional Trial Court in these
cases shall be appealable before the Court of Tax Appeals, and the latter’s decisions appealable before
this court through a petition for review on certiorari under Rule 45 of the Rules of Court.
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Same; Real Property Taxes; Real property taxes are annual taxes levied on real property such as
lands, buildings, machinery, and other improvements not otherwise specifically exempted under the Local
Government Code (LGC).—Real property taxes are annual taxes levied on real property such as lands,
buildings, machinery, and other improvements not otherwise specifically exempted under the Local
Government Code. Real property taxes are ad valorem, with the amount charged based on a fixed
proportion of the value of the property. Under the law, provinces, cities, and municipalities within the
Metropolitan Manila Area have the power to levy real property taxes within their respective territories.
The general rule is that real properties are subject to real property taxes. This is true especially since the
Local Government Code has withdrawn exemptions from real property taxes of all persons, whether
natural or juridical.
Same; Same; Tax Exemptions; For persons granted tax exemptions or incentives before the
effectivity of the Local Government Code (LGC), Section 193 withdrew these tax exemption privileges;
Nevertheless, local government units (LGUs) may grant tax exemptions under such terms and conditions
as they may deem necessary.—For persons granted tax exemptions or incentives before the effectivity of
the Local Government Code, Section 193 withdrew these tax exemption privileges. These persons consist
of both natural and juridical persons, including government-owned or -controlled corporations: SEC.
193. Withdrawal of Tax Exemption Privileges.—Unless otherwise provided in this code, tax exemptions
or incentives granted to or presently enjoyed by all persons, whether natural or juridical, including
government-owned or -controlled corporations, except local water districts, cooperatives duly registered
under R.A. 6938, non-stock and nonprofit hospitals and educational institutions, are hereby withdrawn
upon effectivity of this Code. As discussed, Section 234 withdrew all tax privileges with respect to real
property taxes. Nevertheless, local government units may grant tax exemptions under such terms and
conditions as they may deem necessary.
Same; Same; Same; In Mactan Cebu International Airport Authority v. Marcos, 261 SCRA 667
(1996), the Supreme Court (SC) classified the exemptions from real property taxes into ownership,
character, and usage exemptions.—In Mactan Cebu International Airport Authority v. Marcos, 261
SCRA 667 (1996), this court classi-
534

fied the exemptions from real property taxes into ownership, character, and usage exemptions.
Ownership exemptions are exemptions based on the ownership of the real property. The exemptions of
real property owned by the Republic of the Philippines, provinces, cities, municipalities, barangays, and
registered cooperatives fall under this classification. Character exemptions are exemptions based on the
character of the real property. Thus, no real property taxes may be levied on charitable institutions, houses
and temples of prayer like churches, parsonages, or convents appurtenant thereto, mosques, and nonprofit
or religious cemeteries. Usage exemptions are exemptions based on the use of the real property. Thus, no
real property taxes may be levied on real property such as: (1) lands and buildings actually, directly, and
exclusively used for religious, charitable or educational purpose; (2) machineries and equipment actually,
directly and exclusively used by local water districts or by government-owned or -controlled corporations
engaged in the supply and distribution of water and/or generation and transmission of electric power; and
(3) machinery and equipment used for pollution control and environmental protection.
Same; Philippine Economic Zone Authority; The Philippine Economic Zone Authority (PEZA) is an
instrumentality of the national government. It is not integrated within the department framework but is an
agency attached to the Department of Trade and Industry (DTI).—An instrumentality is “any agency of
the National Government, not integrated within the department framework, vested with special functions
or jurisdiction by law, endowed with some if not all corporate powers, administering special funds, and
enjoying operational autonomy, usually through a charter.” Examples of instrumentalities of the national
government are the Manila International Airport Authority, the Philippine Fisheries Development
Authority, the Government Service Insurance System, and the Philippine Reclamation Authority. These
entities are not integrated within the department framework but are nevertheless vested with special
functions to carry out a declared policy of the national government. Similarly, the PEZA is an
instrumentality of the national government. It is not integrated within the department framework but is an
agency attached to the Department of Trade and Industry.
Same; Same; Special Economic Zones; Congress created the Philippine Economic Zone Authority
(PEZA) to operate, administer, manage and develop special economic zones in the Philippines. Spe-
535
VOL. 742, NOVEMBER 26, 2014 535

cial economic zones are areas with highly developed or which have the potential to be developed
into agro-industrial, industrial tourist/recreational, commercial, banking, investment and financial
centers.—As an instrumentality of the national government, the PEZA is vested with special functions or
jurisdiction by law. Congress created the PEZA to operate, administer, manage and develop special
economic zones in the Philippines. Special economic zones are areas with highly developed or which
have the potential to be developed into agro-industrial, industrial tourist/recreational, commercial,
banking, investment and financial centers.
Same; Same; Tax Exemptions; Real Property Taxes; Being an instrumentality of the national
government, the Philippine Economic Zone Authority (PEZA) cannot be taxed by local government units
(LGUs).—Being an instrumentality of the national government, the PEZA cannot be taxed by local
government units. Although a body corporate vested with some corporate powers, the PEZA is not a
government-owned or -controlled corporation taxable for real property taxes.
Government-Owned or -Controlled Corporations; Under the Constitution, government-owned or
-controlled corporations (GOCCs) are created in the interest of the common good and should satisfy the
test of economic viability.—Government entities are created by law, specifically, by the Constitution or
by statute. In the case of government-owned or -controlled corporations, they are incorporated by virtue
of special charters to participate in the market for special reasons which may be related to dysfunctions or
inefficiencies of the market structure. This is to adjust reality as against the concept of full competition
where all market players are price takers. Thus, under the Constitution, government-owned or -controlled
corporations are created in the interest of the common good and should satisfy the test of economic
viability. Article XII, Section 16 of the Constitution provides: Section 16. The Congress shall not, except
by general law, provide for the formation, organization, or regulation of private corporations.
Government-owned or -controlled corporations may be created or established by special charters in the
interest of the common good and subject to the test of economic viability.
Government Instrumentality; When a government entity performs sovereign functions, it need not
meet the test of economic viability.—Government instrumentalities, on the other hand, are also
536

created by law but partake of sovereign functions. When a government entity performs sovereign
functions, it need not meet the test of economic viability.
Philippine Economic Zone Authority; Under the Special Economic Zone Act of 1995, the Philippine
Economic Zone Authority (PEZA) was established primarily to perform the governmental function of
operating, administering, managing, and developing special economic zones to attract investments and
provide opportunities for preferential use of Filipino labor.—The law created the PEZA’s charter. Under
the Special Economic Zone Act of 1995, the PEZA was established primarily to perform the
governmental function of operating, administering, managing, and developing special economic zones to
attract investments and provide opportunities for preferential use of Filipino labor. Under its charter, the
PEZA was created a body corporate endowed with some corporate powers. However, it was not
organized as a stock or non-stock corporation. Nothing in the PEZA’s charter provides that the PEZA’s
capital is divided into shares. The PEZA also has no members who shall share in the PEZA’s profits.
Same; Taxation; Tax Exemptions; Real Property Taxes; The Supreme Court (SC) ruled that the
Philippine Economic Zone Authority (PEZA) is exempt from real property taxes by virtue of its charter. A
provision in the Special Economic Zone Act of 1995 explicitly exempting the PEZA is unnecessary.—We
rule that the PEZA is exempt from real property taxes by virtue of its charter. A provision in the Special
Economic Zone Act of 1995 explicitly exempting the PEZA is unnecessary. The PEZA assumed the real
property exemption of the EPZA under Presidential Decree No. 66. Section 11 of the Special Economic
Zone Act of 1995 mandated the EPZA “to evolve into the PEZA in accordance with the guidelines and
regulations set forth in an executive order issued for this purpose.” President Ramos then issued
Executive Order No. 282 in 1995, ordering the PEZA to assume the EPZA’s powers, functions, and
responsibilities under Presidential Decree No. 66 not inconsistent with the Special Economic Zone Act of
1995.
Same; Same; Same; Same; Contrary to the Philippine Economic Zone Authority’s (PEZA’s) claim,
developers of economic zones, whether public or private developers, are liable for real property taxes on
lands they own.—Contrary to the PEZA’s claim, developers of
537
VOL. 742, NOVEMBER 26, 2014 537

economic zones, whether public or private developers, are liable for real property taxes on lands
they own. Section 24 does not distinguish between a public and private developer. Thus, courts cannot
distinguish. Unless the public developer is exempt under the Local Government Code or under its charter
enacted after the Local Government Code’s effectivity, the public developer must pay real property taxes
on their land.
Same; Same; Same; Same; The Philippine Economic Zone Authority (PEZA) cannot be taxed for
real property taxes even if it acts as a developer or operator of special economic zones. The PEZA is an
instrumentality of the national government exempt from payment of real property taxes under Section
133(o) of the Local Government Code (LGC).—At any rate, the PEZA cannot be taxed for real property
taxes even if it acts as a developer or operator of special economic zones. The PEZA is an instrumentality
of the national government exempt from payment of real property taxes under Section 133(o) of the Local
Government Code. As this court said in Manila International Airport Authority v. Court of Appeals, 495
SCRA 591 (2006), “there must be express language in the law empowering local governments to tax
national government instrumentalities. Any doubt whether such power exists is resolved against local
governments.”
Public Dominion; Properties of public dominion are outside the commerce of man. These properties
are exempt from “levy, encumbrance or disposition through public or private sale.”—Properties of
public dominion are outside the commerce of man. These properties are exempt from “levy, encumbrance
or disposition through public or private sale.” As this court explained in Manila International Airport
Authority: Properties of public dominion, being for public use, are not subject to levy, encumbrance or
disposition through public or private sale. Any encumbrance, levy on execution or auction sale of any
property of public dominion is void for being contrary to public policy. Essential public services will stop
if properties of public dominion are subject to encumbrances, foreclosures and auction sale[.] On the
other hand, all other properties of the state that are not intended for public use or are not intended for
some public service or for the development of the national wealth are patrimonial properties. Article 421
of the Civil Code of the Philippines provides: Art. 421. All other property of the State, which is not of the
character stated in
538

the preceding article, is patrimonial property. Patrimonial properties are also properties of the state,
but the state may dispose of its patrimonial property similar to private persons disposing of their property.
Patrimonial properties are within the commerce of man and are susceptible to prescription, unless
otherwise provided.
Same; Taxation; Tax Exemptions; Real Property Taxes; Freeport Area of Bataan; The Freeport
Area of Bataan, where the government allows tax and duty-free importation of goods, is considered
property of public dominion. The Freeport Area of Bataan is owned by the state and cannot be taxed
under Section 234(a) of the Local Government Code (LGC).—A port of entry, where imported goods are
unloaded then introduced in the market for public consumption, is considered property for public use.
Thus, Article 420 of the Civil Code classifies a port as property of public dominion. The Freeport Area of
Bataan, where the government allows tax and duty-free importation of goods, is considered property of
public dominion. The Freeport Area of Bataan is owned by the state and cannot be taxed under Section
234(a) of the Local Government Code. Properties of public dominion, even if titled in the name of an
instrumentality as in this case, remain owned by the Republic of the Philippines. If property registered in
the name of an instrumentality is conveyed to another person, the property is considered conveyed on
behalf of the Republic of the Philippines.
Philippine Economic Zone Authority; Taxation; Tax Exemptions; Real Property Taxes; Even the
Philippine Economic Zone Authority’s (PEZA’s) lands and buildings whose beneficial use have been
granted to other persons may not be taxed with real property taxes; Under Section 24 of the Special
Economic Zone Act of 1995, no taxes, whether local or national, shall be imposed on all business
establishments operating within the economic zones.—Even the PEZA’s lands and buildings whose
beneficial use have been granted to other persons may not be taxed with real property taxes. The PEZA
may only lease its lands and buildings to PEZA-registered economic zone enterprises and entities. These
PEZA-registered enterprises and entities, which operate within economic zones, are not subject to real
property taxes. Under Section 24 of the Special Economic Zone Act of 1995, no taxes, whether local or
national, shall be imposed on all business establishments operating within the economic zones.
539
VOL. 742, NOVEMBER 26, 2014 539

PETITIONS for review on certiorari of the decisions and resolutions of the Court of Appeals.
Office of the City Attorney for City of Lapu-Lapu.
Aurelio Angeles, Jr. for Province of Bataan, et al.
Alma Florence A. Logronio and Procolo M. Olaivar for respondent in G.R. No. 184203.

LEONEN, J.:

The Philippine Economic Zone Authority is exempt from payment of real property taxes.
These are consolidated1 petitions for review on certiorari the City of Lapu-Lapu and the
Province of Bataan separately filed against the Philippine Economic Zone Authority (PEZA).
In G.R. No. 184203, the City of Lapu-Lapu (the City) assails the Court of Appeals’
decision2 dated January 11, 2008 and resolution3 dated August 6, 2008, dismissing the City’s
appeal for being the wrong mode of appeal. The City appealed the Regional Trial Court, Branch
111, Pasay City’s decision finding the PEZA exempt from payment of real property taxes.
In G.R. No. 187583, the Province of Bataan (the Province) assails the Court of Appeals’
decision4 dated August 27, 2008
_______________
1 Resolution dated March 14, 2011.

2 Rollo (G.R. No. 184203), pp. 51-54. This decision in C.A.-G.R. CV No. 88318 was penned by Associate Justice
Josefina Guevara-Salonga, with Associate Justices Vicente Q. Roxas and Ramon R. Garcia, concurring.
3 Id., at pp. 48-49.
4 Rollo (G.R. No. 187583), pp. 57-68. This decision in C.A.-G.R. S.P. No. 100984 was penned by Associate Justice
Marlene Gonzales-
540

and resolution5 dated April 16, 2009, granting the PEZA’s petition for certiorari. The Court
of Appeals ruled that the Regional Trial Court, Branch 115, Pasay City gravely abused its
discretion in finding the PEZA liable for real property taxes to the Province of Bataan.

Facts common to the consolidated petitions

In the exercise of his legislative powers,6 President Ferdinand E. Marcos issued Presidential
Decree No. 66 in 1972, declaring as government policy the establishment of export processing
zones in strategic locations in the Philippines. Presidential Decree No. 66 aimed “to encourage
and promote foreign commerce as a means of making the Philippines a center of international
trade, of strengthening our export trade and foreign exchange position, of hastening
industrialization, of reducing domestic unemployment, and of accelerating the development of
the country.”7
To carry out this policy, the Export Processing Zone Authority (EPZA) was created to
operate, administer, and manage the export processing zones established in the Port of Mariveles,
Bataan8 and such other export processing zones that may be created by virtue of the decree.9
The decree declared the EPZA nonprofit in character 10 with all its revenues devoted to its
development, improvement, and maintenance.11 To maintain this nonprofit character, the EPZA
was declared exempt from all taxes that may be due to
_______________
Sison, with Associate Justices Juan Q. Enriquez, Jr. and Isaias P. Dicdican, concurring.
5 Id., at pp. 69-71.
6 Proc. No. 1081 dated September 21, 1972.
7 Pres. Decree No. 66 (1972), Sec. 1.
8 Rep. Act No. 5490 (1969), Sec. 2.
9 Pres. Decree No. 66 (1972), Sec. 4(a).
10 Pres. Decree No. 66 (1972), Sec. 21.
11 Id.

541
VOL. 742, NOVEMBER 26, 2014 541

the Republic of the Philippines, its provinces, cities, municipalities, and other government
agencies and instrumentalities.12 Specifically, Section 21 of Presidential Decree No. 66 declared
the EPZA exempt from payment of real property taxes:
Section 21. Nonprofit Character of the Authority; Exemption from Taxes.—The Authority shall be
nonprofit and shall devote and use all its returns from its capital investment, as well as excess revenues
from its operations, for the development, improvement and maintenance and other related expenditures of
the Authority to pay its indebtedness and obligations and in furtherance and effective implementation of
the policy enunciated in Section 1 of this Decree. In consonance therewith, the Authority is hereby
declared exempt:
....
(b) From all income taxes, franchise taxes, realty taxes and all other kinds of taxes and licenses to
be paid to the National Government, its provinces, cities, municipalities and other government agencies
and instrumentalities[.]

In 1979, President Marcos issued Proclamation No. 1811, establishing the Mactan Export
Processing Zone. Certain parcels of land of the public domain located in the City of Lapu-Lapu
in Mactan, Cebu were reserved to serve as site of the Mactan Export Processing Zone.
In 1995, the PEZA was created by virtue of Republic Act No. 7916 or “the Special Economic
Zone Act of 1995”13 to operate, administer, manage, and develop economic zones in the
country.14 The PEZA was granted the power to register, regulate, and supervise the enterprises
located in the economic
_______________
12 Pres. Decree No. 66 (1972), Sec. 21(a).

13 Rep. Act No. 7916 (1995), Sec. 11.
14 Rep. Act No. 7916 (1995), Sec. 13(a).
542

zones.15 By virtue of the law, the export processing zone in Mariveles, Bataan became the
Bataan Economic Zone16 and the Mactan Export Processing Zone the Mactan Economic Zone.17
As for the EPZA, the law required it to “evolve into the PEZA in accordance with the
guidelines and regulations set forth in an executive order issued for [the] purpose.”18
On October 30, 1995, President Fidel V. Ramos issued Executive Order No. 282, directing
the PEZA to assume and exercise all of the EPZA’s powers, functions, and responsibilities “as
provided in Presidential Decree No. 66, as amended, insofar as they are not inconsistent with the
powers, functions, and responsibilities of the PEZA, as mandated under [the Special Economic
Zone Act of 1995].”19 All of EPZA’s properties, equipment, and assets, among others, were
ordered transferred to the PEZA.20

Facts of G.R. No. 184203

In the letter21 dated March 25, 1998, the City of Lapu-Lapu, through the Office of the
Treasurer, demanded from the PEZA P32,912,350.08 in real property taxes for the period from
1992 to 1998 on the PEZA’s properties located in the Mactan Economic Zone.
The City reiterated its demand in the letter 22 dated May 21, 1998. It cited Sections 193 and
234 of the Local Government Code of 1991 that withdrew the real property tax exemptions
previously granted to or presently enjoyed by all persons. The
_______________
15 Rep. Act No. 7916 (1995), Sec. 13(b).

16 Rep. Act No. 7916 (1995), Sec. 5(ll).
17 Rep. Act No. 7916 (1995), Sec. 5(m).
18 Rep. Act No. 7916 (1995), Sec. 11.
19 Exec. Order No. 282 (1995), Sec. 1.
20 Exec. Order No. 282 (1995), Sec. 2.
21 RTC Records (Civil Case No. 02-0410), p. 16.
22 Id., at pp. 17-20.
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VOL. 742, NOVEMBER 26, 2014 543

City pointed out that no provision in the Special Economic Zone Act of 1995 specifically
exempted the PEZA from payment of real property taxes, unlike Section 21 of Presidential
Decree No. 66 that explicitly provided for EPZA’s exemption. Since no legal provision explicitly
exempted the PEZA from payment of real property taxes, the City argued that it can tax the
PEZA.
The City made subsequent demands23 on the PEZA. In its last reminder24 dated May 13, 2002,
the City assessed the PEZA P86,843,503.48 as real property taxes for the period from 1992 to
2002.
On September 11, 2002, the PEZA filed a petition for declaratory relief 25 with the Regional
Trial Court of Pasay City, praying that the trial court declare it exempt from payment of real
property taxes. The case was raffled to Branch 111.
The City answered26 the petition, maintaining that the PEZA is liable for real property taxes.
To support its argument, the City cited a legal opinion dated September 6, 1999 issued by the
Department of Justice,27 which stated that the PEZA is not exempt from payment of real property
taxes. The Department of Justice based its opinion on Sections 193 and 234 of the Local
Government Code that withdrew the tax exemptions, including real property tax exemptions,
previously granted to all persons.
A reply28 was filed by the PEZA to which the City filed a rejoinder.29
_______________
23 RTC Records, pp. 20-21, dated July 14, 1998; p. 22, dated December 22, 1998; p. 23, dated January 28, 1999; pp.
24-25, dated March 8, 1999; p. 26, dated May 29, 2000; pp. 27-31, dated December 13, 1999; pp. 32-33, dated May 2,
2000.
24 RTC Records, pp. 34-35.
25 Id., at pp. 2-15.
26 Id., at pp. 79-88.
27 Id., at pp. 83-87.
28 Id., at pp. 119-124.
544

Pursuant to Rule 63, Section 3 of Rules of Court, 30 the Office of the Solicitor General filed a
comment31 on the PEZA’s petition for declaratory relief. It agreed that the PEZA is exempt from
payment of real property taxes, citing Sections 24 and 51 of the Special Economic Zone Act of
1995.
The trial court agreed with the Solicitor General. Section 24 of the Special Economic Zone
Act of 1995 provides:
SEC. 24. Exemption from National and Local Taxes.—Except for real property taxes on land
owned by developers, no taxes, local and national, shall be imposed on business establishments operating
within the ECOZONE. In lieu thereof, five percent (5%) of the gross income earned by all business
enterprises within the ECOZONE shall be paid and remitted as follows:
a. Three percent (3%) to the National Government;
b. Two percent (2%) which shall be directly remitted by the business establishments to the
treasurer’s office of the municipality or city where the enterprise is located.

Section 51 of the law, on the other hand, provides:
SEC. 51. Ipso Facto Clause.—All privileges, benefits, advantages or exemptions granted to special
economic zones under Republic Act No. 7227, shall ipso facto be accorded to special economic zones
already created or to be created under this Act. The free port status shall not be vested upon new special
economic zones.
_______________
29 Id., at pp. 167-173.

30 Rules of Court, Rule 63, Sec. 3 provides:
Notice on Solicitor General.—In any action which involves the validity of a statute, executive order or regulation, or
any other governmental regulation, the Solicitor General shall be notified by the party assailing the same and shall be
entitled to be heard upon such question.
31 RTC Records, pp. 137-166.
545
VOL. 742, NOVEMBER 26, 2014 545

Based on Section 51, the trial court held that all privileges, benefits, advantages, or
exemptions granted to special economic zones created under the Bases Conversion and
Development Act of 1992 apply to special economic zones created under the Special Economic
Zone Act of 1995. Since these benefits include exemption from payment of national or local
taxes, these benefits apply to special economic zones owned by the PEZA.
According to the trial court, the PEZA remained tax-exempt regardless of Section 24 of the
Special Economic Zone Act of 1995. It ruled that Section 24, which taxes real property owned
by developers of economic zones, only applies to private developers of economic zones, not to
public developers like the PEZA. The PEZA, therefore, is not liable for real property taxes on the
land it owns.
Characterizing the PEZA as an agency of the National Government, the trial court ruled that
the City had no authority to tax the PEZA under Sections 133(o) and 234(a) of the Local
Government Code of 1991.
In the resolution32 dated June 14, 2006, the trial court granted the PEZA’s petition for
declaratory relief and declared it exempt from payment of real property taxes.
The City filed a motion for reconsideration,33 which the trial court denied in its
resolution34 dated September 26, 2006.
The City then appealed35 to the Court of Appeals.
The Court of Appeals noted the following issues the City raised in its appellant’s brief: (1)
whether the trial court had jurisdiction over the PEZA’s petition for declaratory relief; (2)
whether the PEZA is a government agency performing gov-
_______________
32 Id., at pp. 179-191. This resolution was penned by Judge Wilhelmina B. Jorge-Wagan.
33 Id., at pp. 200-227.
34 Id., at p. 262.
35 CA Rollo (C.A.-G.R. CV No. 88318), pp. 12-44.
546

ernmental functions; and (3) whether the PEZA is exempt from payment of real property
taxes.
The issues presented by the City, according to the Court of Appeals, are pure questions of law
which should have been raised in a petition for review on certiorari directly filed before this
court. Since the City availed itself of the wrong mode of appeal, the Court of Appeals dismissed
the City’s appeal in the decision36 dated January 11, 2008.
The City filed a motion for extension of time to file a motion for reconsideration, 37 which the
Court of Appeals denied in the resolution38 dated April 11, 2008.
Despite the denial of its motion for extension, the City filed a motion for reconsideration. 39 In
the resolution40 dated August 6, 2008, the Court of Appeals denied that motion.
In its petition for review on certiorari with this court,41 the City argues that the Court of
Appeals “hid under the skirts of technical rules”42 in resolving its appeal. The City maintains that
its appeal involved mixed questions of fact and law. According to the City, whether the PEZA
performed governmental functions “cannot completely be addressed by law but [by] the factual
and actual activities [the PEZA is] carrying out.”43
Even assuming that the petition involves pure questions of law, the City contends that the
subject matter of the case “is of extreme importance with [far-reaching] consequence that [its
magnitude] would surely shape and determine the course
_______________
36 Rollo (G.R. No. 184203), pp. 51-54.

37 CA Rollo (C.A.-G.R. CV No. 88318), pp. 127-130.
38 Id., at p. 131.
39 Id., at pp. 132-149.
40 Rollo (G.R. No. 184203), pp. 48-49.
41 Id., at pp. 21-46.
42 Id., at p. 36.
43 Id., at p. 33.
547
VOL. 742, NOVEMBER 26, 2014 547

of our nation’s future.”44 The Court of Appeals, the City argues, should have resolved the case
on the merits.
The City insists that the trial court had no jurisdiction to hear the PEZA’s petition for
declaratory relief. According to the City, the case involves real property located in the City of
Lapu-Lapu. The petition for declaratory relief should have been filed before the Regional Trial
Court of the City of Lapu-Lapu.45
Moreover, the Province of Bataan, the City of Baguio, and the Province of Cavite allegedly
demanded real property taxes from the PEZA. The City argues that the PEZA should have
likewise impleaded these local government units as respondents in its petition for declaratory
relief. For its failure to do so, the PEZA violated Rule 63, Section 2 of the Rules of Court, and
the trial court should have dismissed the petition.46
This court ordered the PEZA to comment on the City’s petition for review on certiorari.47
At the outset of its comment, the PEZA argues that the Court of Appeals’ decision dated
January 11, 2008 had become final and executory. After the Court of Appeals had denied the
City’s appeal, the City filed a motion for extension of time to file a motion for reconsideration.
Arguing that the time to file a motion for reconsideration is not extendible, the PEZA filed its
motion for reconsideration out of time. The City has no more right to appeal to this court.48
The PEZA maintains that the City availed itself of the wrong mode of appeal before the Court
of Appeals. Since the City raised pure questions of law in its appeal, the PEZA
_______________
44 Id., at p. 34.
45 Id., at pp. 40-42.
46 Id., at p. 76.
47 Rollo (G.R. No. 184203), p. 91, resolution dated November 17, 2008.
48 Id., at pp. 118-124.
548

argues that the proper remedy is a petition for review on certiorari with this court, not an
ordinary appeal before the appellate court. The Court of Appeals, therefore, correctly dismissed
outright the City’s appeal under Rule 50, Section 2 of the Rules of Court.49
On the merits, the PEZA argues that it is an agency and instrumentality of the National
Government. It is therefore exempt from payment of real property taxes under Sections 133(o)
and 234(a) of the Local Government Code.50 It adds that the tax privileges under Sections 24 and
51 of the Special Economic Zone Act of 1995 applied to it.51
Considering that the site of the Mactan Economic Zone is a reserved land under Proclamation
No. 1811, the PEZA claims that the properties sought to be taxed are lands of public dominion
exempt from real property taxes.52
As to the jurisdiction issue, the PEZA counters that the Regional Trial Court of Pasay had
jurisdiction to hear its petition for declaratory relief under Rule 63, Section 1 of the Rules of
Court.53 It also argued that it need not implead the Province of Bataan, the City of Baguio, and
the Province of Cavite as respondents considering that their demands came after the PEZA had
already filed the petition in court.54

Facts of G.R. No. 187583

After the City of Lapu-Lapu had demanded payment of real property taxes from the PEZA,
the Province of Bataan followed suit. In its letter55 dated May 29, 2003, the Province,
_______________
49 Id., at pp. 124-128.

50 Id., at pp. 129-135.
51 Id., at pp. 136-138.
52 Id., at pp. 138-139.
53 Id., at pp. 141-145.
54 Id., at pp. 145-149.
55 CA Rollo (C.A.-G.R. S.P. No. 100984), p. 100.
549
VOL. 742, NOVEMBER 26, 2014 549

through the Office of the Provincial Treasurer, informed the PEZA that it would be sending a
real property tax billing to the PEZA. Arguing that the PEZA is a developer of economic zones,
the Province claimed that the PEZA is liable for real property taxes under Section 24 of the
Special Economic Zone Act of 1995.
In its reply letter56 dated June 18, 2003, the PEZA requested the Province to suspend the
service of the real property tax billing. It cited its petition for declaratory relief against the City
of Lapu-Lapu pending before the Regional Trial Court, Branch 111, Pasay City as basis.
The Province argued that serving a real property tax billing on the PEZA “would not in any
way affect [its] petition for declaratory relief before [the Regional Trial Court] of Pasay
City.”57 Thus, in its letter58 dated June 27, 2003, the Province notified the PEZA of its real
property tax liabilities for June 1, 1995 to December 31, 2002 totalling P110,549,032.55.
After having been served a tax billing, the PEZA again requested the Province to suspend
collecting its alleged real property tax liabilities until the Regional Trial Court of Pasay City
resolves its petition for declaratory relief.59
The Province ignored the PEZA’s request. On January 20, 2004, the Province served on the
PEZA a statement of unpaid real property tax for the period from June 1995 to December 2004.60
The PEZA again requested the Province to suspend collecting its alleged real property
taxes.61 The Province denied the request in its letter62 dated January 29, 2004, then served on
_______________
56 Id., at p. 101.
57 Id., at p. 102.
58 Id.
59 Id., at p. 103.
60 Id., at pp. 104-106.
61 Id., at p. 107.

62 Id., at pp. 108-109.
550

the PEZA a warrant of levy63 covering the PEZA’s real properties located in Mariveles,
Bataan.
The PEZA’s subsequent requests64 for suspension of collection were all denied by the
Province.65 The Province then served on the PEZA a notice of delinquency in the payment of real
property taxes66 and a notice of sale of real property for unpaid real property tax. 67 The Province
finally sent the PEZA a notice of public auction of the latter’s properties in Mariveles, Bataan.68
On June 14, 2004, the PEZA filed a petition for injunction 69 with prayer for issuance of a
temporary restraining order and/or writ of preliminary injunction before the Regional Trial Court
of Pasay City, arguing that it is exempt from payment of real property taxes. It added that the
notice of sale issued by the Province was void because it was not published in a newspaper of
general circulation as required by Section 260 of the Local Government Code.70
_______________
63 Id., at pp. 110-111.

64 CA Rollo (C.A.-G.R. S.P. No. 100984), pp. 112-113, dated April 28, 2004; pp. 115-116, dated May 5, 2004.
65 Id., at p. 114, dated April 30, 2004; p. 117, dated May 7, 2004.
66 Id., at pp. 118-119.
67 Id., at pp. 120-122.
68 Id., at pp. 123-125.
69 Id., at pp. 126-135.
70 Rep. Act No. 7160 (1991), Sec. 260 provides:
SECTION 260. Advertisement and Sale.—Within thirty (30) days after service of the warrant of levy, the local
treasurer shall proceed to publicly advertise for sale or auction the property or a usable portion thereof as may be
necessary to satisfy the tax delinquency and expenses of sale. The advertisement shall be effected by posing a notice at the
main entrance of the provincial, city or municipal building, and in a publicly accessible and conspicuous place in
the barangay where the real property is located, and by publication once a week for two (2) weeks in a newspaper of
general circulation in the province, city or municipality where the property is lo-
551
VOL. 742, NOVEMBER 26, 2014 551

The case was raffled to Branch 115.
In its order71 dated June 18, 2004, the trial court issued a temporary restraining order against
the Province. After the PEZA had filed a P100,000.00 bond, 72 the trial court issued a writ of
preliminary injunction,73 enjoining the Province from selling the PEZA’s real properties at public
auction.
On March 3, 2006, the PEZA and Province both manifested that each would file a
memorandum after which the case would be deemed submitted for decision. The parties then
filed their respective memoranda.74
In the order75 dated January 31, 2007, the trial court denied the PEZA’s petition for injunction.
The trial court ruled that the PEZA is not exempt from payment of real property taxes.
According to the trial court, Sections 193 and 234 of the Local Government Code had withdrawn
the real property tax exemptions previously granted to all persons, whether natural or
juridical.76 As to the tax exemptions under Section 51 of the Special Economic Zone Act of 1995,
the trial court ruled that the provision only applies to businesses operating within the economic
zones, not to the PEZA.77
_______________
cated. The advertisement shall specify the amount of the delinquent tax, the interest due thereon and expense of sale,
the date and place of sale, the name of the owner of the real property or person having legal interest therein, and a
description of the property to be sold[.]
72 Id., at pp. 143-144.
73 Id., at pp. 141-142.
74 Id., at p. 14.
75 Id., at pp. 51-52. This decision was penned by Judge Francisco G. Mendiola.
76 Id., at p. 52.
77 Id., at p. 53.
552

The PEZA filed before the Court of Appeals a petition for certiorari78 with prayer for issuance
of a temporary restraining order.
The Court of Appeals issued a temporary restraining order, enjoining the Province and its
Provincial Treasurer from selling PEZA’s properties at public auction scheduled on October 17,
2007.79 It also ordered the Province to comment on the PEZA’s petition.
In its comment,80 the Province alleged that it received a copy of the temporary restraining
order only on October 18, 2007 when it had already sold the PEZA’s properties at public auction.
Arguing that the act sought to be enjoined was already fait accompli, the Province prayed for the
dismissal of the petition for certiorari.
The PEZA then filed a supplemental petition for certiorari, prohibition,
and mandamus81 against the Province, arguing that the Provincial Treasurer of Bataan acted with
grave abuse of discretion in issuing the notice of delinquency and notice of sale. It maintained
that it is exempt from payment of real property taxes because it is a government instrumentality.
It added that its lands are property of public dominion which cannot be sold at public auction.
The PEZA also filed a motion82 for issuance of an order affirming the temporary restraining
order and a writ of preliminary injunction to enjoin the Province from consolidating title over the
PEZA’s properties.
In its resolution83 dated January 16, 2008, the Court of Appeals admitted the supplemental
petition for certiorari, prohibition, and mandamus. It required the Province to comment
_______________
78 Id., at pp. 2-49.

79 Id., at pp. 244-245.
80 Id., at pp. 251-260.
81 Id., at pp. 261-299.
82 Id., at pp. 300-330.
83 Id., at pp. 332-334.
553
VOL. 742, NOVEMBER 26, 2014 553

on the supplemental petition and to file a memorandum on the PEZA’s prayer for issuance of
temporary restraining order.
The Province commented84 on the PEZA’s supplemental petition, to which the PEZA replied.85
The Province then filed a motion86 for leave to admit attached rejoinder with motion to
dismiss. In the rejoinder with motion to dismiss, 87 the Province argued for the first time that the
Court of Appeals had no jurisdiction over the subject matter of the action.
According to the Province, the PEZA erred in filing a petition for certiorari. Arguing that the
PEZA sought to reverse a Regional Trial Court decision in a local tax case, the Province claimed
that the court with appellate jurisdiction over the action is the Court of Tax Appeals. The PEZA
then prayed that the Court of Appeals dismiss the petition for certiorari for lack of jurisdiction
over the subject matter of the action.
The Court of Appeals held that the issue before it was whether the trial court judge gravely
abused his discretion in dismissing the PEZA’s petition for prohibition. This issue, according to
the Court of Appeals, is properly addressed in a petition for certiorari over which it has
jurisdiction to resolve. It, therefore, maintained jurisdiction to resolve the PEZA’s petition
for certiorari.88
Although it admitted that appeal, not certiorari, was the PEZA’s proper remedy to reverse the
trial court’s decision,89 the Court of Appeals proceeded to decide the petition for certiorari in
“the broader interest of justice.”90
_______________
84 Id., at pp. 369-393.

85 Id., at pp. 414-440.
86 Id., at pp. 459-463.
87 Id., at pp. 464-482.
86 Id., at pp. 459-463.
87 Id., at pp. 464-482.
89 Id., at p. 61.
90 Id., at p. 62.
554

The Court of Appeals ruled that the trial court judge gravely abused his discretion in
dismissing the PEZA’s petition for prohibition. It held that Section 21 of Presidential Decree No.
66 and Section 51 of the Special Economic Zone Act of 1995 granted the PEZA exemption from
payment of real property taxes.91 Based on the criteria set in Manila International Airport
Authority v. Court of Appeals,92 the Court of Appeals found that the PEZA is an instrumentality
of the national government. No taxes, therefore, could be levied on it by local government units.93
In the decision94 dated August 27, 2008, the Court of Appeals granted the PEZA’s petition
for certiorari. It set aside the trial court’s decision and nullified all the Province’s proceedings
with respect to the collection of real property taxes from the PEZA.
The Province filed a motion for reconsideration, 95 which the Court of Appeals denied in the
resolution96 dated April 16, 2009 for lack of merit.
In its petition for review on certiorari with this court,97 the Province of Bataan insists that the
Court of Appeals had no jurisdiction to take cognizance of the PEZA’s petition for certiorari.
The Province maintains that the Court of Tax Appeals had jurisdiction to hear the PEZA’s
petition since it involved a local tax case decided by a Regional Trial Court.98
The Province reiterates that the PEZA is not exempt from payment of real property taxes. The
Province points out that the EPZA, the PEZA’s predecessor, had to be categorically
_______________
91 Id., at pp. 62-64.

92 528 Phil. 181; 495 SCRA 591 (2006) [Per J. Carpio, En Banc].
93 Rollo (G.R. No. 187583), p. 65.
94 Id., at pp. 57-68.
95 CA Rollo (C.A.-G.R. S.P. No. 100984), pp. 496-520.
96 Rollo (G.R. No. 187583), pp. 69-70.
97 Id., at pp. 16-56.
98 Id., at pp. 25-29.
555
VOL. 742, NOVEMBER 26, 2014 555

exempted from payment of real property taxes. The EPZA, therefore, was not inherently
exempt from payment of real property taxes and so is the PEZA. Since Congress omitted from
the Special Economic Zone Act of 1995 a provision specifically exempting the PEZA from
payment of real property taxes, the Province argues that the PEZA is a taxable entity. It cited the
rule in statutory construction that provisions omitted in revised statutes are deemed repealed.99
With respect to Sections 24 and 51 of the Special Economic Zone Act of 1995 granting tax
exemptions and benefits, the Province argues that these provisions only apply to business
establishments operating within special economic zones,100 not to the PEZA.
This court ordered the PEZA to comment on the Province’s petition for review
on certiorari.101
In its comment,102 the PEZA argues that the Court of Appeals had jurisdiction to hear its
petition for certiorari since the issue was whether the trial court committed grave abuse of
discretion in denying its petition for injunction. The PEZA maintains that it is exempt from
payment of real property taxes under Section 21 of Presidential Decree No. 66 and Section 51 of
the Special Economic Zone Act of 1995.
The Province filed its reply,103 reiterating its arguments in its petition for review on certiorari.
On the PEZA’s motion,104 this court consolidated the petitions filed by the City of Lapu-Lapu
and the Province of Bataan.105
_______________
99 Id., at pp. 41-42.

100 Id., at pp. 46-48.
101 Id., at p. 76, resolution dated July 29, 2009.
102 Id., at pp. 94-120.
103 Id., at pp. 129-143.
104 Id., at pp. 158-190.
105 Resolution dated March 14, 2011.
556

The issues for our resolution are the following:
I. Whether the Court of Appeals erred in dismissing the City of Lapu-Lapu’s appeal for
raising pure questions of law;
II. Whether the Regional Trial Court, Branch 111, Pasay City had jurisdiction to hear, try, and
decide the City of Lapu-Lapu’s petition for declaratory relief;
III. Whether the petition for injunction filed before the Regional Trial Court, Branch 115,
Pasay City, is a local tax case appealable to the Court of Tax Appeals; and
IV. Whether the PEZA is exempt from payment of real property taxes.
We deny the consolidated petitions.

I.

The Court of Appeals did not err in dismissing the City of Lapu-Lapu’s appeal for raising
pure questions of law

Under the Rules of Court, there are three modes of appeal from Regional Trial Court
decisions. The first mode is through an ordinary appeal before the Court of Appeals where the
decision assailed was rendered in the exercise of the Regional Trial Court’s original jurisdiction.
Ordinary appeals are governed by Rule 41, Sections 3 to 13 of the Rules of Court. In ordinary
appeals, questions of fact or mixed questions of fact and law may be raised.106
The second mode is through a petition for review before the Court of Appeals where the
decision assailed was rendered by the Regional Trial Court in the exercise of its appellate
jurisdiction. Rule 42 of the Rules of Court governs petitions for review before the Court of
Appeals. In petitions for review
_______________
106 Rules of Court, Rule 41, Sec. 2(a).
557
VOL. 742, NOVEMBER 26, 2014 557

under Rule 42, questions of fact, of law, or mixed questions of fact and law may be raised.107
The third mode is through an appeal by certiorari before this court under Rule 45 where only
questions of law shall be raised.108
A question of fact exists when there is doubt as to the truth or falsity of the alleged facts. 109 On
the other hand, there is a question of law if the appeal raises doubt as to the applicable law on a
certain set of facts.110
Under Rule 50, Section 2, an improper appeal before the Court of Appeals is dismissed
outright and shall not be referred to the proper court:
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 to the Court of Appeals shall not be transferred to the appropriate court
but shall be dismissed outright.

Rule 50, Section 2 repealed Rule 50, Section 3 of the 1964 Rules of Court, which provided
that improper appeals to the Court of Appeals shall not be dismissed but shall be certified to the
proper court for resolution:
_______________
107 Rules of Court, Rule 41, Sec. 2(b).

108 Rules of Court, Rule 41, Sec. 2(c).
109 Far Eastern Surety and Insurance Co., Inc. v. People, G.R. No. 170618, November 20, 2013, 710 SCRA 358,
365 [Per J. Brion, Second Division]; Republic v. Malabanan, G.R. No. 169067, October 6, 2010, 632 SCRA 338, 345
[Per J. Villarama, Jr., Third Division].
110 Id.
558

Sec. 3. Where appealed case erroneously, brought.—Where the appealed case has been erroneously
brought to the Court of Appeals, it shall not dismiss the appeal, but shall certify the case to the proper
court, with a specific and clear statement of the grounds therefor.

With respect to appeals by certiorari directly filed before this court but which raise questions
of fact, paragraph 4(b) of Circular No. 2-90 dated March 9, 1990 states that this court “retains the
option, in the exercise of its sound discretion and considering the attendant circumstances, either
itself to take cognizance of and decide such issues or to refer them to the Court of Appeals for
determination.”
In Indoyon, Jr. v. Court of Appeals,111 we said that this court “cannot tolerate ignorance of the
law on appeals.”112 It is not this court’s task to determine for litigants their proper remedies under
the Rules.113
We agree that the City availed itself of the wrong mode of appeal before the Court of
Appeals. The City raised pure questions of law in its appeal. The issue of whether the Regional
Trial Court of Pasay had jurisdiction over the PEZA’s petition for declaratory relief is a question
of law, jurisdiction being a matter of law. 114 The issue of whether the PEZA is a government
instrumentality exempt from payment of real property taxes is likewise a question of law since
this question
_______________
111 G.R. No. 193706, March 12, 2013, 693 SCRA 201 [Per CJ. Sereno, En Banc].
112 Id., at p. 207, citing Ybañez v. Court of Appeals, 323 Phil. 643; 253 SCRA 540 (1996) [Per J. Francisco, Third
Division].
113 Id., at pp. 207-208.
114 Municipality of Pateros v. Court of Appeals, 607 Phil. 104, 114; 589 SCRA 130, 139 (2009) [Per J. Nachura,
Third Division]; Sevilleno v. Carilo, 559 Phil. 789, 792; 533 SCRA 385, 387 (2007) [Per J. Sandoval-Gutierrez, First
Division].
559
VOL. 742, NOVEMBER 26, 2014 559

is resolved by examining the provisions of the PEZA’s charter as well as other laws relating
to the PEZA.115
The Court of Appeals, therefore, did not err in dismissing the City’s appeal pursuant to Rule
50, Section 2 of the Rules of Court.
Nevertheless, considering the important questions involved in this case, we take cognizance
of the City’s petition for review on certiorari in the interest of justice.
In Municipality of Pateros v. The Honorable Court of Appeals,116 the Municipality of Pateros
filed an appeal under Rule 42 before the Court of Appeals, which the Court of Appeals denied
outright for raising pure questions of law. This court agreed that the Municipality of Pateros
“committed a procedural infraction”117 and should have directly filed a petition for review
on certiorari before this court. Nevertheless, “in the interest of justice and in order to
write finis to [the] controversy,”118 this court “opt[ed] to relax the rules”119 and proceeded to
decide the case. This court said:
_______________
115 See Republic v. City of Parañaque, G.R. No. 191109, July 18, 2012, 677 SCRA 246, 257-260 [Per J. Mendoza,
Third Division]; Government Service Insurance System v. City Treasurer of the City of Manila, G.R. No. 186242,
December 23, 2009, 609 SCRA 330, 349 [Per J. Velasco, Jr., Third Division]; National Housing Authority v. Iloilo City,
584 Phil. 604, 609-610; 562 SCRA 629, 636 (2008) [Per J. Tinga, Second Division]; Philippine Fisheries Development
Authority v. Court of Appeals, 560 Phil. 738, 748; 534 SCRA 490, 500 (2007) [Per J. Azcuna, First Division]; Manila
International Airport Authority v. Court of Appeals, supra note 92 at pp. 209-213; p. 652.
116 Municipality of Pateros v. Court of Appeals, supra note 114.
117 Id., at p. 114; p. 139.
118 Id.
119 Id.
560

While it is true that rules of procedure are intended to promote rather than frustrate the ends of justice,
and while the swift unclogging of the dockets of the courts is a laudable objective, it nevertheless must
not be met at the expense of substantial justice.
The Court has allowed some meritorious cases to proceed despite inherent procedural defects and
lapses. This is in keeping with the principle that rules of procedure are mere tools designed to facilitate
the attainment of justice, and that strict and rigid application of rules which should result in technicalities
that tend to frustrate rather than promote substantial justice must always be avoided. It is a far better and
more prudent cause of action for the court to excuse a technical lapse and afford the parties a review of
the case to attain the ends of justice, rather than dispose of the case on technicality and cause grave
injustice to the parties, giving a false impression of speedy disposal of cases while actually resulting in
more delay, if not a miscarriage of justice. 120

Similar to Municipality of Pateros, we opt to relax the rules in this case. The PEZA operates
or otherwise administers special economic zones all over the country. Resolving the substantive
issue of whether the PEZA is taxable for real property taxes will clarify the taxing powers of all
local government units where special economic zones are operated. This case, therefore, should
be decided on the merits.

II.

The Regional Trial Court of Pasay had no jurisdiction to hear, try, and decide the PEZA’s
petition for declaratory relief against the City of Lapu-Lapu
_______________
120 Id., at p. 115; pp. 139-140, citing Tabujara III v. People, 591 Phil. 216, 231; 570 SCRA 229, 243 (2008)
[Per J. Chico-Nazario, Third Division].
561
VOL. 742, NOVEMBER 26, 2014 561

Rule 63 of the Rules of Court governs actions for declaratory relief. Section 1 of Rule 63
provides:
SECTION 1. Who may file petition.—Any person interested under a deed, will, contract or other
written instrument, or whose rights are affected by a statute, executive order or regulation, ordinance, or
any other governmental regulation may, before breach or violation, thereof, bring an action in the
appropriate Regional Trial Court to determine any question of construction or validity arising, and for a
declaration of his rights or duties, thereunder.
An action for reformation of an instrument, to quiet title to real property or remove clouds therefrom,
or to consolidate ownership under Article 1607 of the Civil Code, may be brought under this Rule.

The court with jurisdiction over petitions for declaratory relief is the Regional Trial Court, the
subject matter of litigation in an action for declaratory relief being incapable of pecuniary
estimation.121 Section 19 of the Judiciary Reorganization Act of 1980 provides:
SEC. 19. Jurisdiction in Civil Cases.—Regional Trial Courts shall exercise exclusive original
jurisdiction:
(1) In all civil actions in which the subject of litigation is incapable of pecuniary estimation[.]

Consistent with the law, the Rules state that a petition for declaratory relief is filed “in the
appropriate Regional Trial Court.”122
_______________
121 See Sabitsana v. Muertegui, G.R. No. 181359, August 5, 2013, 703 SCRA 145, 158-159 [Per J. Del Castillo,
Second Division]; See also Allied Broadcasting Center, Inc. v. Republic, 268 Phil. 852, 857; 190 SCRA 782, 786 (1990)
[Per J. Gancayco, En Banc], cited in W. B. Riano, Civil Procedure II (The Bar Lecture Series), p. 216 (2012).
122 Rules of Court, Rule 63, Sec. 1.
562

A special civil action for declaratory relief is filed for a judicial determination of any question
of construction or validity arising from, and for a declaration of rights and duties, under any of
the following subject matters: a deed, will, contract or other written instrument, statute, executive
order or regulation, ordinance, or any other governmental regulation.123 However, a declaratory
judgment may issue only if there has been “no breach of the documents in question.” 124 If the
contract or statute subject matter of the action has already been breached, the appropriate
ordinary civil action must be filed.125 If adequate relief is available through another form of action
or proceeding, the other action must be preferred over an action for declaratory relief.126
In Ollada v. Central Bank of the Philippines,127 the Central Bank issued CB-IED Form No. 5
requiring certified public accountants to submit an accreditation under oath before they were
allowed to certify financial statements submitted to the bank. Among those financial statements
the Central Bank disallowed were those certified by accountant Felipe B. Ollada.128
Claiming that the requirement “restrained the legitimate pursuit of one’s trade,” 129 Ollada filed
a petition for declaratory relief against the Central Bank.
This court ordered the dismissal of Ollada’s petition “without prejudice to [his] seeking relief
in another appropriate action.”130 According to this court, Ollada’s right had already
_______________
123 Id.
124 Republic v. Roque, G.R. No. 204603, September 24, 2013, 706 SCRA 273, 283 [Per J. Perlas-Bernabe, En Banc].
125 Ollada v. Central Bank of the Philippines, 115 Phil. 284, 291; 5 SCRA 297, 303 (1962) [Per J. Dizon, En Banc].
126 Republic v. Roque, supra.
127 Ollada v. Central Bank of the Philippines, supra.
128 Id.
129 Id., at p. 285; p. 298.
130 Id., at p. 291; p. 304.
563
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been violated when the Central Bank refused to accept the financial statements he prepared.
Since there was already a breach, a petition for declaratory relief was not proper. Ollada must
pursue the “appropriate ordinary civil action or proceeding.”131 This court explained:
Petitioner commenced this action as, and clearly intended it to be one for Declaratory Relief under the
provisions of Rule 66 of the Rules of Court. On the question of when a special civil action of this nature
would prosper, we have already held that the complaint for declaratory relief will not prosper if filed after
a contract, statute or right has been breached or violated. In the present case such is precisely the situation
arising from the facts alleged in the petition for declaratory relief. As vigorously claimed by petitioner
himself, respondent had already invaded or violated his right and caused him injury — all these giving
him a complete cause of action enforceable in an appropriate ordinary civil action or proceeding. The
dismissal of the action was, therefore, proper in the light of our ruling in De Borja v. Villadolid, 47 O.G.
(5) p. 2315, and Samson v. Andal, No. L-3439, July 31, 1951, where we held that an action for declaratory
relief should be filed before there has been a breach of a contract, statutes or right, and that it is sufficient
to bar such action, that there had been a breach — which would constitute actionable violation. The rule
is that an action for Declaratory Relief is proper only if adequate relief is not available through the means
of other existing forms of action or proceeding. (1 C.J.S. 1027-1028) 132

It is also required that the parties to the action for declaratory relief be those whose rights or
interests are affected by the contract or statute in question.133 “There must be an ac-
_______________
131 Id.
132 Id.
133 Supra note 124.
564

tual justiciable controversy or the ‘ripening seeds’ of one”134 between the parties. The issue
between the parties “must be ripe for judicial determination.” 135 An action for declaratory relief
based on theoretical or hypothetical questions cannot be filed for our courts are not advisory
courts.136
In Republic v. Roque,137 this court dismissed respondents’ petition for declaratory relief for
lack of justiciable controversy. According to this court, “[the respondents’] fear of prospective
prosecution [under the Human Security Act] was solely based on remarks of certain government
officials which were addressed to the general public.”138
In Velarde v. Social Justice Society,139 this court refused to resolve the issue of “whether or not
[a religious leader’s endorsement] of a candidate for elective office or in urging or requiring the
members of his flock to vote for a specific candidate is violative [of the separation
clause].”140 According to the court, there was no justiciable controversy and ordered the dismissal
of the Social Justice Society’s petition for declaratory relief. This court explained:
Indeed, SJS merely speculated or anticipated without factual moorings that, as religious leaders, the
petitioner and his corespondents below had endorsed or threatened to endorse a candidate or candidates
for elective offices; and that such actual or threatened endorsement “will enable [them] to elect men to
public office who [would] in turn be forever beholden to their leaders, enabling them to control the
government”[;] and “pos[ing] a clear and present danger of serious erosion of the people’s
_______________
134 Id.
135 Id.
136 Velarde v. Social Justice Society, G.R. No. 159357, April 28, 2004, 428 SCRA 283, 293 [Per J. Panganiban, En
Banc].
137 Supra note 124.
138 Id., at p. 284.
139 Velarde v. Social Justice Society, supra.
140 Id., at p. 286.
565
VOL. 742, NOVEMBER 26, 2014 565

faith in the electoral process[;] and reinforc[ing] their belief that religious leaders determine the
ultimate result of elections,” which would then be violative of the separation clause.
Such premise is highly speculative and merely theoretical, to say the least. Clearly, it does not suffice
to constitute a justiciable controversy. The Petition does not even allege any indication or manifest intent
on the part of any of the respondents below to champion an electoral candidate, or to urge their so-called
flock to vote for, or not to vote for, a particular candidate. It is a time-honored rule that sheer speculation
does not give rise to an actionable right.
Obviously, there is no factual allegation that SJS’ rights are being subjected to any threatened,
imminent and inevitable violation that should be prevented by the declaratory relief sought. The judicial
power and duty of the courts to settle actual controversies involving rights that are legally demandable
and enforceable cannot be exercised when there is no actual or threatened violation of a legal right.
All that the 5-page SJS Petition prayed for was “that the question raised in paragraph 9 hereof be
resolved.” In other words, it merely sought an opinion of the trial court on whether the speculated acts of
religious leaders endorsing elective candidates for political offices violated the constitutional principle on
the separation of church and state. SJS did not ask for a declaration of its rights and duties; neither did it
pray for the stoppage of any threatened violation of its declared rights. Courts, however, are proscribed
from rendering an advisory opinion. 141

In sum, a petition for declaratory relief must satisfy six requisites:
_______________
141 Id., at pp. 291-293.
566

[F]irst, the subject matter of the controversy must be a deed, will, contract or other written instrument,
statute, executive order or regulation, or ordinance; second, the terms of said documents and the validity
thereof are doubtful and require judicial construction; third, there must have been no breach of the
documents in question; fourth, there must be an actual justiciable controversy or the “ripening seeds” of
one between persons whose interests are adverse; fifth, the issue must be ripe for judicial determination;
and sixth, adequate relief is not available through other means or other forms of action or
proceeding. (Emphases omitted)
142

We rule that the PEZA erred in availing itself of a petition for declaratory relief against the
City. The City had already issued demand letters and real property tax assessment against the
PEZA, in violation of the PEZA’s alleged tax-exempt status under its charter. The Special
Economic Zone Act of 1995, the subject matter of PEZA’s petition for declaratory relief, had
already been breached. The trial court, therefore, had no jurisdiction over the petition for
declaratory relief.
There are several aspects of jurisdiction.143 Jurisdiction over the subject matter is “the power to
hear and determine cases of the general class to which the proceedings in question belong.” 144 It is
conferred by law, which may either be the Constitution or a statute. 145 Jurisdiction over the
subject matter means “the nature of the cause of action and the relief
_______________
142 Id., at p. 283, citing Almeda v. Bathala Marketing Industries, Inc., 566 Phil. 458, 467; 542 SCRA 470, 478-479
(2008) [Per J. Nachura, Third Division].
143 Boston Equity Resources, Inc. v. Court of Appeals, G.R. No. 173946, June 19, 2013, 699 SCRA 16, 28
[Per J. Perez, Second Division].
144 Villagracia v. Fifth (5 ) Shari’a District Court, G.R. No. 188832, April 23, 2014, 723 SCRA 550. [Per J. Leonen,
th
Third Division].
145 Id.
567
VOL. 742, NOVEMBER 26, 2014 567

sought.”146 Thus, the cause of action and character of the relief sought as alleged in the
complaint are examined to determine whether a court had jurisdiction over the subject
matter.147 Any decision rendered by a court without jurisdiction over the subject matter of the
action is void.148
Another aspect of jurisdiction is jurisdiction over the person. It is “the power of [a] court to
render a personal judgment or to subject the parties in a particular action to the judgment and
other rulings rendered in the action.” 149 A court automatically acquires jurisdiction over the
person of the plaintiff upon the filing of the initiatory pleading. 150 With respect to the defendant,
voluntary appearance in court or a valid service of summons vests the court with jurisdiction
over the defendant’s person.151 Jurisdiction over the person of the defendant is indispensable in
actions in personam or those actions based on a party’s personal liability.152 The proceedings in
an action in personam are void if the court had no jurisdiction over the person of the defendant.153
Jurisdiction over the res or the thing under litigation is acquired either “by the seizure of the
property under legal process, whereby it is brought into actual custody of the law; or as a result
of the institution of legal proceedings, in which the power of the court is recognized and made
effective.”154 Jurisdiction over the res is necessary in actions in rem or those actions “directed
against the thing or property or status of a
_______________
146 Philippine Association of Free Labor Unions (PAFLU) v. Padilla, 106 Phil. 591, 593 (1959) [Per J. Labrador, En
Banc]; Perkins v. Roxas, 72 Phil. 514, 517 (1941) [Per J. Laurel, En Banc].
147 Supra note 144.
148 Id.
149 Id.
150 Id.
151 Id.
152 Id.
153 Id.
154 Id.
568

person and seek judgments with respect thereto as against the whole world.” 155 The
proceedings in an action in rem are void if the court had no jurisdiction over the thing under
litigation.156
In the present case, the Regional Trial Court had no jurisdiction over the subject matter of the
action, specifically, over the remedy sought. As this court explained in Malana v. Tappa:157
. . . an action for declaratory relief presupposes that there has been no actual breach of the
instruments involved or of rights arising thereunder. Since the purpose of an action for declaratory relief
is to secure an authoritative statement of the rights and obligations of the parties under a statute, deed, or
contract for their guidance in the enforcement thereof, or compliance therewith, and not to settle issues
arising from an alleged breach thereof, it may be entertained only before the breach or violation of the
statute, deed, or contract to which it refers. A petition for declaratory relief gives a practical remedy for
ending controversies that have not reached the state where another relief is immediately available; and
supplies the need for a form of action that will set controversies at rest before they lead to a repudiation of
obligations, an invasion of rights, and a commission of wrongs.
Where the law or contract has already been contravened prior to the filing of an action for
declaratory relief, the courts can no longer assume jurisdiction over the action. In other words, a court
has no more jurisdiction over an action for declaratory relief if its subject has already been infringed or
transgressed before the institution of the action. (Emphasis supplied)
158
_______________
155 Id.
156 Id.
157 616 Phil. 177; 600 SCRA 189 (2009) [Per J. Chico-Nazario, Third Division].
158 Id., at pp. 188-189; pp. 201-202.
569
VOL. 742, NOVEMBER 26, 2014 569

The trial court should have dismissed the PEZA’s petition for declaratory relief for lack of
jurisdiction.
Once an assessment has already been issued by the assessor, the proper remedy of a taxpayer
depends on whether the assessment was erroneous or illegal.
An erroneous assessment “presupposes that the taxpayer is subject to the tax but is disputing
the correctness of the amount assessed.”159 With an erroneous assessment, the taxpayer claims
that the local assessor erred in determining any of the items for computing the real property
tax, i.e., the value of the real property or the portion thereof subject to tax and the proper
assessment levels. In case of an erroneous assessment, the taxpayer must exhaust the
administrative remedies provided under the Local Government Code before resorting to judicial
action.
The taxpayer must first pay the real property tax under protest. Section 252 of the Local
Government Code provides:
SECTION 252. Payment Under Protest.—(a) No protest shall be entertained unless the taxpayer
first pays the tax. There shall be annotated on the tax receipts the words “paid under protest.” The protest
in writing must be filed within thirty (30) days from payment of the tax to the provincial, city treasurer or
municipal treasurer, in the case of a municipality within Metropolitan Manila Area, who shall decide the
protest within sixty (60) days from receipt.
(b) The tax or a portion thereof paid under protest, shall be held in trust by the treasurer concerned.
(c) In the event that the protest is finally decided in favor of the taxpayer, the amount or portion of
the tax protested shall be refunded to the protestant, or applied as tax credit against his existing or future
tax liability.
_______________
159 National Power Corporation v. Province of Quezon, G.R. No. 171586, January 25, 2010, 611 SCRA 71, 91
[Per J. Brion, Special Second Division].
570

(d) In the event that the protest is denied or upon the lapse of the sixty-day period prescribed in
subparagraph (a), the taxpayer may avail of the remedies as provided for in Chapter 3, Title II, Book II of
this Code.

Should the taxpayer find the action on the protest unsatisfactory, the taxpayer may appeal
with the Local Board of Assessment Appeals within 60 days from receipt of the decision on the
protest:
SECTION 226. Local Board of Assessment Appeals.—Any owner or person having legal interest in
the property who is not satisfied with the action of the provincial, city or municipal assessor in the
assessment of his property may, within sixty (60) days from the date of receipt of the written notice of
assessment, appeal to the Board of Assessment Appeals of the provincial or city by filing a petition under
oath in the form prescribed for the purpose, together with copies of the tax declarations and such
affidavits or documents submitted in support of the appeal.

Payment under protest and appeal to the Local Board of Assessment Appeals are “successive
administrative remedies to a taxpayer who questions the correctness of an assessment.” 160 The
Local Board Assessment Appeals shall not entertain an appeal “without the action of the local
assessor”161 on the protest.
If the taxpayer is still unsatisfied after appealing with the Local Board of Assessment
Appeals, the taxpayer may appeal with the Central Board of Assessment Appeals within 30 days
from receipt of the Local Board’s decision:
SECTION 229. Action by the Local Board of Assessment Appeals.—The Board shall decide the
appeal
_______________
160 Id., at p. 95.
161 Id.
571
VOL. 742, NOVEMBER 26, 2014 571

within one hundred twenty (120) days from the date of receipt of such appeal. The Board, after
hearing, shall render its decision based on substantial evidence or such relevant evidence on record as a
reasonable mind might accept as adequate to support the conclusion.
(b) In the exercise of its appellate jurisdiction, the Board shall have the power to summon witnesses,
administer oaths, conduct ocular inspection, take depositions, and issue subpoena and subpoena duces
tecum. The proceedings of the Board shall be conducted solely for the purpose of ascertaining the facts
without necessarily adhering to technical rules applicable in judicial proceedings.
(c) The secretary of the Board shall furnish the owner of the property or the person having legal
interest therein and the provincial or city assessor with a copy of the decision of the Board. In case the
provincial or city assessor concurs in the revision or the assessment, it shall be his duty to notify the
owner of the property or the person having legal interest therein of such fact using the form prescribed for
the purpose. The owner of the property or the person having legal interest therein or the assessor who is
not satisfied with the decision of the Board, may, within thirty (30) days after receipt of the decision of
said Board, appeal to the Central Board of Assessment Appeals, as herein provided. The decision of the
Central Board shall be final and executory. (Emphasis supplied)

On the other hand, an assessment is illegal if it was made without authority under the law. 162 In
case of an illegal assessment, the taxpayer may directly resort to judicial action without paying
under protest the assessed tax and filing an
_______________
162 Ty v. Trampe, 321 Phil. 81, 101; 250 SCRA 500, 506 (1995) [Per J. Panganiban, En Banc]. See J. Carpio,
Concurring Opinion, in Camp John Hay Development Corporation v. Central Board of Assessment Appeals, G.R. No.
169234, October 2, 2013, 706 SCRA 547, 578 [Per J. Perez, Second Division].
572

appeal with the Local and Central Board of Assessment Appeals.
In Ty v. Trampe,163 the Municipal Assessor of Pasig sent Alejandro B. Ty a notice of
assessment with respect to Ty’s real properties in Pasig. Without resorting to the administrative
remedies under the Local Government Code, Ty filed before the Regional Trial Court a petition,
praying that the trial court nullify the notice of assessment. In assessing the real property taxes
due, the Municipal Assessor used a schedule of market values solely prepared by him. This, Ty
argued, was void for being contrary to the Local Government Code requiring that the schedule of
market values be jointly prepared by the provincial, city, and municipal assessors of the
municipalities within the Metropolitan Manila Area.
This court ruled that the assessment was illegal for having been issued without authority of
the Municipal Assessor. Reconciling provisions of the Real Property Tax Code and the Local
Government Code, this court held that the schedule of market values must be jointly prepared by
the provincial, city, and municipal assessors of the municipalities within the Metropolitan Manila
Area.
As to the issue of exhaustion of administrative remedies, this court held that Ty did not err in
directly resorting to judicial action. According to this court, payment under protest is required
only “where there is a question as to the reasonableness of the amount assessed.”164 As to appeals
before the Local and Central Board of Assessment Appeals, they are “fruitful only where
questions of fact are involved.”165
Ty raised the issue of the legality of the notice of assessment, an issue that did not go into the
reasonableness of the amount assessed. Neither did the issue involve a question of fact. Ty raised
a question of law and, therefore, need not re-
_______________
163 Ty v. Trampe, id.
164 Id., at p. 101; p. 519.
165 Id.
573
VOL. 742, NOVEMBER 26, 2014 573

sort to the administrative remedies provided under the Local Government Code.
In the present case, the PEZA did not avail itself of any of the remedies against a notice of
assessment. A petition for declaratory relief is not the proper remedy once a notice of assessment
was already issued.
Instead of a petition for declaratory relief, the PEZA should have directly resorted to a
judicial action. The PEZA should have filed a complaint for injunction, the “appropriate ordinary
civil action”166 to enjoin the City from enforcing its demand and collecting the assessed taxes
from the PEZA. After all, a declaratory judgment as to the PEZA’s tax-exempt status is useless
unless the City is enjoined from enforcing its demand.
Injunction “is a judicial writ, process or proceeding whereby a party is ordered to do or
refrain from doing a certain act.” 167 “It may be the main action or merely a provisional remedy for
and as incident in the main action.” 168 The essential requisites of a writ of injunction are: “(1)
there must be a right in esse or the existence of a right to be protected; and (2) the act against
which the injunction is directed to constitute a violation of such right.”169
We note, however, that the City confused the concepts of jurisdiction and venue in
contending that the Regional Trial
_______________
166 Supra note 125 at p. 291; p. 303.

167 Agoo Rice Mill Corporation v. Land Bank of the Philippines, G.R. No. 173036, September 26, 2012, 682 SCRA
36, 46 [Per J. Brion, Second Division]; Garayblas v. Atienza, Jr., 525 Phil. 291, 306; 492 SCRA 202, 217 (2006)
[Per J. Callejo, Sr., First Division]; Bacolod City Water District v. Labayen, 487 Phil. 335, 346; 446 SCRA 110, 122
(2004) [Per J. Puno, Second Division].
168 Id.
169 Agoo Rice Mill Corporation v. Land Bank of the Philippines, supra.
574

Court of Pasay had no jurisdiction because the real properties involved in this case are located
in the City of Lapu-Lapu.
On the one hand, jurisdiction is “the power to hear and determine cases of the general class to
which the proceedings in question belong.”170 Jurisdiction is a matter of substantive law. 171 Thus,
an action may be filed only with the court or tribunal where the Constitution or a statute says it
can be brought.172 Objections to jurisdiction cannot be waived and may be brought at any stage of
the proceedings, even on appeal. 173 When a case is filed with a court which has no jurisdiction
over the action, the court shall motu proprio dismiss the case.174
On the other hand, venue is “the place of trial or geographical location in which an action or
proceeding should be brought.”175 In civil cases, venue is a matter of procedural law. 176 A party’s
objections to venue must be brought at the earliest opportunity either in a motion to dismiss or in
the answer; otherwise the objection shall be deemed waived.177
_______________
170 Supra note 144.
171 Nocum v. Tan, 507 Phil. 620, 626; 470 SCRA 639, 645 (2005) [Per J. Chico-Nazario, Second Division].
172 Supra note 144.
173 Id., citing Ibrahim v. Commission on Elections, G.R. No. 192289, January 8, 2013, 688 SCRA 129, 145
[Per J. Reyes, En Banc], citing Republic v. Bantigue Point Development Corporation, G.R. No. 162322, March 14, 2012,
668 SCRA 158 [Per J. Sereno, Second Division]; Figueroa v. People, 580 Phil. 58, 76; 558 SCRA 63, 79 (2008)
[Per J. Nachura, Third Division]; Mangaliag v. Catubig-Pastoral, 510 Phil. 637, 648; 474 SCRA 153, 163 (2005)
[Per J. Austria-Martinez, Second Division]; Calimlim v. Ramirez, 204 Phil. 25, 35; 118 SCRA 399, 406 (1982)
[Per J. Vasquez, First Division].
174 Rules of Court, Rule 9, Sec. 1; supra note 144.
175 Nocum v. Tan, supra at p. 629; p. 648.
176 Id., at p. 626; p. 645.
575
VOL. 742, NOVEMBER 26, 2014 575

When the venue of a civil action is improperly laid, the court cannot motu proprio dismiss the
case.178
The venue of an action depends on whether the action is a real or personal action. Should the
action affect title to or possession of real property, or interest therein, it is a real action. The
action should be filed in the proper court which has jurisdiction over the area wherein the real
property involved, or a portion thereof, is situated. 179 If the action is a personal action, the action
shall be filed with the proper court where the plaintiff or any of the principal plaintiffs resides, or
where the defendant or any of the principal defendants resides, or in the case of a nonresident
defendant where he may be found, at the election of the plaintiff.180
The City was objecting to the venue of the action, not to the jurisdiction of the Regional Trial
Court of Pasay. In essence, the City was contending that the PEZA’s petition is a real action as it
affects title to or possession of real property, and, therefore, the PEZA should have filed the
petition with the Regional Trial Court of Lapu-Lapu City where the real properties are located.
However, whatever objections the City has against the venue of the PEZA’s action for
declaratory relief are already deemed waived. Objections to venue must be raised at the earliest
possible opportunity.181 The City did not file a motion to dismiss the petition on the ground that
the venue was improperly laid. Neither did the City raise this objection in its answer.
_______________
178 Rudolf Lietz Holding, Inc. v. Registry of Deeds of Parañaque City, 398 Phil. 626, 633; 344 SCRA 680, 686
(2000) [Per Ynares-Santiago, First Division]. However, a court may motu proprio dismiss the case on any grounds for the
dismissal of a civil action if the case falls under summary procedure per Section 4 of the 1991 Revised Rule on Summary
Procedure.
576

In any event, the law sought to be judicially interpreted in this case had already been
breached. The Regional Trial Court of Pasay, therefore, had no jurisdiction over the PEZA’s
petition for declaratory relief against the City.

III.

The Court of Appeals had no jurisdiction over the PEZA’s petition for certiorari against the
Province of Bataan

Appeal is the remedy “to obtain a reversal or modification of a judgment on the merits.” 182 A
judgment on the merits is one which “determines the rights and liabilities of the parties based on
the disclosed facts, irrespective of the formal, technical or dilatory objections.” 183 It is not even
necessary that the case proceeded to trial. 184 So long as the “judgment is general” 185 and “the
parties had a full legal opportunity to be heard on their respective claims and contentions,” 186 the
judgment is on the merits.
_______________
182 Samson v. Fiel-Macaraig, G.R. No. 166356, February 2, 2010, 611 SCRA 345, 351 [Per J. Carpio, Second
Division]; Bugarin v. Palisoc, 513 Phil. 59, 66; 476 SCRA 587, 595 (2005) [Per J. Quisumbing, First
Division]; Association of Integrated Security Force of Bislig (AISFB)-ALU v. Court of Appeals , 505 Phil. 10, 18; 467
SCRA 483, 490 (2005) [Per J. Chico-Nazario, Second Division].
183 Mendiola v. Court of Appeals, 327 Phil. 1156, 1164; 258 SCRA 492, 500 (1996) [Per J. Hermosisima, Jr., First
Division]; Nabus v. Court of Appeals, 271 Phil. 768, 779; 193 SCRA 732, 739 (1991) [Per J. Regalado, Second Division].
184 Mendiola v. Court of Appeals, id.; Nabus v. Court of Appeals, id., at pp. 779-780; p. 740.
185 Mendiola v. Court of Appeals, id.; Nabus v. Court of Appeals, id., at p. 780; id.
186 Mendiola v. Court of Appeals, id., at p. 1165; p. 501; Nabus v. Court of Appeals, id.
577
VOL. 742, NOVEMBER 26, 2014 577

On the other hand, certiorari is a special civil action filed to annul or modify a proceeding of
a tribunal, board, or officer exercising judicial or quasi-judicial functions. 187 Certiorari, which in
Latin means “to be more fully informed,”188 was originally a remedy in the common law. This
court discussed the history of the remedy of certiorari in Spouses Delos Santos v. Metropolitan
Bank and Trust Company:189
In the common law, from which the remedy of certiorari evolved, the writ of certiorari was issued
out of Chancery, or the King’s Bench, commanding agents or officers of the inferior courts to return the
record of a cause pending before them, so as to give the party more sure and speedy justice, for the writ
would enable the superior court to determine from an inspection of the record whether the inferior court’s
judgment was rendered without authority. The errors were of such a nature that, if allowed to stand, they
would result in a substantial injury to the petitioner to whom no other remedy was available. If the
inferior court acted without authority, the record was then revised and corrected in matters of law. The
writ of certiorari was limited to cases in which the inferior court was said to be exceeding its jurisdiction
or was not proceeding according to essential requirements of law and would lie only to review judicial or
quasi-judicial acts.190

In our jurisdiction, the term “certiorari” is used in two ways. An appeal before this court
raising pure questions of law is commenced by filing a petition for review on certiorari under
Rule 45 of the Rules of Court. An appeal by certiorari, which continues the proceedings
commenced before the lower
_______________

188 Black’s Law Dictionary, Eighth edition, p. 241 (2004).
189 G.R. No. 153852, October 24, 2012, 684 SCRA 410 [Per J. Bersamin, First Division].
190 Id., at pp. 420-421.
578

courts,191 is filed to reverse or modify judgments or final orders. 192 Under the Rules, an appeal
by certiorari must be filed within 15 days from notice of the judgment or final order, or of the
denial of the appellant’s motion for new trial or reconsideration.193
A petition for certiorari under Rule 65, on the other hand, is an independent and original
action filed to set aside proceedings conducted without or in excess of jurisdiction or with grave
abuse of discretion amounting to lack or excess of jurisdiction. 194 Under the Rules, a petition
for certiorari may only be filed if there is no appeal or any plain, speedy, or adequate remedy in
the ordinary course of law.195 The petition must be filed within 60 days from notice of the
judgment, order, or resolution.196
Because of the longer period to file a petition for certiorari, some litigants attempt to file
petitions for certiorari as substitutes for lost appeals by certiorari. However, Rule 65 is clear that
a petition for certiorari will not prosper if appeal is available. Appeal is the proper remedy even
if the error, or one of the errors, raised is grave abuse of discretion on the part of the court
rendering judgment.197 If appeal is available, a petition for certiorari cannot be filed.
In this case, the trial court’s decision dated January 31, 2007 is a judgment on the merits.
Based on the facts disclosed by the parties, the trial court declared the PEZA liable to the
_______________
191 Madrigal Transport, Inc. v. Lapanday Holdings Corp., 479 Phil. 768, 780-781; 436 SCRA 123, 135 (2004)
[Per J. Panganiban, Third Division].
192 Id., at p. 781; p. 135.
194 Supra note 191 at p. 781; p. 138.
197 Bugarin v. Palisoc, supra note 182; Association of Integrated Security Force of Bislig (AISFB)-ALU v. Court of
Appeals, supra note 182 at p. 18; p. 493.
579
VOL. 742, NOVEMBER 26, 2014 579

Province of Bataan for real property taxes. The PEZA’s proper remedy against the trial
court’s decision, therefore, is appeal.
Since the PEZA filed a petition for certiorari against the trial court’s decision, it availed itself
of the wrong remedy. As the Province of Bataan contended, the trial court’s decision dated
January 31, 2007 “is only an error of judgment appealable to the higher level court and may not
be corrected by filing a petition for certiorari.”198 That the trial court judge allegedly committed
grave abuse of discretion does not make the petition for certiorari the correct remedy. The PEZA
should have raised this ground in an appeal filed within 15 days from notice of the assailed
resolution.
This court, “in the liberal spirit pervading the Rules of Court and in the interest of substantial
justice,”199 has treated petitions for certiorari as an appeal: “(1) if the petition for certiorari was
filed within the reglementary period within which to file a petition for review on certiorari; (2)
when errors of judgment are averred; and (3) when there is sufficient reason to justify the
relaxation of the rules.”200 Considering that “the nature of an action is determined by the
allegations of the complaint or the petition and the character of the relief sought,” 201 a petition
which “actually avers errors of judgment rather than errors than that of jurisdiction” 202 may be
considered a petition for review.
However, suspending the application of the Rules has its disadvantages. Relaxing procedural
rules may reduce the
_______________
198 Rollo (G.R. No. 187583), pp. 31-32.

199 City of Manila v. Grecia-Cuerdo, G.R. No. 175723, February 4, 2014, 715 SCRA 182 [Per J. Peralta, En
Banc]; Oaminal v. Castillo, 459 Phil. 542, 556; 413 SCRA 189, 200 (2003) [Per J. Panganiban, Third Division].
200 Id.
201 Oaminal v. Castillo, supra at p. 557; p. 200.
202 Id., citing Delsan Transport Lines, Inc. v. Court of Appeals, 335 Phil. 1066, 1075; 268 SCRA 597, 605 (1997)
[Per J. Mendoza, Second Division].
580

“effective enforcement of substantive rights,”203 leading to “arbitrariness, caprice, despotism,
or whimsicality in the settlement of disputes.”204 Therefore, for this court to suspend the
application of the Rules, the accomplishment of substantial justice must outweigh the importance
of predictability of court procedures.
The PEZA’s petition for certiorari may be treated as an appeal. First, the petition
for certiorari was filed within the 15-day reglementary period for filing an appeal. The PEZA
filed its petition for certiorari before the Court of Appeals on October 15, 2007,205 which was 12
days from October 3, 2007206 when the PEZA had notice of the trial court’s order denying the
motion for reconsideration.
Second, the petition for certiorari raised errors of judgment. The PEZA argued that the trial
court erred in ruling that it is not exempt from payment of real property taxes given Section 21 of
Presidential Decree No. 66 and Sections 11 and 51 of the Special Economic Zone Act of 1995.207
Third, there is sufficient reason to relax the rules given the importance of the substantive
issue presented in this case.
However, the PEZA’s petition for certiorari was filed before the wrong court. The PEZA
should have filed its petition before the Court of Tax Appeals.
The Court of Tax Appeals has the exclusive appellate jurisdiction over local tax cases decided
by Regional Trial Courts. Section 7, paragraph (a)(3) of Republic Act No. 1125, as amended by
Republic Act No. 9282, provides:
_______________
203 Sebastian v. Morales, 445 Phil. 595, 605; 397 SCRA 549, 558 (2003) [Per J. Quisumbing, Second Division].
204 Id.
206 Id., at p. 7.
207 Id., at pp. 33-34.
581
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Sec. 7. Jurisdiction.—The [Court of Tax Appeals] shall exercise:
a. Exclusive appellate jurisdiction to review by appeal, as herein provided:
....
3. Decisions, orders or resolutions of the Regional Trial Courts in local tax cases originally decided
or resolved by them in the exercise of their original or appellate jurisdiction[.]

The local tax cases referred to in Section 7, paragraph (a)(3) of Republic Act No. 1125, as
amended, include cases involving real property taxes. Real property taxation is governed by
Book II of the Local Government Code on “Local Taxation and Fiscal Matters.” Real property
taxes are collected by the Local Treasurer,208 not by the Bureau of Internal Revenue in charge of
collecting national internal revenue taxes, fees, and charges.209
_______________
208 Local Gov’t. Code, Sec. 247 provides;

SEC. 247. Collection of Tax.—The collection of the real property tax with interest thereon and related expenses,
and the enforcement of the remedies provided for in this Title or any applicable laws, shall be the responsibility of the city
or municipal treasurer concerned. The city or municipal treasurer may deputize the barangay treasurer to collect all taxes
on real property located in the barangay: Provided, That the barangay treasurer is properly bonded for the
purpose: Provided, further, That the premium on the bond shall be paid by the city or municipal government concerned.
209 Tax Code, Title I, Sec. 2 provides:
SEC. 2. Powers and duties of the Bureau of Internal Revenue.—The Bureau of Internal Revenue shall be under the
supervision and control of the Department of Finance and its powers and duties shall comprehend the assessment and
collection of all national internal revenue taxes, fees, and charges, and the enforcement of all forfeitures, penalties, and
fines connected therewith, including the execution of judgments in all cases decided in its favor by the Court of Tax
Appeals and the ordinary courts. The Bureau shall give
582

Section 7, paragraph (a)(5) of Republic Act No. 1125, as amended by Republic Act No. 9282,
separately provides for the exclusive appellate jurisdiction of the Court of Tax Appeals over
decisions of the Central Board of Assessment Appeals involving the assessment or collection of
real property taxes:
Sec. 7. Jurisdiction.—The [Court of Tax Appeals] shall exercise:
a. Exclusive appellate jurisdiction to review by appeal, as herein provided:
....
5. Decisions of the Central Board of Assessment Appeals in the exercise of its appellate jurisdiction
over cases involving the assessment and taxation of real property originally decided by the provincial or
city board of assessment appeals[.]

This separate provision, nevertheless, does not bar the Court of Tax Appeals from taking
cognizance of trial court decisions involving the collection of real property tax cases. Sections
256210 and 266211 of the Local Government Code ex-
_______________
effect to and administer the supervisory and police powers conferred to it by this Code or other laws.
210 Local Gov’t. Code, Sec. 256 provides:
SEC. 256. Remedies for the Collection of Real Property Tax.—For the collection of the basic real property tax and
any other tax levied under this Title, the local government unit concerned may avail of the remedies by administrative
action thru levy on real property or by judicial action.
211 Local Gov’t. Code, Sec. 266 provides:
SEC. 266. Collection of Real Property Tax Through the Courts.—
The local government unit concerned may enforce the collection of the basic real property tax or any other tax levied
under this Title by civil action in any court of competent jurisdiction. The civil action shall be filed by the local treasurer
within the period prescribed in Section 270 of this Code.
583
VOL. 742, NOVEMBER 26, 2014 583

pressly allow local government units to file “in any court of competent jurisdiction” civil
actions to collect basic real property taxes. Should the trial court rule against them, local
government units cannot be barred from appealing before the Court of Tax Appeals — the
“highly specialized body specifically created for the purpose of reviewing tax cases.”212
We have also ruled that the Court of Tax Appeals, not the Court of Appeals, has the exclusive
original jurisdiction over petitions for certiorari assailing interlocutory orders issued by Regional
Trial Courts in a local tax case. We explained in The City of Manila v. Hon. Grecia-Cuerdo213 that
while the Court of Tax Appeals has no express grant of power to issue writs of certiorari under
Republic Act No. 1125,214 as amended, the tax court’s judicial power as defined in the
Constitution215 includes the power to determine “whether or not there has been grave abuse of
discretion amounting to lack or excess of jurisdiction on the part of the [Regional Trial Court] in
issuing an interlocutory order of jurisdiction in cases falling within the exclusive appellate
jurisdiction of the tax court.”216 We further elaborated:
Indeed, in order for any appellate court to effectively exercise its appellate jurisdiction, it must have
the author-
_______________
212 Phil. Refining Co. v. Court of Appeals, 326 Phil. 680, 689; 256 SCRA 667, 675-676 (1996) [Per J. Regalado,
Second Division].
213 Supra note 199.
214 An Act Creating the Court of Tax Appeals (1954).
215 Const., Art. VIII, Sec. 1 provides:
Section 1. The judicial power shall be vested in one Supreme Court and in such lower courts as may be established
by law.
Judicial power includes the duty of the courts of justice to settle actual controversies involving rights which are legally
demandable and enforceable, and to determine whether or not there has been a grave abuse of discretion amounting to lack
or excess of jurisdiction on the part of any branch or instrumentality of the Government.
216 Supra note 199.
584

ity to issue, among others, a writ of certiorari. In transferring exclusive jurisdiction over appealed tax
cases to the CTA, it can reasonably be assumed that the law intended to transfer also such power as is
deemed necessary, if not indispensable, in aid of such appellate jurisdiction. There is no perceivable
reason why the transfer should only be considered as partial, not total.
....
If this Court were to sustain petitioners’ contention that jurisdiction over their certiorari petition lies
with the CA, this Court would be confirming the exercise by two judicial bodies, the CA and the CTA, of
jurisdiction over basically the same subject matter — precisely the split-jurisdiction situation which is
anathema to the orderly administration of justice. The Court cannot accept that such was the legislative
motive, especially considering that the law expressly confers on the CTA, the tribunal with the
specialized competence over tax and tariff matters, the role of judicial review over local tax cases without
mention of any other court that may exercise such power. Thus, the Court agrees with the ruling of the
CA that since appellate jurisdiction over private respondents’ complaint for tax refund is vested in the
CTA, it follows that a petition for certiorari seeking nullification of an interlocutory order issued in the
said case should, likewise, be filed with the same court. To rule otherwise would lead to an absurd
situation where one court decides an appeal in the main case while another court rules on an incident in
the very same case.
Stated differently, it would be somewhat incongruent with the pronounced judicial abhorrence to split
jurisdiction to conclude that the intention of the law is to divide the authority over a local tax case filed
with the RTC by giving to the CA or this Court jurisdiction to issue a writ of certiorari against
interlocutory orders of the RTC but giving to the CTA the jurisdiction over the appeal from the decision
of the trial court in the same case. It is more in consonance with logic and legal soundness to conclude
that the grant of appellate jurisdiction to the CTA over tax cases filed in and decided by the RTC carries
with it
585
VOL. 742, NOVEMBER 26, 2014 585

the power to issue a writ of certiorari when necessary in aid of such appellate jurisdiction. The
supervisory power or jurisdiction of the CTA to issue a writ of certiorari in aid of its appellate
jurisdiction should coexist with, and be a complement to, its appellate jurisdiction to review, by appeal,
the final orders and decisions of the RTC, in order to have complete supervision over the acts of the
latter. (Citations omitted)
217

In this case, the petition for injunction filed before the Regional Trial Court of Pasay was a
local tax case originally decided by the trial court in its original jurisdiction. Since the PEZA
assailed a judgment, not an interlocutory order, of the Regional Trial Court, the PEZA’s proper
remedy was an appeal to the Court of Tax Appeals.
Considering that the appellate jurisdiction of the Court of Tax Appeals is to the exclusion of
all other courts, the Court of Appeals had no jurisdiction to take cognizance of the PEZA’s
petition. The Court of Appeals acted without jurisdiction in rendering the decision in C.A.-G.R.
S.P. No. 100984. Its decision in C.A.-G.R. S.P. No. 100984 is void.218
The filing of appeal in the wrong court does not toll the period to appeal. Consequently, the
decision of the Regional Trial Court, Branch 115, Pasay City, became final and executory after
the lapse of the 15th day from the PEZA’s receipt of the trial court’s decision.219 The denial of the
petition for injunction became final and executory.
_______________
217 Id.
218 See City of Iriga v. Camarines Sur III Electric Cooperative, Inc. (CASURECO III), G.R. No. 192945, September
5, 2012, 680 SCRA 236, 244 [Per J. Perlas-Bernabe, Second Division].
219 See Land Bank of the Philippines v. Court of Appeals, G.R. No. 190660, April 11, 2011, 647 SCRA 561, 567
[Per J. Carpio-Morales, Third Division].
586

IV.

The remedy of a taxpayer depends on the stage in which the local government unit is
enforcing its authority to impose real property taxes

The proper remedy of a taxpayer depends on the stage in which the local government unit is
enforcing its authority to collect real property taxes. For the guidance of the members of the
bench and the bar, we reiterate the taxpayer’s remedies against the erroneous or illegal
assessment of real property taxes.
Exhaustion of administrative remedies under the Local Government Code is necessary in
cases of erroneous assessments where the correctness of the amount assessed is assailed. The
taxpayer must first pay the tax then file a protest with the Local Treasurer within 30 days from
date of payment of tax.220 If protest is denied or upon the lapse of the 60-day period to decide the
protest, the taxpayer may appeal to the Local Board of Assessment Appeals within 60 days from
the denial of the protest or the lapse of the 60-day period to decide the protest. 221 The Local Board
of Assessment Appeals has 120 days to decide the appeal.222
If the taxpayer is unsatisfied with the Local Board’s decision, the taxpayer may appeal before
the Central Board of Assessment Appeals within 30 days from receipt of the Local Board’s
decision.223
_______________
220 Rep. Act No. 7160, Sec. 252.

221 Rep. Act No. 7160, Sec. 226.
222 Rep. Act No. 7160, Sec. 229(a).
223 Rep. Act No. 7160, Sec. 229(c).
587
VOL. 742, NOVEMBER 26, 2014 587

The decision of the Central Board of Assessment Appeals is appealable before the Court of
Tax Appeals En Banc.224 The appeal before the Court of Tax Appeals shall be filed following the
procedure under Rule 43 of the Rules of Court.225
The Court of Tax Appeals’ decision may then be appealed before this court through a petition
for review on certiorari under Rule 45 of the Rules of Court raising pure questions of law.226
In case of an illegal assessment where the assessment was issued without authority,
exhaustion of administrative remedies is not necessary and the taxpayer may directly resort to
judicial action.227 The taxpayer shall file a complaint for injunction before the Regional Trial
Court228 to enjoin the local government unit from collecting real property taxes.
The party unsatisfied with the decision of the Regional Trial Court shall file an appeal, not a
petition for certiorari, before the Court of Tax Appeals, the complaint being a local tax case
decided by the Regional Trial Court.229 The appeal shall be filed within fifteen (15) days from
notice of the trial court’s decision.
The Court of Tax Appeals’ decision may then be appealed before this court through a petition
for review on certiorari
_______________
224 Rep. Act No. 1125, as amended by Rep. Act No. 9282, Sec. 7(a)(5); Rules of Procedure In The Court of Tax
Appeals, Rule 4, Sec. 2(e).
225 Rules of Procedure In The Court of Tax Appeals, Rule 8, Sec. 4(c).
226 Rep. Act No. 1125 (1954), as amended by Rep. Act No. 9282 (2004), Sec. 19.
227 Ty v. Trampe, supra note 162 at pp. 101-102; p. 518.
228 Batas Blg. 129 (1994), Sec. 19; Bank of the Philippine Islands v. Hong, G.R. No. 161771, February 15, 2012, 666
SCRA 71, 78 [Per J. Villarama, Jr., First Division].
229 Rep. Act No. 1125 (1954), as amended by Rep. Act No. 9282 (2004), Sec. 7(a)(3).
588

under Rule 45 of the Rules of Court raising pure questions of law.230
In case the local government unit has issued a notice of delinquency, the taxpayer may file a
complaint for injunction to enjoin the impending sale of the real property at public auction. In
case the local government unit has already sold the property at public auction, the taxpayer must
first deposit with the court the amount for which the real property was sold, together with interest
of 2% per month from the date of sale to the time of the institution of action. The taxpayer may
then file a complaint to assail the validity of the public auction. 231 The decisions of the Regional
Trial Court in these cases shall be appealable before the Court of Tax Appeals, 232 and the latter’s
decisions appealable before this court through a petition for review on certiorari under Rule 45
of the Rules of Court.233

V.

The PEZA is exempt from payment of real property taxes

The jurisdictional errors in this case render these consolidated petitions moot. We do not
review void decisions rendered without jurisdiction.
However, the PEZA alleged that several local government units, including the City of Baguio
and the Province of Cavite, have issued their respective real property tax assessments against the
PEZA. Other local government units will likely follow suit, and either the PEZA or the local
government units
_______________
230 Rep. Act No. 1125 (1954), as amended by Rep. Act No. 9282 (2004), Sec. 19.
231 Rep. Act No. 7160 (1991), Sec. 267.
232 Supra note 229.
233 Supra note 230.
589
VOL. 742, NOVEMBER 26, 2014 589

taxing the PEZA may file their respective actions against each other.
In the interest of judicial economy234 and avoidance of conflicting decisions involving the
same issues,235 we resolve the substantive issue of whether the PEZA is exempt from payment of
real property taxes.
Real property taxes are annual taxes levied on real property such as lands, buildings,
machinery, and other improvements not otherwise specifically exempted under the Local
Government Code.236 Real property taxes are ad valorem, with the amount charged based on a
fixed proportion of the value of the property. 237 Under the law, provinces, cities, and
municipalities within the Metropolitan Manila Area have the power to levy real property taxes
within their respective territories.238
The general rule is that real properties are subject to real property taxes. This is true
especially since the Local Government Code has withdrawn exemptions from real property taxes
of all persons, whether natural or juridical:
SEC. 234. Exemptions from Real Property Tax.—The following are exempted from payment of real
property tax:
(a) Real property owned by the Republic of the Philippines or any of its political subdivisions except
when the beneficial use thereof has been granted, for consideration or otherwise, to a taxable person;
_______________
234 Salud v. Court of Appeals, G.R. No. 100156, June 27, 1994, 233 SCRA 384, 389 [Per J. Puno, Second Division].
235 See Pryce Corporation v. China Banking Corporation, G.R. No. 172302, February 18, 2014, 716 SCRA 207, 235
[Per J. Leonen, En Banc].
236 Local Gov’t. Code, Sec. 232.
237 Local Gov’t. Code, Sec. 198(c).
238 Local Gov’t. Code, Sec. 232.
590

(b) Charitable institutions, churches, parsonages or convents appurtenant thereto, mosques, nonprofit
or religious cemeteries and all lands, buildings, and improvements actually, directly, and exclusively used
for religious, charitable or educational purposes;
(c) All machineries and equipment that are actually, directly and exclusively used by local water
districts and government-owned or -controlled corporations engaged in the supply and distribution of
water and/or generation and transmission of electric power;
(d) All real property owned by duly registered cooperatives as provided under R.A. No. 6938; and
(e) Machinery and equipment used for pollution control and environmental protection.
Except as provided herein, any exemption from payment of real property taxes previously granted to,
or presently enjoyed by, all persons, whether natural or juridical, including government-owned or
-controlled corporations are hereby withdrawn upon the effectivity of this Code. (Emphasis supplied)

The person liable for real property taxes is the “taxable person who had actual or beneficial
use and possession [of the real property for the taxable period,] whether or not [the person owned
the property for the period he or she is being taxed].”239
The exceptions to the rule are provided in the Local Government Code. Under Section
133(o), local government units have no power to levy taxes of any kind on the national
government, its agencies and instrumentalities and local government units:
_______________
239 Government Service Insurance System v. City Treasurer of the City of Manila, supra note 115 at p. 982; p. 351,
citing Testate Estate of Concordia T. Lim v. City of Manila, 261 Phil. 602, 607; 182 SCRA 482, 486 (1990)
[Per J. Gutierrez, Jr., Third Division]; Manila Electric Company v. Barlis, 410 Phil. 167, 178; 357 SCRA 832, 840 (2001)
[Per J. De Leon, Jr., Second Division].
591
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SEC. 133. Common Limitations on the Taxing Powers of Local Government Units.—Unless
otherwise provided herein, the exercise of taxing powers of provinces, cities, municipalities,
....
(o) Taxes, fees or charges of any kind on the National Government, its agencies and
instrumentalities and local government units.

Specifically on real property taxes, Section 234 enumerates the persons and real property
exempt from real property taxes:
SEC. 234. Exemptions from Real Property Tax.— The following are exempted from payment of
real property tax:
when the beneficial use thereof has been granted, for consideration or otherwise, to a taxable person;
(b) Charitable institutions, churches, parsonages or convents appurtenant thereto, mosques, nonprofit
or religious cemeteries and all lands, buildings, and improvements actually, directly, and exclusively
used for religious, charitable or educational purposes;
(c) All machineries and equipment that are actually, directly and exclusively used by local water
districts and government-owned or -controlled corporations engaged in the supply and distribution of
water and/or generation and transmission of electric power;
(d) All real property owned by duly registered cooperatives as provided under R.A. No. 6938; and
(e) Machinery and equipment used for pollution control and environmental protection.
592

Except as provided herein, any exemption from payment of real property tax previously granted to, or
presently enjoyed by, all persons, whether natural or juridical, including all government-owned or
-controlled corporations are hereby withdrawn upon the effectivity of this Code. (Emphasis supplied)

For persons granted tax exemptions or incentives before the effectivity of the Local
Government Code, Section 193 withdrew these tax exemption privileges. These persons consist
of both natural and juridical persons, including government-owned or -controlled corporations:
SEC. 193. Withdrawal of Tax Exemption Privileges.—Unless otherwise provided in this code, tax
exemptions or incentives granted to or presently enjoyed by all persons, whether natural or juridical,
including government-owned or controlled corporations, except local water districts, cooperatives duly
registered under R.A. 6938, non-stock and nonprofit hospitals and educational institutions, are hereby
withdrawn upon effectivity of this Code.

As discussed, Section 234 withdrew all tax privileges with respect to real property taxes.
Nevertheless, local government units may grant tax exemptions under such terms and
conditions as they may deem necessary:
SEC. 192. Authority to Grant Tax Exemption Privileges.—Local government units may, through
ordinances duly approved, grant tax exemptions, incentives or reliefs under such terms and conditions as
they may deem necessary.
593
VOL. 742, NOVEMBER 26, 2014 593

In Mactan Cebu International Airport Authority v. Hon. Marcos,240 this court classified the
exemptions from real property taxes into ownership, character, and usage exemptions.
Ownership exemptions are exemptions based on the ownership of the real property. The
exemptions of real property owned by the Republic of the Philippines, provinces, cities,
municipalities, barangays, and registered cooperatives fall under this classification.241
Character exemptions are exemptions based on the character of the real property. Thus, no
real property taxes may be levied on charitable institutions, houses and temples of prayer like
churches, parsonages, or convents appurtenant thereto, mosques, and nonprofit or religious
cemeteries.242
Usage exemptions are exemptions based on the use of the real property. Thus, no real
property taxes may be levied on real property such as: (1) lands and buildings actually, directly,
and exclusively used for religious, charitable or educational purpose; (2) machineries and
equipment actually, directly and exclusively used by local water districts or by government-
owned or -controlled corporations engaged in the supply and distribution of water and/or
generation and transmission of electric power; and (3) machinery and equipment used for
pollution control and environmental protection.243
Persons may likewise be exempt from payment of real properties if their charters, which were
enacted or reenacted after the effectivity of the Local Government Code, exempt them payment
of real property taxes.244
_______________
240 330 Phil. 392; 261 SCRA 667 (1996) [Per J. Davide, Jr., Third Division].
241 Id., at p. 410; p. 686.
242 Id.
243 Id.
244 Government Service Insurance System v. City Treasurer of the City of Manila , supra note 115 at pp. 976-977; p.
341.
594

V. (A)

The PEZA is an instrumentality of the national government

An instrumentality is “any agency of the National Government, not integrated within the
department framework, vested with special functions or jurisdiction by law, endowed with some
if not all corporate powers, administering special funds, and enjoying operational autonomy,
usually through a charter.”245
Examples of instrumentalities of the national government are the Manila International Airport
Authority,246 the Philippine Fisheries Development Authority,247 the Government Service
Insurance System,248 and the Philippine Reclamation Authority.249 These entities are not integrated
within the department framework but are nevertheless vested with special functions to carry out a
declared policy of the national government.
Similarly, the PEZA is an instrumentality of the national government. It is not integrated
within the department framework but is an agency attached to the Department of Trade and
Industry.250 Book IV, Chapter 7, Section 38(3)(a) of the Administrative Code of 1987 defines
“attachment”:
SEC. 38. Definition of Administrative Relationship.—Unless otherwise expressly stated in the Code
or
_______________
245 Exec. Order No. 292, Introductory Provisions, Sec. 2(10).

246 Manila International Airport Authority v. Court of Appeals, supra note 92 at pp. 212-214; p. 662.
247 Philippine Fisheries Development Authority v. Court of Appeals, supra note 115 at p. 668; p. 500.
248 Government Service Insurance System v. City Treasurer of the City of Manila , supra note 115 at pp. 978-981; p.
354.
249 Republic v. City of Parañaque, supra note 115 at p. 263.
250 Rep. Act No. 7916 (1995), Sec. 11.
595
VOL. 742, NOVEMBER 26, 2014 595

in other laws defining the special relationships of particular agencies, administrative relationships
shall be categorized and defined as follows:
....
(3) Attachment.—(a) This refers to the lateral relationship between the department or its equivalent
and the attached agency or corporation for purposes of policy and program coordination. The
coordination may be accomplished by having the department represented in the governing board of the
attached agency or corporation, either as chairman or as a member, with or without voting rights, if this is
permitted by the charter; having the attached corporation or agency comply with a system of periodic
reporting which shall reflect the progress of the programs and projects; and having the department or its
equivalent provide general policies through its representative in the board, which shall serve as the
framework for the internal policies of the attached corporation or agency[.]

Attachment, which enjoys “a larger measure of independence”251 compared with other
administrative relationships such as supervision and control, is further explained in Beja, Sr. v.
Court of Appeals:252
An attached agency has a larger measure of independence from the Department to which it is
attached than one which is under departmental supervision and control or administrative
supervision. This is borne out by the “lateral relationship” between the Department and the
attached agency. The attachment is merely for “policy and program coordination.” With respect
to administrative matters, the independence of an attached agency from Departmental control
and supervision is further reinforced by the fact that even an agency under a
_______________
251 Beja, Sr. v. Court of Appeals, G.R. No. 97149, March 31, 1992, 207 SCRA 689, 697 [Per J. Romero, En Banc].
252 Id.
596

Department’s administrative supervision is free from Departmental interference with respect to
appointments and other personnel actions “in accordance with the decentralization of personnel
functions” under the Administrative Code of 1987. Moreover, the Administrative Code explicitly
provides that Chapter 8 of Book IV on supervision and control shall not apply to chartered institutions
attached to a Department. 253

With the PEZA as an attached agency to the Department of Trade and Industry, the 13-person
PEZA Board is chaired by the Department Secretary. 254 Among the powers and functions of the
PEZA is its ability to coordinate with the Department of Trade and Industry for policy and
program formulation and implementation.255 In strategizing and prioritizing the development of
special economic zones, the PEZA coordinates with the Department of Trade and Industry.256
The PEZA also administers its own funds and operates autonomously, with the PEZA Board
formulating and approving the PEZA’s annual budget.257 Appointments and other personnel
actions in the PEZA are also free from departmental interference, with the PEZA Board having
the exclusive and final authority to promote, transfer, assign and reassign officers of the PEZA.258
As an instrumentality of the national government, the PEZA is vested with special functions
or jurisdiction by law. Congress created the PEZA to operate, administer, manage and develop
special economic zones in the Philippines.259 Special economic zones are areas with highly
developed or which
_______________
253 Id.
254 Rep. Act No. 7916 (1995), Sec. 11.
255 Rep. Act No. 7916 (1995), Sec. 13(h).
256 Rep. Act No. 7916 (1995), Sec. 21.
257 Rep. Act No. 7916 (1995), Secs. 12(d) and 19.
258 Rep. Act No. 7916 (1995), Sec. 16.
259 Rep. Act No. 7916 (1995), Sec. 13(a).
597
VOL. 742, NOVEMBER 26, 2014 597

have the potential to be developed into agro-industrial, industrial tourist/recreational,
commercial, banking, investment and financial centers.260 By operating, administering, managing,
and developing special economic zones which attract investments and promote use of domestic
labor, the PEZA carries out the following policy of the Government:
SECTION 2. Declaration of Policy.—It is the declared policy of the government to translate into
practical realities the following State policies and mandates in the 1987 Constitution, namely:
(a) “The State recognizes the indispensable role of the private sector, encourages private enterprise,
and provides incentives to needed investments.” (Sec. 20, Art. II)
(b) “The State shall promote the preferential use of Filipino labor, domestic materials and locally
produced goods, and adopt measures that help make them competitive.” (Sec. 12, Art. XII)
In pursuance of these policies, the government shall actively encourage, promote, induce and
accelerate a sound and balanced industrial, economic and social development of the country in order to
provide jobs to the people especially those in the rural areas, increase their productivity and their
individual and family income, and thereby improve the level and quality of their living condition through
the establishment, among others, of special economic zones in suitable and strategic locations in the
country and through measures that shall effectively attract legitimate and productive foreign
investments. 261

Being an instrumentality of the national government, the PEZA cannot be taxed by local
government units.
_______________
260 Rep. Act No. 7916 (1995), Sec. 4(a)

261 Rep. Act No. 7916 (1995).
598

Although a body corporate vested with some corporate powers, 262 the PEZA is not a
government-owned or -controlled corporation taxable for real property taxes.
Section 2(13) of the Introductory Provisions of the Administrative Code of 1987 defines the
term “government-owned or -controlled corporation”:
SEC. 2. General Terms Defined.—Unless the specific words of the text, or the context as a whole,
or a particular statute, shall require a different meaning:
....
(13) Government-owned or -controlled corporation refers to any agency organized as a stock or
non-stock corporation, vested with functions relating to public needs whether governmental or proprietary
in nature, and owned by the Government directly or through its instrumentalities either wholly, or, where
applicable as in the case of stock corporations, to the extent of at least fifty-one (51) percent of its capital
stock: Provided, That government-owned or -controlled corporations may be further categorized by the
Department of the Budget, the Civil Service Commission, and the Commission on Audit for purposes of
the exercise and discharge of their respective powers, functions and responsibilities with respect to such
corporations.

Government entities are created by law, specifically, by the Constitution or by statute. In the
case of government-owned or -controlled corporations, they are incorporated by virtue of special
charters263 to participate in the market for special reasons which may be related to dysfunctions or
inefficiencies of the market structure. This is to adjust reality as against the concept of full
competition where all market players are price takers. Thus, under the Constitution, government-
owned or -controlled corporations are created in the interest
_______________
262 Supra note 254.
263 Const., Art. XII, Sec. 16.
599
VOL. 742, NOVEMBER 26, 2014 599

of the common good and should satisfy the test of economic viability. 264 Article XII, Section
16 of the Constitution provides:
Section 16. The Congress shall not, except by general law, provide for the formation, organization,
or regulation of private corporations. Government-owned or -controlled corporations may be created or
established by special charters in the interest of the common good and subject to the test of economic
viability.

Economic viability is “the capacity to function efficiently in business.” 265 To be economically
viable, the entity “should not go into activities which the private sector can do better.”266
To be considered a government-owned or -controlled corporation, the entity must have been
organized as a stock or non-stock corporation.267
Government instrumentalities, on the other hand, are also created by law but partake of
sovereign functions. When a government entity performs sovereign functions, it need not meet
the test of economic viability. In Manila International Airport Authority v. Court of
Appeals,268 this court explained:
In contrast, government instrumentalities vested with corporate powers and performing governmental
or public functions need not meet the test of economic vi-
_______________
264 Republic v. City of Parañaque, supra note 115 at p. 259, citing Manila International Airport Authority v. Court
of Appeals, supra note 92 at pp. 234-237; p. 641.
265 Republic v. City of Parañaque, id., at p. 262, citing Manila International Airport Authority v. Court of
Appeals, id., at p. 237; p. 641, citing J. G. Bernas, The 1987 Constitution of the Republic of the Philippines: A
Commentary, p. 1181 (2003).
266 Id.
267 Manila International Airport Authority v. Court of Appeals, supra note 92 at p. 210; p. 615.
268 Id.
600

ability. These instrumentalities perform essential public services for the common good, services that
every modern State must provide its citizens. These instrumentalities need not be economically viable
since the government may even subsidize their entire operations. These instrumentalities are not the
“government-owned or -controlled corporations” referred to in Section 16, Article XII of the 1987
Constitution.
Thus, the Constitution imposes no limitation when the legislature creates government instrumentalities
vested with corporate powers but performing essential governmental or public functions. Congress has
plenary authority to create government instrumentalities vested with corporate powers provided these
instrumentalities perform essential government functions or public services. However, when the
legislature creates through special charters corporations that perform economic or commercial activities,
such entities — known as “government-owned or -controlled corporations” — must meet the test of
economic viability because they compete in the market place.
....
Commissioner Blas F. Ople, proponent of the test of economic viability, explained to the
Constitutional Commission the purpose of this test, as follows:
MR. OPLE: Madam President, the reason for this concern is really that when the government creates a
corporation, there is a sense in which this corporation becomes exempt from the test of economic
performance. We know what happened in the past. If a government corporation loses, then it makes its
claim upon the taxpayers’ money through new equity infusions from the government and what is always
invoked is the common good. That is the reason why this year, out of a budget of P115 billion for the
entire government, about P28 billion of this will go into equity infusions to support a few government
financial institutions. And this is all taxpayers’ money
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which could have been relocated to agrarian reform, to social services like health and education, to
augment the salaries of grossly underpaid public employees. And yet this is all going down the drain.
Therefore, when we insert the phrase “ECONOMIC VIABILITY” together with the “common good,”
this becomes a restraint on future enthusiasts for state capitalism to excuse themselves from the
responsibility of meeting the market test so that they become viable. And so, Madam President, I
reiterate, for the committee’s consideration and I am glad that I am joined in this proposal by
Commissioner Foz, the insertion of the standard of “ECONOMIC VIABILITY OR THE ECONOMIC
TEST,” together with the common good.
....
Clearly, the test of economic viability does not apply to government entities vested with corporate
powers and performing essential public services. The State is obligated to render essential public services
regardless of the economic viability of providing such service. The noneconomic viability of rendering
such essential public service does not excuse the State from withholding such essential services from the
public. (Emphases and citations omitted)
269

The law created the PEZA’s charter. Under the Special Economic Zone Act of 1995, the
PEZA was established primarily to perform the governmental function of operating,
administering, managing, and developing special economic zones to attract investments and
provide opportunities for preferential use of Filipino labor.
_______________
269 Id., at pp. 235-237; pp. 640-642.
602

Under its charter, the PEZA was created a body corporate endowed with some corporate
powers. However, it was not organized as a stock 270 or non-stock271 corporation. Nothing in the
PEZA’s charter provides that the PEZA’s capital is divided into shares. 272 The PEZA also has no
members who shall share in the PEZA’s profits.
The PEZA does not compete with other economic zone authorities in the country. The
government may even subsidize the PEZA’s operations. Under Section 47 of the Special
Economic Zone Act of 1995, “any sum necessary to augment [the PEZA’s] capital outlay shall
be included in the General Appropriations Act to be treated as an equity of the national
government.”273
_______________
270 Corp. Code, Sec. 3 provides:

Classes of corporations.—Corporations formed or organized under this Code may be stock or non-stock corporations.
Corporations which have capital stock divided into shares and are authorized to distribute to the holders of such shares
dividends or allotments of the surplus profits on the basis of the shares held are stock corporations. All other corporations
are non-stock corporations.
271 Corp. Code, Sec. 87 provides:
Definition.—For the purposes of this Code, a non-stock corporation is one where no part of its income is distributable
as dividends to its members, trustees, or officers, subject to the provisions of this Code on dissolution: Provided, That any
profit which a non-stock corporation may obtain as an incident to its operations shall, whenever necessary or proper, be
used for the furtherance of the purpose or purposes for which the corporation was organized, subject to the provisions of
this Title.
Republic v. City of Parañaque, supra note 115 at p. 258, citing Manila International Airport Authority v. Court of
Appeals, supra note 92 at pp. 211-212; pp. 670-671.
272 Pres. Decree No. 66, Sec. 5 in relation to Exec. Order No. 282 dated October 30, 1995, Sec. 1.
273 Rep. Act No. 7916 (1995), Sec. 47.
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The PEZA, therefore, need not be economically viable. It is not a government-owned or
-controlled corporation liable for real property taxes.

V. (B)

The PEZA assumed the nonprofit character, including the tax exempt status, of the EPZA

The PEZA’s predecessor, the EPZA, was declared nonprofit in character with all its revenues
devoted for its development, improvement, and maintenance. Consistent with this nonprofit
character, the EPZA was explicitly declared exempt from real property taxes under its charter.
Section 21 of Presidential Decree No. 66 provides:
Section 21. Nonprofit Character of the Authority; Exemption from Taxes.—The Authority shall be
nonprofit and shall devote and use all its returns from its capital investment, as well as excess revenues
from its operations, for the development, improvement and maintenance and other related expenditures of
the Authority to pay its indebtedness and obligations and in furtherance and effective implementation of
the policy enunciated in Section 1 of this Decree. In consonance therewith, the Authority is hereby
declared exempt:
....
(b) From all income taxes, franchise taxes, realty taxes and all other kinds of taxes and licenses to be
paid to the National Government, its provinces, cities, municipalities and other government agencies and
instrumentalities[.]

The Special Economic Zone Act of 1995, on the other hand, does not specifically exempt the
PEZA from payment of real property taxes.

604

Nevertheless, we rule that the PEZA is exempt from real property taxes by virtue of its
charter. A provision in the Special Economic Zone Act of 1995 explicitly exempting the PEZA is
unnecessary. The PEZA assumed the real property exemption of the EPZA under Presidential
Decree No. 66.
Section 11 of the Special Economic Zone Act of 1995 mandated the EPZA “to evolve into the
PEZA in accordance with the guidelines and regulations set forth in an executive order issued for
this purpose.” President Ramos then issued Executive Order No. 282 in 1995, ordering the PEZA
to assume the EPZA’s powers, functions, and responsibilities under Presidential Decree No. 66
not inconsistent with the Special Economic Zone Act of 1995:
SECTION 1. Assumption of EPZA’s Powers and Functions by PEZA.—All the powers, functions
and responsibilities of EPZA as provided under its Charter, Presidential Decree No. 66, as amended,
insofar as they are not inconsistent with the powers, functions and responsibilities of the PEZA, as
mandated under Republic Act No. 7916, shall hereafter be assumed and exercised by the PEZA.
Henceforth, the EPZA shall be referred to as the PEZA.

The following sections of the Special Economic Zone Act of 1995 provide for the PEZA’s
powers, functions, and responsibilities:
SEC. 5. Establishment of ECOZONES.—To ensure the viability and geographical dispersal of
ECOZONES through a system of prioritization, the following areas are initially identified as
ECOZONES, subject to the criteria specified in Section 6:
....
The metes and bounds of each ECOZONE are to be delineated and more particularly described in a
proclamation to be issued by the President of the Philippines,
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upon the recommendation of the Philippine Economic Zone Authority (PEZA), which shall be
established under this Act, in coordination with the municipal and/or city council, National Land Use
Coordinating Committee and/or the Regional Land Use Committee.
SEC. 6. Criteria for the Establishment of Other ECOZONES.—In addition to the ECOZONES
identified in Section 5 of this Act, other areas may be established as ECOZONES in a proclamation to be
issued by the President of the Philippines subject to the evaluation and recommendation of the PEZA,
based on a detailed feasibility and engineering study which must conform to the following criteria:
(a) The proposed area must be identified as a regional growth center in the Medium-Term Philippine
Development Plan or by the Regional Development Council;
(b) The existence of required infrastructure in the proposed ECOZONE, such as roads, railways,
telephones, ports, airports, etc., and the suitability and capacity of the proposed site to absorb such
improvements;
(c) The availability of water source and electric power supply for use of the ECOZONE;
(d) The extent of vacant lands available for industrial and commercial development and future
expansion of the ECOZONE as well as of lands adjacent to the ECOZONE available for development of
residential areas for the ECOZONE workers;
(e) The availability of skilled, semi-skilled and non-skilled trainable labor force in and around the
ECOZONE;
(f) The area must have a significant incremental advantage over the existing economic zones and its
potential profitability can be established;
(g) The area must be strategically located; and
(h) The area must be situated where controls can easily be established to curtail smuggling activities.
606

Other areas which do not meet the foregoing criteria may be established as ECOZONES: Provided,
That the said area shall be developed only through local government and/or private sector initiative under
any of the schemes allowed in Republic Act No. 6957 (the build-operate-transfer law), and without any
financial exposure on the part of the national government: Provided, further, That the area can be easily
secured to curtail smuggling activities: Provided, finally, That after five (5) years the area must have
attained a substantial degree of development, the indicators of which shall be formulated by the PEZA.
SEC. 7. ECOZONE to be a Decentralized Agro-Industrial, Industrial, Commercial/Trading,
Tourist, Investment and Financial Community.—Within the framework of the Constitution, the interest of
national sovereignty and territorial integrity of the Republic, ECOZONE shall be developed, as much as
possible, into a decentralized, self-reliant and self-sustaining industrial, commercial/trading, agro-
industrial, tourist, banking, financial and investment center with minimum government intervention. Each
ECOZONE shall be provided with transportation, telecommunications, and other facilities needed to
generate linkage with industries and employment opportunities for its own inhabitants and those of
nearby towns and cities.
The ECOZONE shall administer itself on economic, financial, industrial, tourism development and
such other matters within the exclusive competence of the national government.
The ECOZONE may establish mutually beneficial economic relations with other entities within the
country, or, subject to the administrative guidance of the Department of Foreign Affairs and/or the
Department of Trade and Industry, with foreign entities or enterprises.
Foreign citizens and companies owned by non-Filipinos in whatever proportion may set up enterprises
in the ECOZONE, either by themselves or in joint venture with Filipinos in any sector of industry,
international trade
607
VOL. 742, NOVEMBER 26, 2014 607

and commerce within the ECOZONE. Their assets, profits and other legitimate interests shall be
protected: Provided, That the ECOZONE through the PEZA may require a minimum investment for any
ECOZONE enterprises in freely convertible currencies: Provided, further, That the new investment shall
fall under the priorities, thrusts and limits provided for in the Act.
SEC. 8. ECOZONE to be Operated and Managed as Separate Customs Territory.—The
ECOZONE shall be managed and operated by the PEZA as separate customs territory.
The PEZA is hereby vested with the authority to issue certificate of origin for products manufactured
or processed in each ECOZONE in accordance with the prevailing rules or origin, and the pertinent
regulations of the Department of Trade and Industry and/or the Department of Finance.
SEC. 9. Defense and Security.—The defense of the ECOZONE and the security of its perimeter
fence shall be the responsibility of the national government in coordination with the PEZA. Military
forces sent by the national government for the purpose of defense shall not interfere in the internal affairs
of any of the ECOZONE and expenditure for these military forces shall be borne by the national
government. The PEZA may provide and establish the ECOZONES’ internal security and firefighting
forces.
SEC. 10. Immigration.—Any investor within the ECOZONE whose initial investment shall not be
less than One Hundred Fifty Thousand Dollars ($150,000.00), his/her spouse and dependent children
under twenty-one (21) years of age shall be granted permanent resident status within the ECOZONE.
They shall have freedom of ingress and egress to and from the ECOZONE without any need of special
authorization from the Bureau of Immigration.
The PEZA shall issue working visas renewable every two (2) years to foreign executives and other
aliens, process-
608

ing highly-technical skills which no Filipino within the ECOZONE possesses, as certified by the
Department of Labor and Employment. The names of aliens granted permanent resident status and
working visas by the PEZA shall be reported to the Bureau of Immigration within thirty (30) days after
issuance thereof.
SEC. 13. General Powers and Functions of the Authority.—The PEZA shall have the following
powers and functions:
(a) To operate, administer, manage and develop the ECOZONE according to the principles and
provisions set forth in this Act;
(b) To register, regulate and supervise the enterprises in the ECOZONE in an efficient and
decentralized manner;
(c) To coordinate with local government units and exercise general supervision over the
development, plans, activities and operations of the ECOZONES, industrial estates, export processing
zones, free trade zones, and the like;
(d) In coordination with local government units concerned and appropriate agencies, to construct,
acquire, own, lease, operate and maintain on its own or through contract, franchise, license, bulk purchase
from the private sector and build-operate-transfer scheme or joint venture, adequate facilities and
infrastructure, such as light and power systems, water supply and distribution systems, telecommunication
and transportation, buildings, structures, warehouses, roads, bridges, ports and other facilities for the
operation and development of the ECOZONE;
(e) To create, operate and/or contract to operate such agencies and functional units or offices of the
authority as it may deem necessary;
(f) To adopt, alter and use a corporate seal; make contracts, lease, own or otherwise dispose of
personal or real property; sue and be sued; and otherwise carry out its duties and functions as provided for
in this Act;
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(g) To coordinate the formulation and preparation of the development plans of the different entities
mentioned above;
(h) To coordinate with the National Economic and Development Authority (NEDA), the Department
of Trade and Industry (DTI), the Department of Science and Technology (DOST), and the local
government units and appropriate government agencies for policy and program formulation and
implementation; and
(i) To monitor and evaluate the development and requirements of entities in subsection (a) and
recommend to the local government units or other appropriate authorities the location, incentives, basic
services, utilities and infrastructure required or to be made available for said entities.
SEC. 17. Investigation and Inquiries.—Upon a written formal complaint made under oath, which
on its face provides reasonable basis to believe that some anomaly or irregularity might have been
committed, the PEZA or the administrator of the ECOZONE concerned, shall have the power to inquire
into the conduct of firms or employees of the ECOZONE and to conduct investigations, and for that
purpose may subpoena witnesses, administer oaths, and compel the production of books, papers, and
other evidences: Provided, That to arrive at the truth, the investigator(s) may grant immunity from
prosecution to any person whose testimony or whose possessions of documents or other evidence is
necessary or convenient to determine the truth in any investigation conducted by him or under the
authority of the PEZA or the administrator of the ECOZONE concerned.
SEC. 21. Development Strategy of the ECOZONE.—The strategy and priority of development of
each ECOZONE established pursuant to this Act shall be formulated by the PEZA, in coordination with
the Department of Trade and Industry and the National Economic and Development Authority; Provided,
That such development strategy is consistent with the priorities of the national government as outlined in
the medium-term Philippine development plan. It shall be the policy of the gov-
610

ernment and the PEZA to encourage and provide Incentives and facilitate private sector participation
in the construction and operation of public utilities and infrastructure in the ECOZONE, using any of the
schemes allowed in Republic Act No. 6957 (the build-operate-transfer law).
SEC. 22. Survey of Resources.—The PEZA shall, in coordination with appropriate authorities and
neighboring cities and municipalities, immediately conduct a survey of the physical, natural assets and
potentialities of the ECOZONE areas under its jurisdiction.
SEC. 26. Domestic Sales.—Goods manufactured by an ECOZONE enterprise shall be made
available for immediate retail sales in the domestic market, subject to payment of corresponding taxes on
the raw materials and other regulations that may be adopted by the Board of the PEZA.
However, in order to protect the domestic industry, there shall be a negative list of Industries that will
be drawn up by the PEZA. Enterprises engaged in the industries included in the negative list shall not be
allowed to sell their products locally. Said negative list shall be regularly updated by the PEZA.
The PEZA, in coordination with the Department of Trade and Industry and the Bureau of Customs,
shall jointly issue the necessary implementing rules and guidelines for the effective Implementation of
this section.
SEC. 29. Eminent Domain.—The areas comprising an ECOZONE may be expanded or reduced
when necessary. For this purpose, the government shall have the power to acquire, either by purchase,
negotiation or condemnation proceedings, any private lands within or adjacent to the ECOZONE for:
a. Consolidation of lands for zone development purposes;
b. Acquisition of right of way to the ECOZONE; and
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c. The protection of watershed areas and natural assets valuable to the prosperity of the ECOZONE.
If in the establishment of a publicly-owned ECOZONE, any person or group of persons who has been
occupying a parcel of land within the Zone has to be evicted, the PEZA shall provide the person or group
of persons concerned with proper disturbance compensation: Provided, however, That in the case of
displaced agrarian reform beneficiaries, they shall be entitled to the benefits under the Comprehensive
Agrarian Reform Law, including but not limited to Section 36 of Republic Act No. 3844, in addition to a
homelot in the relocation site and preferential employment in the project being undertaken.
SEC. 32. Shipping and Shipping Register.—Private shipping and related business including private
container terminals may operate freely in the ECOZONE, subject only to such minimum reasonable
regulations of local application which the PEZA may prescribe.
The PEZA shall, in coordination with the Department of Transportation and Communications,
maintain a shipping register for each ECOZONE as a business register of convenience for ocean-going
vessels and issue related certification.
Ships of all sizes, descriptions and nationalities shall enjoy access to the ports of the ECOZONE,
subject only to such reasonable requirement as may be prescribed by the PEZA In coordination with the
appropriate agencies of the national government.
SEC. 33. Protection of Environment.—The PEZA, in coordination with the appropriate agencies,
shall take concrete and appropriate steps and enact the proper measure for the protection of the local
environment.
SEC. 34. Termination of Business.—Investors In the ECOZONE who desire to terminate business
or operations shall comply with such requirements and procedures which the PEZA shall set, particularly
those relating to the clearing of debts. The assets of the closed enterprise can be transferred and the funds
con be remitted
612

out of the ECOZONE subject to the rules, guidelines and procedures prescribed jointly by the Bangko
Sentral ng Pilipinas, the Department of Finance and the PEZA.
SEC. 35. Registration of Business Enterprises.—Business enterprises within a designated
ECOZONE shall register with the PEZA to avail of all incentives and benefits provided for in this Act.
SEC. 36. One-Stop Shop Center.—The PEZA shall establish a one stop shop center for the purpose
of facilitating the registration of new enterprises in the ECOZONE. Thus, all appropriate government
agencies that are Involved In registering, licensing or issuing permits to investors shall assign their
representatives to the ECOZONE to attend to Investor’s requirements.
SEC. 39. Master Employment Contracts.—The PEZA, in coordination with the Department of
Tabor and Employment, shall prescribe a master employment contract for all ECOZONE enterprise staff
members and workers, the terms of which provide salaries and benefits not less than those provided under
this Act, the Philippine Labor Code, as amended, and other relevant issuances of the national government.
SEC. 41. Migrant Worker.—The PEZA, in coordination with the Department of Labor and
Employment, shall promulgate appropriate measures and programs leading to the expansion of the
services of the ECOZONE to help the local governments of nearby areas meet the needs of the migrant
workers.
SEC. 42. Incentive Scheme.—An additional deduction equivalent to one-half (1/2) of the value of
training expenses incurred in developing skilled or unskilled labor or for managerial or other management
development programs incurred by enterprises in the ECOZONE can be deducted from the national
government’s share of three percent (3%) as provided In Section 24.
The PEZA, the Department of Labor and Employment, and the Department of Finance shall jointly
make a review of the incentive scheme provided In this section every two (2) years or when
circumstances so warrant.
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SEC. 43. Relationship with the Regional Development Council.—The PEZA shall determine the
development goals for the ECOZONE within the framework of national development plans, policies and
goals, and the administrator shall, upon approval by the PEZA Board, submit the ECOZONE plans,
programs and projects to the regional development council for inclusion in and as inputs to the overall
regional development plan.
SEC. 44. Relationship with the Local Government Units.—Except as herein provided, the local
government units comprising the ECOZONE shall retain their basic autonomy and identity. The cities
shall be governed by their respective charters and the municipalities shall operate and function In
accordance with Republic Act No. 7160, otherwise known as the Local Government Code of 1991.
SEC. 45. Relationship of PEZA to Privately-Owned Industrial Estates.—Privately-owned industrial
estates shall retain their autonomy and independence and shall be monitored by the PEZA for the
implementation of incentives.
SEC. 46. Transfer of Resources.—The relevant functions of the Board of Investments over
industrial estates and agri-export processing estates shall be transferred to the PEZA. The resources of
government-owned Industrial estates and similar bodies except the Bases Conversion Development
Authority and those areas identified under Republic Act No. 7227, are hereby transferred to the PEZA as
the holding agency. They are hereby detached from their mother agencies and attached to the PEZA for
policy, program and operational supervision.
The Boards of the affected government-owned industrial estates shall be phased out and only the
management level and an appropriate number of personnel shall be retained.
Government personnel whose services are not retained by the PEZA or any government office within
the ECOZONE shall be entitled to separation pay and such re-
614

tirement and other benefits they are entitled to under the laws then in force at the time of their
separation: Provided, That in no case shall the separation pay be less than one and one-fourth (1 1/4)
month of every year of service.

The nonprofit character of the EPZA under Presidential Decree No. 66 is not inconsistent
with any of the powers, functions, and responsibilities of the PEZA. The EPZA’s nonprofit
character, including the EPZA’s exemption from real property taxes, must be deemed assumed
by the PEZA.
In addition, the Local Government Code exempting instrumentalities of the national
government from real property taxes was already in force274 when the PEZA’s charter was
enacted in 1995. It would have been redundant to provide for the PEZA’s exemption in its
charter considering that the PEZA is already exempt by virtue of Section 133(o) of the Local
Government Code.
As for the EPZA, Commonwealth Act No. 470 or the Assessment Law was in force when the
EPZA’s charter was enacted. Unlike the Local Government Code, Commonwealth Act No. 470
does not contain a provision specifically exempting instrumentalities of the national government
from payment of real property taxes.275 It was necessary to put an exempting provision in the
EPZA’s charter.
_______________
274 The Local Government Code became effective on January 1, 1992. Miguel v. Court of Appeals, G.R. No. 111749,
February 23, 1994, 230 SCRA 339, 340 [Per J. Quiason, First Division].
275 Commonwealth Act No. 470 (1939), Sec. 3 provides:
Property exempt from tax.—The exemptions shall be as follows:
(a) Property owned by the United States of America, the Commonwealth of the Philippines, any province, city,
municipality or municipal district.
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_______________
(b) Cemeteries or burial grounds.

(c) Churches and parsonages or convents appurtenant thereto, and all lands, buildings, and improvements used
exclusively for religious, charitable, scientific, or educational purposes.
(d) When the entire assessed valuation of real property in any one municipality or municipal district belonging to a
single owner is not in excess of one hundred pesos, or when the assessed valuation of a house, used as residence of the
owner thereof, together with the lot on which the same is built, does not exceed three hundred pesos and such owner has
no other property, the tax thereon shall not be collected, nor shall the tax be collected on a dwelling house built on the
field, nor or an adjacent orchard, if any, as improvement, if the assessed value of each assessed separately, is not in excess
of one hundred pesos, though in any event of the property shall be valued for the purposes of assessment and record shall
be kept thereof as in other cases.
(e) Land held by a homesteader under an application filed in accordance with law prior to the approval by the
Director of lands of the final evidence as required by law; but this exemption does not extend to buildings and
improvements thereon the title to which is not in the Government.
(f) Machinery, which term shall embrace machines, mechanical contrivances, instruments, appliances, and apparatus
attached to the real estate, used for industrial agricultural or manufacturing purposes, during the first five years of the
operation of the machinery.
(g) Fruit trees and bamboo plants, except where the land upon which they grow is planted principally in such
growth.
(h) Until December thirty-first, nineteen hundred thirty-nine, land not exceeding one hundred hectares used for
airports or landing fields open to all aircraft operations, either free of charge or upon the payment of a nominal charge,
together with such improvements thereon as are used exclusively for aeronautical purposes, when such airports are
necessary facilities for air commerce. The airports or landing files herein exempted from taxation shall revert to their
original taxation status upon the certification of the Secretary of Public Works and Communications that they are no
longer necessary or suitable facilities for air commerce.
616

Contrary to the PEZA’s claim, however, Section 24 of the Special Economic Zone Act of
1995 is not a basis for the PEZA’s exemption. Section 24 of the Special Economic Zone Act of
1995 provides:
Sec. 24. Exemption from National and Local Taxes.—Except for real property taxes on land owned
by developers, no taxes, local and national, shall be imposed on business establishments operating within
the ECOZONE. In lieu thereof, five percent (5%) of the gross income earned by all business enterprises
within the ECOZONE shall be paid and remitted as follows:
(a) Three percent (3%) to the National Government;
(b) Two percent (2%) which shall be directly remitted by the business establishments to the
treasurer’s office of the municipality or city where the enterprise is located. (Emphasis supplied)

Tax exemptions provided under Section 24 apply only to business establishments operating
within economic zones. Considering that the PEZA is not a business establishment but an
instrumentality performing governmental functions, Section 24 is inapplicable to the PEZA.
Also, contrary to the PEZA’s claim, developers of economic zones, whether public or private
developers, are liable for real property taxes on lands they own. Section 24 does not distinguish
between a public and private developer. Thus, courts cannot distinguish. 276 Unless the public
developer is exempt under the Local Government Code or under its charter en-
_______________
The provisions hereof notwithstanding, depreciation allowance shall be made for machinery mentioned in Section
three (f) equivalent to an amount not exceeding ten per centum of its value for its year of use.
276 Cruz v. Commission on Audit, 420 Phil. 102, 109; 368 SCRA 85, 90 (2001) [Per J. Pardo, En Banc].
617
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acted after the Local Government Code’s effectivity, the public developer must pay real
property taxes on their land.
At any rate, the PEZA cannot be taxed for real property taxes even if it acts as a developer or
operator of special economic zones. The PEZA is an instrumentality of the national government
exempt from payment of real property taxes under Section 133(o) of the Local Government
Code. As this court said in Manila International Airport Authority, “there must be express
language in the law empowering local governments to tax national government instrumentalities.
Any doubt whether such power exists is resolved against local governments.”277

V. (C)

Real properties under the PEZA’s title are owned by the Republic of the Philippines

Under Section 234(a) of the Local Government Code, real properties owned by the Republic
of the Philippines are exempt from real property taxes:
SEC. 234. Exemptions from Real Property Tax.—The following are exempted from payment of real
property tax:
when the beneficial use thereof has been granted, for consideration or otherwise, to a taxable person[.]

Properties owned by the state are either property of public dominion or patrimonial property.
Article 420 of the Civil
_______________
277 Manila International Airport Authority v. Court of Appeals, supra note 92 at p. 215; p. 620.
618

Code of the Philippines enumerates property of public dominion:
Art. 420. The following things are property of public dominion:
(1) Those intended for public use, such as roads, canals, rivers, torrents, ports and bridges
constructed by the State, banks, shores, roadsteads, and others of similar character;
(2) Those which belong to the State, without belonging for public use, and are intended for some
public service or for the development of the national wealth.

Properties of public dominion are outside the commerce of man. These properties are exempt
from “levy, encumbrance or disposition through public or private sale.”278 As this court explained
in Manila International Airport Authority:
Properties of public dominion, being for public use, are not subject to levy, encumbrance or
disposition through public or private sale. Any encumbrance, levy on execution or auction sale of any
property of public dominion is void for being contrary to public policy. Essential public services will stop
if properties of public dominion are subject to encumbrances, foreclosures and auction sale[.] 279

On the other hand, all other properties of the state that are not intended for public use or are
not intended for some public service or for the development of the national wealth are
patrimonial properties. Article 421 of the Civil Code of the Philippines provides:
_______________
278 Id., at p. 219; p. 624.

279 Id.
619
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Art. 421. All other property of the State, which is not of the character stated in the preceding article,
is patrimonial property.

Patrimonial properties are also properties of the state, but the state may dispose of its
patrimonial property similar to private persons disposing of their property. Patrimonial properties
are within the commerce of man and are susceptible to prescription, unless otherwise provided.280
In this case, the properties sought to be taxed are located in publicly owned economic zones.
These economic zones are property of public dominion. The City seeks to tax properties located
within the Mactan Economic Zone,281 the site of which was reserved by President Marcos under
Proclamation No. 1811, Series of 1979. Reserved lands are lands of the public domain set aside
for settlement or public use, and for specific public purposes by virtue of a presidential
proclamation.282 Reserved lands are inalienable and outside the commerce of man, 283 and remain
property of the Republic until withdrawn
_______________
280 Civil Code, Art. 1113.

281 RTC Records (Civil Case No. 02-0410), p. 29.
282 Exec. Order no. 292 (1987), Book III, Title I, Chapter 4, Sec. 14 provides:
SEC. 14. Power to Reserve Lands of the Public and Private Domain of the Government.—(1) The President shall
have the power to reserve for settlement or public use, and for specific public purposes, any of the lands of the public
domain, the use of which is not otherwise directed by law. The reserved land shall thereafter remain subject to the specific
public purpose indicated until otherwise provided by law or proclamation.
....
Manila International Airport Authority v. Court of Appeals, supra note 92 at pp. 220-221; p. 626.
283 Public Land Act, Secs. 83 and 88 provide:
SECTION 83. Upon the recommendation of the Secretary of Agriculture and Natural Resources, the President may
designate by
620

from public use either by law or presidential proclamation. 284 Since no law or presidential
proclamation has been issued withdrawing the site of the Mactan Economic Zone from public
use, the property remains reserved land.
As for the Bataan Economic Zone, the law consistently characterized the property as a port.
Under Republic Act No. 5490, Congress declared Mariveles, Bataan “a principal port of
entry”285 to serve as site of a foreign trade zone where for-
_______________
proclamation any tract or tracts of land of the public domain as reservations for the use of the Republic of the
Philippines or of any of its branches, or of the inhabitants thereof, in accordance with regulations prescribed for this
purpose, or for quasi-public uses or purposes when the public interest requires it, including reservations for highways,
rights of way for railroads, hydraulic power sites, irrigation systems, communal pastures or leguas comunales, public
parks, public quarries, public fishponds, workingman’s village and other improvements for the public benefit.
SECTION 88. The tract or tracts of land reserved under the provisions of Section eighty-three shall be non-
alienable and shall not be subject to occupation, entry, sale, lease, or other disposition until again declared alienable under
the provisions of this Act or by proclamation of the President.
Manila International Airport Authority v. Court of Appeals, id., at p. 221; p. 625.
284 Exec. Order No. 292 (1987), Book III, Title I, Chapter 4, Sec. 14 provides:
SEC. 14. Power to Reserve Lands of the Public and Private Domain of the Government.—(1) The President shall
have the power to reserve for settlement or public use, and for specific public purposes, any of the lands of the public
domain, the use of which is not otherwise directed by law. The reserved land shall thereafter remain subject to the specific
public purpose indicated until otherwise provided by law or proclamation.
....
Manila International Airport Authority v. Court of Appeals, id., at p. 221; p. 625.
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eign and domestic merchandise may be brought in without being subject to customs and
internal revenue laws and regulations of the Philippines. 286 Section 4 of Republic Act No. 5490
provided that the foreign trade zone in Mariveles, Bataan “shall at all times remain to be owned
by the Government”:
SEC. 4. Powers and Duties.—The Foreign Trade Zone Authority shall have the following powers
and duties:
a. To fix and delimit the site of the Zone which at all times remain to be owned by the Government,
and which shall have a contiguous and adequate area with well defined and policed boundaries, with
adequate enclosures to segregate the Zone from the customs territory for protection of revenues, together
with suitable provisions for ingress and egress of per-
_______________
SEC. 2. Mariveles Port: establishment of foreign trade zone therein: admission of foreign and domestic
merchandise.—To attain the above policy, Mariveles, Province of Bataan, is hereby made a principal port of entry by
further amending section seven hundred one of Republic Act Numbered Nineteen hundred thirty-seven, otherwise known
as Tariff and Customs Code of the Philippines, as amended. . . .
....
There is hereby established in the Mariveles Port a foreign trade zone herein referred to as the Zone. Foreign and
domestic merchandise of every description, except such as is prohibited by law, may, without being subject to the customs
and internal revenue laws and regulations of the Philippines, except as otherwise provided in this Act, be brought into the
Zone and may be stored, sold, exhibited, broken up, repacked, assembled, distributed, sorted, graded, cleaned, mixed with
foreign or domestic merchandise, or otherwise manipulated, or be manufactured except as otherwise provided in this Act,
and be exported, destroyed or sent into customs territory of the Philippines therefrom, in the original package or
otherwise[.]
286 Rep. Act No. 5490, Sec. 2.
622

sons, conveyance, vessels and merchandise sufficient for the purpose of this Act[.] (Emphasis
supplied)

The port in Mariveles, Bataan then became the Bataan Economic Zone under the Special
Economic Zone Act of 1995.287 Republic Act No. 9728 then converted the Bataan Economic
Zone into the Freeport Area of Bataan.288
A port of entry, where imported goods are unloaded then introduced in the market for public
consumption, is considered property for public use. Thus, Article 420 of the Civil Code classifies
a port as property of public dominion. The Freeport Area of Bataan, where the government
allows tax and duty-free importation of goods,289 is considered property of public dominion. The
Freeport Area of Bataan is owned by the state and cannot be taxed under Section 234(a) of the
Local Government Code.
Properties of public dominion, even if titled in the name of an instrumentality as in this case,
remain owned by the Republic of the Philippines. If property registered in the name of an
instrumentality is conveyed to another person, the property is considered conveyed on behalf of
the Republic of the Philippines. Book I, Chapter 12, Section 48 of the Administrative Code of
1987 provides:
SEC. 48. Official Authorized to Convey Real Property.—Whenever real property of the government
is
_______________
287 Rep. Act No. 7916 (1995), Sec. 5(ll).

SEC. 3. Conversion of the Bataan Economic Zone (BEZ) into the Freeport Area of Bataan.—The existing Bataan
Economic Zone located in the Municipality of Mariveles, Province of Bataan is hereby converted into a special economic
zone and Freeport to be known as the Freeport Area of Bataan (FAB). The FAB shall cover the Municipality of Mariveles,
Province of Bataan.
289 Rep. Act No. 9728 (2009), Sec. 4(e).
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authorized by law to be conveyed, the deed of conveyance shall be executed in behalf of the
government by the following:
....
(2) For property belonging to the Republic of the Philippines, but titled in the name of any political
subdivision or of any corporate agency or instrumentality, by the executive head of the agency or
instrumentality. (Emphasis supplied)

In Manila International Airport Authority, this court explained:
[The exemption under Section 234(a) of the Local Government Code] should be read in relation with
Section 133(o) of the same Code, which prohibits local governments from imposing “[t]axes, fess or
charges of any kind on the National Government, its agencies and instrumentalities x x x.” The real
properties owned by the Republic are titled either in the name of the Republic itself or in the name of
agencies or instrumentalities of the National Government. The Administrative Code allows real property
owned by the Republic to be titled in the name of agencies or instrumentalities of the national
government. Such real properties remained owned by the Republic of the Philippines and continue to be
exempt from real estate tax.
The Republic may grant the beneficial use of its real property to an agency or instrumentality of the
national government. This happens when title of the real property is transferred to an agency or
instrumentality even as the Republic remains the owner of the real property. Such arrangement does not
result in the loss of the tax exemption. Section 234(a) of the Local Government Code states that real
property owned by the Republic loses its tax exemption only if the “beneficial use thereof has been
granted, for consideration or otherwise, to a
624

taxable person.” . . . (Emphasis in the original; italics supplied)
290

Even the PEZA’s lands and buildings whose beneficial use have been granted to other
persons may not be taxed with real property taxes. The PEZA may only lease its lands and
buildings to PEZA-registered economic zone enterprises and entities. 291 These PEZA-registered
enterprises and entities, which operate within economic zones, are not subject to real property
taxes. Under Section 24 of the Special Economic Zone Act of 1995, no taxes, whether local or
national, shall be imposed on all business establishments operating within the economic zones:
SEC. 24. Exemption from National and Local Taxes.—Except for real property on land owned by
developers, no taxes, local and national, shall be imposed on business establishments operating within
the ECOZONE. In lieu thereof, five percent (5%) of the gross income earned by all business enterprises
292
_______________
290 Manila International Airport Authority v. Court of Appeals, supra note 92 at pp. 224-225; p. 629.

291 Rules And Regulations To Implement Republic Act No. 7916, Rule V, Sec. 1 provides:
SECTION 1. Qualifications.—Lands and buildings within an ECOZONE can be leased only to ECOZONE
enterprises/entities authorized by or registered with the PEZA and owned or controlled by Philippine nationals or by aliens
under such terms and conditions as the Board may formulate.
292 Rep. Act No. 7916 (1995).
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VOL. 742, NOVEMBER 26, 2014 625

In lieu of revenues from real property taxes, the City of Lapu-Lapu collects two-fifths of 5%
final tax on gross income paid by all business establishments operating within the Mactan
Economic Zone:
SEC. 24. Exemption from National and Local Taxes.—Except for real property on land owned by
developers, no taxes, local and national, shall be imposed on business establishments operating within the
ECOZONE. In lieu thereof, five percent (5%) of the gross income earned by all business enterprises
293

For its part, the Province of Bataan collects a fifth of the 5% final tax on gross income paid
by all business establishments operating within the Freeport Area of Bataan:
Section 6. Imposition of a Tax Rate of Five Percent (5%) on Gross Income Earned.—No taxes,
local and national, shall be imposed on business establishments operating within the FAB. In lieu thereof,
said business establishments shall pay a five percent (5%) final tax on their gross income earned in the
following percentages:
(a) One per centum (1%) to the National Government;
(b) One per centum (1%) to the Province of Bataan;
(c) One per centum (1%) to the treasurer’s office of the Municipality of Mariveles; and
_______________
293 Rep. Act No. 7916 (1995).
626

(d) Two per centum (2%) to the Authority of the Freeport of Area of Bataan. (Emphasis supplied)
294

Petitioners, therefore, are not deprived of revenues from the operations of economic zones
within their respective territorial jurisdictions. The national government ensured that local
government units comprising economic zones shall retain their basic autonomy and identity.295
All told, the PEZA is an instrumentality of the national government. Furthermore, the lands
owned by the PEZA are real properties owned by the Republic of the Philippines. The City of
Lapu-Lapu and the Province of Bataan cannot collect real property taxes from the PEZA.
WHEREFORE, the consolidated petitions are DENIED.
SO ORDERED.
Carpio (Chairperson), Del Castillo, Mendoza and Reyes,** JJ., concur.
Consolidated petitions denied.
Notes.—The grant of tax exemption is a matter of legislative policy that is within the
exclusive prerogative of Congress. (Diaz vs. Secretary of Finance, 654 SCRA 96 [2011])
_______________
294 Rep. Act No. 9728 (2009).

SEC. 44. Relationship with Local Government Units.—Except as herein provided, the local government units
comprising the ECOZONE shall retain their basic autonomy and identity. The cities shall be governed by their respective
charters and the municipalities shall operate and function in accordance with Republic Act No. 7160, otherwise known as
the Local Government Code of 1991.
* * Designated acting member per Special Order No. 1881 dated November 25, 2014.
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The Local Government Code withdrew tax exemption privileges previously given to natural
or juridical persons, and granted local government units the power to impose franchise tax.
(Cagayan Electric Power and Light Co., Inc. vs. City of Cagayan de Oro, 685 SCRA 609
[2012])
——o0o——
G.R. No. 155650. July 20, 2006. *
MANILA INTERNATIONAL AIRPORT AUTHORITY, petitioner, vs. COURT OF

APPEALS, CITY OF PARAÑAQUE, CITY MAYOR OF PARAÑAQUE, SANGGUNIANG
PANGLUNGSOD NG PARAÑAQUE, CITY ASSESSOR OF PARAÑAQUE, and CITY
TREASURER OF PARAÑAQUE, respondents.
Manila International Airport Authority; Taxation; MIAA’s Airport Lands and Buildings are exempt
from real estate tax imposed by local governments.—We rule that MIAA’s Airport Lands and Buildings
are exempt from real estate tax imposed by local governments. First, MIAA is not a government-owned
or controlled corporation but an instrumentality of the National Government and thus exempt from local
taxation. Second, the real properties of MIAA are owned by the Republic of the Philippines and thus
exempt from real estate tax.
Same; Same; While there is no dispute that a government-owned or controlled corporation is not
exempt from real estate tax, MIAA is not a government-owned or controlled corporation; A government-
owned or controlled corporation must be “organized as a stock or non-stock corporation,” of which
MIAA is neither; MIAA is not a stock corporation because it has no capital stock divided into shares .—
There is no dispute that a government-owned or controlled corporation is not exempt from real estate tax.
However, MIAA is not a government-owned or controlled corporation. Section 2(13) of the Introductory
Provisions of the Administrative Code of 1987 defines a government-owned or controlled corporation as
follows: SEC. 2. General Terms Defined.—x x x x (13) Government-owned or controlled
corporation refers to any agency organized as a stock or non-stock corporation, vested with functions
relating to public needs whether governmental or proprietary in nature, and owned by the Government
directly or through its instrumentalities either wholly, or, where applicable as in the case of stock
corporations, to the extent of at least fifty-one (51) percent of its capital stock: x x x. (Emphasis supplied)
A government-owned or controlled corporation must be “organized as a stock or non-stock corporation.”
MIAA is not organized as a stock or non-stock corporation. MIAA is not a stock corporation because it
has no capital stock divided into shares.
_______________
EN BANC.
*
592
92
Manila International Airport Authority vs. Court of
Appeals
Same; Same; Manila International Airport Authority (MIAA) is not a non-stock corporation
because it has no members; Section 11 of the MIAA Charter which mandates MIAA to remit 20% of its
annual gross operating income to the National Treasury prevents it from qualifying as a non-stock
corporation.—MIAA is also not a non-stock corporation because it has no members. Section 87 of the
Corporation Code defines a non-stock corporation as “one where no part of its income is distributable as
dividends to its members, trustees or officers.” A non-stock corporation must have members. Even if we
assume that the Government is considered as the sole member of MIAA, this will not make MIAA a non-
stock corporation. Non-stock corporations cannot distribute any part of their income to their members.
Section 11 of the MIAA Charter mandates MIAA to remit 20% of its annual gross operating income to
the National Treasury. This prevents MIAA from qualifying as a non-stock corporation.
Administrative Law; Manila International Airport Authority (MIAA) is a government
instrumentality vested with corporate powers to perform efficiently its governmental functions.—Since
MIAA is neither a stock nor a non-stock corporation, MIAA does not qualify as a government-owned or
controlled corporation. What then is the legal status of MIAA within the National Government? MIAA is
a government instrumentality vested with corporate powers to perform efficiently its governmental
functions. MIAA is like any other government instrumentality, the only difference is that MIAA is vested
with corporate powers. Section 2(10) of the Introductory Provisions of the Administrative Code defines a
government “instrumentality” as follows: SEC. 2. General Terms Defined.––x x x x
(10) Instrumentality refers to any agency of the National Government, not integrated within the
department framework, vested with special functions or jurisdiction by law, endowed with some if not
all corporate powers, administering special funds, and enjoying operational autonomy, usually
through a charter. x x x (Emphasis supplied)
Same; When the law vests in a government instrumentality corporate powers, the instrumentality
does not become a corporation—unless the government instrumentality is organized as a stock or non-
stock corporation, it remains a government instrumentality exercising not only governmental but also
corporate powers.—When the law vests in a government instrumentality corporate powers, the
instrumentality does not become a corporation. Unless the government instrumentality is organized as a
stock or non-stock corporation, it remains a government instrumentality exercising not only governmental
but also corporate powers. Thus, MIAA exercises the governmental powers of eminent domain, police
authority and the levying of fees and
593
VOL. 495, JULY 20, 2006 59
3
Appeals
charges. At the same time, MIAA exercises “all the powers of a corporation under the Corporation
Law, insofar as these powers are not inconsistent with the provisions of this Executive Order.”
Same; When the law makes a government instrumentality operationally autonomous, the
instrumentality remains part of the National Government machinery although not integrated with the
department framework.—Likewise, when the law makes a government instrumentality operationally
autonomous, the instrumentality remains part of the National Government machinery although not
integrated with the department framework. The MIAA Charter expressly states that transforming MIAA
into a “separate and autonomous body” will make its operation more “financially viable.”
Same; Manila International Airport Authority; Taxation; Local Government Code; A government
instrumentality like MIAA falls under Section 133(o) of the Local Government Code, which provision
recognizes the basic principle that local governments cannot tax the national government.—A
government instrumentality like MIAA falls under Section 133(o) of the Local Government Code, which
states: SEC. 133. Common Limitations on the Taxing Powers of Local Government Units.—Unless
otherwise provided herein, the exercise of the taxing powers of provinces, cities, municipalities, and
barangays shall not extend to the levy of the following: x x x x (o) Taxes, fees or charges of any kind
on the National Government, its agencies and instrumentalities and local government units. (Emphasis
and italics supplied) Section 133(o) recognizes the basic principle that local governments cannot tax the
national government, which historically merely delegated to local governments the power to tax. While
the 1987 Constitution now includes taxation as one of the powers of local governments, local
governments may only exercise such power “subject to such guidelines and limitations as the Congress
may provide.”
Taxation; Local Government Code; Statutory Construction; When local governments invoke the
power to tax on national government instrumentalities, such power is construed strictly against local
governments, and when Congress grants an exemption to a national government instrumentality from
local taxation, such exemption is construed liberally in favor of the national government instrumentality.
—Section 133(o) recognizes the basic principle that local governments cannot tax the national
government, which historically merely delegated to local governments the power to tax. While the 1987
Constitution now includes taxation as one of the powers of local governments, local governments may
only exercise such power “subject to such guidelines and limitations as the Congress may provide.” When
local governments in-
594
94
Appeals
voke the power to tax on national government instrumentalities, such power is construed strictly
against local governments. The rule is that a tax is never presumed and there must be clear language in
the law imposing the tax. Any doubt whether a person, article or activity is taxable is resolved against
taxation. This rule applies with greater force when local governments seek to tax national government
instrumentalities. Another rule is that a tax exemption is strictly construed against the taxpayer claiming
the exemption. However, when Congress grants an exemption to a national government instrumentality
from local taxation, such exemption is construed liberally in favor of the national government
instrumentality. As this Court declared in Maceda v. Macaraig, Jr.: The reason for the rule does not apply
in the case of exemptions running to the benefit of the government itself or its agencies. In such case the
practical effect of an exemption is merely to reduce the amount of money that has to be handled by
government in the course of its operations. For these reasons, provisions granting exemptions to
government agencies may be construed liberally, in favor of non tax-liability of such agencies. There is,
moreover, no point in national and local governments taxing each other, unless a sound and compelling
policy requires such transfer of public funds from one government pocket to another.
Same; Same; Taxation; Local Government Code; There is also no reason for local governments to
tax national government instrumentalities for rendering essential public services to inhabitants of local
governments, the only exception being when the legislature clearly intended to tax government
instrumentalities for the delivery of essential services for sound and compelling policy considerations.—
There is also no reason for local governments to tax national government instrumentalities for rendering
essential public services to inhabitants of local governments. The only exception is when the legislature
clearly intended to tax government instrumentalities for the delivery of essential public services for sound
and compelling policy considerations. There must be express language in the law empowering local
governments to tax national government instrumentalities. Any doubt whether such power exists is
resolved against local governments.
Manila International Airport Authority; The Airport Lands and Buildings of the MIAA are property
of public dominion and therefore owned by the State or the Republic of the Philippines.—The Airport
Lands and Buildings of MIAA are property of public dominion and therefore owned by the State or
the Republic of the Philippines. The Civil Code provides: ARTICLE 419. Property is either of public
dominion or of private ownership. ARTICLE 420. The following things are property of public
dominion: (1)
595
VOL. 495, JULY 20, 2006 59
5
Appeals
Those intended for public use, such as roads, canals, rivers, torrents, ports and
bridges constructed by the State, banks, shores, roadsteads, and others of similar character; (2) Those
which belong to the State, without being for public use, and are intended for some public service or for
the development of the national wealth. (Emphasis supplied) ARTICLE 421. All other property of the
State, which is not of the character stated in the preceding article, is patrimonial property. ARTICLE 422.
Property of public dominion, when no longer intended for public use or for public service, shall form part
of the patrimonial property of the State.
Same; Words and Phrases; The term “ports” in Article 420 (1) of the Civil Code includes seaports
and airports—the MIAA Airport Lands and Buildings constitute a “port” constructed by the State.—No
one can dispute that properties of public dominion mentioned in Article 420 of the Civil Code, like
“roads, canals, rivers, torrents, ports and bridges constructed by the State,” are owned by the
State. The term “ports” includes seaports and airports. The MIAA Airport Lands and Buildings
constitute a “port” constructed by the State. Under Article 420 of the Civil Code, the MIAA Airport
Lands and Buildings are properties of public dominion and thus owned by the State or the Republic of the
Philippines.
Same; Same; The Airport Lands and Buildings are devoted to public use because they are used by
the public for international and domestic travel and transportation; The charging of fees to the public
does not determine the character of the property whether it is of public dominion or not.—The Airport
Lands and Buildings are devoted to public use because they are used by the public for international and
domestic travel and transportation. The fact that the MIAA collects terminal fees and other charges from
the public does not remove the character of the Airport Lands and Buildings as properties for public use.
The operation by the government of a tollway does not change the character of the road as one for public
use. Someone must pay for the maintenance of the road, either the public indirectly through the taxes they
pay the government, or only those among the public who actually use the road through the toll fees they
pay upon using the road. The tollway system is even a more efficient and equitable manner of taxing the
public for the maintenance of public roads. The charging of fees to the public does not determine the
character of the property whether it is of public dominion or not. Article 420 of the Civil Code defines
property of public dominion as one “intended for public use.” Even if the government collects toll fees,
the road is still “intended for public use” if anyone can use the road under the same terms and conditions
as the rest of the public. The charging of fees, the limitation on the
596
96
Appeals
kind of vehicles that can use the road, the speed restrictions and other conditions for the use of the
road do not affect the public character of the road.
Same; Taxation; User’s Tax; Words and Phrases; The terminal fees MIAA charges passengers, as
well as the landing fees MIAA charges airlines, are often termed user’s tax; A user’s tax is more
equitable—a principle of taxation mandated by the 1987 Constitution.—The terminal fees MIAA charges
to passengers, as well as the landing fees MIAA charges to airlines, constitute the bulk of the income that
maintains the operations of MIAA. The collection of such fees does not change the character of MIAA as
an airport for public use. Such fees are often termed user’s tax. This means taxing those among the public
who actually use a public facility instead of taxing all the public including those who never use the
particular public facility. A user’s tax is more equitable—a principle of taxation mandated in the 1987
Constitution.
Same; The Airport Lands and Buildings of MIAA, as properties of public dominion, are outside the
commerce of man.—The Airport Lands and Buildings of MIAA are devoted to public use and thus are
properties of public dominion. As properties of public dominion, the Airport Lands and Buildings
are outside the commerce of man. The Court has ruled repeatedly that properties of public dominion are
outside the commerce of man. As early as 1915, this Court already ruled in Municipality of Cavite v.
Rojas that properties devoted to public use are outside the commerce of man, thus: According to article
344 of the Civil Code: “Property for public use in provinces and in towns comprises the provincial and
town roads, the squares, streets, fountains, and public waters, the promenades, and public works of
general service supported by said towns or provinces.”
Same; Public Auctions; Property of public dominion, being outside the commerce of man, cannot
be the subject of an auction sale; Any encumbrance, levy on execution or auction sale of any property of
public dominion is void for being contrary to public policy.—Again in Espiritu v. Municipal Council, the
Court declared that properties of public dominion are outside the commerce of man: x x x Town plazas
are properties of public dominion, to be devoted to public use and to be made available to the public in
general. They are outside the commerce of man and cannot be disposed of or even leased by the
municipality to private parties. While in case of war or during an emergency, town plazas may be
occupied temporarily by private individuals, as was done and as was tolerated by the Municipality of
Pozorrubio, when the emergency has ceased, said temporary occupation or use must also cease, and the
town officials should see to it that the town plazas should ever be kept
597
VOL. 495, JULY 20, 2006 59
7
Appeals
open to the public and free from encumbrances or illegal private constructions. (Emphasis supplied)
The Court has also ruled that property of public dominion, being outside the commerce of man, cannot be
the subject of an auction sale. Properties of public dominion, being for public use, are not subject to levy,
encumbrance or disposition through public or private sale. Any encumbrance, levy on execution or
auction sale of any property of public dominion is void for being contrary to public policy. Essential
public services will stop if properties of public dominion are subject to encumbrances, foreclosures and
auction sale. This will happen if the City of Parañaque can foreclose and compel the auction sale of the
600-hectare runway of the MIAA for non-payment of real estate tax.
Same; Unless the President issues a proclamation withdrawing the Airport Lands and Buildings
from public use, these properties remain properties of public dominion and are inalienable.—Before
MIAA can encumber the Airport Lands and Buildings, the President must first withdraw from public
use the Airport Lands and Buildings. Sections 83 and 88 of the Public Land Law or Commonwealth Act
No. 141, which “remains to this day the existing general law governing the classification and disposition
of lands of the public domain other than timber and mineral lands,” provide: x x x Thus, unless the
President issues a proclamation withdrawing the Airport Lands and Buildings from public use, these
properties remain properties of public dominion and are inalienable. Since the Airport Lands and
Buildings are inalienable in their present status as properties of public dominion, they are not subject to
levy on execution or foreclosure sale. As long as the Airport Lands and Buildings are reserved for public
use, their ownership remains with the State or the Republic of the Philippines.
Same; Trusts; MIAA is merely holding title to the Airport Lands and Buildings in trust for the
Republic.—MIAA is merely holding title to the Airport Lands and Buildings in trust for the Republic.
Section 48, Chapter 12, Book I of the Administrative Code allows instrumentalities like MIAA to hold
title to real properties owned by the Republic.
Same; The transfer of the Airport Lands and Buildings from the Bureau of Air Transportation to
MIAA was not meant to transfer beneficial ownership of these assets from the Republic to MIAA—the
Republic remains the beneficial owner of the Airport Lands and Buildings.—The transfer of the Airport
Lands and Buildings from the Bureau of Air Transportation to MIAA was not meant to transfer beneficial
ownership of these assets from the Republic to MIAA. The purpose was merely to reorganize a division
in the Bureau of Air
598
98
Appeals
Transportation into a separate and autonomous body. The Republic remains the beneficial owner of
the Airport Lands and Buildings. MIAA itself is owned solely by the Republic. No party claims any
ownership rights over MIAA’s assets adverse to the Republic. The MIAA Charter expressly provides that
the Airport Lands and Buildings “shall not be disposed through sale or through any other mode unless
specifically approved by the President of the Philippines.” This only means that the Republic retained the
beneficial ownership of the Airport Lands and Buildings because under Article 428 of the Civil Code,
only the “owner has the right to x x x dispose of a thing.” Since MIAA cannot dispose of the Airport
Lands and Buildings, MIAA does not own the Airport Lands and Buildings. At any time, the President
can transfer back to the Republic title to the Airport Lands and Buildings without the Republic paying
MIAA any consideration. Under Section 3 of the MIAA Charter, the President is the only one who can
authorize the sale or disposition of the Airport Lands and Buildings. This only confirms that the Airport
Lands and Buildings belong to the Republic.
Taxation; Local Government Code; Section 234(a) of the Local Government Code exempts from
real estate tax any “real property owned by the Republic of the Philippines.”—Section 234(a) of the
Local Government Code exempts from real estate tax any “[r]eal property owned by the Republic of the
Philippines.” Section 234(a) provides: SEC. 234. Exemptions from Real Property Tax.—The following
are exempted from payment of the real property tax: (a) Real property owned by the Republic of
the Philippines or any of its political subdivisions except when the beneficial use thereof has been
granted, for consideration or otherwise, to a taxable person; x x x. (Emphasis supplied) This
exemption should be read in relation with Section 133(o) of the same Code, which prohibits local
governments from imposing “[t]axes, fees or charges of any kind on the National Government, its
agencies and instrumentalities x x x.” The real properties owned by the Republic are titled either in the
name of the Republic itself or in the name of agencies or instrumentalities of the National Government.
The Administrative Code allows real property owned by the Republic to be titled in the name of agencies
or instrumentalities of the national government. Such real properties remain owned by the Republic and
continue to be exempt from real estate tax.
Manila International Airport Authority; Local Government Code; The Republic may grant the
beneficial use of its real property to an agency or instrumentality of the national government, an
arrangement which does not result in the loss of the tax exemption; MIAA, as a government instrumental-
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ity, is not a taxable person under Section 133(o) of the Local Government Code.—The Republic
may grant the beneficial use of its real property to an agency or instrumentality of the national
government. This happens when title of the real property is transferred to an agency or instrumentality
even as the Republic remains the owner of the real property. Such arrangement does not result in the loss
of the tax exemption. Section 234(a) of the Local Government Code states that real property owned by
the Republic loses its tax exemption only if the “beneficial use thereof has been granted, for consideration
or otherwise, to a taxable person.” MIAA, as a government instrumentality, is not a taxable person under
Section 133(o) of the Local Government Code. Thus, even if we assume that the Republic has granted to
MIAA the beneficial use of the Airport Lands and Buildings, such fact does not make these real
properties subject to real estate tax.
Same; Same; Taxation; Portions of the Airport Lands and Buildings that MIAA leases to private
entities are not exempt from real estate tax.—Portions of the Airport Lands and Buildings that MIAA
leases to private entities are not exempt from real estate tax. For example, the land area occupied by
hangars that MIAA leases to private corporations is subject to real estate tax. In such a case, MIAA has
granted the beneficial use of such land area for a consideration to a taxable person and therefore such
land area is subject to real estate tax. In Lung Center of the Philippines v. Quezon City, 433 SCRA 119,
138 (2004), the Court ruled: Accordingly, we hold that the portions of the land leased to private entities as
well as those parts of the hospital leased to private individuals are not exempt from such taxes. On the
other hand, the portions of the land occupied by the hospital and portions of the hospital used for its
patients, whether paying or non-paying, are exempt from real property taxes.
Same; Taxation; By express mandate of the Local Government Code, local governments cannot
impose any kind of tax on national government instrumentalities like the MIAA.—By express mandate of
the Local Government Code, local governments cannot impose any kind of tax on national government
instrumentalities like the MIAA. Local governments are devoid of power to tax the national government,
its agencies and instrumentalities. The taxing powers of local governments do not extend to the national
government, its agencies and instrumentalities, “[u]nless otherwise provided in this Code” as stated in the
saving clause of Section 133. The saving clause refers to Section 234(a) on the exception to the
exemption from real estate tax of real property owned by the Republic.
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Same; Same; The determinative test whether MIAA is exempt from local taxation is not whether
MIAA is a juridical person, but whether it is a national government instrumentality under Section 133(o)
of the Local Government Code.—The minority’s theory violates Section 133(o) of the Local Government
Code which expressly prohibits local governments from imposing any kind of tax on national government
instrumentalities. Section 133(o) does not distinguish between national government instrumentalities with
or without juridical personalities. Where the law does not distinguish, courts should not distinguish.
Thus, Section 133(o) applies to all national government instrumentalities, with or without juridical
personalities. The determinative test whether MIAA is exempt from local taxation is not whether MIAA
is a juridical person, but whether it is a national government instrumentality under Section 133(o) of the
Local Government Code. Section 133(o) is the specific provision of law prohibiting local governments
from imposing any kind of tax on the national government, its agencies and instrumentalities.
Taxation; The saving clause in Section 133 of the Local Government Code refers to the exception to
the exemption in Section 234(a) of the Code, which makes the national government subject to real estate
tax when it gives the beneficial use of its real properties to a taxable entity; The exception to the
exemption in Section 234(a) is the only instance when the national government, its agencies and
instrumentalities are subject to any kind of tax by local governments.—The saving clause in Section 133
refers to the exception to the exemption in Section 234(a) of the Code, which makes the national
government subject to real estate tax when it gives the beneficial use of its real properties to a taxable
entity. Section 234(a) of the Local Government Code provides: SEC. 234. Exemptions from Real
Property Tax.—The following are exempted from payment of the real property tax: (a) Real
property owned by the Republic of the Philippines or any of its political subdivisions except when the
beneficial use thereof has been granted, for consideration or otherwise, to a taxable person. x x x.
(Emphasis supplied) Under Section 234(a), real property owned by the Republic is exempt from real
estate tax. The exception to this exemption is when the government gives the beneficial use of the real
property to a taxable entity. The exception to the exemption in Section 234(a) is the only instance when
the national government, its agencies and instrumentalities are subject to any kind of tax by local
governments. The exception to the exemption applies only to real estate tax and not to any other tax. The
justification for the exception to the exemption is that the real property, although owned by the Republic,
is not devoted to public use or public service but devoted to the private gain of a taxable person.
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Same; Statutory Construction; When a provision of law grants a power but withholds such power
on certain matters, there is no conflict between the grant of power and the withholding of power.—There
is no conflict whatsoever between Sections 133 and 193 because Section 193 expressly admits its
subordination to other provisions of the Code when Section 193 states “[u]nless otherwise provided in
this Code.” By its own words, Section 193 admits the superiority of other provisions of the Local
Government Code that limit the exercise of the taxing power in Section 193. When a provision of law
grants a power but withholds such power on certain matters, there is no conflict between the grant of
power and the withholding of power. The grantee of the power simply cannot exercise the power on
matters withheld from its power.
Same; Words and Phrases; By their very meaning and purpose, the “common limitations” on the
taxing power prevail over the grant or exercise of the taxing power.—Since Section 133 prescribes the
“common limitations” on the taxing powers of local governments, Section 133 logically prevails over
Section 193 which grants local governments such taxing powers. By their very meaning and purpose, the
“common limitations” on the taxing power prevail over the grant or exercise of the taxing power . If the
taxing power of local governments in Section 193 prevails over the limitations on such taxing power in
Section 133, then local governments can impose any kind of tax on the national government, its agencies
and instrumentalities—a gross absurdity.
Administrative Law; The Administrative Law is the governing law defining the status and
relationship of government departments, bureaus, offices, agencies and instrumentalities.—The third
whereas clause of the Administrative Code states that the Code “incorporates in a unified document the
major structural, functional and procedural principles and rules of governance.” Thus, the
Administrative Code is the governing law defining the status and relationship of government departments,
bureaus, offices, agencies and instrumentalities. Unless a statute expressly provides for a different status
and relationship for a specific government unit or entity, the provisions of the Administrative Code
prevail.
Same; The government-owned or controlled corporations created through special charters are
those that meet the two conditions prescribed in Section 16, Article XII of the Constitution, regarding
their creation in the interest of common good and their being subject to the test of economic viability.—
The government-owned or controlled corporations created through
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special charters are those that meet the two conditions prescribed in Section 16, Article XII of the
Constitution. The first condition is that the government-owned or controlled corporation must be
established for the common good. The second condition is that the government-owned or controlled
corporation must meet the test of economic viability. Section 16, Article XII of the 1987 Constitution
provides: SEC. 16. The Congress shall not, except by general law, provide for the formation,
organization, or regulation of private corporations. Government-owned or controlled corporations
may be created or established by special charters in the interest of the common good and subject to
the test of economic viability.
Same; The test of economic viability applies only to government-owned or controlled corporations
that perform economic or commercial activities and need to compete in the market place—government
instrumentalities vested with corporate powers and performing governmental or public functions need
not meet the test of economic viability.—The Constitution expressly authorizes the legislature to create
“government-owned or controlled corporations” through special charters only if these entities are required
to meet the twin conditions of common good and economic viability. In other words, Congress has no
power to create government-owned or controlled corporations with special charters unless they are made
to comply with the two conditions of common good and economic viability. The test of economic viability
applies only to government-owned or controlled corporations that perform economic or commercial
activities and need to compete in the market place. Being essentially economic vehicles of the State for
the common good—meaning for economic development purposes—these government-owned or
controlled corporations with special charters are usually organized as stock corporations just like ordinary
private corporations. In contrast, government instrumentalities vested with corporate powers and
performing governmental or public functions need not meet the test of economic viability. These
instrumentalities perform essential public services for the common good, services that every modern State
must provide its citizens. These instrumentalities need not be economically viable since the government
may even subsidize their entire operations. These instrumentalities are not the “government-owned or
controlled corporations” referred to in Section 16, Article XII of the 1987 Constitution.
Manila International Airport Authority; Administrative Law; The MIAA need not meet the test of
economic viability because the legislature did not create MIAA to compete in the market place.—The
MIAA need not meet the test of economic viability because the legislature did not create MIAA to
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compete in the market place. MIAA does not compete in the market place because there is no
competing international airport operated by the private sector. MIAA performs an essential public service
as the primary domestic and international airport of the Philippines.
Same; Words and Phrases; The terminal fees that MIAA charges every passenger are regulatory or
administrative fees and not income from commercial transactions.—MIAA performs an essential public
service that every modern State must provide its citizens. MIAA derives its revenues principally from the
mandatory fees and charges MIAA imposes on passengers and airlines. The terminal fees that MIAA
charges every passenger are regulatory or administrative fees and not income from commercial
transactions.
TINGA, J., DISSENTING OPINION:
Courts; Supreme Court; Judgments; Decisions of the Supreme Court are expected to provide

clarity to the parties and to students of jurisprudence, as to what the law of the case is, especially when
the doctrines of long standing are modified or clarified.—The icing on this inedible cake is the strained
and purposely vague rationale used to justify the majority opinion. Decisions of the Supreme Court are
expected to provide clarity to the parties and to students of jurisprudence, as to what the law of the case
is, especially when the doctrines of long standing are modified or clarified. With all due respect, the
decision in this case is plainly so, so wrong on many levels. More egregious, in the majority’s resolve to
spare the Manila International Airport Authority (MIAA) from liability for real estate taxes, no clear-cut
rule emerges on the important question of the power of local government units (LGUs) to tax government
corporations, instrumentalities or agencies. The majority would overturn sub silencio, among others, at
least one dozen precedents.
Same; Same; Same; Only children should be permitted to subscribe to the theory that something
bad will go away if you pretend hard enough that it does not exist.—There are certainly many other
precedents affected, perhaps all previous jurisprudence regarding local government taxation vis-a-
vis government entities, as well as any previous definitions of GOCCs, and previous distinctions between
the exercise of governmental and proprietary functions (a distinction laid down by this Court as far back
as 1916). What is the reason offered by the majority for overturning or modifying all these precedents and
doctrines? None is given, for the majority takes comfort instead in the pretense that these precedents
never existed. Only children
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should be permitted to subscribe to the theory that something bad will go away if you pretend hard
enough that it does not exist.
Same; Judgments; If Mactan-Cebu International Airport v. Marcos, 330 Phil. 392 (1996), truly
deserves to be discarded as precedent, it deserves a more honorable end than death by amnesia or
ignominous disregard—the majority could have devoted its discussion in explaining why it thinks Mactan
is wrong, instead of pretending that Mactan never existed at all.—Before I dwell upon the numerous
flaws of the majority, a brief comment is necessitated on the majority’s studied murkiness vis-à-
vis the Mactan precedent. The majority is obviously inconsistent with Mactan and there is no way these
two rulings can stand together. Following basic principles in statutory construction, Mactan will be
deemed as giving way to this new ruling. However, the majority does not bother to explain
why Mactan is wrong. The interpretation in Mactan of the relevant provisions of the Local Government
Code is elegant and rational, yet the majority refuses to explain why this reasoning of the Court
in Mactan is erroneous. In fact, the majority does not even engage Mactan in any meaningful way. If the
majority believes that Mactan may still stand despite this ruling, it remains silent as to the viable
distinctions between these two cases. The majority’s silence on Mactan is baffling, considering how
different this new ruling is with the ostensible precedent. Perhaps the majority does not simply know how
to dispense with the ruling in Mactan. If Mactan truly deserves to be discarded as precedent, it deserves a
more honorable end than death by amnesia or ignonominous disregard. The majority could have devoted
its discussion in explaining why it thinks Mactan is wrong, instead of pretending that Mactan never
existed at all. Such an approach might not have won the votes of the minority, but at least it would
provide some degree of intellectual clarity for the parties, LGUs and the national government, students of
jurisprudence and practitioners. A more meaningful debate on the matter would have been possible,
enriching the study of law and the intellectual dynamic of this Court.
Manila International Airport Authority; Administrative Law; Based on the Administrative Code, a
GOCC may be an instrumentality or an agency of the National Government.—Based on the
Administrative Code, a GOCC may be an instrumentality or an agency of the National
Government. Thus, there actually is no point in the majority’s assertion that MIAA is not a GOCC, since
based on the majority’s premise of Section 133 as the key provision, the material question is whether
MIAA is either an instrumentality, an agency, or the National Government itself. The very provisions of
the Administrative Code provide that a GOCC can be either an instrumentality or an agency, so why even
bother to extensively discuss whether or not MIAA is a GOCC?
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Same; Same; The majority effectively declassifies many entities created and recognized as GOCCs
and would give primacy to the Administrative Code of 1987 rather than their respective charters as to the
definition of these entities.—The inconsequential verbiage stewing in judicial opinions deserve little
rebuttal. However, the entire discussion of the majority on the definition of a GOCC, obiter as it may
ultimately be, deserves emphatic refutation. The views of the majority on this matter are very dangerous,
and would lead to absurdities, perhaps unforeseen by the majority. For in fact, the majority effectively
declassifies many entities created and recognized as GOCCs and would give primacy to the
Administrative Code of 1987 rather than their respective charters as to the definition of these entities.
Taxation; It is sad, but not surprising that the majority is not willing to consider or even discuss the
general rule, but only the exemptions under Section 133 and Section 234 of the Local Government Code
—after all, if the majority is dead set in ruling for MIAA no matter what the law says, why bother citing
what the law does say.—The majority abjectly refuses to engage Section 232 of the Local Government
Code although it provides the indubitable general rule that LGUs “may levy an annual ad valorem tax on
real property such as land, building, machinery, and other improvements not hereafter specifically
exempted.” The specific exemptions are provided by Section 234. Section 232 comes sequentially after
Section 133(o), and even if the sequencing is irrelevant, Section 232 would fall under the qualifying
phrase of Section 133, “Unless otherwise provided herein.” It is sad, but not surprising that the majority is
not willing to consider or even discuss the general rule, but only the exemptions under Section 133 and
Section 234. After all, if the majority is dead set in ruling for MIAA no matter what the law says, why
bother citing what the law does say.
Manila International Airport Authority; If the distinction is to be blurred, as the majority does,
between the State/Republic/Government and a body corporate such as the MIAA, then the MIAA charter
showcases the remarkable absurdity of an entity transferring property to itself.—It is the MIAA, and not
either the State, the Republic of the Philippines or the national government that asserts legal title over the
Airport Lands and Buildings. There was an express transfer of ownership between the MIAA and the
national government. If the distinction is to be blurred, as the majority does, between the
State/Republic/Government and a body corporate such as the MIAA, then the MIAA charter showcases
the remarkable absurdity of an entity transferring property to itself. Nothing in the Civil Code or the
Constitution prohibits the State from transferring ownership over property of public
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dominion to an entity that it similarly owns. It is just like a family transferring ownership over the
properties its members own into a family corporation. The family exercises effective control over the
administration and disposition of these properties. Yet for several purposes under the law, such as
taxation, it is the corporation that is deemed to own those properties. A similar situation obtains with
MIAA, the State, and the Airport Lands and Buildings.
Same; The operation of an airport facility by the State may be imbued with public interest, but it is
by no means indispensable or obligatory on the national government.—The simple truth is that, based on
these accepted doctrinal tests, MIAA performs proprietary functions. The operation of an airport facility
by the State may be imbued with public interest, but it is by no means indispensable or obligatory on the
national government. In fact, as demonstrated in other countries, it makes a lot of economic sense to leave
the operation of airports to the private sector.
Same; International airlines take into account the quality and conditions of various international
airports in determining the number of flights it would assign to a particular airport, or even in choosing
a hub through which destinations necessitating connecting flights would pass through.—The majority
tries to becloud this issue by pointing out that the MIAA does not compete in the marketplace as there is
no competing international airport operated by the private sector; and that MIAA performs an essential
public service as the primary domestic and international airport of the Philippines. This premise is false,
for one. On a local scale, MIAA competes with other international airports situated in the Philippines,
such as Davao International Airport and MCIAA. More pertinently, MIAA also competes with other
international airports in Asia, at least. International airlines take into account the quality and conditions of
various international airports in determining the number of flights it would assign to a particular airport,
or even in choosing a hub through which destinations necessitating connecting flights would pass
through.
Same; Public Utilities; If the determinative point in distinguishing between sovereign functions and
proprietary functions is the vitality of the public service being performed, then it should be noted that
there is no more important public service performed than that engaged in by public utilities.—If the
determinative point in distinguishing between sovereign functions and proprietary functions is the vitality
of the public service being performed, then it should be noted that there is no more important public
service performed
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than that engaged in by public utilities. But notably, the Constitution itself authorizes private
persons to exercise these functions as it allows them to operate public utilities in this country. If indeed
such functions are actually sovereign and belonging properly to the government, shouldn’t it follow that
the exercise of these tasks remain within the exclusive preserve of the State?
Same; Taxation; Administrative Law; There really is no prohibition against the government taxing
itself, and nothing obscene with allowing government entities exercising proprietary functions to be taxed
for the purpose of raising the coffers of LGUs.—There really is no prohibition against the government
taxing itself, and nothing obscene with allowing government entities exercising proprietary functions to
be taxed for the purpose of raising the coffers of LGUs. On the other hand, it would be an even more
noxious proposition that the government or the instrumentalities that it owns are above the law and may
refuse to pay a validly imposed tax. MIAA, or any similar entity engaged in the exercise of proprietary,
and not sovereign functions, cannot avoid the adverse-effects of tax evasion simply on the claim that it is
imbued with some of the attributes of government.
Same; Same; Local Governent Code; While the Local Government Code withdrew all previous
local tax exemptions of the MIAA and other natural and juridical persons, it did not similarly withdraw
any previously enacted prohibitions on properties owned by GOCCs, agencies or instrumentalities.—
Despite the fact that the City of Parañaque ineluctably has the power to impose real property taxes over
the MIAA, there is an equally relevant statutory limitation on this power that must be fully upheld.
Section 3 of the MIAA charter states that “[a]ny portion [of the [lands transferred, conveyed and assigned
to the ownership and administration of the MIAA] shall not be disposed through sale or through any
other mode unless specifically approved by the President of the Philippines.” Nothing in the Local
Government Code, even with its wide grant of powers to LGUs, can be deemed as repealing this
prohibition under Section 3, even if it effectively forecloses one possible remedy of the LGU in the
collection of delinquent real property taxes. While the Local Government Code withdrew all previous
local tax exemptions of the MIAA and other natural and juridical persons, it did not similarly withdraw
any previously enacted prohibitions on properties owned by GOCCs, agencies or instrumentalities.
Moreover, the resulting legal effect, subjecting on one hand the MIAA to local taxes but on the other
hand shielding its properties from any form of sale or disposition, is not contradictory or paradoxical,
onerous as its effect may be on the LGU. It simply means that the LGU has to
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find another way to collect the taxes due from MIAA, thus paving the way for a mutually acceptable
negotiated solution.
Same; Same; The prohibition in Section 3 of the MIAA Charter against the sale or disposition of
MIAA properties without the consent of the President prevents the peremptory closure of the MIAA or the
hampering of its operations on account of the demands of its creditors—the airport is important enough
to be sheltered by legislation from ordinary legal processes.—There are several other reasons this
statutory limitation should be upheld and applied to this case. It is at this juncture that the importance of
the Manila Airport to our national life and commerce may be accorded proper consideration. The closure
of the airport, even by reason of MIAA’s legal omission to pay its taxes, will have an injurious effect to
our national economy, which is ever reliant on air travel and traffic. The same effect would obtain if
ownership and administration of the airport were to be transferred to an LGU or some other entity which
were not specifically chartered or tasked to perform such vital function. It is for this reason that the MIAA
charter specifically forbids the sale or disposition of MIAA properties without the consent of the
President. The prohibition prevents the peremptory closure of the MIAA or the hampering of its
operations on account of the demands of its creditors. The airport is important enough to be sheltered by
legislation from ordinary legal processes.
Same; Same; Had this petition been denied instead with Mactan as basis, but with the caveat that
the MIAA properties could not be subject of execution sale without the consent of the President, I suspect
that the parties would feel little distress—unfortunately, the majority will cause precisely the opposite
result of unremitting hostility, not only to the City of Parañaque, but to the thousands of LGUs in the
country.—Had this petition been denied instead with Mactan as basis, but with the caveat that the MIAA
properties could not be subject of execution sale without the consent of the President, I suspect that the
parties would feel little distress. Through such action, both the Local Government Code and the MIAA
charter would have been upheld. The prerogatives of LGUs in real property taxation, as guaranteed by the
Local Government Code, would have been preserved, yet the concerns about the ruinous effects of having
to close the Manila International Airport would have been averted. The parties would then be compelled
to try harder at working out a compromise, a task, if I might add, they are all too willing to engage in.
Unfortunately, the majority will cause precisely the opposite result of unremitting hostility, not only to the
City of Parañaque, but to the thousands of LGUs in the country.
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Local Government Code; Taxation; Bangko Sentral ng Pilipinas; If the BSP is already
preternaturally exempt from local taxation owing to its personality as a “government instrumentality,”
why then the need to make a new grant of exemption, which if the majority is to be believed, is actually a
redundancy.—The New Central Bank Act was promulgated after the Local Government Code if the BSP
is already preternaturally exempt from local taxation owing to its personality as an “government
instrumentality,” why then the need to make a new grant of exemption, which if the majority is to be
believed, is actually a redundancy. But even more tellingly, does not this provision evince a clear intent
that after the lapse of five (5) years, that the Bangko Sentral will be liable for provincial, municipal and
city taxes? This is the clear congressional intent, and it is Congress, not this Court which dictates which
entities are subject to taxation and which are exempt.
Courts; Supreme Court; Judgments; One might say, certainly a decision of the Supreme Court
cannot be construed to promote an absurdity, but precisely the majority, and the faulty reasoning it
utilizes, opens itself up to all sorts of mischief, and certainly, a tax-exempt massage parlor is one of the
lesser evils that could arise from the majority ruling.—Consider further the example of the Philippine
Institute of Traditional and Alternative Health Care (PITAHC), created by Republic Act No. 8243 in
1997. It has similar characteristics as MIAA in that it is established as a body corporate, and empowered
with the attributes of a corporation, including the power to purchase or acquire real properties. However
the PITAHC has no capital stock and no members, thus following the majority, it is not a GOCC. The
state policy that guides PITAHC is the development of traditional and alternative health care, and its
objectives include the promotion and advocacy of alternative, preventive and curative health care
modalities that have been proven safe, effective and cost effective. “Alternative health care modalities”
include “other forms of non-allophatic, occasionally non-indigenous or imported healing methods” which
include, among others “reflexology, acupuncture, massage, acupressure” and chiropractics. Given these
premises, there is no impediment for the PITAHC to purchase land and construct thereupon a massage
parlor that would provide a cheaper alternative to the opulent spas that have proliferated around the
metropolis. Such activity is in line with the purpose of the PITAHC and with state policy. Is such
massage parlor exempt from realty taxes? For the majority, it is, for PITAHC is an instrumentality or
agency exempt from local government taxation, which does not fall under the exceptions under Section
234 of the Local Government Code. Hence, this massage parlor would not just be a shelter for frazzled
nerves, but for taxes as well. Ridiculous? One might say, certainly a decision of the Supreme Court
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cannot be construed to promote an absurdity. But precisely the majority, and the faulty reasoning it
utilizes, opens itself up to all sorts of mischief, and certainly, a tax-exempt massage parlor is one of the
lesser evils that could arise from the majority ruling. This is indeed a very strange and very wrong
decision.
PETITION for review on certiorari of the resolutions of the Court of Appeals.
Gil V. Savedia, Roderick B. Morales and Gary Villanueva for respondents.
CARPIO, J.:
The Antecedents
Petitioner Manila International Airport Authority (MIAA) operates the Ninoy Aquino
International Airport (NAIA) Complex in Parañaque City under Executive Order No. 903,
otherwise known as the Revised Charter of the Manila International Airport Authority (“MIAA
Charter”). Executive Order No. 903 was issued on 21 July 1983 by then President Ferdinand E.
Marcos. Subsequently, Executive Order Nos. 909 and 298 amended the MIAA Charter.
1 2
As operator of the international airport, MIAA administers the land, improvements and
equipment within the NAIA Complex. The MIAA Charter transferred to MIAA approximately
600 hectares of land, including the runways and buildings (“Airport Lands and Buildings”) then
3
under the Bureau of Air Transportation. The MIAA Charter further provides that no portion of
4
the land transferred to MIAA shall be disposed of through sale or any other mode unless
specifically approved by the President of the Philippines.
5
_______________
Dated 16 September 1983.

1
Dated 26 July 1987.

2
Section 3, MIAA Charter.

3

4

5
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Manila International Airport Authority vs. Court of Appeals
On 21 March 1997, the Office of the Government Corporate Counsel (OGCC) issued Opinion
No. 061. The OGCC opined that the Local Government Code of 1991 withdrew the exemption
from real estate tax granted to MIAA under Section 21 of the MIAA Charter. Thus, MIAA
negotiated with respondent City of Parañaque to pay the real estate tax imposed by the City.
MIAA then paid some of the real estate tax already due.
On 28 June 2001, MIAA received Final Notices of Real Estate Tax Delinquency from the
City of Parañaque for the taxable years 1992 to 2001. MIAA’s real estate tax delinquency is
broken down as follows:
TAX TAXABLEYEA TAX DUE PENALTY TOTAL
DECLARATION R
E-016-01370 1992-2001 19,558,160.00 11,201,083.20 30,789,243.20
E-016-01374 1992-2001 111,689,424.90 68,149,479.59 179,838,904.49
E-016-01375 1992-2001 20,276,058.00 12,371,832.00 32,647,890.00
E-016-01376 1992-2001 58,144,028.00 35,477,712.00 93,621,740.00
E-016-01377 1992-2001 18,134,614.65 11,065,188.59 29,199,803.24
E-016-01378 1992-2001 111,107,950.40 67,794,681.59 178,902,631.99
E-016-01379 1992-2001 4,322,340.00 2,637,360.00 6,959,700.00
E-016-01380 1992-2001 7,776,436.00 4,744,944.00 12,521,380.00
*E-016-013-85 1998-2001 6,444,810.00 2,900,164.50 9,344,974.50
*E-016-01387 1998-2001 34,876,800.00 5,694,560.00 50,571,360.00
*E-016-01396 1998-2001 75,240.00 33,858.00 109,098.00
GRAND TOTAL P392,435,861.9 P232,070,863.47 P624,506,725.42
5
1992-1997 RPT was paid on Dec. 24, 1997 as per O.R.#9476102 for P4,207,028.75
#9476101 for P28,676,480.00
#9476103 for P49,115.00 6
_______________
Rollo, pp. 22-23.

6
612
On 17 July 2001, the City of Parañaque, through its City Treasurer, issued notices of levy and
warrants of levy on the Airport Lands and Buildings. The Mayor of the City of Parañaque
threatened to sell at public auction the Airport Lands and Buildings should MIAA fail to pay the
real estate tax delinquency. MIAA thus sought a clarification of OGCC Opinion No. 061.
On 9 August 2001, the OGCC issued Opinion No. 147 clarifying OGCC Opinion No. 061.
The OGCC pointed out that Section 206 of the Local Government Code requires persons exempt
from real estate tax to show proof of exemption. The OGCC opined that Section 21 of the MIAA
Charter is the proof that MIAA is exempt from real estate tax.
On 1 October 2001, MIAA filed with the Court of Appeals an original petition for prohibition
and injunction, with prayer for preliminary injunction or temporary restraining order. The
petition sought to restrain the City of Parañaque from imposing real estate tax on, levying
against, and auctioning for public sale the Airport Lands and Buildings. The petition was
docketed as CA-G.R. SP No. 66878. On 5 October 2001, the Court of Appeals dismissed the
petition because MIAA filed it beyond the 60-day reglementary period. The Court of Appeals
also denied on 27 September 2002 MIAA’s motion for reconsideration and supplemental motion
for reconsideration. Hence, MIAA filed on 5 December 2002 the present petition for review. 7
Meanwhile, in January 2003, the City of Parañaque posted notices of auction sale at the
Barangay Halls of Barangays Vitalez, Sto. Niño, and Tambo, Parañaque City; in the public
market of Barangay La Huerta; and in the main lobby of the Parañaque City Hall. The City of
Parañaque published the notices in the 3 and 10 January 2003 issues of the Philippine Daily
Inquirer, a newspaper of general circulation in the Philippines. The notices announced the public
auction sale of the Airport Lands and Buildings to the highest bidder on 7
_______________
Under Rule 45 of the 1997 Rules of Civil Procedure.

7
613
VOL. 495, JULY 20, 2006 613
February 2003, 10:00 a.m., at the Legislative Session Hall Building of Parañaque City.
A day before the public auction, or on 6 February 2003, at 5:10 p.m., MIAA filed before this
Court an Urgent Ex-Parte and Reiteratory Motion for the Issuance of a Temporary Restraining
Order. The motion sought to restrain respondents—the City of Parañaque, City Mayor of
Parañaque, Sangguniang Panglungsod ng Parañaque, City Treasurer of Parañaque, and the City
Assessor of Parañaque (“respondents”)—from auctioning the Airport Lands and Buildings.
On 7 February 2003, this Court issued a temporary restraining order (TRO) effective
immediately. The Court ordered respondents to cease and desist from selling at public auction
the Airport Lands and Buildings. Respondents received the TRO on the same day that the Court
issued it. However, respondents received the TRO only at 1:25 p.m. or three hours after the
conclusion of the public auction.
On 10 February 2003, this Court issued a Resolution confirming nunc pro tunc the TRO.
On 29 March 2005, the Court heard the parties in oral arguments. In compliance with the
directive issued during the hearing, MIAA, respondent City of Parañaque, and the Solicitor
General subsequently submitted their respective Memoranda.
MIAA admits that the MIAA Charter has placed the title to the Airport Lands and Buildings
in the name of MIAA. However, MIAA points out that it cannot claim ownership over these
properties since the real owner of the Airport Lands and Buildings is the Republic of the
Philippines. The MIAA Charter mandates MIAA to devote the Airport Lands and Buildings for
the benefit of the general public. Since the Airport Lands and Buildings are devoted to public use
and public service, the ownership of these properties remains with the State. The Airport Lands
and Buildings are thus inalienable and are not subject to real estate tax by local governments.
MIAA also points out that Section 21 of the MIAA Charter specifically exempts MIAA from
the payment of real estate tax. MIAA insists that it is also exempt from real estate tax under
Section 234 of the Local Government Code because the Airport Lands and Buildings
614
are owned by the Republic. To justify the exemption, MIAA invokes the principle that the
government cannot tax itself. MIAA points out that the reason for tax exemption of public
property is that its taxation would not inure to any public advantage, since in such a case the tax
debtor is also the tax creditor.
Respondents invoke Section 193 of the Local Government Code, which expressly withdrew
the tax exemption privileges of “govern-ment-owned and-controlled corporations” upon the
effectivity of the Local Government Code. Respondents also argue that a basic rule of statutory
construction is that the express mention of one person, thing, or act excludes all others. An
international airport is not among the exceptions mentioned in Section 193 of the Local
Government Code. Thus, respondents assert that MIAA cannot claim that the Airport Lands and
Buildings are exempt from real estate tax.
Respondents also cite the ruling of this Court in Mactan International Airport v.
Marcos where we held that the Local Government Code has withdrawn the exemption from real
8
estate tax granted to international airports. Respondents further argue that since MIAA has
already paid some of the real estate tax assessments, it is now estopped from claiming that the
Airport Lands and Buildings are exempt from real estate tax.
The Issue
This petition raises the threshold issue of whether the Airport Lands and Buildings of MIAA are
exempt from real estate tax under existing laws. If so exempt, then the real estate tax assessments
issued by the City of Parañaque, and all proceedings taken pursuant to such assessments, are
void. In such event, the other issues raised in this petition become moot.
The Court’s Ruling
We rule that MIAA’s Airport Lands and Buildings are exempt from real estate tax imposed by
local governments.
_______________
330 Phil. 392; 261 SCRA 667 (1996).

8
615
VOL. 495, JULY 20, 2006 615
First, MIAA is not a government-owned or controlled corporation but an instrumentality of the
National Government and thus exempt from local taxation. Second, the real properties of MIAA
are owned by the Republic of the Philippines and thus exempt from real estate tax.
1. 1.MIAA is Not a Government-Owned or Controlled Corporation
Respondents argue that MIAA, being a government-owned or controlled corporation, is not

exempt from real estate tax. Respondents claim that the deletion of the phrase “any government-
owned or controlled so exempt by its charter” in Section 234(e) of the Local Government Code
withdrew the real estate tax exemption of government-owned or controlled corporations. The
deleted phrase appeared in Section 40(a) of the 1974 Real Property Tax Code enumerating the
entities exempt from real estate tax.
There is no dispute that a government-owned or controlled corporation is not exempt from
real estate tax. However, MIAA is not a government-owned or controlled corporation. Section
2(13) of the Introductory Provisions of the Administrative Code of 1987 defines a government-
owned or controlled corporation as follows:
SEC. 2. General Terms Defined.—x x x x
(13) Government-owned or controlled corporation refers to any agency organized as a stock or non-
stock corporation, vested with functions relating to public needs whether governmental or proprietary in
nature, and owned by the Government directly or through its instrumentalities either wholly, or, where
applicable as in the case of stock corporations, to the extent of at least fifty-one (51) percent of its capital
stock: x x x. (Emphasis supplied)
A government-owned or controlled corporation must be “organized as a stock or non-stock
corporation.” MIAA is not organized as a stock or non-stock corporation. MIAA is not a stock
corporation because it has no capital stock divided into shares. MIAA has no stockholders or
voting shares. Section 10 of the MIAA Charter provides:
9
_______________
MIAA Charter as amended by Executive Order No. 298. See note 2.

9
616
SECTION 10. Capital.—The capital of the Authority to be contributed by the National Government shall
be increased from Two and One-half Billion (P2,500,000,000.00) Pesos to Ten Billion
(P10,000,000,000.00) Pesos to consist of:
1. (a)The value of fixed assets including airport facilities, runways and equipment and
such other properties, movable and immovable[,] which may be contributed by the
National Government or transferred by it from any of its agencies, the valuation of
which shall be determined jointly with the Department of Budget and Management and
the Commission on Audit on the date of such contribution or transfer after making due
allowances for depreciation and other deductions taking into account the loans and other
liabilities of the Authority at the time of the takeover of the assets and other properties;
2. (b)That the amount of P605 million as of December 31, 1986 representing about
seventy per centum (70%) of the unremitted share of the National Government from
1983 to 1986 to be remitted to the National Treasury as provided for in Section 11 of E.
O. No. 903 as amended, shall be converted into the equity of the National Government
in the Authority. Thereafter, the Government contribution to the capital of the Authority
shall be provided in the General Appropriations Act.
Clearly, under its Charter, MIAA does not have capital stock that is divided into shares.
Section 3 of the Corporation Code defines a stock corporation as one whose “capital stock is
10
divided into shares and x x x authorized to distribute to the holders of such shares dividends x x
x.” MIAA has capital but it is not divided into shares of stock. MIAA has no stockholders or
voting shares. Hence, MIAA is not a stock corporation.
MIAA is also not a non-stock corporation because it has no members. Section 87 of the
Corporation Code defines a non-stock corporation as “one where no part of its income is
distributable as dividends to its members, trustees or officers.” A non-stock corporation must
have members. Even if we assume that the Government is considered as the sole member of
MIAA, this will not make MIAA a non-stock corporation. Non-stock corporations cannot
distribute any part of their income to their members. Section 11 of the MIAA Charter man-
_______________
Batas Pambansa Blg. 68.

10
617
VOL. 495, JULY 20, 2006 617
dates MIAA to remit 20% of its annual gross operating income to the National Treasury. This 11
prevents MIAA from qualifying as a non-stock corporation.

Section 88 of the Corporation Code provides that non-stock corporations are “organized for
charitable, religious, educational, professional, cultural, recreational, fraternal, literary, scientific,
social, civil service, or similar purposes, like trade, industry, agriculture and like chambers.”
MIAA is not organized for any of these purposes. MIAA, a public utility, is organized to operate
an international and domestic airport for public use.
Since MIAA is neither a stock nor a non-stock corporation, MIAA does not qualify as a
government-owned or controlled corporation. What then is the legal status of MIAA within the
National Government?
MIAA is a government instrumentality vested with corporate powers to perform efficiently its
governmental functions. MIAA is like any other government instrumentality, the only difference
is that MIAA is vested with corporate powers. Section 2(10) of the Introductory Provisions of the
Administrative Code defines a government “instrumentality” as follows:
SEC. 2. General Terms Defined.––x x x x
all corporate
_______________
Section 11 of the MIAA Charter provides:

11
Contribution to the General Fund for the Maintenance and Operation of other Airports.—Within thirty (30) days after the close of each
quarter, twenty per centum (20%) of the gross operating income, excluding payments for utilities of tenants and concessionaires and
terminal fee collections, shall be remitted to the General Fund in the National Treasury to be used for the maintenance and operation of
other international and domestic airports in the country. Adjustments in the amount paid by the Authority to the National Treasury under
this Section shall be made at the end of each year based on the audited financial statements of the Authority.
618
powers, administering special funds, and enjoying operational autonomy, usually through a charter. x x
x (Emphasis supplied)
When the law vests in a government instrumentality corporate powers, the instrumentality does
not become a corporation. Unless the government instrumentality is organized as a stock or non-
stock corporation, it remains a government instrumentality exercising not only governmental but
also corporate powers. Thus, MIAA exercises the governmental powers of eminent
domain, police authority and the levying of fees and charges. At the same time, MIAA
12 13 14
exercises “all the powers of a corporation under the Corporation Law, insofar as these powers are
not inconsistent with the provisions of this Executive Order.” 15
Likewise, when the law makes a government instrumentality operationally autonomous, the

instrumentality remains part of the National Government machinery although not integrated with
the department framework. The MIAA Charter expressly states that transforming MIAA into a
“separate and autonomous body” will make its operation more “financially viable.”
16 17
Many government instrumentalities are vested with corporate powers but they do not become
stock or non-stock corporations, which is a necessary condition before an agency or
instrumentality is deemed a government-owned or controlled corporation. Examples are the
Mactan International Airport Authority, the Philippine Ports Authority, the University of the
Philippines and Bangko Sentral ng Pilipinas. All these government instrumentalities exercise
corporate powers but they are not organized as stock or non-stock corporations as required by
Section 2(13) of the Introductory Provisions of the Administrative Code. These government
instrumentalities are sometimes loosely called government corporate entities. However, they are
_______________
Section 5(j), MIAA Charter.

12

13
Section 5(k), MIAA Charter.

14
Section 5(o), MIAA Charter.

15
Third Whereas Clause, MIAA Charter.

16
Id.
17
619
VOL. 495, JULY 20, 2006 619
not government-owned or controlled corporations in the strict sense as understood under the
Administrative Code, which is the governing law defining the legal relationship and status of
government entities.
A government instrumentality like MIAA falls under Section 133(o) of the Local
Government Code, which states:
SEC. 133. Common Limitations on the Taxing Powers of Local Government Units.—Unless otherwise
provided herein, the exercise of the taxing powers of provinces, cities, municipalities, and
barangays shall not extend to the levy of the following:
xxxx
(o) Taxes, fees or charges of any kind on the National Government, its agencies
and instrumentalities and local government units. (Emphasis and italics supplied)
Section 133(o) recognizes the basic principle that local governments cannot tax the national
government, which historically merely delegated to local governments the power to tax. While
the 1987 Constitution now includes taxation as one of the powers of local governments, local
governments may only exercise such power “subject to such guidelines and limitations as the
Congress may provide.” 18
When local governments invoke the power to tax on national government instrumentalities,
such power is construed strictly against local governments. The rule is that a tax is never
presumed and there must be clear language in the law imposing the tax. Any doubt whether a
person, article or activity is taxable is resolved against taxation. This rule applies with greater
force when local governments seek to tax national government instrumentalities.
Another rule is that a tax exemption is strictly construed against the taxpayer claiming the
exemption. However, when Congress grants an exemption to a national government
instrumentality from local taxation, such exemption is construed liberally in favor of the national
government instrumentality. As this Court declared in Maceda v. Macaraig, Jr.:
_______________
CONSTITUTION, Art. X, Sec. 5.

18
620
The reason for the rule does not apply in the case of exemptions running to the benefit of the government
itself or its agencies. In such case the practical effect of an exemption is merely to reduce the amount of
money that has to be handled by government in the course of its operations. For these reasons, provisions
granting exemptions to government agencies may be construed liberally, in favor of non tax-liability of
such agencies. 19
There is, moreover, no point in national and local governments taxing each other, unless a sound
and compelling policy requires such transfer of public funds from one government pocket to
another.
There is also no reason for local governments to tax national government instrumentalities for
rendering essential public services to inhabitants of local governments. The only exception is
when the legislature clearly intended to tax government instrumentalities for the delivery of
essential public services for sound and compelling policy considerations. There must be express
language in the law empowering local governments to tax national government instrumentalities.
Any doubt whether such power exists is resolved against local governments.
Thus, Section 133 of the Local Government Code states that “unless otherwise provided” in
the Code, local governments cannot tax national government instrumentalities. As this Court
held in Basco v. Philippine Amusements and Gaming Corporation:
The states have no power by taxation or otherwise, to retard, impede, burden or in any manner control the operation
of constitutional laws enacted by Congress to carry into execution the powers vested in the federal government. (Mc
Culloch v. Maryland, 4 Wheat 316, 4 L Ed. 579)
This doctrine emanates from the “supremacy” of the National Government over local governments.
“Justice Holmes, speaking for the Supreme Court, made reference to the entire absence of power on the part of the
States to touch, in that way (taxation) at least, the instrumentalities of the United States ( Johnson v. Maryland, 254
US 51) and it can be agreed that no state or
_______________
274 Phil. 1060, 1100; 197 SCRA 771, 799 (1991) quoting C. Dallas Sands, 3 STATUTES and STATUTORY
19
CONSTRUCTION 207.
621
VOL. 495, JULY 20, 2006 621
political subdivision can regulate a federal instrumentality in such a way as to prevent it from consummating its
federal responsibilities, or even to seriously burden it in the accomplishment of them.” (Antieau, Modern
Constitutional Law, Vol. 2, p. 140, emphasis supplied)
Otherwise, mere creatures of the State can defeat National policies thru extermination of what local
authorities may perceive to be undesirable activities or enterprise using the power to tax as “a tool for
regulation” (U.S. v. Sanchez, 340 US 42).
The power to tax which was called by Justice Marshall as the “power to destroy” (Mc Culloch v.
Maryland, supra) cannot be allowed to defeat an instrumentality or creation of the very entity which has
the inherent power to wield it. 20
1. 2.Airport Lands and Buildings of MIAA are Owned by the Republic
1. a.Airport Lands and Buildings are of Public Dominion
The Airport Lands and Buildings of MIAA are property of public dominion and therefore
owned by the State or the Republic of the Philippines. The Civil Code provides:
ARTICLE 419. Property is either of public dominion or of private ownership.
ARTICLE 420. The following things are property of public dominion:
character;
some public service or for the development of the national wealth. (Emphasis supplied)
ARTICLE 421. All other property of the State, which is not of the character stated in the preceding
article, is patrimonial property.
ARTICLE 422. Property of public dominion, when no longer intended for public use or for public
service, shall form part of the patrimonial property of the State.
_______________
274 Phil. 323, 339-340; 197 SCRA 52, 64-65 (1991).

20
622
No one can dispute that properties of public dominion mentioned in Article 420 of the Civil
Code, like “roads, canals, rivers, torrents, ports and bridges constructed by the State,” are
owned by the State. The term “ports” includes seaports and airports. The MIAA Airport Lands
and Buildings constitute a “port” constructed by the State. Under Article 420 of the Civil Code,
the MIAA Airport Lands and Buildings are properties of public dominion and thus owned by the
State or the Republic of the Philippines.
The Airport Lands and Buildings are devoted to public use because they are used by the
public for international and domestic travel and transportation. The fact that the MIAA collects
terminal fees and other charges from the public does not remove the character of the Airport
Lands and Buildings as properties for public use. The operation by the government of a tollway
does not change the character of the road as one for public use. Someone must pay for the
maintenance of the road, either the public indirectly through the taxes they pay the government,
or only those among the public who actually use the road through the toll fees they pay upon
using the road. The tollway system is even a more efficient and equitable manner of taxing the
public for the maintenance of public roads.
The charging of fees to the public does not determine the character of the property whether it
is of public dominion or not. Article 420 of the Civil Code defines property of public dominion
as one “intended for public use.” Even if the government collects toll fees, the road is still
“intended for public use” if anyone can use the road under the same terms and conditions as the
rest of the public. The charging of fees, the limitation on the kind of vehicles that can use the
road, the speed restrictions and other conditions for the use of the road do not affect the public
character of the road.
The terminal fees MIAA charges to passengers, as well as the landing fees MIAA charges to
airlines, constitute the bulk of the income that maintains the operations of MIAA. The collection
of such fees does not change the character of MIAA as an airport for public use. Such fees are
often termed user’s tax. This means taxing those among the public who actually use a public
facility instead of taxing all the public including those who never use the particular public
facility. A
623
VOL. 495, JULY 20, 2006 623
user’s tax is more equitable—a principle of taxation mandated in the 1987 Constitution. 21
The Airport Lands and Buildings of MIAA, which its Charter calls the “principal airport of
the Philippines for both international and domestic air traffic,” are properties of public dominion
22
because they are intended for public use. As properties of public dominion, they indisputably
belong to the State or the Republic of the Philippines.
1. b.Airport Lands and Buildings are Outside the Commerce of Man
The Airport Lands and Buildings of MIAA are devoted to public use and thus are properties of
public dominion. As properties of public dominion, the Airport Lands and Buildings are outside
the commerce of man. The Court has ruled repeatedly that properties of public dominion are
outside the commerce of man. As early as 1915, this Court already ruled in Municipality of
Cavite v. Rojas that properties devoted to public use are outside the commerce of man, thus:
“According to article 344 of the Civil Code: “Property for public use in provinces and in towns comprises
the provincial and town roads, the squares, streets, fountains, and public waters, the promenades, and
public works of general service supported by said towns or provinces.”
The said Plaza Soledad being a promenade for public use, the municipal council of Cavite could not in
1907 withdraw or exclude from public use a portion thereof in order to lease it for the sole benefit of the
defendant Hilaria Rojas. In leasing a portion of said plaza or public place to the defendant for private use
the plaintiff municipality exceeded its authority in the exercise of its powers by executing a contract over
a thing of which it could not dispose, nor is it empowered so to do.
The Civil Code, article 1271, prescribes that everything which is not outside the commerce of man
may be the object of a contract, and plazas and streets are outside of this commerce, as was decided by
the supreme court of Spain in its decision of February 12, 1895, which says: “Communal things that
cannot be sold because they are by their very nature
_______________
CONSTITUTION, Art. VI, Sec. 28(1).

21
First Whereas Clause, MIAA Charter.

22
624
outside of commerce are those for public use, such as the plazas, streets, common lands, rivers,
fountains, etc.” (Emphasis supplied) 23
Again in Espiritu v. Municipal Council, the Court declared that properties of public dominion are
outside the commerce of man:
“x x x Town plazas are properties of public dominion, to be devoted to public use and to be made
available to the public in general. They are outside the commerce of man and cannot be disposed of or
even leased by the municipality to private parties. While in case of war or during an emergency, town
plazas may be occupied temporarily by private individuals, as was done and as was tolerated by the
Municipality of Pozorrubio, when the emergency has ceased, said temporary occupation or use must also
cease, and the town officials should see to it that the town plazas should ever be kept open to the public
and free from encumbrances or illegal private constructions.” (Emphasis supplied)
24
The Court has also ruled that property of public dominion, being outside the commerce of man,
cannot be the subject of an auction sale. 25
disposition through public or private sale. Any encumbrance, levy on execution or auction sale of
any property of public dominion is void for being contrary to public policy. Essential public
services will stop if properties of public dominion are subject to encumbrances, foreclosures and
auction sale. This will happen if the City of Parañaque can foreclose and compel the auction sale
of the 600-hectare runway of the MIAA for non-payment of real estate tax.
Before MIAA can encumber the Airport Lands and Buildings, the President must
26
first withdraw from public use the Airport Lands and Buildings. Sections 83 and 88 of the Public
Land Law or Common-
_______________
30 Phil. 602, 606-607 (1915).

23
102 Phil. 866, 869-870 (1958).

24
Philippine National Bank v. Puruganan, 130 Phil. 498; 22 SCRA 468 (1968). See also Martinez v. Court of
25
Appeals, 155 Phil. 591; 56 SCRA 647 (1974).

MIAA Charter, Sec.16.
26
625
VOL. 495, JULY 20, 2006 625
wealth Act No. 141, which “remains to this day the existing general law governing the
classification and disposition of lands of the public domain other than timber and mineral
lands,” provide:
27
SECTION 83. Upon the recommendation of the Secretary of Agriculture and Natural Resources, the
President may designate by proclamation any tract or tracts of land of the public domain as reservations
for the use of the Republic of the Philippines or of any of its branches, or of the inhabitants thereof, in
accordance with regulations prescribed for this purposes, or for quasi-public uses or purposes when the
public interest requires it, including reservations for highways, rights of way for railroads, hydraulic
power sites, irrigation systems, communal pastures or lequas communales, public parks, public quarries,
public fishponds, working men’s village and other improvements for the public benefit.
SECTION 88. The tract or tracts of land reserved under the provisions of Section eighty-three
shall be non-alienable and shall not be subject to occupation, entry, sale, lease, or other disposition
until again declared alienable under the provisions of this Act or by proclamation of the President .
(Emphasis and italics supplied)
Thus, unless the President issues a proclamation withdrawing the Airport Lands and Buildings
from public use, these properties remain properties of public dominion and are inalienable. Since
the Airport Lands and Buildings are inalienable in their present status as properties of public
dominion, they are not subject to levy on execution or foreclosure sale. As long as the Airport
Lands and Buildings are reserved for public use, their ownership remains with the State or the
Republic of the Philippines.
The authority of the President to reserve lands of the public domain for public use, and to
withdraw such public use, is reiterated in Section 14, Chapter 4, Title I, Book III of the
Administrative Code of 1987, which states:
_______________
Chavez v. Public Estates Authority, 433 Phil. 506; 384 SCRA 152 (2002).

27
626
SEC. 14. Power to Reserve Lands of the Public and Private Domain of the Government.—(1) The
President shall have the power to reserve for settlement or public use, and for specific public
purposes, any of the lands of the public domain, the use of which is not otherwise directed by law.
The reserved land shall thereafter remain subject to the specific public purpose indicated until
otherwise provided by law or proclamation;
x x x x. (Emphasis supplied)
There is no question, therefore, that unless the Airport Lands and Buildings are withdrawn by
law or presidential proclamation from public use, they are properties of public dominion, owned
by the Republic and outside the commerce of man.
1. c.MIAA is a Mere Trustee of the Republic
MIAA is merely holding title to the Airport Lands and Buildings in trust for the Republic.
Section 48, Chapter 12, Book I of the Administrative Code allows instrumentalities like MIAA to
hold title to real properties owned by the Republic, thus:
SEC. 48. Official Authorized to Convey Real Property.—Whenever real property of the Government is
authorized by law to be conveyed, the deed of conveyance shall be executed in behalf of the government
by the following:
1. (1)For property belonging to and titled in the name of the Republic of the Philippines,
by the President, unless the authority therefor is expressly vested by law in another
officer.
2. (2)For property belonging to the Republic of the Philippines but titled in the name
of any political subdivision or of any corporate agency or instrumentality, by the
executive head of the agency or instrumentality. (Emphasis supplied)
In MIAA’s case, its status as a mere trustee of the Airport Lands and Buildings is clearer because
even its executive head cannot sign the deed of conveyance on behalf of the Republic. Only the
President of the Republic can sign such deed of conveyance. 28
_______________

28
627
VOL. 495, JULY 20, 2006 627
1. d.Transfer to MIAA was Meant to Implement a Reorganization
The MIAA Charter, which is a law, transferred to MIAA the title to the Airport Lands and
Buildings from the Bureau of Air Transportation of the Department of Transportation and
Communications. The MIAA Charter provides:
SECTION 3. Creation of the Manila International Airport Author-ity.—x x x x
The land where the Airport is presently located as well as the surrounding land area of
approximately six hundred hectares, are hereby transferred, conveyed and assigned to the
ownership and administration of the Authority, subject to existing rights, if any. The Bureau of
Lands and other appropriate government agencies shall undertake an actual survey of the area transferred
within one year from the promulgation of this Executive Order and the corresponding title to be issued in
the name of the Authority. Any portion thereof shall not be disposed through sale or through any
other mode unless specifically approved by the President of the Philippines. (Emphasis supplied)
SECTION 22. Transfer of Existing Facilities and Intangible Assets.—All existing public airport
facilities, runways, lands, buildings and other property, movable or immovable, belonging to the
Airport, and all assets, powers, rights, interests and privileges belonging to the Bureau of Air
Transportation relating to airport works or air operations, including all equipment which are necessary
for the operation of crash fire and rescue facilities, are hereby transferred to the Authority. (Emphasis
supplied)
SECTION 25. Abolition of the Manila International Airport as a Division in the Bureau of Air
Transportation and Transitory Provisions.—The Manila International Airport including the Manila
Domestic Airport as a division under the Bureau of Air Transportation is hereby abolished.
x x x x.
The MIAA Charter transferred the Airport Lands and Buildings to MIAA without the Republic
receiving cash, promissory notes or even stock since MIAA is not a stock corporation.
The whereas clauses of the MIAA Charter explain the rationale for the transfer of the Airport
Lands and Buildings to MIAA, thus:
628
WHEREAS, the Manila International Airport as the principal airport of the Philippines for both
international and domestic air traffic, is required to provide standards of airport accommodation and
service comparable with the best airports in the world;
WHEREAS, domestic and other terminals, general aviation and other facilities, have to be upgraded
to meet the current and future air traffic and other demands of aviation in Metro Manila;
WHEREAS, a management and organization study has indicated that the objectives of providing
high standards of accommodation and service within the context of a financially viable operation,
will best be achieved by a separate and autonomous body; and
WHEREAS, under Presidential Decree No. 1416, as amended by Presidential Decree No. 1772, the
President of the Philippines is given continuing authority to reorganize the National Government,
which authority includes the creation of new entities, agencies and instrumentalities of the
Government[.] (Emphasis supplied)
The transfer of the Airport Lands and Buildings from the Bureau of Air Transportation to MIAA
was not meant to transfer beneficial ownership of these assets from the Republic to MIAA. The
purpose was merely to reorganize a division in the Bureau of Air Transportation into a separate
and autonomous body. The Republic remains the beneficial owner of the Airport Lands and
Buildings. MIAA itself is owned solely by the Republic. No party claims any ownership rights
over MIAA’s assets adverse to the Republic.
The MIAA Charter expressly provides that the Airport Lands and Buildings “shall not be
disposed through sale or through any other mode unless specifically approved by the President
of the Philippines.” This only means that the Republic retained the beneficial ownership of the
Airport Lands and Buildings because under Article 428 of the Civil Code, only the “owner has
the right to x x x dispose of a thing.” Since MIAA cannot dispose of the Airport Lands and
Buildings, MIAA does not own the Airport Lands and Buildings.
At any time, the President can transfer back to the Republic title to the Airport Lands and
Buildings without the Republic paying MIAA any consideration. Under Section 3 of the MIAA
Charter, the President is the only one who can authorize the sale or disposition of
629
VOL. 495, JULY 20, 2006 629
the Airport Lands and Buildings. This only confirms that the Airport Lands and Buildings belong
to the Republic.
1. e.Real Property Owned by the Republic is Not Taxable
Section 234(a) of the Local Government Code exempts from real estate tax any “[r]eal property
owned by the Republic of the Philippines.” Section 234(a) provides:
SEC. 234. Exemptions from Real Property Tax.—The following are exempted from payment of the
real property tax:
(a) Real property owned by the Republic of the Philippines or any of its political
subdivisions except when the beneficial use thereof has been granted, for consideration or otherwise,
to a taxable person;
x x x. (Emphasis supplied)
This exemption should be read in relation with Section 133(o) of the same Code, which prohibits
local governments from imposing “[t]axes, fees or charges of any kind on the National
Government, its agencies and instrumentalities x x x.” The real properties owned by the
Republic are titled either in the name of the Republic itself or in the name of agencies or
instrumentalities of the National Government. The Administrative Code allows real property
owned by the Republic to be titled in the name of agencies or instrumentalities of the national
government. Such real properties remain owned by the Republic and continue to be exempt from
real estate tax.
The Republic may grant the beneficial use of its real property to an agency or instrumentality
of the national government. This happens when title of the real property is transferred to an
agency or instrumentality even as the Republic remains the owner of the real property. Such
arrangement does not result in the loss of the tax exemption. Section 234(a) of the Local
Government Code states that real property owned by the Republic loses its tax exemption only if
the “beneficial use thereof has been granted, for consideration or otherwise, to a taxable person.”
MIAA, as a government instrumentality, is not a taxable person under Section 133(o) of the
Local Government Code. Thus, even if we assume that the Republic has granted to
630
MIAA the beneficial use of the Airport Lands and Buildings, such fact does not make these real
properties subject to real estate tax.
However, portions of the Airport Lands and Buildings that MIAA leases to private entities are
not exempt from real estate tax. For example, the land area occupied by hangars that MIAA
leases to private corporations is subject to real estate tax. In such a case, MIAA has granted the
beneficial use of such land area for a consideration to a taxable person and therefore such land
area is subject to real estate tax. In Lung Center of the Philippines v. Quezon City, the Court
ruled:
"Accordingly, we hold that the portions of the land leased to private entities as well as those parts of the
hospital leased to private individuals are not exempt from such taxes. On the other hand, the portions of
the land occupied by the hospital and portions of the hospital used for its patients, whether paying or non-
paying, are exempt from real property taxes.” 29
1. 3.Refutation of Arguments of Minority
The minority asserts that the MIAA is not exempt from real estate tax because Section 193 of the
Local Government Code of 1991 withdrew the tax exemption of “all persons, whether natural
or juridical” upon the effectivity of the Code. Section 193 provides:
exemptions or incentives granted to, or presently enjoyed by all persons, whether natural or
juridical, including government-owned or controlled corporations, except local water districts,
cooperatives duly registered under R.A. No. 6938, non-stock and non-profit hospitals and educational
institutions are hereby withdrawn upon effectivity of this Code. (Emphasis supplied)
The minority states that MIAA is indisputably a juridical person. The minority argues that since
the Local Government Code withdrew the tax exemption of all juridical persons, then MIAA is
not exempt from real estate tax. Thus, the minority declares:
_______________
G.R. No. 144104, 29 June 2004, 433 SCRA 119, 138.

29
631
VOL. 495, JULY 20, 2006 631
It is evident from the quoted provisions of the Local Government Code that the withdrawn
exemptions from realty tax cover not just GOCCs, but all persons. To repeat, the provisions
lay down the explicit proposition that the withdrawal of realty tax exemption applies to all
persons. The reference to or the inclusion of GOCCs is only clarificatory or illustrative of the
explicit provision.
The term “All persons” encompasses the two classes of persons recognized under our
laws, natural and juridical persons. Obviously, MIAA is not a natural person. Thus, the
determinative test is not just whether MIAA is a GOCC, but whether MIAA is a juridical
person at all. (Emphasis and underscoring in the original)
The minority posits that the “determinative test” whether MIAA is exempt from local taxation
is its status—whether MIAA is a juridical person or not. The minority also insists that “Sections
193 and 234 may be examined in isolation from Section 133(o) to ascertain MIAA’s claim of
exemption.”
The argument of the minority is fatally flawed. Section 193 of the Local Government Code
expressly withdrew the tax exemption of all juridical persons “[u]nless otherwise provided in
this Code.” Now, Section 133(o) of the Local Government Code expressly provides otherwise,
specifically prohibiting local governments from imposing any kind of tax on national
government instrumentalities. Section 133(o) states:
SEC. 133. Common Limitations on the Taxing Powers of Local Government Units.—Unless otherwise
provided herein, the exercise of the taxing powers of provinces, cities, municipalities, and barangays
shall not extend to the levy of the following:
xxxx
(o) Taxes, fees or charges of any kinds on the National Government, its agencies
and instrumentalities, and local government units. (Emphasis and italics supplied)
By express mandate of the Local Government Code, local governments cannot impose any kind
of tax on national government instrumentalities like the MIAA. Local governments are devoid of
power to tax the national government, its agencies and instrumentalities. The
632
taxing powers of local governments do not extend to the national government, its agencies and
instrumentalities, “[u]nless otherwise provided in this Code” as stated in the saving clause of
Section 133. The saving clause refers to Section 234(a) on the exception to the exemption from
real estate tax of real property owned by the Republic.
The minority, however, theorizes that unless exempted in Section 193 itself, all juridical
persons are subject to tax by local governments. The minority insists that the juridical persons
exempt from local taxation are limited to the three classes of entities specifically enumerated as
exempt in Section 193. Thus, the minority states:
x x x Under Section 193, the exemption is limited to (a) local water districts; (b) cooperatives duly
registered under Republic Act No. 6938; and (c) non-stock and non-profit hospitals and educational
institutions. It would be belaboring the obvious why the MIAA does not fall within any of the exempt
entities under Section 193. (Emphasis supplied)
The minority’s theory directly contradicts and completely negates Section 133(o) of the Local
Government Code. This theory will result in gross absurdities. It will make the national
government, which itself is a juridical person, subject to tax by local governments since the
national government is not included in the enumeration of exempt entities in Section 193. Under
this theory, local governments can impose any kind of local tax, and not only real estate tax, on
the national government.
Under the minority’s theory, many national government instrumentalities with juridical
personalities will also be subject to any kind of local tax, and not only real estate tax. Some of
the national government instrumentalities vested by law with juridical personalities are: Bangko
Sentral ng Pilipinas, Philippine Rice Research Institute, Laguna Lake Development
30 31
Authority, Fisheries Develop-

32
_______________
Republic Act No. 7653, 14 June 1993, Sec. 5.

30
Executive Order No. 1061, 5 November 1985, Sec. 3(p).

31
Republic Act No. 4850, 18 July 1966, Sec. 5.

32
633
VOL. 495, JULY 20, 2006 633
ment Authority, Bases
33
Conversion Development Authority, Philippine
34
Ports
Authority, Cagayan de Oro Port Authority, San Fernando Port Authority, Cebu Port
35 36 37
Authority, and Philippine National Railways.

38 39
The minority’s theory violates Section 133(o) of the Local Government Code which
expressly prohibits local governments from imposing any kind of tax on national government
instrumentalities. Section 133(o) does not distinguish between national government
instrumentalities with or without juridical personalities. Where the law does not distinguish,
courts should not distinguish. Thus, Section 133(o) applies to all national government
instrumentalities, with or without juridical personalities. The determinative test whether MIAA is
exempt from local taxation is not whether MIAA is a juridical person, but whether it is a
national government instrumentality under Section 133(o) of the Local Government Code.
Section 133(o) is the specific provision of law prohibiting local governments from imposing any
kind of tax on the national government, its agencies and instrumentalities.
Section 133 of the Local Government Code starts with the saving clause “[u]nless otherwise
provided in this Code.” This means that unless the Local Government Code grants an express
authorization, local governments have no power to tax the national government, its agencies and
instrumentalities. Clearly, the rule is local governments have no power to tax the national
government, its agencies and instrumentalities. As an exception to this rule, local governments
may tax the national government, its agencies and instrumentalities only if the Local Government
Code expressly so provides.
_______________
Presidential Decree No. 977, 11 August 1976, Section 4(j).

33
Republic Act No. 7227, 13 March 1992, Sec. 3.

34
Presidential Decree No. 857, 23 December 1975, Sec. 6(b)(xvi).

35
Republic Act No. 4663, 18 June 1966, Sec. 7(m).

36

37

38
Republic Act No. 4156, 20 June 1964. Section 4(b).

39
634
The saving clause in Section 133 refers to the exception to the exemption in Section 234(a) of
the Code, which makes the national government subject to real estate tax when it gives the
beneficial use of its real properties to a taxable entity. Section 234(a) of the Local Government
Code provides:
SEC. 234. Exemptions from Real Property Tax.—The following are exempted from payment of the
real property tax:
(a) Real property owned by the Republic of the Philippines or any of its political
subdivisions except when the beneficial use thereof has been granted, for consideration or otherwise,
to a taxable person.
x x x. (Emphasis supplied)
Under Section 234(a), real property owned by the Republic is exempt from real estate tax.
The exception to this exemption is when the government gives the beneficial use of the real
property to a taxable entity.
The exception to the exemption in Section 234(a) is the only instance when the national
government, its agencies and instrumentalities are subject to any kind of tax by local
governments. The exception to the exemption applies only to real estate tax and not to any other
tax. The justification for the exception to the exemption is that the real property, although owned
by the Republic, is not devoted to public use or public service but devoted to the private gain of a
taxable person.
The minority also argues that since Section 133 precedes Sections 193 and 234 of the Local
Government Code, the later provisions prevail over Section 133. Thus, the minority asserts:
“x x x Moreover, sequentially Section 133 antecedes Section 193 and 234. Following an accepted rule of
construction, in case of conflict the subsequent provisions should prevail. Therefore, MIAA, as a
juridical person, is subject to real property taxes, the general exemptions attaching to instrumentalities
under Section 133(o) of the Local Government Code being qualified by Sections 193 and 234 of the same
law.” (Emphasis supplied)
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VOL. 495, JULY 20, 2006 635
The minority assumes that there is an irreconcilable conflict between Section 133 on one hand,
and Sections 193 and 234 on the other. No one has urged that there is such a conflict, much less
has any one presented a persuasive argument that there is such a conflict. The minority’s
assumption of an irreconcilable conflict in the statutory provisions is an egregious error for two
reasons.
First, there is no conflict whatsoever between Sections 133 and 193 because Section 193
expressly admits its subordination to other provisions of the Code when Section 193 states
“[u]nless otherwise provided in this Code.” By its own words, Section 193 admits
the superiority of other provisions of the Local Government Code that limit the exercise of the
taxing power in Section 193. When a provision of law grants a power but withholds such power
on certain matters, there is no conflict between the grant of power and the withholding of power.
The grantee of the power simply cannot exercise the power on matters withheld from its power.
Second, Section 133 is entitled “Common Limitations on the Taxing Powers of Local
Government Units.” Section 133 limits the grant to local governments of the power to tax, and
not merely the exercise of a delegated power to tax. Section 133 states that the taxing powers of
local governments “shall not extend to the levy” of any kind of tax on the national government,
its agencies and instrumentalities. There is no clearer limitation on the taxing power than this.
Since Section 133 prescribes the “common limitations” on the taxing powers of local
governments, Section 133 logically prevails over Section 193 which grants local governments
such taxing powers. By their very meaning and purpose, the “common limitations” on the taxing
power prevail over the grant or exercise of the taxing power. If the taxing power of local
governments in Section 193 prevails over the limitations on such taxing power in Section 133,
then local governments can impose any kind of tax on the national government, its agencies and
instrumentalities—a gross absurdity.
Local governments have no power to tax the national government, its agencies and
instrumentalities, except as otherwise provided in the Local Government Code pursuant to the
saving clause in Section 133 stating “[u]nless otherwise provided in this Code.” This excep-
636
tion—which is an exception to the exemption of the Republic from real estate tax imposed by
local governments—refers to Section 234(a) of the Code. The exception to the exemption in
Section 234(a) subjects real property owned by the Republic, whether titled in the name of the
national government, its agencies or instrumentalities, to real estate tax if the beneficial use of
such property is given to a taxable entity.
The minority also claims that the definition in the Administrative Code of the phrase
“government-owned or controlled corporation” is not controlling. The minority points out that
Section 2 of the Introductory Provisions of the Administrative Code admits that its definitions
are not controlling when it provides:
SEC. 2. General Terms Defined.—Unless the specific words of the text, or the context as a whole, or a
particular statute, shall require a different meaning:
xxxx
The minority then concludes that reliance on the Administrative Code definition is “flawed.”
The minority’s argument is a non sequitur. True, Section 2 of the Administrative Code
recognizes that a statute may require a different meaning than that defined in the Administrative
Code. However, this does not automatically mean that the definition in the Administrative Code
does not apply to the Local Government Code. Section 2 of the Administrative Code clearly
states that “unless the specific words x x x of a particular statute shall require a different
meaning,” the definition in Section 2 of the Administrative Code shall apply. Thus, unless there
is specific language in the Local Government Code defining the phrase “government-owned or
controlled corporation” differently from the definition in the Administrative Code, the definition
in the Administrative Code prevails.
The minority does not point to any provision in the Local Government Code defining the
phrase “government-owned or controlled corporation” differently from the definition in the
Administrative Code. Indeed, there is none. The Local Government Code is silent on the
definition of the phrase “government-owned or controlled corpora-
637
VOL. 495, JULY 20, 2006 637
tion.” The Administrative Code, however, expressly defines the phrase “government-owned or
controlled corporation.” The inescapable conclusion is that the Administrative Code definition of
the phrase “government-owned or controlled corporation” applies to the Local Government
Code.
The third whereas clause of the Administrative Code states that the Code “incorporates in a
unified document the major structural, functional and procedural principles and rules of
governance.” Thus, the Administrative Code is the governing law defining the status and
relationship of government departments, bureaus, offices, agencies and instrumentalities. Unless
a statute expressly provides for a different status and relationship for a specific government unit
or entity, the provisions of the Administrative Code prevail.
The minority also contends that the phrase “government-owned or controlled corporation”
should apply only to corporations organized under the Corporation Code, the general
incorporation law, and not to corporations created by special charters. The minority sees no
reason why government corporations with special charters should have a capital stock. Thus, the
minority declares:
“I submit that the definition of “government-owned or controlled corporations” under the Administrative
Code refer to those corporations owned by the government or its instrumentalities which are created not
by legislative enactment, but formed and organized under the Corporation Code through registration with
the Securities and Exchange Commission. In short, these are GOCCs without original charters.
xxxx
It might as well be worth pointing out that there is no point in requiring a capital structure for GOCCs
whose full ownership is limited by its charter to the State or Republic. Such GOCCs are not empowered
to declare dividends or alienate their capital shares.”
The contention of the minority is seriously flawed. It is not in accord with the Constitution and
existing legislations. It will also result in gross absurdities.
First, the Administrative Code definition of the phrase “government-owned or controlled
corporation” does not distinguish between
638
one incorporated under the Corporation Code or under a special charter. Where the law does not
distinguish, courts should not distinguish.
Second, Congress has created through special charters several government-owned
corporations organized as stock corporations. Prime examples are the Land Bank of the
Philippines and the Development Bank of the Philippines. The special charter of the Land Bank
40
of the Philippines provides:

SECTION 81. Capital.—The authorized capital stock of the Bank shall be nine billion pesos, divided
into seven hundred and eighty million common shares with a par value of ten pesos each, which
shall be fully subscribed by the Government, and one hundred and twenty million preferred shares with a
par value of ten pesos each, which shall be issued in accordance with the provisions of Sections seventy-
seven and eighty-three of this Code. (Emphasis supplied)
Likewise, the special charter of the Development Bank of the Philippines provides:
41
SECTION 7. Authorized Capital Stock—Par value.—The capital stock of the Bank shall be Five
Billion Pesos to be divided into Fifty Million common shares with par value of P100 per
share. These shares are available for subscription by the National Government. Upon the effectivity of
this Charter, the National Government shall subscribe to Twenty-Five Million common shares of stock
worth Two Billion Five Hundred Million which shall be deemed paid for by the Government with the net
asset values of the Bank remaining after the transfer of assets and liabilities as provided in Section 30
hereof. (Emphasis supplied)
Other government-owned corporations organized as stock corporations under their special
charters are the Philippine Crop Insurance Corporation, Philippine International Trading
42
Corporation, and the

43
_______________
Republic Act No. 3844, 8 August 1963, as amended by Republic Act No. 7907, 23 February 1995.
40
Executive Order No. 81, 3 December 1986.

41
Republic Act No. 8175, 29 December 1995.

42
Presidential Decree No. 252, 21 July 1973, as amended by Presidential Decree No. 1071, 25 January 1977 and
43
Executive Order No. 1067, 25 November 1985.

639
VOL. 495, JULY 20, 2006 639
Philippine National Bank before it was reorganized as a stock corporation under the Corporation
44
Code. All these government-owned corporations organized under special charters as stock
corporations are subject to real estate tax on real properties owned by them. To rule that they are
not government-owned or controlled corporations because they are not registered with the
Securities and Exchange Commission would remove them from the reach of Section 234 of the
Local Government Code, thus exempting them from real estate tax.
Third, the government-owned or controlled corporations created through special charters are
those that meet the two conditions prescribed in Section 16, Article XII of the Constitution. The
first condition is that the government-owned or controlled corporation must be established for
the common good. The second condition is that the government-owned or controlled
corporation must meet the test of economic viability. Section 16, Article XII of the 1987
Constitution provides:
SEC. 16. The Congress shall not, except by general law, provide for the formation, organization, or
regulation of private corporations. Government-owned or controlled corporations may be created or
established by special charters in the interest of the common good and subject to the test of economic
viability. (Emphasis and italics supplied)
The Constitution expressly authorizes the legislature to create “government-owned or controlled
corporations” through special charters only if these entities are required to meet the twin
conditions of common good and economic viability. In other words, Congress has no power to
create government-owned or controlled corporations with special charters unless they are made
to comply with the two conditions of common good and economic viability. The test of economic
viability applies only to government-owned or controlled corporations that perform economic or
commercial activities and need to compete
_______________
Executive Order No. 80, 3 December 1986.

44
640
in the market place. Being essentially economic vehicles of the State for the common good—
meaning for economic development purposes—these government-owned or controlled
corporations with special charters are usually organized as stock corporations just like ordinary
private corporations.
In contrast, government instrumentalities vested with corporate powers and performing
governmental or public functions need not meet the test of economic viability. These
instrumentalities perform essential public services for the common good, services that every
modern State must provide its citizens. These instrumentalities need not be economically viable
since the government may even subsidize their entire operations. These instrumentalities are not
the “government-owned or controlled corporations” referred to in Section 16, Article XII of the
1987 Constitution.
Thus, the Constitution imposes no limitation when the legislature creates government
instrumentalities vested with corporate powers but performing essential governmental or public
functions. Congress has plenary authority to create government instrumentalities vested with
corporate powers provided these instrumentalities perform essential government functions or
public services. However, when the legislature creates through special charters corporations that
perform economic or commercial activities, such entities—known as “government-owned or
controlled corporations”—must meet the test of economic viability because they compete in the
market place.
This is the situation of the Land Bank of the Philippines and the Development Bank of the
Philippines and similar government-owned or controlled corporations, which derive their income
to meet operating expenses solely from commercial transactions in competition with the private
sector. The intent of the Constitution is to prevent the creation of government-owned or
controlled corporations that cannot survive on their own in the market place and thus merely
drain the public coffers.
Commissioner Blas F. Ople, proponent of the test of economic viability, explained to the
Constitutional Commission the purpose of this test, as follows:
641
VOL. 495, JULY 20, 2006 641
MR. OPLE: Madam President, the reason for this concern is really that when the government
creates a corporation, there is a sense in which this corporation becomes exempt from the test of
economic performance. We know what happened in the past. If a government corporation loses,
then it makes its claim upon the taxpayers’ money through new equity infusions from the
government and what is always invoked is the common good. That is the reason why this year,
out of a budget of P115 billion for the entire government, about P28 billion of this will go into
equity infusions to support a few government financial institutions. And this is all taxpayers’
money which could have been relocated to agrarian reform, to social services like health and
education, to augment the salaries of grossly underpaid public employees. And yet this is all
going down the drain.
Therefore, when we insert the phrase “ECONOMIC VIABILITY” together with the
“common good,” this becomes a restraint on future enthusiasts for state capitalism to excuse
themselves from the responsibility of meeting the market test so that they become viable. And
so, Madam President, I reiterate, for the committee’s consideration and I am glad that I am
joined in this proposal by Commissioner Foz, the insertion of the standard of “ECONOMIC
VIABILITY OR THE ECONOMIC TEST,” together with the common good. 45
Father Joaquin G. Bernas, a leading member of the Constitutional Commission, explains in

his textbook The 1987 Constitution of the Republic of the Philippines: A Commentary:
The second sentence was added by the 1986 Constitutional Commission. The significant addition,
however, is the phrase “in the interest of the common good and subject to the test of economic
viability.” The addition includes the ideas that they must show capacity to function efficiently in
business and that they should not go into activities which the private sector can do better. Moreover,
economic viability is more than financial viability but also includes capability to make profit and generate
benefits not quantifiable in financial terms. (Emphasis supplied)
46
_______________
III RECORDS, CONSTITUTIONAL COMMISSION 63 (22 August 1986)
45
2003 ed., 1181.

46
642
Clearly, the test of economic viability does not apply to government entities vested with
corporate powers and performing essential public services. The State is obligated to render
essential public services regardless of the economic viability of providing such service. The non-
economic viability of rendering such essential public service does not excuse the State from
withholding such essential services from the public.
However, government-owned or controlled corporations with special charters, organized
essentially for economic or commercial objectives, must meet the test of economic viability.
These are the government-owned or controlled corporations that are usually organized under
their special charters as stock corporations, like the Land Bank of the Philippines and the
Development Bank of the Philippines. These are the government-owned or controlled
corporations, along with government-owned or controlled corporations organized under the
Corporation Code, that fall under the definition of “governmentowned or controlled
corporations” in Section 2(10) of the Administrative Code.
The MIAA need not meet the test of economic viability because the legislature did not create
MIAA to compete in the market place. MIAA does not compete in the market place because
there is no competing international airport operated by the private sector. MIAA performs an
essential public service as the primary domestic and international airport of the Philippines. The
operation of an international airport requires the presence of personnel from the following
government agencies:
1. 1.The Bureau of Immigration and Deportation, to document the arrival and departure of
passengers, screening out those without visas or travel documents, or those with hold
departure orders;
2. 2.The Bureau of Customs, to collect import duties or enforce the ban on prohibited
importations;
3. 3.The quarantine office of the Department of Health, to enforce health measures against
the spread of infectious diseases into the country;
643
VOL. 495, JULY 20, 2006 643
1. 4.The Department of Agriculture, to enforce measures against the spread of plant and
animal diseases into the country;
2. 5.The Aviation Security Command of the Philippine National Police, to prevent the
entry of terrorists and the escape of criminals, as well as to secure the airport premises
from terrorist attack or seizure;
3. 6.The Air Traffic Office of the Department of Transportation and Communications, to
authorize aircraft to enter or leave Philippine airspace, as well as to land on, or take off
from, the airport; and
4. 7.The MIAA, to provide the proper premises—such as runway and buildings—for the
government personnel, passengers, and airlines, and to manage the airport operations.
All these agencies of government perform government functions essential to the operation of an
international airport.
MIAA performs an essential public service that every modern State must provide its citizens.
MIAA derives its revenues principally from the mandatory fees and charges MIAA imposes on
passengers and airlines. The terminal fees that MIAA charges every passenger are regulatory or
administrative fees and not income from commercial transactions.
47
MIAA falls under the definition of a government instrumentality under Section 2(10) of the

Introductory Provisions of the Administrative Code, which provides:
SEC. 2. General Terms Defined.—x x x x
all corporate powers, administering special funds, and enjoying operational autonomy, usually
through a charter. x x x (Emphasis supplied)
_______________
47
Manila International Airport Authority v. Airspan Corporation, G.R. No. 157581, 1 December 2004, 445 SCRA
471.
644
The fact alone that MIAA is endowed with corporate powers does not make MIAA a
government-owned or controlled corporation. Without a change in its capital structure, MIAA
remains a government instrumentality under Section 2(10) of the Introductory Provisions of the
Administrative Code. More importantly, as long as MIAA renders essential public services, it
need not comply with the test of economic viability. Thus, MIAA is outside the scope of the
phrase “governmentowned or controlled corporations” under Section 16, Article XII of the 1987
Constitution.
The minority belittles the use in the Local Government Code of the phrase “government-
owned or controlled corporation” as merely “clarificatory or illustrative.” This is fatal. The 1987
Constitution prescribes explicit conditions for the creation of “government-owned or controlled
corporations.” The Administrative Code defines what constitutes a “government-owned or
controlled corporation.” To belittle this phrase as “clarificatory or illustrative” is grave error.
To summarize, MIAA is not a government-owned or controlled corporation under Section
2(13) of the Introductory Provisions of the Administrative Code because it is not organized as a
stock or non-stock corporation. Neither is MIAA a government-owned or controlled corporation
under Section 16, Article XII of the 1987 Constitution because MIAA is not required to meet the
test of economic viability. 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. Article 420 of the Civil Code provides:
645
VOL. 495, JULY 20, 2006 645
Art. 420. The following things are property of public dominion:

character;
some public service or for the development of the national wealth. (Emphasis supplied)
The term “ports x x x constructed by the State” includes airports and seaports. The Airport
Lands and Buildings of MIAA are intended for public use, and at the very least intended for
public service. Whether intended for public use or public service, the Airport Lands and
Buildings are properties of public dominion. As properties of public dominion, the Airport Lands
and Buildings are owned by the Republic and thus exempt from real estate tax under Section
234(a) of the Local Government Code.
1. 4.Conclusion
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
646
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.
WHEREFORE, we GRANT the petition. We SET ASIDE the assailed Resolutions of the
Court of Appeals of 5 October 2001 and 27 September 2002 in CA-G.R. SP No. 66878. We
DECLARE the Airport Lands and Buildings of the Manila International Airport Authority
EXEMPT from the real estate tax imposed by the City of Parañaque. We declare VOID all the
real estate tax assessments, including the final notices of real estate tax delinquencies, issued by
the City of Parañaque on the Airport Lands and Buildings of the Manila International Airport
Authority, except for the portions that the Manila International Airport Authority has leased to
private parties. We also declare VOID the assailed auction sale, and all its effects, of the Airport
Lands and Buildings of the Manila International Airport Authority.
No costs.
SO ORDERED.
Panganiban (C.J.), Puno, Quisumbing, Ynares-Santiago, Sandoval-Gutierrez, Corona,
Carpio-Morales, Chico-Nazario, Garcia and Velasco, Jr., JJ., concur.
Austria-Martinez, J., I agree with the separate opinion of J. Tin-ga.
Callejo, Sr., J., I concur with the separate opinion of J. Tinga.
Azcuna, J., On Leave.
Tinga, J., Please see dissenting opinion.
647
VOL. 495, JULY 20, 2006 647
DISSENTING OPINION
TINGA, J.:
The legally correct resolution of this petition would have had the added benefit of an utterly fair
and equitable result—a recognition of the constitutional and statutory power of the City of
Parañaque to impose real property taxes on the Manila International Airport Authority (MIAA),
but at the same time, upholding a statutory limitation that prevents the City of Parañaque from
seizing and conducting an execution sale over the real properties of MIAA. In the end, all that
the City of Parañaque would hold over the MIAA is a limited lien, unenforceable as it is through
the sale or disposition of MIAA properties. Not only is this the legal effect of all the relevant
constitutional and statutory provisions applied to this case, it also leaves the room for negotiation
for a mutually acceptable resolution between the City of Parañaque and MIAA.
Instead, with blind but measured rage, the majority today veers wildly off-course, shattering
statutes and judicial precedents left and right in order to protect the precious Ming vase that is
the Manila International Airport Authority (MIAA). While the MIAA is left unscathed, it is
surrounded by the wreckage that once was the constitutional policy, duly enacted into law, that
was local autonomy. Make no mistake, the majority has virtually declared war on the seventy
nine (79) provinces, one hundred seventeen (117) cities, and one thousand five hundred (1,500)
municipalities of the Philippines. 1
The icing on this inedible cake is the strained and purposely vague rationale used to justify
the majority opinion. Decisions of the Supreme Court are expected to provide clarity to the
parties and to students of jurisprudence, as to what the law of the case is, especially when the
doctrines of long standing are modified or clarified. With all due respect, the decision in this case
is plainly so, so wrong on many levels. More egregious, in the majority’s resolve to spare the
Manila
_______________
1
Per Department of Interior and Local Government. See also “Summary” from the National Statistical Coordination
Board, http://www.nscb.gov. ph/activestats/psgc/NSCB_PSGCSUMMARYDEC04.pdf.
648
International Airport Authority (MIAA) from liability for real estate taxes, no clear-cut rule
emerges on the important question of the power of local government units (LGUs) to tax
government corporations, instrumentalities or agencies.
The majority would overturn sub silencio, among others, at least one dozen precedents
enumerated below:
1) Mactan-Cebu International Airport Authority v. Hon. Marcos, the leading case penned in
2
1997 by recently retired Chief Justice Davide, which held that the express withdrawal by the
Local Government Code of previously granted exemptions from realty taxes applied to
instrumentalities and government-owned or controlled corporations (GOCCs) such as the
Mactan-Cebu International Airport Authority (MCIAA). The majority invokes the ruling
in Basco v. Pagcor, a precedent discredited in Mactan, and a vanguard of a doctrine so noxious
3
to the concept of local government rule that the Local Government Code was drafted precisely to
counter such philosophy. The efficacy of several rulings that expressly rely on Mactan, such
as PHILRECA v. DILG Secretary, City Government of San Pablo v. Hon. Reyes is now put in
4 5
question.
2) The rulings in National Power Corporation v. City of Cabanatuan, wherein the Court,
6
through Justice Puno, declared that the National Power Corporation, a GOCC, is liable for
franchise taxes under the Local Government Code, and succeeding cases that have relied on it
such as Batangas Power Corp. v. Batangas City The majority now states that deems
7
instrumentalities as defined under the Administrative Code of 1987 as purportedly beyond the
reach of any form of taxation by LGUs, stating “[l]ocal governments are devoid of power to tax
the national government, its agencies and instrumen-talities.” Unfortunately, using the definition
8
employed by the major-

_______________
330 Phil. 392; 261 SCRA 667 (1996).

2
G.R. No. 91649, 14 May 1991, 197 SCRA 52.

3
451 Phil. 683, 698; 403 SCRA 558, 572 (2003).

4
364 Phil. 843, 855; 305 SCRA 353 (1999).

5
449 Phil. 233; 401 SCRA 259 (2003).

6
G.R. Nos. 152675 & 152771, 28 April 2004, 428 SCRA 250.

7
Decision, p. 24.
8
649
VOL. 495, JULY 20, 2006 649
ity, as provided by Section 2(d) of the Administrative Code, GOCCs are also considered as
instrumentalities, thus leading to the astounding conclusion that GOCCs may not be taxed by
LGUs under the Local Government Code.
3) Lung Center of the Philippines v. Quezon City, wherein a unanimous en banc Court held
9
that the Lung Center of the Philippines may be liable for real property taxes. Using the
majority’s reasoning, the Lung Center would be properly classified as an instrumentality which
the majority now holds as exempt from all forms of local taxation. 10
4) City of Davao v. RTC, where the Court held that the Government Service Insurance
11
System (GSIS) was liable for real property taxes for the years 1992 to 1994, its previous
exemption having been withdrawn by the enactment of the Local Government Code. This 12
decision, which expressly relied on Mactan, would be directly though silently overruled by the
majority.
5) The common essence of the Court’s rulings in the two Philippine Ports Authority v. City of
Iloilo, cases penned by Justices Callejo and Azcuna respectively, which relied in part
13
on Mactan in holding the Philippine Ports Authority (PPA) liable for realty taxes,
notwithstanding the fact that it is a GOCC. Based on the reasoning of the majority, the PPA
cannot be considered a GOCC. The reliance of these cases on Mactan, and its rationale for
holding governmental entities like the PPA liable for local government taxation is mooted by the
majority.
_______________
9
G.R. No. 144104, 29 June 2004, 433 SCRA 119.
10
Supra note 8.
11
G.R. No. 127383, 18 August 2005, 467 SCRA 280. Per the author of this Dissenting Opinion.
12
Nonetheless, the Court noted therein GSIS’s exemption from real property taxes was reenacted in 1997, and the
GSIS at present is exempt from such taxes under the GSIS Act of 1997. Id., at p. 299.
13
G.R. No. 109791, 14 July 2003, 406 SCRA 88, and G.R. No. 143214, 11 November 2004, 442 SCRA 175,
respectively.
650
6) The 1963 precedent of Social Security System Employees Association v. Soriano, which 14
declared the Social Security Commission (SSC) as a GOCC performing proprietary functions.
Based on the rationale employed by the majority, the Social Security System is not a GOCC. Or
perhaps more accurately, “no longer” a GOCC.
7) The decision penned by Justice (now Chief Justice) Panganiban, Light Rail Transit
Authority v. Central Board of Assessment. The characterization therein of the Light Rail Transit
15
Authority (LRTA) as a “service-oriented commercial endeavor” whose patrimonial property is

subject to local taxation is now rendered inconsequential, owing to the majority’s thinking that
an entity such as the LRTA is itself exempt from local government taxation, irrespective of the 16
functions it performs. Moreover, based on the majority’s criteria, LRTA is not a GOCC.
8) The cases of Teodoro v. National Airports Corporation and Civil Aeronautics 17
Administration v. Court of Appeals. wherein the Court held that the predecessor agency of the
18
MIAA, which was similarly engaged in the operation, administration and management of the
Manila International Agency, was engaged in the exercise of proprietary, as opposed to
sovereign functions. The majority would hold otherwise that the property maintained by MIAA
is actually patrimonial, thus implying that MIAA is actually engaged in sovereign functions.
9) My own majority in Phividec Industrial Authority v. Capitol Steel, wherein the Court held
19
that the Phividec Industrial Authority, a GOCC, was required to secure the services of the Office
of the Government Corporate Counsel for legal representation. Based on the reasoning of the
20
majority, Phividec would not be a GOCC, and the

_______________
14
118 Phil. 1354; 7 SCRA 1016 (1963).
15
396 Phil. 860; 342 SCRA 692 (2000).
16
Supra note 8.
17
91 Phil. 203 (1952).
18
G.R. No. L-51806, 8 November 1988, 167 SCRA 28.
19
G.R. No. 155692, 23 October 2003, 414 SCRA 327.
20
Id., at p. 333, citing Section 10, Book IV, Title III, Chapter 3, Administrative Code of 1987.
651
VOL. 495, JULY 20, 2006 651
mandate of the Office of the Government Corporate Counsel extends only to GOCCs.
10) Two decisions promulgated by the Court just last month (June 2006), National Power
Corporation v. Province of Isabela and GSIS v. City Assessor of Iloilo City. In the former, the
21 22
Court pronounced that “[a]lthough as a general rule, LGUs cannot impose taxes, fees, or charges
of any kind on the National Government, its agencies and instrumentalities, this rule admits of an
exception, i.e., when specific provisions of the LGC authorize the LGUs to impose taxes, fees or
charges on the aforementioned entities.” Yet the majority now rules that the exceptions in the
LGC no longer hold, since “local governments are devoid of power to tax the national
government, its agencies and instrumentalities.” The ruling in the latter case, which held the
23
GSIS as liable for real property taxes, is now put in jeopardy by the majority’s ruling.
There are certainly many other precedents affected, perhaps all previous jurisprudence
regarding local government taxation vis-a-vis government entities, as well as any previous
definitions of GOCCs, and previous distinctions between the exercise of governmental and
proprietary functions (a distinction laid down by this Court as far back as 1916 ). What is the
24
reason offered by the majority for overturning or modifying all these precedents and doctrines?
None is given, for the majority takes comfort instead in the pretense that these precedents never
existed. Only children should be permitted to subscribe to the theory that something bad will go
away if you pretend hard enough that it does not exist.
_______________
G.R. No. 165827, 16 June 2006, 491 SCRA 169.

21
G.R. No. 147192, 27 June 2006, 493 SCRA 169.

22
Supra note 8.
23
See Mendoza v. De Leon, 33 Phil. 508 (1916).

24
652
I. Case Should Have Been Decided Following Mactan Precedent
The core issue in this case, whether the MIAA is liable to the City of Parañaque for real property
taxes under the Local Government Code, has already been decided by this Court in
the Mactan case, and should have been resolved by simply applying precedent.
Mactan Explained
A brief recall of the Mactan case is in order. The Mactan-Cebu International Airport Authority
(MCIAA) claimed that it was exempt from payment of real property taxes to the City of Cebu,
invoking the specific exemption granted in Section 14 of its charter, Republic Act No. 6958, and
its status as an instrumentality of the government performing governmental
functions. Particularly, MCIAA invoked Section 133 of the Local Government Code, precisely
25
the same provision utilized by the majority as the basis for MIAA’s exemption. Section 133
reads:
Sec. 133. Common Limitations on the Taxing Powers of Local Government Units.—Unless otherwise
provided herein, the exercise of the taxing powers of provinces, cities, municipalities, and barangays
shall not extend to the levy of the following:
xxx
(o) Taxes, fees or charges of any kind on the National Government, its agencies and instrumentalities and
local government units. (emphasis and italics supplied)
However, the Court in Mactan noted that Section 133 qualified the exemption of the National
Government, its agencies and instrumentalities from local taxation with the phrase “unless
otherwise provided herein.” It then considered the other relevant provisions of the Local
Government Code, particularly the following:
_______________
Mactan, supra note 2, at pp. 397-398; p. 675.

25
653
VOL. 495, JULY 20, 2006 653
exemption or incentives granted to, or enjoyed by all persons, whether natural or
juridical, including government-owned and controlled corporations, except local water districts,
cooperatives duly registered under R.A. No. 6938, non-stock and non-profit hospitals and educational
institutions, are hereby withdrawn upon the effectivity of this Code.26
SECTION 232. Power to Levy Real Property Tax.—A province or city or a municipality within the
Metropolitan Manila area may levy an annual ad valorem tax on real property such as land, building,
machinery, and other improvements not hereafter specifically exempted. 27
SECTION 234. Exemptions from Real Property Tax.—The following are exempted from payment of
the real property tax:
1. (a)Real property owned by the Republic of the Philippines or any of its political
subdivisions except when the beneficial use thereof has been granted, for consideration
or otherwise, to a taxable person:
2. (b)Charitable institutions, churches, parsonages or convents appurtenant thereto,
mosques, non-profit or religious cemeteries and all lands, buildings, and improvements
actually, directly, and exclusively used for religious charitable or educational purposes;
3. (c)All machineries and equipment that are actually, directly and exclusively used by
local water districts and government-owned and controlled corporations engaged in the
distribution of water and/or generation and transmission of electric power;
4. (d)All real property owned by duly registered cooperatives as provided for under R.A.
No. 6938; and
5. (e)Machinery and equipment used for pollution control and environmental protection.
Except as provided herein, any exemption from payment of real property tax previously granted
to, or presently enjoyed by, all persons, whether natural or juridical, including all government-owned
or controlled corporations are hereby withdrawn upon the effectivity of this Code. 28
_______________

26

27
Section 234, Rep. Act No. 7160. Emphasis supplied.

28
654
Clearly, Section 133 was not intended to be so absolute a prohibition on the power of LGUs to
tax the National Government, its agencies and instrumentalities, as evidenced by these cited
provisions which “otherwise provided.” But what was the extent of the limitation under Section
133? This is how the Court, correctly to my mind, defined the parameters in Mactan:
The foregoing sections of the LGC speak of: (a) the limitations on the taxing powers of local government
units and the exceptions to such limitations; and (b) the rule on tax exemptions and the exceptions thereto.
The use of exceptions or provisos in these sections, as shown by the following clauses:
1. (1)“unless otherwise provided herein” in the opening paragraph of Section 133;

2. (2)“Unless otherwise provided in this Code” in Section 193;
3. (3)“not hereafter specifically exempted” in Section 232; and
4. (4)“Except as provided herein” in the last paragraph of Section 234
initially hampers a ready understanding of the sections. Note, too, that the aforementioned clause in
Section 133 seems to be inaccurately worded. Instead of the clause “unless otherwise provided herein,”
with the “herein” to mean, of course, the section, it should have used the clause “unless otherwise
provided in this Code.” The former results in absurdity since the section itself enumerates what are
beyond the taxing powers of local government units and, where exceptions were intended, the exceptions
are explicitly indicated in the next. For instance, in item (a) which excepts income taxes “when levied on
banks and other financial institutions”; item (d) which excepts “wharfage on wharves constructed and
maintained by the local government unit concerned”; and item (1) which excepts taxes, fees and charges
for the registration and issuance of licenses or permits for the driving of “tricycles.” It may also be
observed that within the body itself of the section, there are exceptions which can be found only in other
parts of the LGC, but the section interchangeably uses therein the clause, “except as otherwise provided
herein” as in items (c) and (i), or the clause “except as provided in this Code” in item (j). These clauses
would be obviously unnecessary or mere surplusages if the opening clause of the section were “Unless
otherwise provided in this Code” instead of “Unless otherwise provided herein.” In any event, even if the
latter is used, since under Section 232 local government units have the power to levy real property tax,
except those exempted therefrom under Section 234, then Section 232 must be deemed to qualify Section
133.
655
VOL. 495, JULY 20, 2006 655
Thus, reading together Sections 133, 232, and 234 of the LGC, we conclude 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 on the National
Government, its agencies and instrumentalities, and local government units”; however,
pursuant to Section 232, provinces, cities, and 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
use thereof has been granted, for consideration or otherwise, to a taxable person,” as
provided in item (a) of the first paragraph of Section 234.
As to tax exemptions or incentives granted to or presently enjoyed by natural or judicial
persons, including government-owned and controlled corporations, Section 193 of the LGC
prescribes the general rule, viz., they are withdrawn upon the effectivity of the LGC, except
those granted to local water districts, cooperatives duly registered under R.A. No. 6938,
non-stock and non-profit hospitals and educational institutions, and unless otherwise
provided in the LGC. The latter proviso could refer to Section 234 which enumerates the
properties exempt from real property tax. But the last paragraph of Section 234 further
qualifies the retention of the exemption insofar as real property taxes are concerned by
limiting the retention only to those enumerated therein; all others not included in the
enumeration lost the privilege upon the effectivity of the LGC. Moreover, even as to real
property 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 a taxable person for consideration or
otherwise.
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 governmentowned 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. Any claim to the contrary can only be justified if the
petitioner can seek refuge under any of the exceptions provided
656
in Section 234, but not under Section 133, as it now asserts, since, as shown above, the said
section is qualified by Sections 232 and 234. 29
The Court in Mactan acknowledged that under Section 133, instrumentalities were generally
exempt from all forms of local government taxation, unless otherwise provided in the Code. On
the other hand, Section 232 “otherwise provided” insofar as it allowed LGUs to levy an ad
valorem real property tax, irrespective of who owned the property. At the same time, the
imposition of real property taxes under Section 232 is in turn qualified by the phrase “not
hereinafter specifically exempted.” The exemptions from real property taxes are enumerated in
Section 234, which specifically states that only real properties owned “by the Republic of the
Philippines or any of its political subdivisions” are exempted from the payment of the tax.
Clearly, instrumentalities or GOCCs do not fall within the exceptions under Section 234. 30
Mactan Overturned the Precedents Now Relied Upon by the Majority

But the petitioners in Mactan also raised the Court’s ruling in Basco v. PAGCOR, decided 31
before the enactment of the Local Government Code. The Court in Basco declared the PAGCOR
as exempt from local taxes, justifying the exemption in this wise:
“Local governments have no power to tax instrumentalities of the National Government. PAGCOR is a
government owned or controlled corporation with an original charter, PD 1869. All of its shares of stocks
are owned by the National Government. In addition to its corporate powers (Sec. 3, Title II, PD 1869) it
also exercises regulatory powers x x x
PAGCOR has a dual role, to operate and to regulate gambling casinos. The latter role is governmental,
which places it in the category of an agency or instrumentality of the Government. Being an
instrumentality of the Gov-
_______________
29
Id., at pp. 411-413; pp. 685-687.
30
See City of Davao v. RTC, supra note 11, at p. 293.
31
Supra note 3.
657
VOL. 495, JULY 20, 2006 657
ernment, PAGCOR should be and actually is exempt from local taxes. Otherwise, its operation might be
burdened, impeded or subjected to control by a mere Local government.
“The states have no power by taxation or otherwise, to retard impede, burden or in any manner control
the operation of constitutional laws enacted by Congress to carry into execution the powers vested in the
federal government.” (McCulloch v. Marland, 4 Wheat 316, 4 L Ed. 579)
This doctrine emanates from the “supremacy” of the National Government over local governments.
“Justice Holmes, speaking for the Supreme Court, made reference to the entire absence of power on
the part of the States to touch, in that way (taxation) at least, the instrumentalities of the United States
(Johnson v. Maryland, 254 US 51) and it can be agreed that no state or political subdivision can regulate a
federal instrumentality in such a way as to prevent it from consummating its federal responsibilities, or
even to seriously burden it in the accomplishment of them.” (Antieau, Modern Constitutional Law, Vol.
2, p. 140, emphasis supplied)
Otherwise, mere creatures of the State can defeat National policies thru extermination of what local
authorities may perceive to be undesirable activates or enterprise using the power to tax as “a tool for
regulation.” (U.S. v. Sanchez, 340 US 42)
The power to tax which was called by Justice Marshall as the “power to destroy” ( McCulloch v.
Maryland, supra) cannot be allowed to defeat an instrumentality or creation of the very entity which has
the inherent power to wield it.” 32
Basco is as strident a reiteration of the old guard view that frowned on the principle of local
autonomy, especially as it interfered with the prerogatives and privileges of the national
government. Also consider the following citation from Maceda v. Macaraig, decided the same 33
year as Basco. Discussing the rule of construction of tax exemptions on government

instrumentalities, the sentiments are of a similar vein.
_______________
Id., at pp. 63-65.

32
G.R. No. 88921, 31 May 1991, 197 SCRA 771.

33
658
“Moreover, it is a recognized principle that the rule on strict interpretation does not apply in the case of
exemptions in favor of a government political subdivision or instrumentality.
The basis for applying the rule of strict construction to statutory provisions granting tax exemptions or deductions,
even more obvious than with reference to the affirmative or levying provisions of tax statutes, is to minimize
differential treatment and foster impartiality, fairness, and equality of treatment among tax payers.
The reason for the rule does not apply in the case of exemptions running to the benefit of the government itself
or its agencies. In such case the practical effect of an exemption is merely to reduce the amount of money that has to
be handled by government in the course of its operations. For these reasons, provisions granting exemptions to
government agencies may be construed liberally, in favor of non tax-liability of such agencies.
In the case of property owned by the state or a city or other public corporations, the express exemption
should not be construed with the same degree of strictness that applies to exemptions contrary to the
policy of the state, since as to such property “exemption is the rule and taxation the exception.” 34
Strikingly, the majority cites these two very cases and the stodgy rationale provided therein. This
evinces the perspective from which the majority is coming from. It is admittedly a viewpoint
once shared by this Court, and en vogue prior to the enactment of the Local Government Code of
1991.
However, the Local Government Code of 1991 ushered in a new ethos on how the art of
governance should be practiced in the Philippines, conceding greater powers once held in the
private reserve of the national government to LGUs. The majority might have private qualms
about the wisdom of the policy of local autonomy, but the members of the Court are not expected
to substitute their personal biases for the legislative will, especially when the 1987 Constitution
itself promotes the principle of local autonomy.
_______________
Id., at p. 799.
34
659
VOL. 495, JULY 20, 2006 659
Article II. Declaration of Principles and State Policies
xxx
Sec. 25. The State shall ensure the autonomy of local governments.
Article X. Local Government
xxx
Sec. 2. The territorial and political subdivisions shall enjoy local autonomy.
Section 3. The Congress shall enact a local government code which shall provide for a more
responsive and accountable local government structure instituted through a system of decentralization
with effective mechanisms of recall, initiative, and referendum, allocate among the different local
government units their powers, responsibilities, and resources, and provide for the qualifications, election,
appointment and removal, term, salaries, powers and functions and duties of local officials, and all other
matters relating to the organization and operation of the local units.
xxx
Section 5. Each local government unit shall have the power to create its own sources of revenues and
to levy taxes, fees, and charges subject to such guidelines and limitations as the Congress may provide,
consistent with the basic policy of local autonomy. Such taxes, fees, and charges shall accrue exclusively
to the local governments.
xxx
The Court in Mactan recognized that a new day had dawned with the enactment of the 1987
Constitution and the Local Government Code of 1991. Thus, it expressly rejected the contention
of the MCIAA that Basco was applicable to them. In doing so, the language of the Court was
dramatic, if only to emphasize how monumental the shift in philosophy was with the enactment
of the Local Government Code:
“Accordingly, the position taken by the [MCIAA] is untenable. Reliance on Basco v. Philippine
Amusement and Gaming Corporation is unavailing since it was decided before the effectivity of the
[Local Government Code]. Besides, nothing can prevent Congress from decreeing that even
instrumentalities or agencies of the Government performing governmental functions may be
subject to tax. Where it
660
is done precisely to fulfill a constitutional mandate and national policy, no one can doubt its
wisdom.” (emphasis supplied)
35
The Court Has Repeatedly Reaffirmed Mactan Over the Precedents Now Relied Upon By the
Majority
Since then and until today, the Court has been emphatic in declaring the Basco doctrine as dead.
The notion that instrumentalities may be subjected to local taxation by LGUs was again affirmed
in National Power Corporation v. City of Cabanatuan, which was penned by Justice Puno. NPC
36
or Napocor, invoking its continued exemption from payment of franchise taxes to the City of
Cabanatuan, alleged that it was an instrumentality of the National Government which could not
be taxed by a city government. To that end, Basco was cited by NPC. The Court had this to say
about Basco.
x x x [T]he doctrine in Basco vs. Philippine Amusement and Gaming Corporation relied upon by
the petitioner to support its claim no longer applies. To emphasize, the Basco case was decided
prior to the effectivity of the LGC, when no law empowering the local government units to tax
instrumentalities of the National Government was in effect. However, as this Court ruled in the case
of Mactan Cebu International Airport Authority (MCIAA) vs. Marcos, nothing prevents Congress
from decreeing that even instrumentalities or agencies of the government performing governmental
functions may be subject to tax. In enacting the LGC, Congress exercised its prerogative to tax
instrumentalities and agencies of government as it sees fit. Thus, after reviewing the specific
provisions of the LGC, this Court held that MCIAA, although an instrumentality of the national
government, was subject to real property tax. 37
_______________
Mactan, supra note 2, at pp. 419-420; p. 692.

35
Supra note 6.
36
Id., at pp. 250-251.

37
661
VOL. 495, JULY 20, 2006 661
In the 2003 case of Philippine Ports Authority v. City of Iloilo, the Court, in the able ponencia of
38
Justice Azcuna, affirmed the levy of realty taxes on the PPA. Although the taxes were assessed
under the old Real Property Tax Code and not the Local Government Code, the Court again
cited Mactan to refute PPA’s invocation of Basco as the basis of its exemption.
[Basco] did not absolutely prohibit local governments from taxing government instrumentalities. In fact
we stated therein:
The power of local government to “impose taxes and fees” is always subject to “limitations” which Congress may
provide by law. Since P.D. 1869 remains an “operative” law until “amended, repealed or revoked”. . . its “exemption
clause” remains an exemption to the exercise of the power of local governments to impose taxes and fees.
Furthermore, in the more recent case of Mactan Cebu International Airport Authority v. Marcos,
where the Basco case was similarly invoked for tax exemption, we stated: “[N]othing can prevent
Congress from decreeing that even instrumentalities or agencies of the Government performing
governmental functions may be subject to tax. Where it is done precisely to fulfill a constitutional
mandate and national policy, no one can doubt its wisdom.” The fact that tax exemptions of government-
owned or controlled corporations have been expressly withdrawn by the present Local Government Code
clearly attests against petitioner’s claim of absolute exemption of government instrumentalities from local
taxation.39
Just last month, the Court in National Power Corporation v. Province of Isabela again 40
rejected Basco in emphatic terms. Held the Court, through Justice Callejo, Sr.:
“Thus, the doctrine laid down in the Basco case is no longer true. In the Cabanatuan case, the Court
noted primarily that the Basco case was decided prior to the effectivity of the LGC, when no law
empowering the local government units to tax instrumentalities of the National Government was in effect.
It further explained that in enacting the LGC, Congress empowered
_______________
38
G.R. No. 109791, 14 July 2003, 406 SCRA 88.
39
Id., at pp. 99-100.
40
Supra note 21.
662
the LGUs to impose certain taxes even on instrumentalities of the National Government.” 41
The taxability of the PPA recently came to fore in Philippine Ports Authority v. City of
Iloilo case, a decision also penned by Justice Callejo, Sr., wherein the Court affirmed the sale of
42
PPA’s properties at public auction for failure to pay realty taxes. The Court again reiterated that
“it was the intention of Congress to withdraw the tax exemptions granted to or presently enjoyed
by all persons, including government-owned or controlled corporations, upon the effectivity” of
the Code. The Court in the second Public Ports Authority case likewise cited Mactan as
43
providing the “raison d’etre for the withdrawal of the exemption,” namely, “the State policy to
ensure autonomy to local governments and the objective of the [Local Government Code] that
they enjoy genuine and meaningful local autonomy to enable them to attain their fullest
development as self-reliant communities. . . .” 44
Last year, the Court, in City of Davao v. RTC, affirmed that the legislated exemption from
45
real property taxes of the Government Service Insurance System (GSIS) was removed under the
Local Government Code. Again, Mactan was relied upon as the governing precedent. The
removal of the tax exemption stood even though the then GSIS law prohibited the removal of
46
GSIS’ tax exemptions unless the exemption was specifically repealed, “and a provision is
enacted to substitute the declared policy of exemption from any and all taxes as an essential
factor for the solvency of the fund.” The Court, citing established doctrines in statutory
47
construction and Duarte v. Dade ruled that such proscription on future legislation

48
_______________
Id.
41
G.R. No. 143214, 11 November 2004, 442 SCRA 175.

42
Id., at p. 184.
43
Id., at pp. 185-186, citing MIAA v. Marcos, supra note 2.

44
Supra note 11.
45
P.D. No. 1981. See City of Davao v. RTC, supra note 40, at p. 289.

46
Id., at pp. 287-288.

47
32 Phil. 36, 49; cited in City of Davao v. RTC, supra note 40 at pp. 296-297.
48
663
VOL. 495, JULY 20, 2006 663
was itself prohibited, as “the legislature cannot bind a future legislature to a particular mode of
repeal.” 49
And most recently, just less than one month ago, the Court, through Justice Corona
in Government Service Insurance System v. City Assessor of Iloilo again affirmed that the Local
50
Government Code removed the previous exemption from real property taxes of the GSIS.
Again Mactan was cited as having “expressly withdrawn the [tax] exemption of the [GOCC]. 51
Clearly then, Mactan is not a stray or unique precedent, but the basis of a jurisprudential rule
employed by the Court since its adoption, the doctrine therein consistent with the Local
Government Code. Corollarily, Basco, the polar opposite of Mactan has been emphatically
rejected and declared inconsistent with the Local Government Code.
II. Majority, in Effectively Overturning Mactan, Refuses to Say Why Mactan Is Wrong
The majority cites Basco in support. It does not cite Mactan, other than an incidental reference
that it is relied upon by the respondents. However, the ineluctable conclusion is that the majority
52
rejects the rationale and ruling in Mactan. The majority provides for a wildly different
interpretation of Section 133, 193 and 234 of the Local Government Code than that employed by
the Court in Mactan. Moreover, the parties in Mactan and in this case are similarly situated, as
can be obviously deducted from the fact that both petitioners are airport authorities operating
under similarly worded charters. And the fact that the majority cites doctrines contrapuntal to the
Local Government Code as in Basco and Maceda evinces an intent to
_______________
Id.
49
Supra note 22.
50
Id.
51
Decision, p. 6.
52
664
go against the Court’s jurisprudential trend adopting the philosophy of expanded local
government rule under the Local Government Code.
Before I dwell upon the numerous flaws of the majority, a brief comment is necessitated on
the majority’s studied murkiness vis-à-vis the Mactan precedent. The majority is obviously
inconsistent with Mactan and there is no way these two rulings can stand together. Following
basic principles in statutory construction, Mactan will be deemed as giving way to this new
ruling.
However, the majority does not bother to explain why Mactan is wrong. The interpretation
in Mactan of the relevant provisions of the Local Government Code is elegant and rational, yet
the majority refuses to explain why this reasoning of the Court in Mactan is erroneous. In fact,
the majority does not even engage Mactan in any meaningful way. If the majority believes
that Mactan may still stand despite this ruling, it remains silent as to the viable distinctions
between these two cases.
The majority’s silence on Mactan is baffling, considering how different this new ruling is
with the ostensible precedent. Perhaps the majority does not simply know how to dispense with
the ruling in Mactan. If Mactan truly deserves to be discarded as precedent, it deserves a more
honorable end than death by amnesia or ignonominous disregard. The majority could have
devoted its discussion in explaining why it thinks Mactan is wrong, instead of pretending
that Mactan never existed at all. Such an approach might not have won the votes of the minority,
but at least it would provide some degree of intellectual clarity for the parties, LGUs and the
national government, students of jurisprudence and practitioners. A more meaningful debate on
the matter would have been possible, enriching the study of law and the intellectual dynamic of
this Court.
There is no way the majority can be justified unless Mactan is overturned. The MCIAA and
the MIAA are similarly situated. They are both, as will be demonstrated, GOCCs, commonly
engaged in the business of operating an airport. They are the owners of airport properties they
respectively maintain and hold title over these properties
665
VOL. 495, JULY 20, 2006 665
in their name. These entities are both owned by the State, and denied by their respective charters
53
the absolute right to dispose of their properties without prior approval elsewhere. Both of them 54
are not
_______________
53
MIAA’s Charter (E.O No. 903, as amended) provides:
Section 3. Creation of the Manila International Airport Authority.—x x x
The land where the Airport is presently located as well as the surrounding land area of approximately six hundred
hectares, are hereby transferred, conveyed and assigned to the ownership and administration of the Authority, subject to
existing rights, if any. x x x Any portion thereof shall not be disposed through sale or through any other mode unless
specifically approved by the President of the Philippines.
Section 22. Transfer of Existing Facilities and Intangible Assets.—All existing public airport facilities, runways,
lands, buildings and other property, movable or immovable, belonging to the Airport, and all assets, powers rights,
interests and privileges belonging to the Bureau of Air Transportation relating to airport works or air opera-tions,
including all equipment which are necessary for the operation of crash fire and rescue facilities, are hereby transferred to
the Authority. On the other hand, MCIAA’s charter (Rep. Act No. 6958) provides:
Section 15. Transfer of Existing Facilities and Intangible Assets.—All existing public airport facilities, runways,
lands, buildings and other properties, movable or immovable, belonging to or presently administered by the airports, and
all assets, powers, rights, interest and privileges relating to airport works or air operations, including all equipment which
are necessary for the operation of air navigation, aerodrome control towers, crash, fire, and rescue facilities are hereby
transferred to the Authority: Provided, however, That the operational control of all equipment necessary for the operation
of radio aids to air navigation, airways communication, the approach control office and the area control center shall be
retained by the Air Transportation Office. x x x
54
See Section 3, E.O. 903 (as amended), infra note 140; and Section Section 4(c), Rep. Act No. 6958, which qualifies
the power of the MCIAA to sell its properties, providing that “any asset located in the Mactan International Airport
important to national security shall not be subject to alienation or
666
empowered to obtain loans or encumber their properties without prior approval the prior
approval of the President. 55
III. Instrumentalities, Agencies And GOCCs Generally Liable for Real Property Tax
I shall now proceed to demonstrate the errors in reasoning of the majority. A bulwark of my
position lies with Mactan, which will further demonstrate why the majority has found it
inconvenient to even grapple with the precedent that is Mactan in the first place.
Mactan held that the prohibition on taxing the national government, its agencies and
instrumentalities under Section 133 is qualified by Section 232 and Section 234, and
accordingly, the only relevant exemption now applicable to these bodies is as provided under
Section 234(o), or on “real property owned by the Republic of the Philippines or any of its
political subdivisions except when the beneficial use thereof has been granted, for consideration
or otherwise, to a taxable person.”
It should be noted that the express withdrawal of previously granted exemptions by the Local
Government Code do not even make any distinction as to whether the exempt person is a
governmental entity or not. As Sections 193 and 234 both state, the withdrawal applies to “all
persons, including [GOCCs],” thus encompassing the two classes of persons recognized under
our laws, natural persons and juridical persons.
56 57
The fact that the Local Government Code mandates the withdrawal of previously granted
exemptions evinces certain key points. If an entity was previously granted an express exemption
from real
_______________
mortgage by the Authority nor to transfer to any entity other than the National Government.”
See Section 16, E.O. 903 (as amended) and Section 13, Rep. Act No. 6958.
55
See Articles 40 to 43, Civil Code.

56
See Articles 44 to 47, Civil Code.

57
667
VOL. 495, JULY 20, 2006 667
property taxes in the first place, the obvious conclusion would be that such entity would
ordinarily be liable for such taxes without the exemption. If such entities were already deemed
exempt due to some overarching principle of law, then it would be a redundancy or surplusage to
grant an exemption to an already exempt entity. This fact militates against the claim that MIAA
is preternaturally exempt from realty taxes, since it required the enactment of an express
exemption from such taxes in its charter.
Amazingly, the majority all but ignores the disquisition in Mactan and asserts that
government instrumentalities are not taxable persons unless they lease their properties to a
taxable person. The general rule laid down in Section 232 is given short shrift. In arriving at this
conclusion, several leaps in reasoning are committed.
Majority’s Flawed Definition of GOCCs.
The majority takes pains to assert that the MIAA is not a GOCC, but rather an
instrumentality. However, and quite grievously, the supposed foundation of this assertion is
an adulteration.
The majority gives the impression that a government instrumentality is a distinct concept
from a government corporation. Most tellingly, the majority selectively cites a portion of
58
Section 2(10) of the Administrative Code of 1987, as follows:

Instrumentality refers to any agency of the National Government not integrated within the department
framework, vested with special functions or jurisdiction by law, endowed with some if not all corporate
powers, administering special funds, and enjoying operational autonomy, usually through a charter. x x
x (emphasis omitted)
59
_______________
This is apparent from such assertions as “When the law vests in a government instrumentality corporate powers, the
58
instrumentality does not become a corporation. Unless the government instrumentality is organized as a stock or non-stock
corporation, it remains a government instrumentality exercising not only governmental but also corporate powers.” See
Decision, p. 9-10.
Decision, p. 9.
59
668
However, Section 2(10) of the Administrative Code, when read in full, makes an important
clarification which the majority does not show. The portions omitted by the majority are
highlighted below:
(10) Instrumentality refers to any agency of the National Government not integrated within the
department framework, vested with special functions or jurisdiction by law, endowed with some if not all
corporate powers, administering special funds, and enjoying operational autonomy, usually through a
charter. This term includes regulatory agencies, chartered institutions and government-owned or
controlled corporations. 60
Since Section 2(10) makes reference to “agency of the National Government,” Section 2(4) is
also worth citing in full:
(4) Agency of the Government refers to any of the various units of the Government, including a
department, bureau, office, instrumentality, or government-owned or controlled corporation, or a local
government or a distinct unit therein. (emphasis supplied)
61
Clearly then, based on the Administrative Code, a GOCC may be an instrumentality or an

agency of the National Government. Thus, there actually is no point in the majority’s assertion
that MIAA is not a GOCC, since based on the majority’s premise of Section 133 as the key
provision, the material question is whether MIAA is either an instrumentality, an agency, or the
National Government itself. The very provisions of the Administrative Code provide that a
GOCC can be either an instrumentality or an agency, so why even bother to extensively discuss
whether or not MIAA is a GOCC?
Indeed as far back as the 1927 case of Government of the Philippine Islands v. Springer, the 62
Supreme Court already noted that a corporation of which the government is the majority
stockholder “remains an agency or instrumentality of government.” 63
_______________
See Section 2(10), E.O. 292.

60
See Section 2(4), E.O No. 292.

61
50 Phil. 259 (1927).

62
Id., at p. 288.
63
669
VOL. 495, JULY 20, 2006 669
Ordinarily, the inconsequential verbiage stewing in judicial opinions deserve little rebuttal.
However, the entire discussion of the majority on the definition of a GOCC, obiter as it may
ultimately be, deserves emphatic refutation. The views of the majority on this matter are very
dangerous, and would lead to absurdities, perhaps unforeseen by the majority. For in fact,
the majority effectively declassifies many entities created and recognized as GOCCs and
would give primacy to the Administrative Code of 1987 rather than their respective
charters as to the definition of these entities.
Majority Ignores the Power of Congress to Legislate and Define Chartered Corporations
First, the majority declares that, citing Section 2(13) of the Administrative Code, a GOCC must
be “organized as a stock or non-stock corporation,” as defined under the Corporation Code. To
insist on this as an absolute rule fails on bare theory. Congress has the undeniable power to
create a corporation by legislative charter, and has been doing so throughout legislative history.
There is no constitutional prohibition on Congress as to what structure these chartered
corporations should take on. Clearly, Congress has the prerogative to create a corporation in
whatever form it chooses, and it is not bound by any traditional format. Even if there is a
definition of what a corporation is under the Corporation Code or the Administrative Code, these
laws are by no means sacrosanct. It should be remembered that these two statutes fall within the
same level of hierarchy as a congressional charter, since they all are legislative enactments.
Certainly, Congress can choose to disregard either the Corporation Code or the Administrative
Code in defining the corporate structure of a GOCC, utilizing the same extent of legislative
powers similarly vesting it the putative ability to amend or abolish the Corporation Code or the
Administrative Code.
These principles are actually recognized by both the Administrative Code and the
Corporation Code. The definition of GOCCs, agencies and instrumentalities under the
Administrative Code are laid
670
down in the section entitled “General Terms Defined,” which qualifies:
Sec. 2. General Terms Defined.—Unless the specific words of the text, or the context as a whole, or a
particular statute, shall require a different meaning: (emphasis supplied)
xxx
Similar in vein is Section 6 of the Corporation Code which provides:
SEC. 4. Corporations created by special laws or charters.—Corporations created by special laws or
charters shall be governed primarily by the provisions of the special law or charter creating them or
applicable to them, supplemented by the provisions of this Code, insofar as they are applicable. (emphasis
supplied)
Thus, the clear doctrine emerges—the law that governs the definition of a corporation or
entity created by Congress is its legislative charter. If the legislative enactment defines an
entity as a corporation, then it is a corporation, no matter if the Corporation Code or the
Administrative Code seemingly provides otherwise. In case of conflict between the
legislative charter of a government corporation, on one hand, and the Corporate Code and
the Administrative Code, on the other, the former always prevails.
Majority, in Ignoring the Legislative Charters, Effectively Classifies Duly Established GOCCs,
With Disastrous and Far Reaching Legal Consequences
Second, the majority claims that MIAA does not qualify either as a stock or non-stock
corporation, as defined under the Corporation Code. It explains that the MIAA is not a stock
corporation because it does not have any capital stock divided into shares. Neither can it be
considered as a non-stock corporation because it has no members, and under Section 87, a non-
stock corporation is one where no part of its
671
VOL. 495, JULY 20, 2006 671
income is distributable as dividends to its members, trustees or officers.
This formulation of course ignores Section 4 of the Corporation Code, which again provides
that corporations created by special laws or charters shall be governed primarily by the
provisions of the special law or charter, and not the Corporation Code.
That the MIAA cannot be considered a stock corporation if only because it does not have a
stock structure is hardly a plausible proposition. Indeed, there is no point in requiring a capital
stock structure for GOCCs whose full ownership is limited by its charter to the State or Republic.
Such GOCCs are not empowered to declare dividends or alienate their capital shares.
Admittedly, there are GOCCs established in such a manner, such as the National Power
Corporation (NPC), which is provided with authorized capital stock wholly subscribed and paid
for by the Government of the Philippines, divided into shares but at the same time, is prohibited
from transferring, negotiating, pledging, mortgaging or otherwise giving these shares as security
for payment of any obligation. However, based on the Corporation Code definition relied upon
64
by the majority, even the NPC cannot be considered as a stock corporation. Under Section 3 of
the Corporation Code, stock corporations are defined as being “authorized to distribute to the
holders of its shares dividends or allotments of the surplus profits on the basis of the shares
held.” On the other hand, Section 13 of the NPC’s charter states that “the Corporation shall be
65
non-profit and shall devote all its returns from its capital investment, as well as excess revenues
from its operation, for expansion.” Can the holder of the shares of NPC, the National
66
Government, receive its surplus profits on the basis of its shares held? It cannot, according to the
NPC charter, and hence, following Section 3 of the Corporation Code, the NPC is not a stock
corporation, if the majority is to be believed.
_______________
See Sec. 5, Rep. Act No. 6395.

64
Section 3, Corporation Code.

65

66
672
The majority likewise claims that corporations without members cannot be deemed non-stock
corporations. This would seemingly exclude entities such as the NPC, which like MIAA, has no
ostensible members. Moreover, non-stock corporations cannot distribute any part of its income
as dividends to its members, trustees or officers. The majority faults MIAA for remitting 20% of
its gross operating income to the national government. How about the Philippine Health
Insurance Corporation, created with the “status of a tax-exempt government corporation attached
to the Department of Health” under Rep. Act No. 7875. It too cannot be considered as a stock
67
corporation because it has no capital stock structure. But using the criteria of the majority, it is
doubtful if it would pass muster as a non-stock corporation, since the PHIC or Philhealth, as it is
commonly known, is expressly empowered “to collect, deposit, invest, administer and disburse”
the National Health Insurance Fund. Or how about the Social Security System, which under its
68
revised charter, Republic Act No. 8282, is denominated as a “corporate body.” The SSS has no
69
capital stock structure, but has capital comprised of contributions by its members, which are
eventually remitted back to its members. Does this disqualify the SSS from classification as a
GOCC, notwithstanding this Court’s previous pronouncement in Social Security System
Employees Association v. Soriano? 70
In fact, Republic Act No. 7656, enacted in 1993, requires that all GOCCs, whether stock or
non-stock, declare and remit at least fifty percent (50%) of their annual net earnings as cash,
71
stock or property dividends to the National Government. But according to the major-
72
_______________

67
See Section 16(i), Rep. Act No. 7875.

68
See Section 3, Rep. Act 8282.

69
Supra note 14.
70
See Section 2(b), Rep. Act No. 7656, which defines GOCCs as “corporations organized as a stock or non-stock
71
corporation x x x”
See Rep. Act No. 7656, the pertinent provisions of which read:
72
Sec. 3. Dividends.—All government-owned or -controlled corporations shall declare and remit at least fifty percent (50%) of their annual
net earnings as cash, stock or property dividends to the National
673
VOL. 495, JULY 20, 2006 673
ity, non-stock corporations are prohibited from declaring any part of its income as dividends. But
if Republic Act No. 7656 requires even non-stock corporations to declare dividends from
income, should it not follow that the prohibition against declaration of dividends by non-stock
corporations under the Corporation Code does not apply to government-owned or controlled
corporations? For if not, and the majority’s illogic is pursued, Republic Act No. 7656, passed in
1993, would be fatally flawed, as it would contravene the Administrative Code of 1987 and the
Corporation Code.
In fact, the ruinous effects of the majority’s hypothesis on the nature of GOCCs can be
illustrated by Republic Act No. 7656. Following the majority’s definition of a GOCC and in
accordance with Republic Act No. 7656, here are but a few entities which are not obliged to
remit fifty (50%) of its annual net earnings to the National Government as they are excluded
from the scope of Republic Act No. 7656:
1. 1)Philippine Ports Authority —has no capital stock, no members, and obliged to apply
73 74
the balance of its income or revenue at the end of each year in a general reserve. 75
_______________
Government. This section shall also apply to those government-owned or -controlled corporations whose profit
distribution is provided by their respective charters or by special law, but shall exclude those enumerated in Section 4
hereof: Provided, That such dividends accruing to the National Government shall be received by the National Treasury
and recorded as income of the General Fund.
Sec. 4. Exemptions.—The provisions of the preceding section notwithstanding, government-owned or -controlled
corporations created or organized by law to administer real or personal properties or funds held in trust for the use and the
benefit of its members, shall not be covered by this Act such as, but not limited to: the Government Service Insurance
System, the Home Development Mutual Fund, the Employees Compensation Commission, the Overseas Workers Welfare
Administration, and the Philippine Medical Care Commission.
73
See Pres. Decree No. 857 (as amended).
74
See Section 10, Pres. Decree No. 857.
75
See Section 11, Pres. Decree No. 857.
674
1. 2)Bases Conversion Development Authority —has no capital stock, no members.

76 77
2. 3)Philippine Economic Zone Authority —no capital stock, no members.

78 79
3. 4)Light Rail Transit Authority —no capital stock, no members.

80 81
4. 5)Bangko Sentral ng Pilipinas —no capital stock, no members, required to remit fifty
82 83
percent (50%) of its net profits to the National Treasury. 84
5. 6)National Power Corporation —has capital stock but is prohibited from “distributing
85
to the holders of its shares dividends or allotments of the surplus profits on the basis of
the shares held;” no members.
86
6. 7)Manila International Airport Authority—no capital stock, no members, mandated to
87 88
remit twenty percent (20%) of its annual gross operating income to the National
Treasury. 89
Thus, for the majority, the MIAA, among many others, cannot be considered as within the
coverage of Republic Act No. 7656. Apparently, President Fidel V. Ramos disagreed. How else
then could Ex-
_______________
76
See Rep. Act No. 7227.
77
78
79
See Section 47, Rep. Act No. 7916 in relation to Section 5, Pres. Decree No. 66.
80
See Executive Order No. 603, as amended.
81
See Article 6, Section 15 of Executive Order No. 603, as amended.
82
See Rep. Act No. 7653. If there is any doubt whether the BSP was intended to be covered by Rep. Act No. 7656, see
Section 2(b), Rep. Act No. 7656, which states that “This term [GOCCs] shall also include financial institutions, owned or
controlled by the National Government, but shall exclude acquired asset corporations, as defined in the next paragraphs,
state universities, and colleges.”
83
84
See Sections 43 & 44, Rep. Act No. 7653.
85
86
Supra note 35.
87
See Decision, p. 10.
88
Id., at pp. 10-11.
89
Id.
675
VOL. 495, JULY 20, 2006 675
ecutive Order No. 483, signed in 1998 by President Ramos, be explained? The issuance
provides:
WHEREAS, Section 1 of Republic Act No. 7656 provides that:
“Section 1. Declaration of Policy.—It is hereby declared the policy of the State that in order for the National
Government to realize additional revenues, government-owned and/or controlled corporations, without impairing
their viability and the purposes for which they have been established, shall share a substantial amount of their net
earnings to the National Government.”
WHEREAS, to support the viability and mandate of government-owned and/or controlled
corporations [GOCCs], the liquidity, retained earnings position and medium-term plans and
programs of these GOCCs were considered in the determination of the reasonable dividend rates of such
corporations on their 1997 net earnings.
WHEREAS, pursuant to Section 5 of RA 7656, the Secretary of Finance recommended the
adjustment on the percentage of annual net earnings that shall be declared by the Manila
International Airport Authority [MIAA] and Phividec Industrial Authority [PIA] in the interest of
national economy and general welfare.
NOW, THEREFORE, I, FIDEL V. RAMOS, President of the Philippines, by virtue of the powers
vested in me by law, do hereby order:
SECTION 1. The percentage of net earnings to be declared and remitted by the MIAA and PIA
as dividends to the National Government as provided for under Section 3 of Republic Act No. 7656
is adjusted from at least fifty percent [50%] to the rates specified hereunder:
1. 1.Manila International Airport Authority—35% [cash]

2. 2.Phividec Industrial Authority—25% [cash]
SECTION 2. The adjusted dividend rates provided for under Section 1 are only applicable on 1997 net
earnings of the concerned governmentowned and/or controlled corporations.
Obviously, it was the opinion of President Ramos and the Secretary of Finance that MIAA is a
GOCC, for how else could it have come under the coverage of Republic Act No. 7656, a law
applicable only to GOCCs? But, the majority apparently disagrees, and resultantly holds that
MIAA is not obliged to remit even the reduced rate of
676
thirty five percent (35%) of its net earnings to the national government, since it cannot be
covered by Republic Act No. 7656.
All this mischief because the majority would declare the Administrative Code of 1987 and the
Corporation Code as the sole sources of law defining what a government corporation is. As I
stated earlier, I find it illogical that chartered corporations are compelled to comply with the
templates of the Corporation Code, especially when the Corporation Code itself states that these
corporations are to be governed by their own charters. This is especially true considering that the
very provision cited by the majority, Section 87 of the Corporation Code, expressly says that the
definition provided therein is laid down “for the purposes of this [Corporation] Code.” Read in
conjunction with Section 4 of the Corporation Code which mandates that corporations created by
charter be governed by the law creating them, it is clear that contrary to the majority, MIAA is
not disqualified from classification as a non-stock corporation by reason of Section 87, the
provision not being applicable to corporations created by special laws or charters. In fact, I see
no real impediment why the MIAA and similarly situated corporations such as the PHIC, the
SSS, the Philippine Deposit Insurance Commission, or maybe even the NPC could at the very
least, be deemed as no stock corporations (as differentiated from non-stock corporations).
The point, stripped to bare simplicity, is that entity created by legislative enactment is a
corporation if the legislature says so. After all, it is the legislature that dictates what a corporation
is in the first place. This is better illustrated by another set of entities created before martial law.
These include the Mindanao Development Authority, the Northern Samar Development
90
Authority, the Ilocos Sur Development Authority, the Southeastern Samar Development Au-
91 92
thority and the Mountain Province Development Authority. An examination of the first section
93 94
of the statutes creating these entities

_______________

90

91

92

93

94
677
VOL. 495, JULY 20, 2006 677
reveal that they were established “to foster accelerated and balanced growth” of their respective
regions, and towards such end, the charters commonly provide that “it is recognized that a
government corporation should be created for the purpose,” and accordingly, these
charters “hereby created a body corporate.” However, these corporations do not have capital
95
stock nor members, and are obliged to return the unexpended balances of their appropriations
and earnings to a revolving fund in the National Treasury. The majority effectively declassifies
these entities as GOCCs, never mind the fact that their very charters declare them to be GOCCs.
I mention these entities not to bring an element of obscurantism into the fray. I cite
them as examples to emphasize my fundamental point—that it is the legislative charters of
these entities, and not the Administrative Code, which define the class of personality of
these entities created by Congress. To adopt the view of the majority would be, in effect, to
sanction an implied repeal of numerous congressional charters for the purpose of
declassifying GOCCs. Certainly, this could not have been the intent of the crafters of the
Administrative Code when they drafted the “Definition of Terms” incorporated therein.
_______________
See e.g., Sections 1 & 2, Rep. Act No. 6070.

95
“Section 1. Declaration of Policy.—It is hereby declared to be the policy of the Congress to foster the accelerated and balanced growth
of the Province of Ilocos Sur, within the context of national plans and policies for social and economic development, through the
leadership, guidance, and support of the government. To achieve this end, it is recognized that a government corporation should be
created for the purpose of drawing up the necessary plans of provincial development; x x x
Sec. 2. Ilocos Sur Development Authority created.—There is hereby created a body corporate to be known as the Ilocos Sur
Development Authority x x x. The Authority shall execute the powers and functions herein vested and conferred upon it in such manner
as will in its judgment, aid to the fullest possible extent in carrying out the aims and purposes set forth below.”
678
MIAA Is Without Doubt, A GOCC
Following the charters of government corporations, there are two kinds of GOCCs,
namely: GOCCs which are stock corporations and GOCCs which are no stock corporations
(as distinguished from non-stock corporation). Stock GOCCs are simply those which have
capital stock while no stock GOCCs are those which have no capital stock. Obviously these
definitions are different from the definitions of the terms in the Corporation Code. Verily,
GOCCs which are not incorporated with the Securities and Exchange Commission are not
governed by the Corporation Code but by their respective charters.
For the MIAA’s part, its charter is replete with provisions that indubitably classify it as a
GOCC. Observe the following provisions from MIAA’s charter:
SECTION 3. Creation of the Manila International Airport Authority.—There is hereby established a
body corporate to be known as the Manila International Airport Authority which shall be attached
to the Ministry of Transportation and Communications. The principal office of the Authority shall be
located at the New Manila International Airport. The Authority may establish such offices, branches,
agencies or subsidiaries as it may deem proper and necessary; Provided, That any subsidiary that may be
organized shall have the prior approval of the President.
ownership and administration of the Authority, subject to existing rights, if any. The Bureau of Lands
and other appropriate government agencies shall undertake an actual survey of the area transferred within
one year from the promulgation of this Executive Order and the corresponding title to be issued in the
name of the Authority. Any portion thereof shall not be disposed through sale or through any other
mode unless specifically approved by the President of the Philippines.
xxx
SECTION 5. Functions, Powers, and Duties.—The Authority shall have the following functions,
powers and duties:
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VOL. 495, JULY 20, 2006 679
xxx
1. (d)To sue and be sued in its corporate name;

2. (e)To adopt and use a corporate seal;
3. (f)To succeed by its corporate name;
4. (g)To adopt its by-laws, and to amend or repeal the same from time to time;
5. (h)To execute or enter into contracts of any kind or nature;
6. (i)To acquire, purchase, own, administer, lease, mortgage, sell or otherwise dispose
of any land, building, airport facility, or property of whatever kind and nature,
whether movable or immovable, or any interest therein;
7. (j)To exercise the power of eminent domain in the pursuit of its purposes and
objectives;
xxx
1. (o)To exercise all the powers of a corporation under the Corporation Law, insofar as
these powers are not inconsistent with the provisions of this Executive Order.
xxx
SECTION 16. Borrowing Power.—The Authority may, after consultation with the Minister of
Finance and with the approval of the President of the Philippines, as recommended by the Minister
of Transportation and Communications, raise funds, either from local or international sources, by
way of loans, credits or securities, and other borrowing instruments, with the power to create
pledges, mortgages and other voluntary liens or encumbrances on any of its assets or properties.
All loans contracted by the Authority under this Section, together with all interests and other sums
payable in respect thereof, shall constitute a charge upon all the revenues and assets of the Authority and
shall rank equally with one another, but shall have priority over any other claim or charge on the revenue
and assets of the Authority: Provided, That this provision shall not be construed as a prohibition or
restriction on the power of the Authority to create pledges, mortgages, and other voluntary liens or
encumbrances on any assets or property of the Authority.
Except as expressly authorized by the President of the Philippines the total outstanding indebtedness
of the Authority in the principal amount, in
680
local and foreign currency, shall not at any time exceed the net worth of the Authority at any given time.
xxx
The President or his duly authorized representative after consultation with the Minister of Finance
may guarantee, in the name and on behalf of the Republic of the Philippines, the payment of the loans or
other indebtedness of the Authority up to the amount herein authorized.
These cited provisions establish the fitness of MIAA to be the subject of legal relations. MIAA 96
under its charter may acquire and possess property, incur obligations, and bring civil or criminal
actions. It has the power to contract in its own name, and to acquire title to real or personal
property. It likewise may exercise a panoply of corporate powers and possesses all the trappings
of corporate personality, such as a corporate name, a corporate seal and by-laws. All these are
contained in MIAA’s charter which, as conceded by the Corporation Code and even the
Administrative Code, is the primary law that governs the definition and organization of the
MIAA.
In fact, MIAA itself believes that it is a GOCC represents itself as such. It said so itself
in the very first paragraph of the present petition before this Court. So does, apparently, the
97
Department of Budget and Management, which classifies MIAA as a “government owned &
controlled corporation” on its internet website. There is also the matter of Executive Order No.
98
483, which evinces the belief of the then-president of the Philippines that MIAA is a GOCC.
And the Court before had similarly characterized MIAA as a government-owned and controlled
corporation in the earlier
_______________
96
See Art. 37, Civil Code, which provides in part, “Juridical capacity, which is the fitness to be the subject of legal
relations. . .”
97
See Rollo, p. 18. “Petitioner [MIAA] is a government-owned and controlled corporation with original
charter as it was created by virtue of Executive Order No. 903 issued by then President Ferdinand E. Marcos on July 21,
1983, as amended by Executive Order No. 298 issued by President Corazon C. Aquino on July 26, 1987, and with office
address at the MIAA Administration Bldg Complex, MIAA Road, Pasay City.” (emphasis supplied).
98
See “Department of Budget and Management—Web Linkages,” http://www.dbm. gov.ph/web_linkages.htm (Last
visited 25 February 2005).
681
VOL. 495, JULY 20, 2006 681
MIAA case, Manila International Airport Authority v. Commission on Audit. 99
Why then the hesitance to declare MIAA a GOCC? As the majority repeatedly asserts, it is
because MIAA is actually an instrumentality. But the very definition relied upon by the majority
of an instrumentality under the Administrative Code clearly states that a GOCC is likewise an
instrumentality or an agency. The question of whether MIAA is a GOCC might not even be
determinative of this Petition, but the effect of the majority’s disquisition on that matter
may even be more destructive than the ruling that MIAA is exempt from realty taxes. Is
the majority ready to live up to the momentous consequences of its flawed reasoning?
Novel Proviso in 1987 Constitution Prescribing Standards in the Creation of GOCCs
Necessarily Applies only to GOCCs Created After 1987.
One last point on this matter on whether MIAA is a GOCC. The majority triumphantly points to
Section 16, Article XII of the 1987 Constitution, which mandates that the creation of GOCCs
through special charters be “in the interest of the common good and subject to the test of
economic viability.” For the majority, the test of economic viability does not apply to
government entities vested with corporate powers and performing essential public services. But
this test of “economic viability” is new to the constitutional framework. No such test was
imposed in previous Constitutions, including the 1973 Constitution which was the fundamental
law in force when the MIAA was
_______________
G.R. No. 104217, 5 December 1994, 238 SCRA 714; per Quiazon, J., “Petitioner MIAA is a government-owned and
99
controlled corporation for the purpose, among others, of encouraging and promoting international and domestic air traffic
in the Philippines as a means of making the Philippines a center of international trade and tourism and accelerating the
development of the means of transportation and communications in the country.” Id., at p. 716.
682
created. How then could the MIAA, or any GOCC created before 1987 be expected to meet this
new precondition to the creation of a GOCC? Does the dissent seriously suggest that GOCCs
created before 1987 may be declassified on account of their failure to meet this “economic
viability test”?
Instrumentalities and Agencies Also Generally Liable for Real Property Taxes
Next, the majority, having bludgeoned its way into asserting that MIAA is not a GOCC, then
argues that MIAA is an instrumentality. It cites incompletely, as earlier stated, the provision of
Section 2(10) of the Administrative Code. A more convincing view offered during deliberations,
but which was not adopted by the ponencia, argued that MIAA is not an instrumentality but an
agency, considering the fact that under the Administrative Code, the MIAA is attached within the
department framework of the Department of Transportation and Communications. Interestingly,
100
Executive Order No. 341, enacted by President Arroyo in 2004, similarly calls MIAA an agency.
Since instrumentalities are expressly defined as “an agency not integrated within the department
framework,” that view concluded that MIAA cannot be deemed an instrumentality.
Still, that distinction is ultimately irrelevant. Of course, as stated earlier, the Administrative
Code considers GOCCs as agencies, so the fact that MIAA is an agency does not exclude it
101
from classification as a GOCC. On the other hand, the majority justifies MIAA’s purported
exemption on Section 133 of the Local Government Code, which similarly situates “agencies and
instrumentalities” as generally exempt from the taxation powers of LGUs. And on this point, the
majority again evades Mactan and somehow concludes that Section 133 is the general rule,
notwithstanding Sections 232 and 234(a) of the Local Government Code. And the majority’s
ultimate conclusion?
_______________
See Section 23, Chapter 6, Title XV, Book IV, Administrative Code of 1987.
100
Supra note 60.
101
683
VOL. 495, JULY 20, 2006 683
“By express mandate of the Local Government Code, local governments cannot impose any
kind of tax on national government instrumentalities like the MIAA. Local governments
are devoid of power to tax the national government, its agencies and instrumentalities.” 102
The Court’s interpretation of the Local Government Code in Mactan renders the law
integrally harmonious and gives due accord to the respective prerogatives of the national
government and LGUs. Sections 133 and 234(a) ensure that the Republic of the Philippines or its
political subdivisions shall not be subjected to any form of local government taxation, except
realty taxes if the beneficial use of the property owned has been granted for consideration to a
taxable entity or person. On the other hand, Section 133 likewise assures that government
instrumentalities such as GOCCs may not be arbitrarily taxed by LGUs, since they could be
subjected to local taxation if there is a specific proviso thereon in the Code. One such proviso is
Section 137, which as the Court found in National Power Corporation, permits the imposition
103
of a franchise tax on businesses enjoying a franchise, even if it be a GOCC such as NPC. And, as
the Court acknowledged in Mactan, Section 232 provides another exception on the taxability of
instrumentalities.
The majority abjectly refuses to engage Section 232 of the Local Government Code although
it provides the indubitable general rule that LGUs “may levy an annual ad valorem tax on real
property such as land, building, machinery, and other improvements not hereafter specifically
exempted.” The specific exemptions are provided by Section 234. Section 232 comes
sequentially after Section 133(o), and 104
_______________
Supra note 8.
102
Supra note 6.
103
Assuming that there is conflict between Section 133(o), Section 193, Section 232 and Section 234 of the Local
104
Government Code, the rule in statutory construction is, “If there be no such ground for choice between inharmonious
provisions or sections, the latter provision or section, being the last expression of the legislative will, must, in construction,
vacate the former to the extent of the repugnancy. It has been held that in case of irreconcilable conflict between two
provisions of the same statute, the last in order of posi-
684
even if the sequencing is irrelevant, Section 232 would fall under the qualifying phrase of
Section 133, “Unless otherwise provided herein.” It is sad, but not surprising that the majority is
not willing to consider or even discuss the general rule, but only the exemptions under Section
133 and Section 234. After all, if the majority is dead set in ruling for MIAA no matter what the
law says, why bother citing what the law does say.
Constitution, Laws and Jurisprudence Have Long Explained the Rationale Behind the Local
Taxation of GOCCs.
This blithe disregard of precedents, almost all of them unanimously decided, is nowhere more
evident than in the succeeding discussion of the majority, which asserts that the power of local
governments to tax national government instrumentalities be construed strictly against local
governments. The Maceda case, decided before the Local Government Code, is cited, as
is Basco. This section of the majority employs deliberate pretense that the Code never existed, or
that the fundamentals of local autonomy are of limited effect in our country. Why is it that the
Local Government Code is barely mentioned in this section of the majority? Because Section 5
of the Code, purposely omitted by the majority provides for a different rule of interpretation than
that asserted:
Section 50. Rules of Interpretation.—In the interpretation of the provisions of this Code, the following
rules shall apply:
(a) Any provision on a power of a local government unit shall be liberally interpreted in its
favor, and in case of doubt, any question thereon shall be resolved in favor of devolution of powers
and of
_______________
tion is frequently held to prevail, unless it clearly appears that the intent of the legislature is otherwise.” R.
AGPALO, STATUTORY CONSTRUCTION (3rd ed., 1995), p. 201; citing Lichauco & Co. v. Apostol, 44 Phil.
138 (1922); Cuyegkeng v. Cruz, 108 Phil. 1147 (1960); Montenegro v. Castañeda, 91 Phil. 882 (1952).
685
VOL. 495, JULY 20, 2006 685
the lower local government unit. Any fair and reasonable doubt as to the existence of the power
shall be interpreted in favor of the local government unit concerned;
(b) In case of doubt, any tax ordinance or revenue measure shall be construed strictly against the local
government unit enacting it, and liberally in favor of the taxpayer. Any tax exemption, incentive or
relief granted by any local government unit pursuant to the provisions of this Code shall be
construed strictly against the person claiming it; x x x
Yet the majority insists that “there is no point in national and local governments taxing each
other, unless a sound and compelling policy requires such transfer of public funds from one
government pocket to another.” I wonder whether the Constitution satisfies the majority’s
105
desire for “a sound and compelling policy.” To repeat:
Article II. Declaration of Principles and State Policies
xxx
Sec. 25. The State shall ensure the autonomy of local governments.
Article X. Local Government
xxx
Sec. 2. The territorial and political subdivisions shall enjoy local autonomy.
xxx
Section 5. Each local government unit shall have the power to create its own sources of revenues and
to levy taxes, fees, and charges subject to such guidelines and limitations as the Congress may provide,
to the local governments.
Or how about the Local Government Code, presumably an expression of sound and compelling
policy considering that it was enacted by the legislature, that veritable source of all statutes:
_______________
Decision, p. 12.
105
686
SEC. 129. Power to Create Sources of Revenue.—Each local government unit shall exercise its power to
create its own sources of revenue and to levy taxes, fees, and charges subject to the provisions herein,
to the local government units.
Justice Puno, in National Power Corporation v. City of Cabanatuan, provides a more “sound
106
and compelling policy considerations” that would warrant sustaining the taxability of
governmentowned entities by local government units under the Local Government Code.
Doubtless, the power to tax is the most effective instrument to raise needed revenues to finance and
support myriad activities of the local government units for the delivery of basic services essential to the
promotion of the general welfare and the enhancement of peace, progress, and prosperity of the people.
As this Court observed in the Mactan case, “the original reasons for the withdrawal of tax exemption
privileges granted to government-owned or controlled corporations and all other units of government
were that such privilege resulted in serious tax base erosion and distortions in the tax treatment of
similarly situated enterprises.” With the added burden of devolution, it is even more imperative for
government entities to share in the requirements of development, fiscal or otherwise, by paying taxes or
other charges due from them. 107
I dare not improve on Justice Puno’s exhaustive disquisition on the statutory and jurisprudential
shift brought about the acceptance of the principles of local autonomy:
“In recent years, the increasing social challenges of the times expanded the scope of state activity, and
taxation has become a tool to realize social justice and the equitable distribution of wealth, economic
progress and the protection of local industries as well as public welfare and similar objectives. Taxation
assumes even greater significance with the ratification of the 1987 Constitution. Thenceforth, the power
to tax is no longer vested exclusively on Congress; local legislative bodies are now given direct authority
to levy taxes,
_______________
Supra note 6.
106
Id., at pp. 261-262.

107
687
VOL. 495, JULY 20, 2006 687
fees and other charges pursuant to Article X, section 5 of the 1987 Constitution, viz.:
“Section 5. Each Local Government unit shall have the power to create its own sources of revenue, to levy taxes,
fees and charges subject to such guidelines and limitations as the Congress may provide, consistent with the basic
policy of local autonomy. Such taxes, fees and charges shall accrue exclusively to the Local Governments.”
This paradigm shift results from the realization that genuine development can be achieved only by
strengthening local autonomy and promoting decentralization of governance. For a long time, the
country’s highly centralized government structure has bred a culture of dependence among local
government leaders upon the national leadership. It has also “dampened the spirit of initiative, innovation
and imaginative resilience in matters of local development on the part of local government leaders.” 35
The only way to shatter this culture of dependence is to give the LGUs a wider role in the delivery of
basic services, and confer them sufficient powers to generate their own sources for the purpose. To
achieve this goal, section 3 of Article X of the 1987 Constitution mandates Congress to enact a local
government code that will, consistent with the basic policy of local autonomy, set the guidelines and
limitations to this grant of taxing powers, viz.:
“Section 3. The Congress shall enact a local government code which shall provide for a more responsive and
accountable local government structure instituted through a system of decentralization with effective mechanisms of
recall, initiative, and referendum, allocate among the different local government units their powers, responsibilities,
and resources, and provide for the qualifications, election, appointment and removal, term, salaries, powers and
functions and duties of local officials, and all other matters relating to the organization and operation of the local
units.”
To recall, prior to the enactment of the Rep. Act No. 7160, also known as the Local Government Code
of 1991 (LGC), various measures have been enacted to promote local autonomy. These include the Barrio
Charter of 1959, the Local Autonomy Act of 1959, the Decentralization Act of 1967 and the Local
Government Code of 1983. Despite these initiatives, however, the shackles of dependence on the national
government remained. Local government units were faced with the same problems that hamper their
capabilities to participate effectively in the national development efforts, among which are: (a) inadequate
tax base, (b) lack of fiscal control over external sources of income, (c) limited authority to prioritize and
approve development projects,
688
(d) heavy dependence on external sources of income, and (e) limited supervisory control over personnel
of national line agencies.
Considered as the most revolutionary piece of legislation on local autonomy, the LGC effectively
deals with the fiscal constraints faced by LGUs. It widens the tax base of LGUs to include taxes which
were prohibited by previous laws such as the imposition of taxes on forest products, forest
concessionaires, mineral products, mining operations, and the like. The LGC likewise provides enough
flexibility to impose tax rates in accordance with their needs and capabilities. It does not prescribe
graduated fixed rates but merely specifies the minimum and maximum tax rates and leaves the
determination of the actual rates to the respective sanggunian. 108
And the Court’s ruling through Justice Azcuna in Philippine Ports Authority v. City of
Iloilo, provides especially clear and emphatic rationale:
109
“In closing, we reiterate that in taxing government-owned or controlled corporations, the State
ultimately suffers no loss. In National Power Corp. v. Presiding Judge, RTC, Br. XXV, 38 we elucidated:
Actually, the State has no reason to decry the taxation of NPC’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 nationbuilding, particularly in the local government level.
x x x x x x x x x
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.
Finally, we find it appropriate to restate that the primary reason for the withdrawal of tax exemption
privileges granted to government-owned and controlled corporations and all other units of government
was that such privilege resulted in serious tax base erosion and distortions in the tax treatment of similarly
situated enterprises, hence resulting in the need for
_______________
Id., at pp. 248-250.

108
Supra note 38.
109
689
VOL. 495, JULY 20, 2006 689
these entities to share in the requirements of development, fiscal or otherwise, by paying the taxes and
other charges due from them.” 110
How does the majority counter these seemingly valid rationales which establish the soundness of
a policy consideration subjecting national instrumentalities to local taxation? Again, by simply
ignoring that these doctrines exist. It is unfortunate if the majority deems these cases or the
principles of devolution and local autonomy as simply too inconvenient, and relies instead on
discredited precedents. Of course, if the majority faces the issues squarely, and expressly
discusses why Basco was right and Mactan was wrong, then this entire endeavor of the Court
would be more intellectually satisfying. But, this is not a game the majority wants to play.
Mischaracterization of My Views on the Tax Exemption Enjoyed by the National Government
Instead, the majority engages in an extended attack pertaining to Section 193, mischaracterizing
my views on that provision as if I had been interpreting the provision as making “the national
government, which itself is a juridical person, subject to tax by local governments since the
national government is not included in the enumeration of exempt entities in Section 193.” 111
Nothing is farther from the truth. I have never advanced any theory of the sort imputed in the
majority. My main thesis on the matter merely echoes the explicit provision of Section 193 that
unless otherwise provided in the Local Government Code (LGC) all tax exemptions enjoyed by
all persons, whether natural or juridical, including GOCCs, were withdrawn upon the effectivity
of the Code. Since the provision speaks of withdrawal of tax exemptions of persons, it follows
that the exemptions theretofore enjoyed by MIAA which is definitely a person are deemed
withdrawn upon the advent of the Code.
_______________
Id., at p. 102; citing National Power Corp. v. Presiding Judge, RTC, Br. XXV, 190 SCRA 477 (1990).
110
Decision, p. 25.
111
690
On the other hand, the provision does not address the question of who are beyond the reach of
the taxing power of LGUs. In fine, the grant of tax exemption or the withdrawal thereof assumes
that the person or entity involved is subject to tax. Thus, Section 193 does not apply to entities
which were never given any tax exemption. This would include the national government and its
political subdivisions which, as a general rule, are not subjected to tax in the first
place. Corollarily, the national government and its political subdivisions do not need tax
112
exemptions. And Section 193 which ordains the withdrawal of tax exemptions is obviously
irrelevant to them.
Section 193 is in point for the disposition of this case as it forecloses dependence for the grant
of tax exemption to MIAA on Section 21 of its charter. Even the majority should concede that
the charter section is now ineffectual, as Section 193 withdraws the tax exemptions previously
enjoyed by all juridical persons.
With Section 193 mandating the withdrawal of tax exemptions granted to all persons upon the
effectivity of the LGC, for MIAA to continue enjoying exemption from realty tax, it will have to
rely on a basis other than Section 21 of its charter.
Lung Center of the Philippines v. Quezon City provides another illustrative example of the
113
jurisprudential havoc wrought about by the majority. Pursuant to its charter, the Lung Center was
organized as a trust administered by an eponymous GOCC organized with the SEC. There is no 114
doubt it is a GOCC, even by the majority’s reckoning. Applying the Administrative Code, it is
also considered as an agency, the term encompassing even GOCCs. Yet since the Administrative
Code definition of “instrumentalities” encompasses agencies, especially those not attached to a
line department such as the Lung Center, it also follows that the Lung Center is an
instrumentality, which for the majority is exempt from all local government taxes,
_______________
112
“Unless otherwise expressed in the tax law, the government and its political subdivisions are exempt
therefrom.” J. VITUG AND E. ACOSTA, TAX LAW AND JURISPRUDENCE (2nd ed., 2000), at p. 36.
113
Supra note 9.
114
See P.D. No. 1423.
691
VOL. 495, JULY 20, 2006 691
especially real estate taxes. Yet just in 2004, the Court unanimously held that the Lung Center
was not exempt from real property taxes. Can the majority and Lung Center be reconciled? I do
not see how, and no attempt is made to demonstrate otherwise.
Another key point. The last paragraph of Section 234 specifically asserts that any previous
exemptions from realty taxes granted to or enjoyed by all persons, including all GOCCs, are
thereby withdrawn. The majority’s interpretation of Sections 133 and 234(a) however necessarily
implies that all instrumentalities, including GOCCs, can never be subjected to real property
taxation under the Code. If that is so, what then is the sense of the last paragraph specifically
withdrawing previous tax exemptions to all persons, including GOCCs when juridical persons
such as MIAA are anyway, to his view, already exempt from such taxes under Section 133? The
majority’s interpretation would effectively render the express and emphatic withdrawal of
previous exemptions to GOCCs inutile. Ut magis valeat quam pereat. Hence, where a statute is
susceptible of more than one interpretation, the court should adopt such reasonable and
beneficial construction which will render the provision thereof operative and effective, as well as
harmonious with each other. 115
But, the majority seems content rendering as absurd the Local Government Code, since it
does not have much use anyway for the Code’s general philosophy of fiscal autonomy, as
evidently seen by the continued reliance on Basco or Maceda. Local government rule has never
been a grant of emancipation from the national government. This is the favorite bugaboo of the
opponents of local autonomy—the fallacy that autonomy equates to independence.
Thus, the conclusion of the majority is that under Section 133(o), MIAA as a government
instrumentality is beyond the reach of local taxation because it is not subject to taxes, fees or
charges of any kind. Moreover, the taxation of national instrumentalities and agencies by
_______________
R. AGPALO, STATUTORY CONSTRUCTION (3rd ed., 1995), at p. 199; citing Javellana v. Tayo, G.R. No. 18919,

115
29 December 1982, 6 SCRA 1042 (1962); Radiola-Toshiba Phils., Inc. v. Intermediate Appellate Court, 199 SCRA
373 (1991).
692
LGUs should be strictly construed against the LGUs, citing Maceda and Basco. No mention is
made of the subsequent rejection of these cases in jurisprudence following the Local
Government Code, including Mactan. The majority is similarly silent on the general rule under
Section 232 on real property taxation or Section 5 on the rules of construction of the Local
Government Code.
V. MIAA, and not the National Government Is the Owner of the Subject Taxable Properties
Section 232 of the Local Government Code explicitly provides that there are exceptions to the
general rule on rule property taxation, as “hereafter specifically exempted.” Section 234,
certainly “hereafter,” provides indubitable basis for exempting entities from real property
taxation. It provides the most viable legal support for any claim that an governmental entity such
as the MIAA is exempt from real property taxes. To repeat:
SECTION 234. Exemptions from Real Property Tax.—The following are exempted from payment of the
real property tax:
xxx
when the beneficial use thereof has been granted, for consideration or otherwise, to a taxable person:
The majority asserts that the properties owned by MIAA are owned by the Republic of the
Philippines, thus placing them under the exemption under Section 234. To arrive at this
conclusion, the majority employs four main arguments.
MIAA Property Is Patrimonial And Not Part of Public Dominion
The majority claims that the Airport Lands and Buildings are property of public dominion as
defined by the Civil Code, and therefore owned by the State or the Republic of the Philippines.
But as pointed out by Justice Azcuna in the first PPA case, if indeed a prop-
693
VOL. 495, JULY 20, 2006 693
erty is considered part of the public dominion, such property is “owned by the general public and
cannot be declared to be owned by a public corporation, such as [the PPA].”
Relevant on this point are the following provisions of the MIAA charter:
Section 3. Creation of the Manila International Airport Authority.—
xxx
ownership and administration of the Authority, subject to existing rights, if any. x x x Any portion
thereof shall not be disposed through sale or through any other mode unless specifically approved by the
President of the Philippines.
Section 22. Transfer of Existing Facilities and Intangible Assets.—All existing public airport
facilities, runways, lands, buildings and other property, movable or immovable, belonging to the
Airport, and all assets, powers rights, interests and privileges belonging to the Bureau of Air
Transportation relating to airport works or air operations, including all equipment which are necessary for
the operation of crash fire and rescue facilities, are hereby transferred to the Authority.
Clearly, it is the MIAA, and not either the State, the Republic of the Philippines or the national
government that asserts legal title over the Airport Lands and Buildings. There was an express
transfer of ownership between the MIAA and the national government. If the distinction is to be
blurred, as the majority does, between the State/Republic/Government and a body corporate such
as the MIAA, then the MIAA charter showcases the remarkable absurdity of an entity
transferring property to itself.
Nothing in the Civil Code or the Constitution prohibits the State from transferring ownership
over property of public dominion to an entity that it similarly owns. It is just like a family
transferring ownership over the properties its members own into a family corporation. The
family exercises effective control over the administration and disposition of these properties. Yet
for several purposes under the law, such as taxation, it is the corporation that is deemed to own
694
those properties. A similar situation obtains with MIAA, the State, and the Airport Lands and
Buildings.
The second Public Ports Authority case, penned by Justice Callejo, likewise lays down useful
doctrines in this regard. The Court refuted the claim that the properties of the PPA were owned
by the Republic of the Philippines, noting that PPA’s charter expressly transferred ownership
over these properties to the PPA, a situation which similarly obtains with MIAA. The Court even
went as far as saying that the fact that the PPA “had not been issued any Torrens title over the
port and port facilities and appurtenances is of no legal consequence. A Torrens title does not, by
itself, vest ownership; it is merely an evidence of title over properties. x x x It has never been
recognized as a mode of acquiring ownership over real properties.” 116
The Court further added:

“x x x The bare fact that the port and its facilities and appurtenances are accessible to the general public
does not exempt it from the payment of real property taxes. It must be stressed that the said port facilities
and appurtenances are the petitioner’s corporate patrimonial properties, not for public use, and that the
operation of the port and its facilities and the administration of its buildings are in the nature of ordinary
business. The petitioner is clothed, under P.D. No. 857, with corporate status and corporate powers in the
furtherance of its proprietary interests x x x The petitioner is even empowered to invest its funds in such
government securities approved by the Board of Directors, and derives its income from rates, charges or
fees for the use by vessels of the port premises, appliances or equipment. x x x Clearly then, the petitioner
is a profit-earning corporation; hence, its patrimonial properties are subject to tax.”
117
There is no doubt that the properties of the MIAA, as with the PPA, are in a sense, for public use.
A similar argument was propounded by the Light Rail Transit Authority in Light Rail Transit
Authority v. Central Board of Assessment, which was cited in Philippine Ports Authority and
118
deserves renewed emphasis. The Light

_______________
Philippine Ports Authority v. City of Iloilo, supra note 42.

116
Id., at pp. 186-187.

117
Supra note 15.
118
695
VOL. 495, JULY 20, 2006 695
Rail Transit Authority (LRTA), a body corporate, “provides valuable transportation facilities to
the paying public.” It claimed that its carriage-ways and terminal stations are immovably
119
attached to government-owned national roads, and to impose real property taxes thereupon
would be to impose taxes on public roads. This view did not persuade the Court, whose decision
was penned by Justice (now Chief Justice) Panganiban. It was noted:
“Though the creation of the LRTA was impelled by public service—to provide mass transportation to
alleviate the traffic and transportation situation in Metro Manila—its operation undeniably partakes of
ordinary business. Petitioner is clothed with corporate status and corporate powers in the furtherance of
its proprietary objectives. Indeed, it operates much like any private corporation engaged in the mass
transport industry. Given that it is engaged in a service-oriented commercial endeavor, its carriageways
and terminal stations are patrimonial property subject to tax, notwithstanding its claim of being a
government-owned or controlled corporation.
xxx
Petitioner argues that it merely operates and maintains the LRT system, and that the actual users of the
carriageways and terminal stations are the commuting public. It adds that the public use character of the
LRT is not negated by the fact that revenue is obtained from the latter's operations.
We do not agree. Unlike public roads which are open for use by everyone, the LRT is accessible only
to those who pay the required fare. It is thus apparent that petitioner does not exist solely for public
service, and that the LRT carriageways and terminal stations are not exclusively for public use. Although
petitioner is a public utility, it is nonetheless profit-earning. It actually uses those carriageways and
terminal stations in its public utility business and earns money therefrom.120
xxx
Even granting that the national government indeed owns the carriageways and terminal stations, the
exemption would not apply because their beneficial use has been granted to petitioner, a taxable entity.” 121
_______________
Id., at p. 869.
119
Id., at p. 871.
120
Id., at p. 872.
121
696
There is no substantial distinction between the properties held by the PPA, the LRTA, and the
MIAA. These three entities are in the business of operating facilities that promote public
transportation.
The majority further asserts that MIAA’s properties, being part of the public dominion, are
outside the commerce of man. But if this is so, then why does Section 3 of MIAA’s charter
authorize the President of the Philippines to approve the sale of any of these properties? In fact,
why does MIAA’s charter in the first place authorize the transfer of these airport properties,
assuming that indeed these are beyond the commerce of man?
No Trust has been Created Over MIAA Properties For the Benefit of the Republic
The majority posits that while MIAA might be holding title over the Airport Lands and
Buildings, it is holding it in trust for the Republic. A provision of the Administrative Code is
cited, but said provision does not expressly provide that the property is held in trust. Trusts are
either express or implied, and only those situations enumerated under the Civil Code would
constitute an implied trust. MIAA does not fall within this enumeration, and neither is there a
provision in MIAA’s charter expressly stating that these properties are being held in trust. In
fact, under its charter, MIAA is obligated to retain up to eighty percent (80%) of its gross
operating income, not an inconsequential sum assuming that the beneficial owner of MIAA’s
properties is actually the Republic, and not the MIAA.
Also, the claim that beneficial ownership over the MIAA remains with the government and
not MIAA is ultimately irrelevant. Section 234(a) of the Local Government Code provides
among those exempted from paying real property taxes are “[r]eal property owned by the
[Republic]. . . except when the beneficial use thereof has been granted, for consideration or
otherwise, to a taxable person.” In the context of Section 234(a), the identity of the beneficial
owner over the properties is not determinative as to whether the exemption avails. It is the
identity of the beneficial user of the property owned by the
697
VOL. 495, JULY 20, 2006 697
Republic or its political subdivisions that is crucial, for if said beneficial user is a taxable person,
then the exemption does not lie.
I fear the majority confuses the notion of what might be construed as “beneficial ownership”
of the Republic over the properties of MIAA as nothing more than what arises as a consequence
of the fact that the capital of MIAA is contributed by the National Government. If so, then there122
is no difference between the State’s ownership rights over MIAA properties than those of a
majority stockholder over the properties of a corporation. Even if such shareholder effectively
owns the corporation and controls the disposition of its assets, the personality of the stockholder
remains separately distinct from that of the corporation. A brief recall of the entrenched rule in
corporate law is in order:
“The first consequence of the doctrine of legal entity regarding the separate identity of the corporation
and its stockholders insofar as their obligations and liabilities are concerned, is spelled out in this general
rule deeply entrenched in American jurisprudence:
Unless the liability is expressly imposed by constitutional or statutory provisions, or by the charter, or by special
agreement of the stockholders, stockholders are not personally liable for debts of the corporation either at law or
equity. The reason is that the corporation is a legal entity or artificial person, distinct from the members who
compose it, in their individual capacity; and when it contracts a debt, it is the debt of the legal entity or artificial
person—the corporation—and not the debt of the individual members. (13A Fletcher Cyc. Corp. Sec. 6213)
The entirely separate identity of the rights and remedies of a corporation itself and its individual
stockholders have been given definite recognition for a long time. Applying said principle, the Supreme
Court declared that a corporation may not be made to answer for acts or liabilities of its stockholders or
those of legal entities to which it may be connected, or vice versa. (Palay, Inc. v. Clave, et al., 124 SCRA
638) It was likewise declared in a similar case that a bonafide corporation should alone be liable for
corporate acts
_______________
See Section 10, E.O. No. 903.

122
698
duly authorized by its officers and directors. (Caram, Jr. v. Court of Appeals, et al., 151 SCRA, p. 372)” 123
It bears repeating that MIAA under its charter, is expressly conferred the right to exercise all the
powers of a corporation under the Corporation Law, including the right to corporate succession,
and the right to sue and be sued in its corporate name. The national government made a
124
particular choice to divest ownership and operation of the Manila International Airport and
transfer the same to such an empowered entity due to perceived advantages. Yet such transfer
cannot be deemed consequence free merely because it was the State which contributed the
operating capital of this body corporate.
The majority claims that the transfer the assets of MIAA was meant merely to effect a
reorganization. The imputed rationale for such transfer does not serve to militate against the legal
consequences of such assignment. Certainly, if it was intended that the transfer should be free of
consequence, then why was it effected to a body corporate, with a distinct legal personality from
that of the State or Republic? The stated aims of the MIAA could have very well been
accomplished by creating an agency without independent juridical personality.
VI MIAA Performs Proprietary Functions
Nonetheless, Section 234(f) exempts properties owned by the Republic of the Philippines or its
political subdivisions from realty taxation. The obvious question is what comprises “the
Republic of the Philippines.” I think the key to understanding the scope of “the Republic” is the
phrase “political subdivisions.” Under the Constitution, political subdivisions are defined as “the
provinces, cities, municipali-
_______________
R. LOPEZ, I THE CORPORATION CODE OF THE PHILIPPINES ANNOTATED, pp. 15-16 (1994).
123
See Section 5, E.O. No. 903.

124
699
VOL. 495, JULY 20, 2006 699
ties and barangays.” In correlation, the Administrative Code of 1987 defines “local
125
government” as referring to “the political subdivisions established by or in accordance with the

Constitution.”
Clearly then, these political subdivisions are engaged in the exercise of sovereign functions
and are accordingly exempt. The same could be said generally of the national government, which
would be similarly exempt. After all, even with the principle of local autonomy, it is inherently
noxious and self-defeatist for local taxation to interfere with the sovereign exercise of functions.
However, the exercise of proprietary functions is a different matter altogether.
Sovereign and Proprietary Functions Distinguished
Sovereign or constituent functions are those which constitute the very bonds of society and are
compulsory in nature, while ministrant or proprietary functions are those undertaken by way of
advancing the general interests of society and are merely optional. An exhaustive discussion on
126
the matter was provided by the Court in Bacani v. NACOCO: 127
“x x x This institution, when referring to the national government, has reference to what our Constitution
has established composed of three great departments, the legislative, executive, and the judicial, through
which the powers and functions of government are exercised. These functions are twofold: constituent
and ministrant. The former are those which constitute the very bonds of society and are compulsory in
nature; the latter are those that are undertaken only by way of advancing the general interests of society,
and are merely optional. President Wilson enumerates the constituent functions as follows:
_______________
See Section 1, Article X of the Constitution, which reads: “The territorial and political subdivisions of the Republic
125
of the Philippines are the provinces, cities, municipalities and barangays x x x”

Romualdez-Yap v. Civil Service Commission, G.R. No. 104226, 12 August 1993, 225 SCRA 285, 294.
126
100 Phil. 468 (1956).

127
700
1. “ ‘(1)The keeping of order and providing for the protection of persons and property
from violence and robbery.
2. ‘(2)The fixing of the legal relations between man and wife and between parents and
children.
3. ‘(3)The regulation of the holding, transmission, and interchange of property, and the
determination of its liabilities for debt or for crime.
4. ‘(4)The determination of contract rights between individuals.
5. ‘(5)The definition and punishment of crime.
6. ‘(6)The administration of justice in civil cases.
7. ‘(7)The determination of the political duties, privileges, and relations of citizens.
8. ‘(8)Dealings of the state with foreign powers: the preservation of the state from external
danger or encroachment and the advancement of its international interests.’ ”
(Malcolm, The Government of the Philippine Islands, p. 19.)
The most important of the ministrant functions are: public works, public education, public
charity, health and safety regulations, and regulations of trade and industry. The principles
determining whether or not a government shall exercise certain of these optional functions are:
(1) that a government should do for the public welfare those things which private capital would
not naturally undertake and (2) that a government should do these things which by its very nature
it is better equipped to administer for the public welfare than is any private individual or group of
individuals.” (Malcolm, The Government of the Philippine Islands, pp. 19-20.)
From the above we may infer that, strictly speaking, there are functions which our
government is required to exercise to promote its objectives as expressed in our
Constitution and which are exercised by it as an attribute of sovereignty, and those which it
may exercise to promote merely the welfare, progress and prosperity of the people. To this
latter class belongs the organization of those corporations owned or controlled by the
government to promote certain aspects of the economic life of our people such as the
National Coconut Corporation. These are what we call government-owned or controlled
corporations which may take on the form of a private enterprise or one organized with powers
and formal characteristics of a private corporations under the Corporation Law. 128
_______________
Id., at pp. 471-473.

128
701
VOL. 495, JULY 20, 2006 701
The Court in Bacani rejected the proposition that the National Coconut Corporation exercised
sovereign functions:
Does the fact that these corporations perform certain functions of government make them a part of the
Government of the Philippines?
The answer is simple: they do not acquire that status for the simple reason that they do not come under
the classification of municipal or public corporation. Take for instance the National Coconut
Corporation. While it was organized with the purpose of “adjusting the coconut industry to a
position independent of trade preferences in the United States” and of providing “Facilities for the
better curing of copra products and the proper utilization of coconut by-products,” a function
which our government has chosen to exercise to promote the coconut industry, however, it was
given a corporate power separate and distinct from our government, for it was made subject to the
provisions of our Corporation Law in so far as its corporate existence and the powers that it may
exercise are concerned (sections 2 and 4, Commonwealth Act No. 518). It may sue and be sued in
the same manner as any other private corporations, and in this sense it is an entity different from
our government. As this Court has aptly said, “The mere fact that the Government happens to be a
majority stockholder does not make it a public corporation” (National Coal Co. vs. Collector of Internal
Revenue, 46 Phil., 586-587). “By becoming a stockholder in the National Coal Company, the
Government divested itself of its sovereign character so far as respects the transactions of the
corporation. . . . Unlike the Government, the corporation may be sued without its consent, and is
subject to taxation. Yet the National Coal Company remains an agency or instrumentality of
government.” (Government of the Philippine Islands vs. Springer, 50 Phil. 288)
The following restatement of the entrenched rule by former SEC Chairperson Rosario Lopez
bears noting:
“The fact that government corporations are instrumentalities of the State does not divest them with
immunity from suit. (Malong v. PNR, 138 SCRA p. 63) It is settled that when the government engages
in a particular business through the instrumentality of a corporation, it divests itself pro hoc vice of
its sovereign character so as to subject itself to the rules governing private corporations, (PNB v.
Pabolan, 82
702
SCRA 595) and is to be treated like any other corporation. (PNR v. Union de Maquinistas Fogonero y
Motormen, 84 SCRA 223)
In the same vein, when the government becomes a stockholder in a corporation, it does not exercise
sovereignty as such. It acts merely as a corporator and exercises no other power in the management of the
affairs of the corporation than are expressly given by the incorporating act. Nor does the fact that the
government may own all or a majority of the capital stock take from the corporation its character as such,
or make the government the real party in interest. (Amtorg Trading Corp. v. US, 71 F2d 524, 528)” 129
MIAA Performs Proprietary Functions No Matter How Vital to the Public Interest
The simple truth is that, based on these accepted doctrinal tests, MIAA performs proprietary
functions. The operation of an airport facility by the State may be imbued with public interest,
but it is by no means indispensable or obligatory on the national government. In fact, as
demonstrated in other countries, it makes a lot of economic sense to leave the operation of
airports to the private sector.
The majority tries to becloud this issue by pointing out that the MIAA does not compete in
the marketplace as there is no competing international airport operated by the private sector; and
that MIAA performs an essential public service as the primary domestic and international airport
of the Philippines. This premise is false, for one. On a local scale, MIAA competes with other
international airports situated in the Philippines, such as Davao International Airport and
MCIAA. More pertinently, MIAA also competes with other international airports in Asia, at
least. International airlines take into account the quality and conditions of various international
airports in determining the number of flights it would assign to a particular airport, or even in
choosing a hub through which destinations necessitating connecting flights would pass through.
Even if it could be conceded that MIAA does not compete in the market place, the example of
the Philippine National Railways
_______________
Lopez, supra note 123 at p. 67.

129
703
VOL. 495, JULY 20, 2006 703
should be taken into account. The PNR does not compete in the marketplace, and performs an
essential public service as the operator of the railway system in the Philippines. Is the PNR
engaged in sovereign functions? The Court, in Malong v. Philippine National Railways, held 130
that it was not. 131
Even more relevant to this particular case is Teodoro v. National Airports

Corporation, concerning the proper appreciation of the functions performed by the Civil
132
Aeronautics Administration (CAA), which had succeeded the defunction National Airports
Corporation. The CAA claimed that as an unincorporated agency of the Republic of the
Philippines, it was incapable of suing and being sued. The Court noted:
Among the general powers of the Civil Aeronautics Administration are, under Section 3, to execute
contracts of any kind, to purchase property, and to grant concession rights, and under Section 4, to charge
landing fees, royalties on sales to aircraft of aviation gasoline, accessories and supplies, and rentals for the
use of any property under its management.
These provisions confer upon the Civil Aeronautics Administration, in our opinion, the power to sue
and be sued. The power to sue and be sued is implied from the power to transact private business. And if
it has the power to sue and be sued on its behalf, the Civil Aeronautics Administration with greater reason
should have the power to prosecute and defend suits for and against the National Airports Corporation,
having acquired all the properties, funds and choses in action and assumed all the liabilities of the latter.
To deny the National Airports Corporation's creditors access to the courts of justice against the Civil
Aeronautics Administration is to say that the government could impair the obligation of its corporations
by the simple expedient of converting them into unincorporated agencies. 133
_______________
G.R. No. L-49930, 7 August 1985, 138 SCRA 63.

130
“Did the State act in a sovereign capacity or in a corporate capacity when it organized the PNR for the purpose of
131
engaging in transportation? Did it act differently when it organized the PNR as successor of the Manila Railroad
Company? x x x We hold that in the instant case the State divested itself of its sovereign capacity when it organized the
PNR which is no different from its predecessor, the Manila Railroad Company.” Id., at p. 66.
Supra note 17.
132
Id., at p. 206.
133
704
xxx
Eventually, the charter of the CAA was revised, and it among its expanded functions was “[t]o
administer, operate, manage, control, maintain and develop the Manila International
Airport.” Notwithstanding this expansion, in the 1988 case of CAA v. Court of Appeals the
134 135
Court reaffirmed the ruling that the CAA was engaged in “private or non-governmental
functions.” Thus, the Court had already ruled that the predecessor agency of MIAA, the CAA
136
was engaged in private or non-governmental functions. These are more precedents ignored by
the majority. The following observation from the Teodoro case very well applies to MIAA.
The Civil Aeronautics Administration comes under the category of a private entity. Although not a
body corporate it was created, like the National Airports Corporation, not to maintain a necessary
function of government, but to run what is essentially a business, even if revenues be not its prime
objective but rather the promotion of travel and the convenience of the traveling public. It is
engaged in an enterprise which, far from being the exclusive prerogative of state, may, more than
the construction of public roads, be undertaken by private concerns. 137
If the determinative point in distinguishing between sovereign functions and proprietary

functions is the vitality of the public service being performed, then it should be noted that there is
no more important public service performed than that engaged in by public utilities. But notably,
the Constitution itself authorizes private persons to exercise these functions as it allows them to
operate public utilities in this country. If indeed such functions are actually sovereign and
138
belonging properly to the government, shouldn’t it follow that the

_______________
Section 32(24), Rep. Act No. 776. See CAA v. Court of Appeals, supra note 18, at p. 36.
134
Supra note 18.
135
Id., at p. 36.
136
Teodoro v. National Airports Commission, supra note 17, at p. 207.

137
See Article XII, Section 11, CONST.

138
705
VOL. 495, JULY 20, 2006 705
exercise of these tasks remain within the exclusive preserve of the State?
There really is no prohibition against the government taxing itself, and nothing obscene with
139
allowing government entities exercising proprietary functions to be taxed for the purpose of
raising the coffers of LGUs. On the other hand, it would be an even more noxious proposition
that the government or the instrumentalities that it owns are above the law and may refuse to pay
a validly imposed tax. MIAA, or any similar entity engaged in the exercise of proprietary, and
not sovereign functions, cannot avoid the adverse-effects of tax evasion simply on the claim that
it is imbued with some of the attributes of government.
VII. MIAA Property Not Subject to Execution Sale Without Consent of the President.
Despite the fact that the City of Parañaque ineluctably has the power to impose real property
taxes over the MIAA, there is an equally relevant statutory limitation on this power that must be
fully upheld. Section 3 of the MIAA charter states that “[a]ny portion [of the [lands transferred,
conveyed and assigned to the ownership and administration of the MIAA] shall not be disposed
through sale or through any other mode unless specifically approved by the President of
the Philippines.” 140
Nothing in the Local Government Code, even with its wide grant of powers to LGUs, can be
deemed as repealing this prohibition under Section 3, even if it effectively forecloses one
possible remedy of the LGU in the collection of delinquent real property taxes. While the Local
Government Code withdrew all previous local tax exemptions of the MIAA and other natural
and juridical persons, it did not similarly
_______________
Vitug & Acosta, supra note 112, at p. 35; citing Bisaya Land Transportation Co., Inc. v. Collector of Internal
139
Revenue, L-11812, 29 May 1959, 105 Phil. 1338.

See Section 3, E.O. 903, as amended.
140
706
withdraw any previously enacted prohibitions on properties owned by GOCCs, agencies or
instrumentalities. Moreover, the resulting legal effect, subjecting on one hand the MIAA to local
taxes but on the other hand shielding its properties from any form of sale or disposition, is not
contradictory or paradoxical, onerous as its effect may be on the LGU. It simply means that the
LGU has to find another way to collect the taxes due from MIAA, thus paving the way for a
mutually acceptable negotiated solution. 141
There are several other reasons this statutory limitation should be upheld and applied to this
case. It is at this juncture that the importance of the Manila Airport to our national life and
commerce may be accorded proper consideration. The closure of the airport, even by reason of
MIAA’s legal omission to pay its taxes, will have an injurious effect to our national economy,
which is ever reliant on air travel and traffic. The same effect would obtain if ownership and
administration of the airport were to be transferred to an LGU or some other entity which were
not specifically chartered or tasked to perform such vital function. It is for this reason that the
MIAA charter specifically forbids the sale or disposition of MIAA properties without the consent
of the President. The prohibition prevents the peremptory closure of the MIAA or the hampering
of its operations on account of the demands of its creditors. The airport is important enough to be
sheltered by legislation from ordinary legal processes.
Section 3 of the MIAA charter may also be appreciated as within the proper exercise of
executive control by the President over the MIAA, a GOCC which despite its separate legal
personality, is still subsumed within the executive branch of government. The power of
executive control by the President should be upheld so long as such exercise does not contravene
the Constitution or the law, the Presi-
_______________
Indeed, last 4 February 2005, the MIAA filed a Manifestation before this Court stating that its new General Manager
141
had been conferring with the newly elected local government of Parañaque with the end of settling the case at mutually
acceptable terms. See Rollo, pp. 315-316. While this Manifestation was withdrawn a few weeks later, see Rollo, pp. 320-
322, it still stands as proof that the parties are nevertheless willing to explore an extra-judicial settlement of this case.
707
VOL. 495, JULY 20, 2006 707
dent having the corollary duty to faithfully execute the Constitution and the laws of the land. In 142
this case, the exercise of executive control is precisely recognized and authorized by the
legislature, and it should be upheld even if it comes at the expense of limiting the power of local
government units to collect real property taxes.
Had this petition been denied instead with Mactan as basis, but with the caveat that the MIAA
properties could not be subject of execution sale without the consent of the President, I suspect
that the parties would feel little distress. Through such action, both the Local Government Code
and the MIAA charter would have been upheld. The prerogatives of LGUs in real property
taxation, as guaranteed by the Local Government Code, would have been preserved, yet the
concerns about the ruinous effects of having to close the Manila International Airport would
have been averted. The parties would then be compelled to try harder at working out a
compromise, a task, if I might add, they are all too willing to engage in. Unfortunately, the 143
majority will cause precisely the opposite result of unremitting hostility, not only to the City of
Parañaque, but to the thousands of LGUs in the country.
VIII. Summary of Points
My points may be summarized as follows:
1. 1)Mactan and a long line of succeeding cases have already settled the rule that under the
Local Government Code, enacted pursuant to the constitutional mandate of local
autonomy, all natural and juridical persons, even those GOCCs, instrumentalities and
agencies, are no longer exempt from local taxes even if previously granted an
exemption. The only exemptions from local taxes are those specifically provided under
the Local Government Code itself, or those enacted through subsequent legislation.
_______________
See Section 17, Article VII, Constitution. “The President shall have control of all the executive departments. He
142
shall ensure that the laws be faithfully executed.”

See note 141.
143
708
1. 2)Under the Local Government Code, particularly Section 232, instrumentalities,

agencies and GOCCs are generally liable for real property taxes. The only exemptions
therefrom under the same Code are provided in Section 234, which include real property
owned by the Republic of the Philippines or any of its political subdivisions.
2. 3)The subject properties are owned by MIAA, a GOCC, holding title in its own name.
MIAA, a separate legal entity from the Republic of the Philippines, is the legal owner of
the properties, and is thus liable for real property taxes, as it does not fall within the
exemptions under Section 234 of the Local Government Code.
3. 4)The MIAA charter expressly bars the sale or disposition of MIAA properties. As a
result, the City of Parañaque is prohibited from seizing or selling these properties by
public auction in order to satisfy MIAA’s tax liability. In the end, MIAA is encumbered
only by a limited lien possessed by the City of Parañaque.
On the other hand, the majority’s flaws are summarized as follows:
1. 1)The majority deliberately ignores all precedents which run counter to its hypothesis,
including Mactan. Instead, it relies and directly cites those doctrines and precedents
which were overturned by Mactan. By imposing a different result than that warranted
by the precedents without explaining why Mactan or the other precedents are wrong, the
majority attempts to overturn all these ruling sub silencio and without legal justification,
in a manner that is not sanctioned by the practices and traditions of this Court.
2. 2)The majority deliberately ignores the policy and philosophy of local fiscal autonomy,
as mandated by the Constitution, enacted under the Local Government Code, and
affirmed by precedents. Instead, the majority asserts that there is no sound rationale for
local governments to tax national government instrumentalities, despite the blunt
existence of such rationales in the Constitution, the Local Government Code, and
precedents.
3. 3)The majority, in a needless effort to justify itself, adopts an extremely strained
exaltation of the Administrative Code above and beyond the Corporation Code and the
various legislative charters, in order to impose a wholly absurd definition of GOCCs
that effectively
709
VOL. 495, JULY 20, 2006 709
1. declassifies innumerable existing GOCCs, to catastrophic legal consequences.

2. 4)The majority asserts that by virtue of Section 133(o) of the Local Government Code,
all national government agencies and instrumentalities are exempt from any form of
local taxation, in contravention of several precedents to the contrary and the proviso
under Section 133, “unless otherwise provided herein [the Local Government Code].”
3. 5)The majority erroneously argues that MIAA holds its properties in trust for the
Republic of the Philippines, and that such properties are patrimonial in character. No
express or implied trust has been created to benefit the national government. The legal
distinction between sovereign and proprietary functions, as affirmed by jurisprudence,
likewise preclude the classification of MIAA properties as patrimonial.
IX. Epilogue
If my previous discussion still fails to convince on how wrong the majority is, then the following
points are well-worth considering. The majority cites the Bangko Sentral ng Pilipinas (Bangko
Sentral) as a government instrumentality that exercises corporate powers but not organized as a
stock or non-stock corporation. Correspondingly for the majority, the Bangko ng Sentral is
exempt from all forms of local taxation by LGUs by virtue of the Local Government Code.
Section 125 of Rep. Act No. 7653, The New Central Bank Act, states:
SECTION 125. Tax Exemptions.—The Bangko Sentral shall be exempt for a period of five (5)
years from the approval of this Act from all national, provincial, municipal and city taxes, fees, charges
and assessments.
The New Central Bank Act was promulgated after the Local Government Code if the BSP is
already preternaturally exempt from local taxation owing to its personality as a “government
instrumentality,”
710
why then the need to make a new grant of exemption, which if the majority is to be believed, is
actually a redundancy. But even more tellingly, does not this provision evince a clear intent that
after the lapse of five (5) years, that the Bangko Sentral will be liable for provincial, municipal
and city taxes? This is the clear congressional intent, and it is Congress, not this Court which
dictates which entities are subject to taxation and which are exempt.
Perhaps this notion will offend the majority, because the Bangko Sentral is not even a
government owned corporation, but a government instrumentality, or perhaps “loosely,” a
“government corporate entity.” How could such an entity like the Bangko Sentral, which is not
even a government owned corporation, be subjected to local taxation like any mere mortal? But
then, see Section 1 of the New Central Bank Act:
SECTION 1. Declaration of Policy.—The State shall maintain a central monetary authority that shall
function and operate as an independent and accountable body corporate in the discharge of its
mandated responsibilities concerning money, banking and credit. In line with this policy, and considering
its unique functions and responsibilities, the central monetary authority established under this
Act, while being a government-owned corporation, shall enjoy fiscal and administrative autonomy.
Apparently, the clear legislative intent was to create a government corporation known as the
Bangko Sentral ng Pilipinas. But this legislative intent, the sort that is evident from the text of
the provision and not the one that needs to be unearthed from the bowels of the archival offices
of the House and the Senate, is for naught to the majority, as it contravenes the Administrative
Code of 1987, which after all, is “the governing law defining the status and relationship of
government agencies and instrumentalities” and thus superior to the legislative charter in
determining the personality of a chartered entity. Its like saying that the architect who designed a
school building is better equipped to teach than the professor because at least the architect is
familiar with the geometry of the classroom.
Consider further the example of the Philippine Institute of Traditional and Alternative Health
Care (PITAHC), created by Republic
711
VOL. 495, JULY 20, 2006 711
Act No. 8243 in 1997. It has similar characteristics as MIAA in that it is established as a body
corporate, and empowered with the attributes of a corporation, including the power to purchase
144 145
or acquire real properties. However the PITAHC has no capital stock and no members, thus
146
following the majority, it is not a GOCC.

The state policy that guides PITAHC is the development of traditional and alternative health
care, and its objectives include the promotion and advocacy of alternative, preventive and
147
curative health care modalities that have been proven safe, effective and cost
effective. “Alternative health care modalities” include “other forms of non-allophatic,
148
occasionally non-indigenous or imported healing methods” which include, among others

“reflexology, acupuncture, massage, acupressure” and chiropractics. 149
Given these premises, there is no impediment for the PITAHC to purchase land and construct
thereupon a massage parlor that would provide a cheaper alternative to the opulent spas that have
proliferated around the metropolis. Such activity is in line with the purpose of the PITAHC and
with state policy. Is such massage parlor exempt from realty taxes? For the majority, it is, for
PITAHC is an instrumentality or agency exempt from local government taxation, which does not
fall under the exceptions under Section 234 of the Local Government Code. Hence, this massage
parlor would not just be a shelter for frazzled nerves, but for taxes as well.
Ridiculous? One might say, certainly a decision of the Supreme Court cannot be construed to
promote an absurdity. But precisely the majority, and the faulty reasoning it utilizes, opens itself
up to all sorts of mischief, and certainly, a tax-exempt massage parlor is one of the lesser evils
that could arise from the majority ruling. This is indeed a very strange and very wrong decision.
_______________

144
See Section 6(s), Rep. Act No. 8423.

145
See Section 6(r), Rep. Act No. 8423.

146

147
See Section 3(b), Rep. Act No. 8423.

148
See Section 4(d), Rep. Act No. 8423.

149
712
Veneracion vs. Mancilla
I dissent.
Petition granted, assailed resolutions set aside.
Note.—A local government unit (LGU), seeking relief in order to protect or vindicate an
interest of its own, and of the other LGUs, pertaining to their interest in their share in the national
taxes or the Internal Revenue Allotment (IRA), has the requisite standing to bring suit. (Province
of Batangas vs. Romulo, 429 SCRA 736 [2004])
——o0o——

G.R. No. 181756. June 15, 2015.*

MACTAN-CEBU INTERNATIONAL AIRPORT AUTHORITY (MCIAA),
petitioner, vs. CITY OF LAPU-LAPU and ELENA T. PACALDO, respondents.
Taxation; Real Property Taxes; Tax Exemption; Mactan-Cebu International Airport Authority
(MCIAA) is an instrumentality of the government; thus, its properties actually, solely and exclusively
used for public purposes, consisting of the airport terminal building, airfield, runway, taxiway and the
lots on which they are situated, are not subject to real property tax and respondent City is not justified in
collecting taxes from petitioner over said properties.—The petition has merit. The petitioner is an
instrumentality of the government; thus, its properties actually, solely and exclusively used for public
purposes, consisting of the airport terminal building, airfield, runway, taxiway and the lots on which they
are situated, are not subject to real property tax and respondent City is not justified in collecting taxes
from petitioner over said properties.
Same; Same; Same; In 2006, the Supreme Court (SC) En Banc decided a case that in effect reversed
the 1996 Mactan ruling.—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.
Same; Same; Same; The Supreme Court (SC) in the 2006 MIAA case cited Section 234(a) of the
Local Government Code (LGC) and held that said provision exempts from real estate tax any “[r]eal
_______________
* FIRST DIVISION.
324
Mactan-Cebu International Airport Authority (MCIAA) vs.
City of Lapu-Lapu
property owned by the Republic of the Philippines.”—The Court held that MIAA is “merely holding
title to the Airport Lands and Buildings in trust for the Republic. [Under] Section 48, Chapter 12, Book I
of the Administrative Code [which] allows instrumentalities like MIAA to hold title to real properties
owned by the Republic.” The Court in the 2006 MIAA case cited Section 234(a) of the Local Government
Code and held that said provision exempts from real estate tax any “[r]eal property owned by the
Republic of the Philippines.” The Court emphasized, however, that “portions of the Airport Lands and
Buildings that MIAA leases to private entities are not exempt from real estate tax.” The Court further
held: This exemption should be read in relation with Section 133(o) of the same Code, which prohibits
local governments from imposing “[t]axes, fees or charges of any kind on the National Government, its
agencies and instrumentalities x x x.” The real properties owned by the Republic are titled either in the
name of the Republic itself or in the name of agencies or instrumentalities of the National Government.
The Administrative Code allows real property owned by the Republic to be titled in the name of agencies
or instrumentalities of the national government. Such real properties remain owned by the Republic and
continue to be exempt from real estate tax. The Republic may grant the beneficial use of its real property
to an agency or instrumentality of the national government. This happens when title of the real property is
transferred to an agency or instrumentality even as the Republic remains the owner of the real property.
Such arrangement does not result in the loss of the tax exemption. Section 234(a) of the Local
Government Code states that real property owned by the Republic loses its tax exemption only if the
“beneficial use thereof has been granted, for consideration or otherwise, to a taxable person.” MIAA, as a
government instrumentality, is not a taxable person under Section 133(o) of the Local Government Code.
Thus, even if we assume that the Republic has granted to MIAA the beneficial use of the Airport Lands
and Buildings, such fact does not make these real properties subject to real estate tax. However, portions
of the Airport Lands and Buildings that MIAA leases to private entities are not exempt from real estate
tax. For example, the land area occupied by hangars that MIAA leases to private corporations is subject to
real estate tax. In such a case, MIAA has granted the beneficial use of such land area for a consideration
to a taxable person and therefore such land area is subject to real estate tax.
325
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City of Lapu-Lapu
Government Service Insurance System; In Government Service Insurance System v. City Treasurer
and City Assessor of the City of Manila, 609 SCRA 330 (2009), the Supreme Court (SC) found that the
Government Service Insurance System (GSIS) was also a government instrumentality and not
a government-owned or -controlled corporations (GOCC), applying the 2006 MIAA case even though
the GSIS was not among those specifically mentioned by the Court as similarly situated as Manila
International Airport Authority (MIAA).—In Government Service Insurance System v. City Treasurer
and City Assessor of the City of Manila, 609 SCRA 330 (2009), the Court found that the GSIS was also a
government instrumentality and not a GOCC, applying the 2006 MIAA case even though the GSIS was
not among those specifically mentioned by the Court as similarly situated as MIAA.
Taxation; Real Property Taxes; Tax Exemption; Petitioner Mactan-Cebu International Airport
Authority (MCIAA), with its many similarities to the Manila International Airport Authority (MIAA),
should be classified as a government instrumentality, as its properties are being used for public purposes,
and should be exempt from real estate taxes.—All the more do we find that petitioner MCIAA, with its
many similarities to the MIAA, should be classified as a government instrumentality, as its properties are
being used for public purposes, and should be exempt from real estate taxes. This is not to derogate in any
way the delegated authority of local government units to collect realty taxes, but to uphold the
fundamental doctrines of uniformity in taxation and equal protection of the laws, by applying all the
jurisprudence that have exempted from said taxes similar authorities, agencies, and instrumentalities,
whether covered by the 2006 MIAA ruling or not. To reiterate, petitioner MCIAA is vested with corporate
powers but it is not a stock or non-stock corporation, which is a necessary condition before an agency or
instrumentality is deemed a government-owned or -controlled corporation. Like MIAA, petitioner
MCIAA has capital under its charter but it is not divided into shares of stock. It also has no stockholders
or voting shares.
Same; Same; Same; Public Dominion; Like in Manila International Airport Authority (MIAA), the
airport lands and buildings of Mactan-Cebu International Airport Authority (MCIAA) are properties of
public dominion because they are intended for public use. As prop-
326
City of Lapu-Lapu
erties of public dominion, they indisputably belong to the State or the Republic of the Philippines,
and are outside the commerce of man.—Like in MIAA, the airport lands and buildings of MCIAA are
properties of public dominion because they are intended for public use. As properties of public dominion,
they indisputably belong to the State or the Republic of the Philippines, and are outside the commerce of
man. This, unless petitioner leases its real property to a taxable person, the specific property leased
becomes subject to real property tax; in which case, only those portions of petitioner’s properties which
are leased to taxable persons like private parties are subject to real property tax by the City of Lapu-Lapu.
PETITION for review on certiorari of the decision and resolution of the Court of Appeals (Cebu
City).
The Solicitor General for petitioner.
Office of the City Attorney for respondents.
LEONARDO-DE CASTRO, J.:

This is a clear opportunity for this Court to clarify the effects of our two previous decisions,
issued a decade apart, on the power of local government units to collect real property taxes from
airport authorities located within their area, and the nature or the juridical personality of said
airport authorities.
Before us is a Petition for Review on Certiorari under Rule 45 of the 1997 Rules of Civil
Procedure seeking to reverse and set aside the October 8, 2007 Decision1 of the Court of Appeals
(Cebu City) in C.A.-G.R. S.P. No. 01360 and the February 12, 2008 Resolution2 denying
petitioner’s motion for reconsideration.
_______________
1 Rollo, pp. 91-131; penned by Associate Justice Isaias P. Dicdican, with Associate Justices Francisco P. Acosta and
Stephen C. Cruz, concurring.
2 Id., at pp. 132-134.
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City of Lapu-Lapu
The Facts

Petitioner Mactan-Cebu International Airport Authority (MCIAA) was created by Congress
on July 31, 1990 under Republic Act No. 69583 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 under the following
provision of Republic Act No. 6958:
Section 14. Tax Exemptions.—The Authority shall be exempt from realty taxes imposed by the
National Government or any of its political subdivisions, agencies and instrumentalities: Provided, That
no tax exemption herein granted shall extend to any subsidiary which may be organized by the Authority.

On September 11, 1996, however, this Court rendered a decision in Mactan-Cebu
International Airport Authority v. Marcos4 (the 1996 MCIAA case) declaring that upon the
effectivity of Republic Act No. 7160 (The Local Government Code of 1991),
_______________
3 An Act Creating the Mactan-Cebu International Airport Authority, Transferring Existing Assets of the Mactan
International Airport and the Lahug Airport to the Authority, Vesting the Authority With Power to Administer and
Operate the Mactan International Airport and the Lahug Airport, and for Other Purposes.
4 330 Phil. 392, 414; 261 SCRA 667, 687 (1996).
328
City of Lapu-Lapu
petitioner was no longer exempt from real estate taxes. The Court held:
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. x x x.

On January 7, 1997, respondent City issued to petitioner a Statement of Real Estate Tax
assessing the lots comprising the Mactan International Airport in the amount of
P162,058,959.52. Petitioner complained that there were discrepancies in said Statement of Real
Estate Tax as follows:
(a) [T]he statement included lots and buildings not found in the inventory of petitioner’s real
properties;
(b) [S]ome of the lots were covered by two separate tax declarations which resulted in double
assessment;
(c) [There were] double entries pertaining to the same lots; and
(d) [T]he statement included lots utilized exclusively for governmental purposes. 5

Respondent City amended its billing and sent a new Statement of Real Estate Tax to
petitioner in the amount of P151,376,134.66. Petitioner averred that this amount covered real
estate taxes on the lots utilized solely and exclusively for public or governmental purposes such
as the airfield, runway and taxiway, and the lots on which they are situated.6
_______________
5 Rollo, p. 59.
6 Id., at pp. 59-60.
329
VOL. 757, JUNE 15, 2015 329
City of Lapu-Lapu
Petitioner paid respondent City the amount of four million pesos (P4,000,000.00) monthly,
which was later increased to six million pesos (P6,000,000.00) monthly. As of December 2003,
petitioner had paid respondent City a total of P275,728,313.36.7
Upon request of petitioner’s General Manager, the Secretary of the Department of Justice
(DOJ) issued Opinion No. 50, Series of 1998, 8 and we quote the pertinent portions of said
Opinion below:
You further state that among the real properties deemed transferred to MCIAA are the airfield,
runway, taxiway and the lots on which the runway and taxiway are situated, the tax declarations of which
were transferred in the name of the MCIAA. In 1997, the City of Lapu-Lapu imposed real estate taxes on
these properties invoking the provisions of the Local Government Code.
It is your view that these properties are not subject to real property tax because they are exclusively
used for airport purposes. You said that the runway and taxiway are not only used by the commercial
airlines but also by the Philippine Air Force and other government agencies. As such and in conjunction
with the above interpretation of Section 15 of R.A. No. 6958, you believe that these properties are
considered owned by the Republic of the Philippines. Hence, this request for opinion.
The query is resolved in the affirmative. The properties used for airport purposes (i.e., airfield,
runway, taxiway and the lots on which the runway and taxiway are situated) are owned by the
x x x x
Under the Law on Public Corporations, the legislature has complete control over the property which a
municipal corporation has acquired in its public or govern-
_______________
7 Id., at p. 60.
8 Id., at pp. 135-138.
330
City of Lapu-Lapu
mental capacity and which is devoted to public or governmental use. The municipality in dealing with
said property is subject to such restrictions and limitations as the legislature may impose. On the other
hand, property which a municipal corporation acquired in its private or proprietary capacity, is held by it
in the same character as a private individual. Hence, the legislature in dealing with such property, is
subject to the constitutional restrictions concerning property (Martin, Public Corporations [1997], p.
30; see also Province of Zamboanga del [Norte] v. City of Zamboanga [131 Phil. 446]). The same may
be said of properties transferred to the MCIAA and used for airport purposes, such as those involved
herein. Since such properties are of public dominion, they are deemed held by the MCIAA in trust for the
Government and can be alienated only as may be provided by law.
Based on the foregoing, it is our considered opinion that the properties used for airport
purposes, such as the airfield, runway and taxiway and the lots on which the runway and taxiway
are located, are owned by the State or by the Republic of the Philippines and are merely held in
trust by the MCIAA, notwithstanding that certificates of titles thereto may have been issued in the
name of the MCIAA. (Emphases added)

Based on the above DOJ Opinion, the Department of Finance issued a 2nd Indorsement to the
City Treasurer of Lapu-Lapu dated August 3, 1998,9 which reads:
The distinction as to which among the MCIAA properties are still considered “owned by the State or
by the Republic of the Philippines,” such as the resolution in the above cited DOJ Opinion No. 50, for
purposes of real property tax exemption is hereby deemed tenable considering that the subject “airfield,
runway, taxiway and the lots on which the runway and taxiway are situated” appears to be the subject of
real property tax assessment
_______________
9 Id., at pp. 139-141.
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VOL. 757, JUNE 15, 2015 331
City of Lapu-Lapu
and collection of the city government of Lapu-Lapu, hence, the same are definitely located within the
jurisdiction of Lapu-Lapu City.
Moreover, then Undersecretary Antonio P. Belicena of the Department of Finance, in his
1st Indorsement dated May 18, 1998, advanced that “this Department (DOF) interposes no
objection to the request of Mactan-Cebu International Airport Authority for exemption from
payment of real property tax on the property used for airport purposes” mentioned above.
The City Assessor, therefore, is hereby instructed to transfer the assessment of the subject
airfield, runway, taxiway and the lots on which the runway and taxiway are situated, from the
“Taxable Roll” to the “Exempt Roll” of real properties.
The City Treasurer thereat should be informed on the action taken for his immediate appropriate
action. (Emphases added)

Respondent City Treasurer Elena T. Pacaldo sent petitioner a Statement of Real Property Tax
Balances up to the year 2002 reflecting the amount of P246,395,477.20. Petitioner claimed that
the statement again included the lots utilized solely and exclusively for public purpose such as
the airfield, runway, and taxiway and the lots on which these are built. Respondent Pacaldo then
issued Notices of Levy on 18 sets of real properties of petitioner.10
Petitioner filed a petition for prohibition11 with the Regional Trial Court (RTC) of Lapu-Lapu
City with prayer for the issuance of a temporary restraining order (TRO) and/or a writ of
preliminary injunction, docketed as SCA No. 6056-L. Branch 53 of RTC Lapu-Lapu City then
issued a 72-hour TRO. The petition for prohibition sought to enjoin respondent
_______________
10 Id., at pp. 142-162.

11 Id., at pp. 163-172.
332
City of Lapu-Lapu
City from issuing a warrant of levy against petitioner’s properties and from selling them at
public auction for delinquency in realty tax obligations. The petition likewise prayed for a
declaration that the airport terminal building, the airfield, runway, taxiway and the lots on which
they are situated are exempted from real estate taxes after due hearing. Petitioner based its claim
of exemption on DOJ Opinion No. 50.
The RTC issued an Order denying the motion for extension of the TRO. Thus, on December
10, 2003, respondent City auctioned 27 of petitioner’s properties. As there was no interested
bidder who participated in the auction sale, respondent City forfeited and purchased said
properties. The corresponding Certificates of Sale of Delinquent Property were issued to
respondent City.12
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.13
The RTC issued an Order14 on December 28, 2004 granting petitioner’s application for a writ
of preliminary injunction. The pertinent portions of the Order are quoted below:
The supervening legal issue has rendered it imperative that the matter of the consolidation of the
ownership of the auctioned properties be placed on hold. Furthermore, it is the view of the Court that
great prejudice and damage will be suffered by petitioner if it were to lose its dominion over these
properties now when the most important legal issue has still to be resolved by the
_______________
12 Id., at pp. 201-229.

13 Id., at p. 64.
14 Id., at pp. 280-281.
333
VOL. 757, JUNE 15, 2015 333
City of Lapu-Lapu
Court. Besides, the respondents and the intervenor have not sufficiently shown cause why petitioner’s
application should not be granted.
WHEREFORE, the foregoing considered, petitioner’s application for a writ of preliminary injunction
is granted. Consequently, upon the approval of a bond in the amount of one million pesos
(P1,000,000.00), let a writ of preliminary injunction issue enjoining the respondents, the intervenor, their
agents or persons acting in [their] behalf, to desist from consolidating and exercising ownership over the
properties of the petitioner.

However, upon motion of respondents, the RTC lifted the writ of preliminary injunction in an
Order15 dated December 5, 2005. The RTC reasoned as follows:
The respondent City, in the course of the hearing of its motion, presented to this Court a certified copy
of its Ordinance No. 44 (Omnibus Tax Ordinance of the City of Lapu-Lapu), Section 25 whereof
authorized the collection of a rate of one and one-half (1 1/2) [per centum] from owners, executors or
administrators of any real estate lying within the jurisdiction of the City of Lapu-Lapu, based on the
assessed value as shown in the latest revision.
Though this ordinance was enacted prior to the effectivity of Republic Act No. 7160 (Local
Government Code of 1991), to the mind of the Court this ordinance is still a valid and effective ordinance
in view of Sec. 529 of RA 7160 x x x [and the] Implementing Rules and Regulations of RA 7160 x x x.
x x x x
The tax collected under Ordinance No. 44 is within the rates prescribed by RA 7160, though the 25%
penalty collected is higher than the 2% interest allowed under Sec. 255 of the said law which provides:
_______________
15 Id., at pp. 298-301.
334
City of Lapu-Lapu
In case of failure to pay the basic real property tax or any other tax levied under this Title upon the
expiration of the periods as provided in Section 250, or when due, as the case may be, shall subject the
taxpayer to the payment of interest at the rate of two percent (2%) per month on the unpaid amount or a
fraction thereof, until the delinquent tax shall have been fully paid: Provided, however, That in no case
shall the total interest on the unpaid tax or portion thereof exceed thirty-six (36) months.
This difference does not however detract from the essential enforceability and effectivity of Ordinance
No. 44 pursuant to Section 529 of RA 7160 and Article 278 of the Implementing Rules and Regulations.
The outcome of this disparity is simply that respondent City can only collect an interest of 2% per month
on the unpaid tax. Consequently, respondent City [has] to recompute the petitioner’s tax liability.
It is also the Court’s perception that respondent City can still collect the additional 1% tax on real
property without an ordinance to this effect. It may be recalled that Republic Act No. 5447 has created the
Special Education Fund which is constituted from the proceeds of the additional tax on real property
imposed by the law. Respondent City has collected this tax as mandated by this law without any
ordinance for the purpose, as there is no need for it. Even when RA 5447 was amended by PD 464 (Real
Property Tax Code), respondent City had continued to collect the tax, as it used to.
It is true that RA 7160 has repealed RA 5447, but what has been repealed are only Section 3, a(3) and
b(2) which concern the allocation of the additional tax, considering that under RA 7160, the proceeds of
the additional 1% tax on real property accrue exclusively to the Special Education Fund. Nevertheless,
RA 5447 has not been totally repealed; there is only a partial repeal.
It may be observed that there is no requirement in RA 7160 that an ordinance be enacted to enable the
col-
335
VOL. 757, JUNE 15, 2015 335
City of Lapu-Lapu
lection of the additional 1% tax. This is so since RA 5447 is still in force and effect, and the declared
policy of the government in enacting the law, which is to contribute to the financial support of the goals
of education as provided in the Constitution, necessitates the continued and uninterrupted collection of the
tax. Considering that this is a tax of far-reaching importance, to require the passage of an ordinance in
order that the tax may be collected would be to place the collection of the tax at the option of the local
legislature. This would run counter to the declared policy of the government when the SEF was created
and the tax imposed.
As regards the allegation of respondents that this Court has no jurisdiction to entertain the instant
petition, the Court deems it proper, at this stage of the proceedings, not to treat this issue, as it involves
facts which are yet to be established.
x x x [T]he Court’s issuance of a writ of preliminary injunction may appear to be a futile gesture in the
light of Section 263 of RA 7160. x x x.
x x x x
It would seem from the foregoing provisions, that once the taxpayer fails to redeem within the one-
year period, ownership fully vests on the local government unit concerned. Thus, when in the present case
petitioner failed to redeem the parcels of land acquired by respondent City, the ownership thereof became
fully vested on respondent City without the latter having to perform any other acts to perfect its
ownership. Corollary thereto, ownership on the part of respondent City has become a fait accompli.
WHEREFORE, in the light of the foregoing considerations, respondents’ motion for reconsideration is
granted, and the order of this Court dated December 28, 2004 is hereby reconsidered. Consequently, the
writ of preliminary injunction issued by this Court is hereby lifted.
336
City of Lapu-Lapu
Aggrieved, petitioner filed a petition for certiorari16 with the Court of Appeals (Cebu City),
with urgent prayer for the issuance of a TRO and/or writ of preliminary injunction, docketed as
C.A.-G.R. S.P. No. 01360. The Court of Appeals (Cebu City) issued a TRO 17 on January 5, 2006
and shortly thereafter, issued a writ of preliminary injunction18 on February 17, 2006.

Ruling of the Court of Appeals

The Court of Appeals (Cebu City) promulgated the questioned Decision on October 8, 2007,
holding that petitioner is a government-owned or -controlled corporation and its properties are
subject to realty tax. The dispositive portion of the questioned Decision reads:
WHEREFORE, in view of the foregoing, judgment is hereby rendered by us as follows:
a. We DECLARE the airport terminal building, the airfield, runway, taxiway and the lots on which
they are situated NOT EXEMPT from the real estate tax imposed by the respondent City of Lapu-Lapu;
b. We DECLARE the imposition and collection of the real estate tax, the additional levy for the
Special Education Fund and the penalty interest as VALID and LEGAL. However, pursuant to Section
255 of the Local Government Code, respondent city can only collect an interest of 2% per month on the
unpaid tax which total interest shall, in no case, exceed thirty-six (36) months;
c. We DECLARE the sale in public auction of the aforesaid properties and the eventual for-
_______________
16 Id., at pp. 302-333.

17 Id., at pp. 334-335.
18 Id., at pp. 374-376.
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City of Lapu-Lapu
feiture and purchase of the subject property by the respondent City of Lapu-Lapu
as NULL and VOID. However, petitioner MCIAA’s property is encumbered only by a limited lien
possessed by the respondent City of Lapu-Lapu in accord with Section 257 of the Local Government
Code.19

Petitioner filed a Motion for Partial Reconsideration20 of the questioned Decision covering
only the portion of said decision declaring that petitioner is a GOCC and, therefore, not exempt
from the realty tax and special education fund imposed by respondent City. Petitioner
cited Manila International Airport Authority v. Court of Appeals 21 (the 2006 MIAA case)
involving the City of Parañaque and the Manila International Airport Authority. Petitioner
claimed that it had been described by this Court as a government instrumentality, and that it
followed “as a logical consequence that petitioner is exempt from the taxing powers of
respondent City of Lapu-Lapu.”22 Petitioner alleged that the 1996 MCIAA case had been
overturned by the Court in the 2006 MIAA case. Petitioner thus prayed that it be declared exempt
from paying the realty tax, special education fund, and interest being collected by respondent
City.
On February 12, 2008, the Court of Appeals denied petitioner’s motion for partial
reconsideration in the questioned Resolution.
The Court of Appeals followed and applied the precedent established in the
1996 MCIAA case and refused to apply the 2006 MIAA case. The Court of Appeals wrote in the
questioned Decision: “We find that our position is in line with the coherent and cohesive
interpretation of the relevant provi-
_______________
19 Id., at p. 130.
20 Id., at pp. 456-466.
21 528 Phil. 181; 495 SCRA 591 (2006).
22 Rollo, p. 462.
338
City of Lapu-Lapu
sions of the Local Government Code on local taxation enunciated in the [1996 MCIAA] case
which to our mind is more elegant and rational and provides intellectual clarity than the one
provided by the Supreme Court in the [2006] MIAA case.”23
In the questioned Decision, the Court of Appeals held that petitioner’s airport terminal
building, airfield, runway, taxiway, and the lots on which they are situated are not exempt from
real estate tax reasoning as follows:
Under the Local Government Code (LGC for brevity), enacted pursuant to the constitutional mandate
of local autonomy, all natural and juridical persons, including government-owned or -controlled
corporations (GOCCs), instrumentalities and agencies, are no longer exempt from local taxes even if
previously granted an exemption. The only exemptions from local taxes are those specifically provided
under the Code itself, or those enacted through subsequent legislation.
Thus, the LGC, enacted pursuant to Section 3, Article X of the Constitution, provides for the exercise
by local government units of their power to tax, the scope thereof or its limitations, and the exemptions
from local taxation.
Section 133 of the LGC prescribes the common limitations on the taxing powers of local government
units. x x x.
x x x x
The above stated provision, however, qualified the exemption of the National Government, its
agencies and instrumentalities from local taxation with the phrase “unless otherwise provided herein.”
Section 232 of the LGC provides for the power of the local government units (LGUs for brevity) to
levy real property tax. x x x.
_______________
23 Id., at p. 100.
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City of Lapu-Lapu
x x x x
Section 234 of the LGC provides for the exemptions from payment of real property taxes and
withdraws previous exemptions granted to natural and juridical persons, including government-owned
and -controlled corporations, except as provided therein. x x x.
x x x x
Section 193 of the LGC is the general provision on withdrawal of tax exemption privileges.
x x x. (Citations omitted)
24

The Court of Appeals went on to state that contrary to the ruling of the Supreme Court in the
2006 MIAA case, it finds and rules that:
a) Section 133 of the LGC is not an absolute prohibition on the power of the LGUs to tax the
National Government, its agencies and instrumentalities as the same is qualified by Sections 193, 232 and
234 which “otherwise provided”; and
b) Petitioner MCIAA is a GOCC. (Emphasis ours)
25

The Court of Appeals ratiocinated in the following manner:
Pursuant to the explicit provision of Section 193 of the LGC, exemptions previously enjoyed by
persons, whether natural or juridical, like the petitioner MCIAA, are deemed withdrawn upon the
effectivity of the Code. Further, the last paragraph of Section 234 of the Code also unequivocally
withdrew, upon the Code’s effectivity, exemptions from payment of real property taxes previously
granted to natural or juridical persons, including government-owned or -controlled corporations, except as
provided in the said section. Petitioner MCIAA, undoubt-
_______________
24 Id., at pp. 101-103.

25 Id., at p. 108.
340
City of Lapu-Lapu
edly a juridical person, it follows that its exemption from such tax granted under Section 14 of R.A.
6958 has been withdrawn.
x x x x
From the [1996 MCIAA] ruling, it is acknowledged that, under Section 133 of the LGC,
instrumentalities were generally exempt from all forms of local government taxation, unless otherwise
provided in the Code. On the other hand, Section 232 “otherwise provided” insofar as it allowed local
government units to levy an ad valorem real property tax, irrespective of who owned the property. At the
same time, the imposition of real property taxes under Section 232 is, in turn, qualified by the phrase “not
hereinafter specifically exempted.” The exemptions from real property taxes are enumerated in Section
234 of the Code which specifically states that only real properties owned by the Republic of the
Philippines or any of its political subdivisions are exempted from the payment of the tax. Clearly,
instrumentalities or GOCCs do not fall within the exceptions under Section 234 of the LGC.
Thus, as ruled in the [1996 MCIAA] case, the prohibition on taxing the national government, its
agencies and instrumentalities under Section 133 is qualified by Sections 232 and 234, and accordingly,
the only relevant exemption now applicable to these bodies is what is now provided under Section 234(a)
of the Code. It may be noted that the express withdrawal of previously granted exemptions to persons
from the payment of real property tax by the LGC does not even make any distinction as to whether the
exempt person is a governmental entity or not. As Sections 193 and 234 of the Code both state, the
withdrawal applies to “all persons, including GOCCs,” thus encompassing the two classes of persons
recognized under our laws, natural persons and juridical persons.
x x x x
The question of whether or not petitioner MCIAA is an instrumentality or a GOCC has already been
lengthily but soundly, cogently and lucidly answered in the [1996 MCIAA] case x x x.
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City of Lapu-Lapu
x x x x
Based on the foregoing, the claim of the majority of the Supreme Court in the [2006 MIAA] case that
MIAA (and also petitioner MCIAA) is not a government-owned or -controlled corporation but an
instrumentality based on Section 2(10) of the Administrative Code of 1987 appears to be unsound. In the
[2006 MIAA] case, the majority justifies MIAA’s purported exemption on Section 133(o) of the Local
Government Code which places “agencies and instrumentalities: as generally exempt from the taxation
powers of the LGUs.” It further went on to hold that “By express mandate of the Local Government
Code, local governments cannot impose any kind of tax on national government instrumentalities like the
MIAA.” x x x. (Citations omitted)
26

The Court of Appeals further cited Justice Tinga’s dissent in the 2006 MIAA case as well as
provisions from petitioner MCIAA’s charter to show that petitioner is a GOCC. 27 The Court of
Appeals wrote:
These cited provisions establish the fitness of the petitioner MCIAA to be the subject of legal
relations. Under its charter, it has the power to acquire, possess and incur obligations. It also has the
power to contract in its own name and to acquire title to movable or immovable property. More
importantly, it may likewise exercise powers of a corporation under the Corporation Code. Moreover,
based on its own allegation, it even recognized itself as a GOCC when it alleged in its petition for
prohibition filed before the lower court that it “is a body corporate organized and existing under Republic
Act No. 6958 x x x.”
We also find to be not meritorious the assertion of petitioner MCIAA that the respondent city can no
longer challenge the tax-exempt character of the properties
_______________
26 Id., at pp. 108-115.

27 Id., at pp. 115-118.
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City of Lapu-Lapu
since it is estopped from doing so when respondent City of Lapu-Lapu, through its former mayor,
Ernest H. Weigel, Jr., had long ago conceded that petitioner’s properties are exempt from real property
tax.
It is not denied by the respondent city that it considered, through its former mayor, Ernest H. Weigel,
Jr., petitioner’s subject properties, specifically the runway and taxiway, as exempt from taxes. However,
as astutely pointed out by the respondent city it “can never be in estoppel, particularly in matters
involving taxes. It is a well-known rule that erroneous application and enforcement of the law by public
officers do not preclude subsequent correct application of the statute, and that the Government is never
estopped by mistake or error on the part of its agents.” (Citations omitted)
28

The Court of Appeals established the following:
a) [R]espondent City was able to prove and establish that it has a valid and existing ordinance for
the imposition of realty tax against petitioner MCIAA;
b) [T]he imposition and collection of additional levy of 1% Special Education Fund (SEF) is
authorized by law, Republic Act No. 5447; and
c) [T]he collection of penalty interest for delinquent taxes is not only authorized by law but is
likewise [sanctioned] by respondent City’s ordinance. 29

The Court of Appeals likewise held that respondent City has a valid and existing local tax
ordinance, Ordinance No. 44, or the Omnibus Tax Ordinance of Lapu-Lapu City, which
provided for the imposition of real property tax. The relevant provision reads:
_______________
28 Id., at pp. 118-119.

29 Id., at pp. 119-120.
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City of Lapu-Lapu
Chapter 5 – Tax on Real Property Ownership
Section 25. RATE OF TAX.—A rate of one and one-half (1 1/2) per centum shall be collected from
owners, executors or administrators of any real estate lying within the territorial jurisdiction of the City of
Lapu-Lapu, based on the assessed value as shown in the latest revision. 30

The Court of Appeals found that even if Ordinance No. 44 was enacted prior to the effectivity
of the LGC, it remained in force and effect, citing Section 529 of the LGC and Article 278 of the
LGC’s Implementing Rules and Regulations.31
As regards the Special Education Fund, the Court of Appeals held that respondent City can
still collect the additional 1% tax on real property even without an ordinance to this effect, as this
is authorized by Republic Act No. 5447, as amended by Presidential Decree No. 464 (the Real
Property Tax Code), which does not require an enabling tax ordinance.
_______________
30 CA Rollo, p. 452.
31 Section 529. Tax Ordinances or Revenue Measure.—All existing tax ordinances or revenue measures of local
government units shall continue to be in force and effect after the effectivity of this Code unless amended by
the sanggunian concerned, or inconsistent with, or in violation of, the provisions of this Code.
ARTICLE 278. Existing Tax Ordinances or Revenue Measures.—(a) All existing tax ordinances or revenue
measures of provinces, cities, municipalities, and barangays imposing taxes, fees, or charges shall continue to be in force
and effect after the effectivity of the Code, except those imposing levies on tax bases or tax subjects which are no longer
within the taxing and revenue-raising powers of the LGU concerned and where the rates levied in the tax ordinance are
higher than the taxes, fees, or charges prescribed in this Rule in which case, the lower rates shall be collected.
(b) In case of failure of the sanggunian to amend or revoke tax ordinances or revenue measures inconsistent with, or
in violation of the provisions of this Rule, the same shall be deemed rescinded upon the effectivity of the Code and these
Rules.
344
City of Lapu-Lapu
The Court of Appeals affirmed the RTC’s ruling that Republic Act No. 5447 was still in force
and effect notwithstanding the passing of the LGC, as the latter only partially repealed the former
law. What Section 534 of the LGC repealed was Section 3(a)(3) and (b)(2) of Republic Act No.
5447, and not the entire law that created the Special Education Fund. 32 The repealed provisions
referred to allocation of taxes on Virginia type cigarettes and duties on imported leaf tobacco and
the percentage remittances to the taxing authority concerned. The Court of Appeals, citing The
Commission on Audit of the Province of Cebu v. Province of Cebu,33 held that “[t]he failure to
add a specific repealing clause particularly mentioning the statute to be repealed indicates that
the intent was not to repeal any existing law on the matter, unless an irreconcilable inconsistency
and repugnancy exists in the terms of the new and the old laws.” 34 The Court of Appeals quoted
the RTC’s discussion on this issue, which we reproduce below:
It may be observed that there is no requirement in RA 7160 that an ordinance be enacted to
enable the collection of the additional 1% tax. This is so since R.A. 5447 is still in force and
effect, and the declared policy of the government in enacting the law, which is to contribute to
the financial support of the goals of education as provided in the Constitution, necessitates the
continued and uninterrupted collection of the tax. Considering that this is a tax of far-reaching
importance, to require the passage of an ordinance in order that the tax may be collected would
be to place the collection of the tax at the option of the local legislature. This would run counter
to the declared policy of the government when the SEF was created and the tax imposed.35
_______________
32 Rollo, pp. 121-122.

33 422 Phil. 519; 371 SCRA 196 (2001).
34 Rollo, p. 123.
35 Id., at p. 300.
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City of Lapu-Lapu
Regarding the penalty interest, the Court of Appeals found that Section 30 of Ordinance No.
44 of respondent City provided for a penalty surcharge of 25% of the tax due for a given year.
Said provision reads:
Section 30. PENALTY FOR FAILURE TO PAY TAX.—Failure to pay the tax provided for under
this Chapter within the time fixed in Section 27, shall subject the taxpayer to a surcharge of twenty-five
percent (25%), without interest. 36

The Court of Appeals however declared that after the effectivity of the Local Government
Code, the respondent City could only collect penalty surcharge up to the extent of 72%, covering
a period of three years or 36 months, for the entire delinquent property. 37 This was lower than the
25% per annum
_______________
36 CA Rollo, p. 453.
37 This is the Court of Appeals’ interpretation of the following provisions of the LGC and its IRR:
LGC, Section 255. Interests on Unpaid Real Property Tax.—In case of failure to pay the basic real property tax or
any other tax levied under this Title upon the expiration of the periods as provided in Section 250, or when due, as the case
may be, shall subject the taxpayer to the payment of interest at the rate of two percent (2%) per month on the unpaid
amount or a fraction thereof, until the delinquent tax shall have been fully paid: Provided, however, That in no case shall
the total interest on the unpaid tax or portion thereof exceed thirty-six (36) months.
IRR of RA 7160, ARTICLE 278. Existing Tax Ordinances or Revenue Measures.—(a) All existing tax ordinances
or revenue measures of provinces, cities, municipalities, and barangays imposing taxes, fees, or charges shall continue to
be in force and effect after the effectivity of the Code, except those imposing levies on tax bases or tax subjects which are
no longer within the taxing and revenue-raising powers of the LGU concerned and where the rates levied in the tax
ordinance are higher than the taxes, fees, or charges prescribed in this Rule in which case, the lower rates shall be
collected.
346
City of Lapu-Lapu
surcharge imposed by Ordinance No. 44.38 The Court of Appeals affirmed the findings of the
RTC in the decision quoted below:
The tax collected under Ordinance No. 44 is within the rates prescribed by RA 7160, though the 25%
penalty collected is higher than the 2% allowed under Sec. 255 of the said law which provides:
x x x x
This difference does not however detract from the essential enforceability and effectivity of Ordinance
No. 44 pursuant to Section 529 of RA No. 7160 and Article 278 of the Implementing Rules and
Regulations. The outcome of this disparity is simply that respondent City can only collect an interest of
2% per month on the unpaid tax. Consequently, respondent city will have to [recompute] the petitioner’s
tax liability.
39

It is worthy to note that the Court of Appeals nevertheless held that even if it is clear
that respondent City has the power to impose real property taxes over petitioner, “it is also
evident and categorical that, under Republic Act No. 6958, the properties of petitioner
MCIAA may not be conveyed or transferred to any person or entity except to the national
government.”40 The relevant provisions of the said law are quoted below:
Section 4. Functions, Powers and Duties.—The Authority shall have the following functions,
powers and duties:
_______________
(b) In case of failure of the sanggunian to amend or revoke tax ordinances or revenue measures inconsistent with, or
in violation of the provisions of this Rule, the same shall be deemed rescinded upon the effectivity of the Code and these
Rules.
38 Rollo, pp. 124-125.
39 Id., at pp. 125-126.
40 Id., at p. 126.
347
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City of Lapu-Lapu
x x x x
(e) To acquire, purchase, own, administer, lease, mortgage, sell or otherwise dispose of any land,
building, airport facility, or property of whatever kind and nature, whether movable or immovable, or any
interest therein: Provided, That any asset located in the Mactan International Airport important to national
security shall not be subject to alienation or mortgage by the Authority nor to transfer to any entity other
than the National Government[.]
Section 13. Borrowing Power.—The Authority may, in accordance with Section 21, Article XII of
the Constitution and other existing laws, rules and regulations on local or foreign borrowing, raise funds,
either from local or international sources, by way of loans, credit or securities, and other borrowing
instruments with the power to create pledges, mortgages and other voluntary liens or encumbrances on
any of its assets or properties, subject to the prior approval of the President of the Philippines.
All loans contracted by the Authority under this section, together with all interests and other sums
payable in respect thereof, shall constitute a charge upon all the revenues and assets of the Authority and
shall rank equally with one another, but shall have priority over any other claim or charge on the revenue
and assets of the Authority: Provided, That this provision shall not be construed as a prohibition or
restriction on the power of the Authority to create pledges, mortgages and other voluntary liens or
encumbrances on any asset or property of the Authority.
The payment of the loans or other indebtedness of the Authority may be guaranteed by the National
Government subject to the approval of the President of the Philippines.

The Court of Appeals concluded that “it is clear that petitioner MCIAA is denied by its
charter the absolute right to dispose of its property to any person or entity except to the
348
City of Lapu-Lapu
national government and it is not empowered to obtain loans or encumber its property without
the approval of the President.”41 The questioned Decision contained the following conclusion:
With the advent of RA 7160, the Local Government Code, the power to tax is no longer vested
exclusively on Congress. LGUs, through its local legislative bodies, are now given direct authority to levy
taxes, fees and other charges pursuant to Article X, Section 5 of the 1987 Constitution. And one of the
most significant provisions of the LGC is the removal of the blanket inclusion of instrumentalities and
agencies of the national government from the coverage of local taxation. The express withdrawal by the
Code of previously granted exemptions from realty taxes applied to instrumentalities and government-
owned or -controlled corporations (GOCCs) such as the petitioner Mactan-Cebu International Airport
Authority. Thus, petitioner MCIAA became a taxable person in view of the withdrawal of the realty tax
exemption that it previously enjoyed under Section 14 of RA No. 6958 of its charter. As expressed and
categorically held in the Mactan case, the removal and withdrawal of tax exemptions previously enjoyed
by persons, natural or juridical, are consistent with the State policy to ensure autonomy to local
governments and the objective of the Local Government Code that they enjoy genuine and meaningful
local autonomy to enable them to attain their fullest development as self-reliant communities and make
them effective partners in the attainment of national goals.
However, in the case at bench, petitioner MCIAA’s charter expressly bars the alienation or mortgage
of its property to any person or entity except to the national government. Therefore, while petitioner
MCIAA is a taxable person for purposes of real property taxation, respondent City of Lapu-Lapu is
prohibited from seizing, selling and owning these properties by and through a
_______________
41 Id., at p. 127.
349
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City of Lapu-Lapu

public auction in order to satisfy petitioner MCIAA’s tax liability. (Citations omitted)
42

In the questioned Resolution that affirmed its questioned Decision, the Court of Appeals
denied petitioner’s motion for reconsideration based on the following grounds:
First, the MCIAA case remains the controlling law on the matter as the same is the established
precedent; not the MIAA case but the MCIAA case since the former, as keenly pointed out by the
respondent City of Lapu-Lapu, has not yet attained finality as there is still yet a pending motion for
reconsideration filed with the Supreme Court in the aforesaid case.
Second, and more importantly, the ruling of the Supreme Court in the MIAA case cannot be
similarly invoked in the case at bench. The said case cannot be considered as the “law of the
case.” The “law of the case” doctrine has been defined as that principle under which determinations of
questions of law will generally be held to govern a case throughout all its subsequent stages where such
determination has already been made on a prior appeal to a court of last resort. It is merely a rule of
procedure and does not go to the power of the court, and will not be adhered to where its application will
result in an unjust decision. It relates entirely to questions of law, and is confined in its operation to
subsequent proceedings in the same case. According to said doctrine, whatever has been irrevocably
established constitutes the law of the case only as to the same parties in the same case and not to different
parties in an entirely different case. Besides, pending resolution of the aforesaid motion for
reconsideration in the MIAA case, the latter case has not irrevocably established anything.
Thus, after a thorough and judicious review of the allegations in petitioner’s motion for
reconsideration, this
_______________
42 Id., at pp. 129-130.
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City of Lapu-Lapu
Court resolves to deny the same as the matters raised therein had already been exhaustively discussed
in the decision sought to be reconsidered, and that no new matters were raised which would warrant the
modification, much less reversal, thereof. (Emphasis added, citations omitted)
43

Petitioner’s Theory

Petitioner is before us now claiming that this Court, in the 2006 MIAA case, had expressly
declared that petitioner, while vested with corporate powers, is not considered a government-
owned or -controlled corporation, but is a government instrumentality like the Manila
International Airport Authority (MIAA), Philippine Ports Authority (PPA), University of the
Philippines, and Bangko Sentral ng Pilipinas (BSP). Petitioner alleges that as a government
instrumentality, all its airport lands and buildings are exempt from real estate taxes imposed by
respondent City.44
Petitioner alleges that Republic Act No. 6958 placed “a limitation on petitioner’s
administration of its assets and properties” as it provides under Section 4(e) that “any asset in the
international airport important to national security cannot be alienated or mortgaged by petitioner
or transferred to any entity other than the National Government.”45
Thus, petitioner claims that the Court of Appeals (Cebu City) gravely erred in disregarding
the following:
I
PETITIONER IS A GOVERNMENT INSTRUMENTALITY AS EXPRESSLY DECLARED BY
THE HONORABLE COURT IN THE MIAA CASE. AS SUCH, IT IS
_______________
43 Id., at pp. 133-134.

44 Id., at pp. 55-56.
45 Id., at p. 58.
351
VOL. 757, JUNE 15, 2015 351
City of Lapu-Lapu
EXEMPT FROM PAYING REAL ESTATE TAXES IMPOSED BY RESPONDENT CITY OF
LAPU-LAPU.
II
THE PROPERTIES OF PETITIONER CONSISTING OF THE AIRPORT TERMINAL BUILDING,
AIRFIELD, RUNWAY, TAXIWAY, INCLUDING THE LOTS ON WHICH THEY ARE SITUATED,
ARE EXEMPT FROM REAL PROPERTY TAXES.
III
RESPONDENT CITY OF LAPU-LAPU CANNOT IMPOSE REAL PROPERTY TAX WITHOUT
ANY APPROPRIATE ORDINANCE.
IV
RESPONDENT CITY OF LAPU-LAPU CANNOT IMPOSE AN ADDITIONAL 1% TAX FOR
THE SPECIAL EDUCATION FUND IN THE ABSENCE OF ANY CORRESPONDING
ORDINANCE.
V
RESPONDENT CITY OF LAPU-LAPU CANNOT IMPOSE ANY INTEREST SANS ANY
ORDINANCE MANDATING ITS IMPOSITION. 46

Petitioner claims the following similarities with MIAA:
1. MCIAA belongs to the same class and performs identical functions as MIAA;
2. MCIAA is a public utility like MIAA;
3. MIAA was organized to operate the international and domestic airport in Parañaque City
for public use,
_______________
46 Id., at p. 68.
352
City of Lapu-Lapu
while MCIAA was organized to operate the international and domestic airport in Mactan for
public use.
4. Both are attached agencies of the Department of Transportation and Communications.47
Petitioner compares its charter (Republic Act No. 6958) with that of MIAA (Executive Order
No. 903).
Section 3 of Executive Order No. 903 provides:
Sec. 3. Creation of the Manila International Airport Authority.—There is hereby established a body
corporate to be known as the Manila International Airport Authority which shall be attached to the
Ministry of Transportation and Communications. The principal office of the Authority shall be located at
the New Manila International Airport. The Authority may establish such offices, branches, agencies or
subsidiaries as it may deem proper and necessary; x x x.

Section 2 of Republic Act No. 6958 reads:
Section 2. Creation of the Mactan-Cebu International Airport Authority.—There is hereby
established a body corporate to be known as the Mactan-Cebu International Airport Authority which shall
be attached to the Department of Transportation and Communications. The principal office of the
Authority shall be located at the Mactan International Airport, Province of Cebu.
The Authority may have such branches, agencies or subsidiaries as it may deem proper and necessary.
As to MIAA’s purposes and objectives, Section 4 of Executive Order No. 903 reads:
Sec. 4. Purposes and Objectives.—The Authority shall have the following purposes and objectives:
_______________
47 Id., at p. 69.
353
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City of Lapu-Lapu
(a) To help encourage and promote international and domestic air traffic in the Philippines as a
means of making the Philippines a center of international trade and tourism and accelerating the
development of the means of transportation and communications in the country;
(b) To formulate and adopt for application in the Airport internationally acceptable standards of
airport accommodation and service; and
(c) To upgrade and provide safe, efficient, and reliable airport facilities for international and
domestic air travel.

Petitioner claims that the above purposes and objectives are analogous to those enumerated in
its charter, specifically Section 3 of Republic Act No. 6958, which reads:
Section 3. Primary Purposes and Objectives.—The Authority shall 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, hereinafter collectively referred to as
the airports, and such other airports as may be established in the Province of Cebu. In addition, it shall
have the following objectives:
(a) To encourage, promote and develop international and domestic air traffic in the central Visayas
and Mindanao regions as a means of making the regions centers of international trade and tourism, and
accelerating the development of the means of transportation and communications in the country; and
(b) To upgrade the services and facilities of the airports and to formulate internationally acceptable
standards of airport accommodation and service.

The powers, functions and duties of MIAA under Section 5 of Executive Order No. 903 are:
354
City of Lapu-Lapu
Sec. 5. Functions, Powers and Duties.—The Authority shall have the following functions, powers
and duties:
(a) To formulate, in coordination with the Bureau of Air Transportation and other appropriate
government agencies, a comprehensive and integrated policy and program for the Airport and to
implement, review and update such policy and program periodically;
(b) To control, supervise, construct, maintain, operate and provide such facilities or services as shall
be necessary for the efficient functioning of the Airport;
(c) To promulgate rules and regulations governing the planning, development, maintenance, operation
and improvement of the Airport, and to control and/or supervise as may be necessary the construction of
any structure or the rendition of any services within the Airport;
(d) To sue and be sued in its corporate name;
(e) To adopt and use a corporate seal;
(f) To succeed by its corporate name;
(g) To adopt its by-laws, and to amend or repeal the same from time to time;
(h) To execute or enter into contracts of any kind or nature;
(i) To acquire, purchase, own, administer, lease, mortgage, sell or otherwise dispose of any land,
building, airport facility, or property of whatever kind and nature, whether movable or immovable, or any
interest therein;
(j) To exercise the power of eminent domain in the pursuit of its purposes and objectives;
(k) To levy, and collect dues, charges, fees or assessments for the use of the Airport premises, works,
appliances, facilities or concessions or for any service provided by the Authority, subject to the ap-
355
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City of Lapu-Lapu
proval of the Minister of Transportation and Communications in consultation with the Minister of
Finance, and subject further to the provisions of Batas Pambansa Blg. 325 where applicable;
(l) To invest its idle funds, as it may deem proper, in government securities and other evidences of
indebtedness of the government;
(m) To provide services, whether on its own or otherwise, within the Airport and the approaches
thereof, which shall include but shall not be limited to, the following:
(1) Aircraft movement and allocation of parking areas of aircraft on the ground;
(2) Loading or unloading of aircrafts;
(3) Passenger handling and other services directed towards the care, convenience and security of
passengers, visitors and other airport users; and
(4) Sorting, weighing, measuring, warehousing or handling of baggage and goods.
(n) To perform such other acts and transact such other business, directly or indirectly necessary,
incidental or conducive to the attainment of the purposes and objectives of the Authority, including the
adoption of necessary measures to remedy congestion in the Airport; and
(o) To exercise all the powers of a corporation under the Corporation Law, insofar as these powers are
not inconsistent with the provisions of this Executive Order.

Petitioner claims that MCIAA has related functions, powers and duties under Section 4 of
Republic Act No. 6958, as shown in the provision quoted below:

Section 4. Functions, Powers and Duties.—The Authority shall have the following functions,
powers and duties:
356
City of Lapu-Lapu
(a) To formulate a comprehensive and integrated development policy and program for the
airports and to implement, review and update such policy and program periodically;
(b) To control, supervise, construct, maintain, operate and provide such facilities or services as
shall be necessary for the efficient functioning of the airports;
(c) To promulgate rules and regulations governing the planning, development, maintenance,
operation and improvement of the airports, and to control and supervise the construction of any
structure or the rendition of any service within the airports;
(d) To exercise all the powers of a corporation under the Corporation Code of the Philippines,
insofar as those powers are not inconsistent with the provisions of this Act;
(e) To acquire, purchase, own, administer, lease, mortgage, sell or otherwise dispose of any
land, building, airport facility, or property of whatever kind and nature, whether movable or
immovable, or any interest therein: Provided, That any asset located in the Mactan International
Airport important to national security shall not be subject to alienation or mortgage by the
Authority nor to transfer to any entity other than the National Government;
(f) To exercise the power of eminent domain in the pursuit of its purposes and objectives;
(g) To levy and collect dues, charges, fees or assessments for the use of airport premises,
works, appliances, facilities or concessions, or for any service provided by the Authority;
(h) To retain and appropriate dues, fees and charges collected by the Authority relative to the
use of airport premises for such measures as may be necessary to make the Authority more
effective and efficient in the discharge of its assigned tasks;
(i) To invest its idle funds, as it may deem proper, in government securities and other
evidences of indebtedness; and
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City of Lapu-Lapu
(j) To provide services, whether on its own or otherwise, within the airports and the
approaches thereof as may be necessary or in connection with the maintenance and operation of the
airports and their facilities.

Petitioner claims that like MIAA, it has police authority within its premises, as shown in
their respective charters quoted below:
EO 903, Sec. 6. Police Authority.—The Authority shall have the power to exercise such police
authority as may be necessary within its premises to carry out its functions and attain its purposes
and objectives, without prejudice to the exercise of functions within the same premises by the
Ministry of National Defense through the Aviation Security Command (AVSECOM) as provided in
LOI 961: Provided, That the Authority may request the assistance of law enforcement agencies,
including request for deputization as may be required. x x x.
R.A. No. 6958, Section 5. Police Authority.—The Authority shall have the power to exercise
such police authority as may be necessary within its premises or areas of operation to carry out its
functions and attain its purposes and objectives: Provided, That the Authority may request the
assistance of law enforcement agencies, including request for deputization as may be required.
x x x.

Petitioner pointed out other similarities in the two charters, such as:
1. Both MCIAA and MIAA are covered by the Civil Service Law, rules and
regulations (Section 15, Executive Order No. 903; Section 12, Republic Act No. 6958);
2. Both charters contain a proviso on tax exemptions (Section 21, Executive Order No.
903; Section 14, Republic Act No. 6958);
3. Both MCIAA and MIAA are required to submit to the President an annual report
generally dealing with their ac-
358
City of Lapu-Lapu
tivities and operations (Section 14, Executive Order No. 903; Section 11, Republic Act
No. 6958); and
4. Both have borrowing power subject to the approval of the President (Section 16,
Executive Order No. 903; Section 13, Republic Act No. 6958).48
Petitioner suggests that it is because of its similarity with MIAA that this Court, in the
2006 MIAA case, placed it in the same class as MIAA and considered it as a government
instrumentality.
Petitioner submits that since it is also a government instrumentality like MIAA, the
following conclusion arrived by the Court in the 2006 MIAA case is also applicable to
petitioner:
-controlled corporation. Under Section 133(o) of the Local Government Code, MIAA as a
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
_______________
48 Id., at p. 75.
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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. (Emphases added)
49

Petitioner insists that its properties consisting of the airport terminal building, airfield,
runway, taxiway and the lots on which they are situated are not subject to real property tax
because they are actually, solely and exclusively used for public purposes. 50 They are
indispensable to the operation of the Mactan International Airport and by their very
nature, these properties are exempt from tax. Said properties belong to the State and are
merely held by petitioner in trust. As earlier mentioned, petitioner claims that these
properties are important to national security and cannot be alienated, mortgaged, or
transferred to any entity except the National Government.
Petitioner prays that judgment be rendered:
a) Declaring petitioner exempt from paying real property taxes as it is a government
instrumentality;
b) Declaring respondent City of Lapu-Lapu as bereft of any authority to levy and collect the
basic real property tax, the additional tax for the SEF and the
_______________
49 Manila International Airport Authority v. Court of Appeals, supra note 21 at p. 241; pp. 645-646.

50 Rollo, p. 77.
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City of Lapu-Lapu
penalty interest for its failure to pass the corresponding tax ordinances; and
c) Declaring, in the alternative, the airport lands and buildings of petitioner as exempt from real
property taxes as they are used solely and exclusively for public purpose. 51

In its Consolidated Reply filed through the OSG, petitioner claims that the
2006 MIAA ruling has overturned the 1996 MCIAA ruling. Petitioner cites Justice Dante O.
Tinga’s dissent in the MIAA ruling, as follows:
[The] ineluctable conclusion is that the majority rejects the rationale and ruling in Mactan. The
majority provides for a wildly different interpretation of Sections 133, 193 and 234 of the Local
Government Code than that employed by the Court in Mactan. Moreover, the parties
in Mactan and in this case are similarly situated, as can be obviously deducted from the fact that
both petitioners are airport authorities operating under similarly worded charters. And the fact
that the majority cites doctrines contrapuntal to the Local Government Code as
in Basco and Maceda evinces an intent to go against the Court’s jurisprudential trend adopting the
philosophy of expanded local government rule under the Local Government Code.
x x x x The majority is obviously inconsistent with Mactan and there is no way these two rulings
can stand together. Following basic principles in statutory construction, Mactan will be deemed as
giving way to this new ruling.
x x x x
There is no way the majority can be justified unless Mactan is overturned. The MCIAA and the
MIAA are similarly situated. They are both, as will be demonstrated, GOCCs, commonly engaged
in the business of
_______________
51 Id., at p. 86.
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operating an airport. They are the owners of airport properties they respectively maintain and
hold title over these properties in their name. These entities are both owned by the State, and
denied by their respective charters the absolute right to dispose of their properties without prior
approval elsewhere. Both of them are not empowered to obtain loans or encumber their properties
without prior approval the prior approval of the President. (Citations omitted)
52

Petitioner likewise claims that the enactment of Ordinance No. 070-2007 is an admission
on respondent City’s part that it must have a tax measure to be able to impose a tax or
special assessment. Petitioner avers that assuming that it is a non-exempt entity or that its
airport lands and buildings are not exempt, it was only upon the effectivity of Ordinance
No. 070-2007 on January 1, 2008 that respondent City could properly impose the basic real
property tax, the additional tax for the SEF, and the interest in case of nonpayment.53
Petitioner filed its Memorandum54 on June 17, 2009.

Respondents’ Theory

In their Comment,55 respondents point out that petitioner partially moved for a
reconsideration of the questioned Decision only as to the issue of whether petitioner is a
GOCC or not. Thus, respondents declare that the other portions of the questioned decision
had already attained finality and ought not to be placed in issue in this petition
for certiorari. Thus, respondents discussed the other issues raised by petitioner with
reservation as to this objection.
_______________
52 Manila International Airport Authority v. Court of Appeals, Tinga, J., Dissent, supra note 21 at pp. 259-262;
pp. 663-665.
53 Rollo, p. 556.
54 Id., at pp. 572-608.
55 Id., at pp. 508-527.
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City of Lapu-Lapu
Respondents summarized the issues and the grounds relied upon as follows:
Statement of the Issues
WHETHER OR NOT PETITIONER IS A GOVERNMENT INSTRUMENTALITY EXEMPT
FROM PAYING REAL PROPERTY TAXES;
WHETHER OR NOT RESPONDENT CITY CAN [IMPOSE] REALTY TAX, SPECIAL
EDUCATION FUND AND PENALTY INTEREST;
WHETHER OR NOT THE AIRPORT TERMINAL BUILDING, AIRFIELD, RUNWAY,
TAXIWAY INCLUDING THE LOTS ON WHICH THEY ARE SITUATED ARE EXEMPT
FROM REALTY TAXES.

Grounds Relied Upon
1. PETITIONER IS A GOCC HENCE NOT EXEMPT FROM REALTY TAXES;
2. TERMINAL BUILDING, RUNWAY, TAXIWAY ARE NOT EXEMPT FROM REALTY
TAXES;
3. ESTOPPEL DOES NOT LIE AGAINST GOVERNMENT;
4. CITY CAN COLLECT REALTY TAX AND INTEREST;
5. CITY CAN COLLECT SEF;
6. MCIAA HAS NOT SHOWN ANY IRREPARABLE INJURY WARRANTING
INJUNCTIVE RELIEF;
7. MCIAA HAS NOT COMPLIED WITH PROVISION OF THE LGC. 56
_______________
56 Id., at p. 515.
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Respondents claim that “the mere mention of MCIAA in the MIAA v. [Court of
Appeals] case does not make it the controlling case on the matter.” 57 Respondents further
claim that the 1996 MCIAA case where this Court held that petitioner is a GOCC is the
controlling jurisprudence. Respondents point out that petitioner and MIAA are two very
different entities. Respondents argue that petitioner is a GOCC contrary to its assertions,
based on its Charter and on DOJ Opinion No. 50.
Respondents contend that if petitioner is not a GOCC but an instrumentality of the
government, still the following statement in the 1996 MCIAA case applies:
Besides, nothing can prevent Congress from decreeing that even instrumentalities or agencies of
the Government performing governmental functions may be subject to tax. Where it is done
precisely to fulfill a constitutional mandate and national policy, no one can doubt its wisdom. 58

Respondents argue that MCIAA properties such as the terminal building, taxiway and
runway are not exempt from real property taxation. As discussed in the 1996 MCIAA case,
Section 234 of the LGC omitted GOCCs such as MCIAA from entities enjoying tax
exemptions. Said decision also provides that the transfer of ownership of the land to
petitioner was absolute and petitioner cannot evade payment of taxes.59
Even if the following issues were not raised by petitioner in its motion for
reconsideration of the questioned Decision, and thus the ruling pertaining to these issues in
the questioned decision had become final, respondents still discussed its side over its
objections as to the propriety of bringing these up before this Court.
_______________
57 Id., at p. 516.
58 Mactan-Cebu International Airport Authority v. Marcos, supra note 4 at pp. 419-420; p. 692.
59 Rollo, p. 519.
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City of Lapu-Lapu
1. Estoppel does not lie against the government.
2. Respondent City can collect realty taxes and interest.
a. Based on the Local Government Code (Sections 232, 233, 255) and its IRR (Sections
241, 247).
b. The City of Lapu-Lapu passed in 1980 Ordinance No. 44, or the Omnibus Tax
Ordinance, wherein the imposition of real property tax was made. This Ordinance was in
force and effect by virtue of Article 278 of the IRR of Republic Act No. 7160.60
c. Ordinance No. 070-2007, known as the Revised Lapu-Lapu City Revenue Code,
imposed real property taxes, special education fund and further provided for the payment
of interest and surcharges. Thus, the issue is passé and is moot and academic.
3. Respondent City can collect Special Education Fund.
a. The LGC does not require the enactment of an ordinance for the collection of the
SEF.
b. Congress did not entirely repeal the SEF law, hence, its levy, imposition and
collection need not be covered by ordinance. Besides, the City has enacted the Revenue
Code containing provisions for the levy and collection of the SEF.61
Furthermore, respondents aver that:
_______________
60 The respondents further argued:

Hence, assuming arguendo that the provisions of RA 7160 are not self-executory insofar as realty taxes and its
surcharges are concerned, and further granting without admitting that the City needs an enabling ordinance, the
foregoing provision clearly shows that the City has all the right to impose and collect the taxes sought for payment.
(Rollo, p. 522)
61 Id., at pp. 519-524.
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City of Lapu-Lapu
1. Collection of taxes is beyond the ambit of injunction.
a. Respondents contend that the petition only questions the denial of the writ of
preliminary injunction by the RTC and the Court of Appeals. Petitioner failed to show
irreparable injury.
b. Comparing the alleged damage that may be caused petitioner and the direct affront
and challenge against the power to tax, which is an attribute of sovereignty, it is but
appropriate that injunctive relief should be denied.
2. Petitioner did not comply with LGC provisions on payment under protest.
a. Petitioner should have protested the tax imposition as provided in Article 285 of the
IRR of Republic Act No. 7160. Section 252 of Republic Act No. 7160 62 requires that the
taxpayer’s protest
_______________
62 Section 252. Payment Under Protest.—(a) No protest shall be entertained unless the taxpayer first pays the
tax. There shall be annotated on the tax receipts the words “paid under protest.” The protest in writing must be
filed within thirty (30) days from payment of the tax to the provincial, city treasurer or municipal treasurer, in the
case of a municipality within Metropolitan Manila Area, who shall decide the protest within sixty (60) days from
receipt.
[Petitioner disregarded the aforesaid provision of law thereby depriving the courts from exercising jurisdiction
over the matter in view of Section 267 of RA 7160 which states:
Section 267. Action Assailing Validity of Tax Sale.—No court shall entertain any action assailing the validity
of any sale at public auction of real property or rights therein under this Title until the taxpayer shall have
deposited with the court the amount for which the real property was sold, together with interest of two percent
(2%) per month from the date of sale to the time of the institution of the action. The amount so deposited shall be
paid to the purchaser at the auction sale if the
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City of Lapu-Lapu
can only be entertained if the tax is first paid under protest.63
Respondents submitted their Memorandum64 on June 30, 2009, wherein they allege that
the 1996 MCIAA case is still good law, as shown by the following cases wherein it was
quoted:
1. National Power Corporation v. Local Board of Assessment Appeals of Batangas [545
Phil. 92 (2007)];
2. Mactan-Cebu International Airport Authority v. Urgello [549 Phil. 302 (2007)];
3. Quezon City v. ABS-CBN Broadcasting Corporation [588 Phil. 785 (2008)]; and
4. The City of Iloilo v. Smart Communications, Inc. [599 Phil. 492 (2009)].
Respondents assert that the constant reference to the 1996 MCIAA case “could hardly
mean that the doctrine has breathed its last” and that the 1996 MCIAA case stands as
precedent and is controlling on petitioner MCIAA.65
Respondents allege that the issue for consideration is whether it is proper for petitioner
to raise the issue of whether it is not liable to pay real property taxes, special education
fund (SEF), interests and/or surcharges.66 Respondents argue that the Court of Appeals was
correct in declaring petitioner liable for realty taxes, etc., on the terminal building, taxiway,
and runway. Respondent City relies on the following grounds:
_______________
deed is declared invalid but it shall be returned to the depositor if the action fails.]
63 Rollo, pp. 524-526.
64 Id., at pp. 614-652.
65 Id., at p. 616.
66 Id., at p. 622.
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City of Lapu-Lapu
1. The case of MCIAA v. Marcos, et al., is controlling on petitioner MCIAA;
2. MCIAA is a corporation;
3. Section 133 in relation to Sections 232 and 234 of the Local Government Code of 1991
authorizes the collection of real property taxes (etc.) from MCIAA;
4. Terminal Building, Runway & Taxiway are not of the Public Dominion and are not exempt
from realty taxes, special education fund and interest;
5. Respondent City can collect realty tax, interest/surcharge, and Special Education Fund from
MCIAA; [and]
6. Estoppel does not lie against the government. 67

This Court’s Ruling

The petition has merit. The petitioner is an instrumentality of the government; thus, its
properties actually, solely and exclusively used for public purposes, consisting of the
airport terminal building, airfield, runway, taxiway and the lots on which they are situated,
are not subject to real property tax and respondent City is not justified in collecting taxes
from petitioner over said properties.

Discussion

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 final-
_______________
67 Id., at p. 623.
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City of Lapu-Lapu
ity, and that as far as MCIAA is concerned, the 1996 MCIAA case is still good law.68
While it is true, as respondents allege, that the 1996 MCIAA case was cited in a long line
of cases,69 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.70 The decision became final and executory
_______________
68 In the 1996 MCIAA case, the Court held that Section 234 of Republic Act No. 7610, or the Local
Government Code (LGC), “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.” (Mactan-Cebu International Airport Authority v. Marcos, supra note 4 at p. 414; p. 687)
69 See City Government of San Pablo, Laguna v. Reyes, 364 Phil. 842; 305 SCRA 353 (1999); Manila Electric
Company v. Province of Laguna, 366 Phil. 428; 306 SCRA 750 (1999); National Power Corporation v. City of
Cabanatuan, 449 Phil. 233; 401 SCRA 259 (2003); Philippine Ports Authority v. City of Iloilo, 484 Phil. 784; 442
SCRA 175 (2004); The City of Davao v. The Regional Trial Court, Branch XII, Davao City, 504 Phil. 542; 467 SCRA
280 (2005); The City Government of Quezon City v. Bayan Telecommunications, Inc., 519 Phil. 159; 484 SCRA 169
(2006); FELS Energy, Inc. v. The Province of Batangas, 545 Phil. 93; 516 SCRA 186 (2007); The Provincial Assessor
of Marinduque v. Court of Appeals, 605 Phil. 357; 587 SCRA 285 (2009).
70 See Philippine Fisheries Development Authority v. Court of Appeals, 555 Phil. 661; 534 SCRA 490
(2007); Manila International Airport Authority v. City of Pasay, 602 Phil. 160; 583 SCRA 234 (2009); Curata v.
Philippine Ports Authority, 608 Phil. 9; 590 SCRA 214 (2009); Government Service Insurance System v. City
Treasurer and City Assessor of the City of Manila, 623 Phil. 964; 609 SCRA 330 (2009); Philippine Fisheries
Development Authority v. Central Board
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City of Lapu-Lapu
on November 3, 2006.71 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.
To recall, in the 2006 MIAA case, we held that MIAA’s airport lands and buildings are
exempt from real estate tax imposed by local governments; that it is not a GOCC but an
instrumentality of the national government, with its real properties being owned by the
Republic of the Philippines, and these are exempt from real estate tax. Specifically
referring to petitioner, we stated as follows:
stock or non-stock corporations, which is a necessary condition before an agency or instrumentality
is deemed a government-owned or -controlled corporation. Examples are the Mactan International
Airport Authority, the Philippine Ports Authority, the University of the Philippines and Bangko
Sentral ng Pilipinas. All these government instrumentalities exercise corporate powers but they are
not organized as stock or non-stock corporations as required by Section 2(13) of the Introductory
Provisions of the Administrative Code. These government instrumentalities are sometimes loosely
called government corporate entities. However, they are not government-owned or -controlled
corporations in the strict sense as understood under the Administrative Code, which is the
governing law defining
_______________
of Assessment Appeals, 653 Phil. 328; 638 SCRA 644 (2010); City of Pasig v. Republic, 671 Phil. 791; 656 SCRA
271 (2011); Republic v. City of Parañaque, G.R. No. 191109, July 18, 2012, 677 SCRA 246; Funa v. Manila
Economic and Cultural Office, G.R. No. 193462, February 4, 2014, 715 SCRA 247.
71 Id., at p. 667; p. 503.
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City of Lapu-Lapu

the legal relationship and status of government entities. (Emphases ours)
72

In the 2006 MIAA case, the issue before the Court was “whether the Airport Lands and
Buildings of MIAA are exempt from real estate tax under existing laws.” 73 We quote the
extensive discussion of the Court that led to its finding that MIAA’s lands and buildings
were exempt from real estate tax imposed by local governments:
First, MIAA is not a government-owned or -controlled corporation but an instrumentality of the
National Government and thus exempt from local taxation. Second, the real properties of MIAA
are owned by the Republic of the Philippines and thus exempt from real estate tax.
1. MIAA is Not a Government-Owned or
-Controlled Corporation
x x x x
There is no dispute that a government-owned or
-controlled corporation is not exempt from real estate tax. However, MIAA is not a government-
owned or -controlled corporation. Section 2(13) of the Introductory Provisions of the
Administrative Code of 1987 defines a government-owned or -controlled corporation as follows:
SEC. 2. General Terms Defined.—x x x
(13) Government-owned or -controlled corporation refers to any agency organized as a stock
or non-stock corporation, vested with functions relating to public needs whether governmental or
proprietary in nature, and owned by the Government directly or through its instrumentalities
either wholly, or, where applicable as in the case of stock corporations,
_______________
72 Manila International Airport Authority v. Court of Appeals, supra note 21 at p. 213; pp. 618-619.

73 Id., at p. 209; p. 614.
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City of Lapu-Lapu
to the extent of at least fifty-one (51) percent of its capital stock: x x x.
A government-owned or -controlled corporation must be “organized as a stock or non-stock
corporation.” MIAA is not organized as a stock or non-stock corporation. MIAA is not a stock
corporation because it has no capital stock divided into shares. MIAA has no stockholders or voting
shares. x x x
x x x x
Clearly, under its Charter, MIAA does not have capital stock that is divided into shares.
Section 3 of the Corporation Code defines a stock corporation as one whose “capital stock is
divided into shares and x x x authorized to distribute to the holders of such shares dividends x x x.”
MIAA has capital but it is not divided into shares of stock. MIAA has no stockholders or voting
shares. Hence, MIAA is not a stock corporation.
MIAA is also not a non-stock corporation because it has no members. Section 87 of the
Corporation Code defines a non-stock corporation as “one where no part of its income is
distributable as dividends to its members, trustees or officers.” A non-stock corporation must have
members. Even if we assume that the Government is considered as the sole member of MIAA, this
will not make MIAA a non-stock corporation. Non-stock corporations cannot distribute any part of
their income to their members. Section 11 of the MIAA Charter mandates MIAA to remit 20% of
its annual gross operating income to the National Treasury. This prevents MIAA from qualifying as
a non-stock corporation.
Section 88 of the Corporation Code provides that non-stock corporations are “organized for
charitable, religious, educational, professional, cultural, recreational, fraternal, literary, scientific,
social, civil service, or similar purposes, like trade, industry, agriculture and like chambers.” MIAA
is not organized for any of these purposes. MIAA, a public utility, is organized to operate an
international and domestic airport for public use.
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City of Lapu-Lapu
Since MIAA is neither a stock nor a non-stock corporation, MIAA does not qualify as a
government-owned or -controlled corporation. What then is the legal status of MIAA within the
National Government?
MIAA is a government instrumentality vested with corporate powers to perform efficiently its
governmental functions. MIAA is like any other government instrumentality, the only difference is
that MIAA is vested with corporate powers. Section 2(10) of the Introductory Provisions of the
Administrative Code defines a government “instrumentality” as follows:
SEC. 2. General Terms Defined.— x x x
(10) Instrumentality refers to any agency of the National Government, not integrated within
the department framework, vested with special functions or jurisdiction by law, endowed with some
if not all corporate powers, administering special funds, and enjoying operational autonomy,
usually through a charter. x x x.
When the law vests in a government instrumentality corporate powers, the instrumentality does
not become a corporation. Unless the government instrumentality is organized as a stock or non-
stock corporation, it remains a government instrumentality exercising not only governmental but
also corporate powers. Thus, MIAA exercises the governmental powers of eminent domain, police
authority and the levying of fees and charges. At the same time, MIAA exercises “all the powers of
a corporation under the Corporation Law, insofar as these powers are not inconsistent with the
provisions of this Executive Order.”
Likewise, when the law makes a government instrumentality operationally autonomous, the
instrumentality remains part of the National Government machinery although not integrated with
the department framework. The MIAA Charter expressly states that trans-
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City of Lapu-Lapu
forming MIAA into a “separate and autonomous body” will make its operation more
“financially viable.”
stock or non-stock corporations, which is a necessary condition before an agency or instrumentality
is deemed a government-owned or -controlled corporation. Examples are the Mactan International
Airport Authority, the Philippine Ports Authority, the University of the Philippines and Bangko
Sentral ng Pilipinas. All these government instrumentalities exercise corporate powers but they are
not organized as stock or non-stock corporations as required by Section 2(13) of the Introductory
Provisions of the Administrative Code. These government instrumentalities are sometimes loosely
called government corporate entities. However, they are not government-owned or -controlled
corporations in the strict sense as understood under the Administrative Code, which is the
governing law defining the legal relationship and status of government entities. (Emphases ours,
74
citations omitted)

The Court in the 2006 MIAA case went on to discuss the limitation on the taxing power
of the local governments as against the national government or its instrumentality:
A government instrumentality like MIAA falls under Section 133(o) of the Local Government
Code, which states:
SEC. 133. Common Limitations on the Taxing Powers of Local Government Units.—Unless
otherwise provided herein, the exercise of the taxing powers of provinces, cities, municipalities,
x x x x
_______________
74 Id., at pp. 209-213; pp. 615-619.
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City of Lapu-Lapu
(o) Taxes, fees or charges of any kind on the National Government, its agencies and
instrumentalities and local government units. x x x.
Section 133(o) recognizes the basic principle that local governments cannot tax the national
government, which historically merely delegated to local governments the power to tax. While the
1987 Constitution now includes taxation as one of the powers of local governments, local
governments may only exercise such power “subject to such guidelines and limitations as the
Congress may provide.”
When local governments invoke the power to tax on national government instrumentalities,
such power is construed strictly against local governments. The rule is that a tax is never presumed
and there must be clear language in the law imposing the tax. Any doubt whether a person, article
or activity is taxable is resolved against taxation. This rule applies with greater force when local
governments seek to tax national government instrumentalities.
Another rule is that a tax exemption is strictly construed against the taxpayer claiming the
exemption. However, when Congress grants an exemption to a national government instrumentality
from local taxation, such exemption is construed liberally in favor of the national government
instrumentality. x x x.
x x x x
There is, moreover, no point in national and local governments taxing each other, unless a sound
and compelling policy requires such transfer of public funds from one government pocket to
another.
There is also no reason for local governments to tax national government instrumentalities for
rendering essential public services to inhabitants of local governments. The only exception is when
the legislature clearly intended to tax government instrumentalities for the delivery of essential
public services
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City of Lapu-Lapu
for sound and compelling policy considerations. There must be express language in the law
empowering local governments to tax national government instrumentalities. Any doubt whether
such power exists is resolved against local governments.
Thus, Section 133 of the Local Government Code states that “unless otherwise provided” in the
Code, local governments cannot tax national government instrumentalities. x x x. (Emphases ours,
75
citations omitted)

The Court emphasized that the airport lands and buildings of MIAA are owned by the
Republic and belong to the public domain. The Court said:
The Airport Lands and Buildings of MIAA are property of public dominion and therefore
owned by the State or the Republic of the Philippines. x x x.
x x x x
No one can dispute that properties of public dominion mentioned in Article 420 of the Civil
Code, like “roads, canals, rivers, torrents, ports and bridges constructed by the State,” are owned
by the State. The term “ports” includes seaports and airports. The MIAA Airport Lands and
Buildings constitute a “port” constructed by the State. Under Article 420 of the Civil Code, the
MIAA Airport Lands and Buildings are properties of public dominion and thus owned by the State
or the Republic of the Philippines.
The Airport Lands and Buildings are devoted to public use because they are used by the public
for international and domestic travel and transportation. The fact that the MIAA collects terminal
fees and other charges from the public does not remove the character of the Airport Lands and
Buildings as properties for public use. x x x.
x x x x
_______________
75 Id., at pp. 213-215; pp. 619-620.
376
City of Lapu-Lapu
The terminal fees MIAA charges to passengers, as well as the landing fees MIAA charges to
airlines, constitute the bulk of the income that maintains the operations of MIAA. The collection of
such fees does not change the character of MIAA as an airport for public use. Such fees are often
termed user’s tax. This means taxing those among the public who actually use a public facility
instead of taxing all the public including those who never use the particular public facility. A user’s
tax is more equitable — a principle of taxation mandated in the 1987 Constitution.
The Airport Lands and Buildings of MIAA
x x x are properties of public dominion because they are intended for public use. As properties of
public dominion, they indisputably belong to the State or the Republic of the
Philippines. (Emphases supplied, citations omitted)
76

The Court also held in the 2006 MIAA case that airport lands and buildings are outside
the commerce of man.
As properties of public dominion, the Airport Lands and Buildings are outside the commerce of
man. The Court has ruled repeatedly that properties of public dominion are outside the commerce
of man. As early as 1915, this Court already ruled in Municipality of Cavite v. Rojas that properties
devoted to public use are outside the commerce of man, thus:
x x x x
The Civil Code, Article 1271, prescribes that everything which is not outside the commerce of
man may be the object of a contract, x x x.
x x x x
The Court has also ruled that property of public dominion, being outside the commerce of man,
cannot be the subject of an auction sale.
_______________
76 Id., at pp. 216-218; pp. 621-623.
377
VOL. 757, JUNE 15, 2015 377
City of Lapu-Lapu
disposition through public or private sale. Any encumbrance, levy on execution or auction sale of
any property of public dominion is void for being contrary to public policy. Essential public
services will stop if properties of public dominion are subject to encumbrances, foreclosures and
auction sale. This will happen if the City of Parañaque can foreclose and compel the auction sale of
the 600-hectare runway of the MIAA for nonpayment of real estate tax.
Before MIAA can encumber the Airport Lands and Buildings, the President must first
withdraw from public use the Airport Lands and Buildings. x x x.
x x x x
Thus, unless the President issues a proclamation withdrawing the Airport Lands and Buildings
from public use, these properties remain properties of public dominion and are inalienable. Since
the Airport Lands and Buildings are inalienable in their present status as properties of public
dominion, they are not subject to levy on execution or foreclosure sale. As long as the Airport
Lands and Buildings are reserved for public use, their ownership remains with the State or the
The authority of the President to reserve lands of the public domain for public use, and to
withdraw such public use, is reiterated in Section 14, Chapter 4, Title I, Book III of the
Administrative Code of 1987, which states:
SEC. 14. Power to Reserve Lands of the Public and Private Domain of the Government.—(1)
The President shall have the power to reserve for settlement or public use, and for specific public
purposes, any of the lands of the public domain, the use of which is not otherwise directed by law.
The reserved land shall thereafter remain subject to the
378
VOL. 757, JUNE 15, 2015 378
City of Lapu-Lapu
specific public purpose indicated until otherwise provided by law or proclamation;
x x x x
There is no question, therefore, that unless the Airport Lands and Buildings are withdrawn by
law or presidential proclamation from public use, they are properties of public dominion, owned by
the Republic and outside the commerce of man. 77

Thus, the Court held that MIAA is “merely holding title to the Airport Lands and
Buildings in trust for the Republic. [Under] Section 48, Chapter 12, Book I of the
Administrative Code [which] allows instrumentalities like MIAA to hold title to real
properties owned by the Republic.”78
The Court in the 2006 MIAA case cited Section 234(a) of the Local Government Code
and held that said provision exempts from real estate tax any “[r]eal property owned by
the Republic of the Philippines.” 79 The Court emphasized, however, that “portions of the
Airport Lands and Buildings that MIAA leases to private entities are not exempt from real
estate tax.” The Court further held:
This exemption should be read in relation with Section 133(o) of the same Code, which prohibits
local governments from imposing “[t]axes, fees or charges of any kind on the National Government,
its agencies and instrumentalities x x x.” The real properties owned by the Republic are titled either
in the name of the Republic itself or in the name of agencies or instrumentalities of the
_______________
77 Id., at pp. 218-221; pp. 623-626.

78 Id., at p. 221; p. 626.
79 SEC. 234. Exemptions from Real Property Tax.—The following are exempted from payment of the real
property tax:
(a) Real property owned by the Republic of the Philippines or any of its political subdivisions except when
the beneficial use thereof has been granted, for consideration or otherwise, to a taxable person[.]
379
VOL. 757, JUNE 15, 2015 379
City of Lapu-Lapu
National Government. The Administrative Code allows real property owned by the Republic to
be titled in the name of agencies or instrumentalities of the national government. Such real
properties remain owned by the Republic and continue to be exempt from real estate tax.
The Republic may grant the beneficial use of its real property to an agency or instrumentality of
the national government. This happens when title of the real property is transferred to an agency or
instrumentality even as the Republic remains the owner of the real property. Such arrangement
does not result in the loss of the tax exemption. Section 234(a) of the Local Government Code states
that real property owned by the Republic loses its tax exemption only if the “beneficial use thereof
has been granted, for consideration or otherwise, to a taxable person.” MIAA, as a government
instrumentality, is not a taxable person under Section 133(o) of the Local Government Code. Thus,
even if we assume that the Republic has granted to MIAA the beneficial use of the Airport Lands
and Buildings, such fact does not make these real properties subject to real estate tax.
However, portions of the Airport Lands and Buildings that MIAA leases to private entities are
not exempt from real estate tax. For example, the land area occupied by hangars that MIAA leases
to private corporations is subject to real estate tax. In such a case, MIAA has granted the beneficial
use of such land area for a consideration to a taxable person and therefore such land area is subject
to real estate tax. x x x.80

Significantly, the Court reiterated the above ruling and applied the same reasoning
in Manila International Airport Authority v. City of Pasay,81 thus:
_______________
80 Manila International Airport Authority v. Court of Appeals, supra note 21 at pp. 224-225; pp. 629-630.
81 Manila International Airport Authority v. City of Pasay, supra note 70 at pp. 174-179; pp. 246-252.
380
City of Lapu-Lapu
The only difference between the 2006 MIAA case and this case is that the 2006 MIAA case
involved airport lands and buildings located in Parañaque City while this case involved airport
lands and buildings located in Pasay City. The 2006 MIAA case and this case raised the same
threshold issue: whether the local government can impose real property tax on the airport lands,
consisting mostly of the runways, as well as the airport buildings, of MIAA. x x x.
x x x x
The definition of “instrumentality” under Section 2(10) of the Introductory Provisions of the
Administrative Code of 1987 uses the phrase “includes x x x government-owned or -controlled
corporations” which means that a government “instrumentality” may or may not be a
“government-owned or -controlled corporation.” Obviously, the term government
“instrumentality” is broader than the term “government-owned or -controlled corporation.” x x x.
x x x x
The fact that two terms have separate definitions means that while a government
“instrumentality” may include a “government-owned or -controlled corporation,” there may be a
government “instrumentality” that will not qualify as a “government-owned or -controlled
corporation.”
A close scrutiny of the definition of “government-owned or -controlled corporation” in Section
2(13) will show that MIAA would not fall under such definition. MIAA is a government
“instrumentality” that does not qualify as a “government-owned or -controlled corporation.” x x x.
x x x x
Thus, MIAA is not a government-owned or -controlled corporation but a government
instrumentality which is exempt from any kind of tax from the local governments. Indeed, the
exercise of the taxing power of local government units is subject to the limitations enu-
381
VOL. 757, JUNE 15, 2015 381
City of Lapu-Lapu
merated in Section 133 of the Local Government Code. Under Section 133(o) of the Local
Government Code, local government units have no power to tax instrumentalities of the national
government like the MIAA. Hence, MIAA is not liable to pay real property tax for the NAIA Pasay
properties.
Furthermore, the airport lands and buildings of MIAA are properties of public dominion
intended for public use, and as such are exempt from real property tax under Section 234(a) of the
Local Government Code. However, under the same provision, if MIAA leases its real property to a
taxable person, the specific property leased becomes subject to real property tax. In this case, only
those portions of the NAIA Pasay properties which are leased to taxable persons like private parties
are subject to real property tax by the City of Pasay. (Emphases added, citations omitted)

The Court not only mentioned petitioner MCIAA as similarly situated as MIAA. It also
mentioned several other government instrumentalities, among which was the Philippine
Fisheries Development Authority. Thus, applying the 2006 MIAA ruling, the Court,
in Philippine Fisheries Development Authority v. Court of Appeals,82 held:
On the basis of the parameters set in the MIAA case, the Authority should be classified as an
instrumentality of the national government. As such, it is generally exempt from payment of real
property tax, except those portions which have been leased to private entities.
In the MIAA case, petitioner Philippine Fisheries Development Authority was cited as among
the instrumentalities of the national government. x x x.
x x x x
Indeed, the Authority is not a GOCC but an instrumentality of the government. The Authority
has a
_______________
82 Philippine Fisheries Development Authority v. Court of Appeals, supra note 70 at pp. 668-674; pp. 500-503.
382
City of Lapu-Lapu
capital stock but it is not divided into shares of stocks. Also, it has no stockholders or voting
shares. Hence, it is not a stock corporation. Neither [is it] a non-stock corporation because it has no
members.
The Authority is actually a national government instrumentality which is defined as an agency
of the national government, not integrated within the department framework, vested with special
functions or jurisdiction by law, endowed with some if not all corporate powers, administering
special funds, and enjoying operational autonomy, usually through a charter. When the law vests in
a government instrumentality corporate powers, the instrumentality does not become a
corporation. Unless the government instrumentality is organized as a stock or non-stock
corporation, it remains a government instrumentality exercising not only governmental but also
corporate powers.
Thus, the Authority which is tasked with the special public function to carry out the
government’s policy “to promote the development of the country’s fishing industry and improve
the efficiency in handling, preserving, marketing, and distribution of fish and other aquatic
products,” exercises the governmental powers of eminent domain, and the power to levy fees and
charges. At the same time, the Authority exercises “the general corporate powers conferred by laws
upon private and government-owned or -controlled corporations.”
x x x x
In light of the foregoing, the Authority should be classified as an instrumentality of the national
government which is liable to pay taxes only with respect to the portions of the property, the
beneficial use of which were vested in private entities. When local governments invoke the power to
tax on national government instrumentalities, such power is construed strictly against local
governments. The rule is that a tax is never presumed and there must be clear language in the law
imposing the tax. Any doubt whether a person, article or activity is taxable is resolved against
taxation. This rule applies
383
VOL. 757, JUNE 15, 2015 383
City of Lapu-Lapu

with greater force when local governments seek to tax national government instrumentalities.
Thus, the real property tax assessments issued by the City of Iloilo should be upheld only with
respect to the portions leased to private persons. In case the Authority fails to pay the real property
taxes due thereon, said portions cannot be sold at public auction to satisfy the tax delinquency.
x x x.
x x x x
In sum, the Court finds that the Authority is an instrumentality of the national government,
hence, it is liable to pay real property taxes assessed by the City of Iloilo on the IFPC only with
respect to those portions which are leased to private entities. Notwithstanding said tax delinquency
on the leased portions of the IFPC, the latter or any part thereof, being a property of public
domain, cannot be sold at public auction. This means that the City of Iloilo has to satisfy the tax
delinquency through means other than the sale at public auction of the IFPC. (Citations omitted)

Another government instrumentality specifically mentioned in the 2006 MIAA case was
the Philippine Ports Authority (PPA). Hence, in Curata v. Philippine Ports Authority,83 the
Court held that the PPA is similarly situated as MIAA, and ruled in this wise:
This Court’s disquisition in Manila International Airport Authority v. Court of Appeals –– ruling
that MIAA is not a government-owned and/or -controlled corporation (GOCC), but an
instrumentality of the National Government and thus exempt from local taxation, and that its real
properties are owned by the Republic of the Philippines –– is instructive. x x x. These findings are
squarely applicable to PPA, as it is similarly situated as MIAA. First, PPA is likewise not a GOCC
for not having shares of stocks or members. Second, the docks, piers and
_______________
83 Curata v. Philippine Ports Authority, supra note 70 at p. 87; pp. 290-291.
384
City of Lapu-Lapu
buildings it administers are likewise owned by the Republic and, thus, outside the commerce of
man. Third, PPA is a mere trustee of these properties. Hence, like MIAA, PPA is clearly a
government instrumentality, an agency of the government vested with corporate powers to perform
efficiently its governmental functions.
Therefore, an undeniable conclusion is that the funds of PPA partake of government funds, and
such may not be garnished absent an allocation by its Board or by statutory grant. If the PPA funds
cannot be garnished and its properties, being government properties, cannot be levied via a writ of
execution pursuant to a final judgment, then the trial court likewise cannot grant discretionary
execution pending appeal, as it would run afoul of the established jurisprudence that government
properties are exempt from execution. What cannot be done directly cannot be done indirectly.
(Citations omitted)

In Government Service Insurance System v. City Treasurer and City Assessor of the City of
Manila84 the Court found that the GSIS was also a government instrumentality and not a
GOCC, applying the 2006 MIAA case even though the GSIS was not among those
specifically mentioned by the Court as similarly situated as MIAA. The Court said:

GSIS an instrumentality of the National Government
Apart from the foregoing consideration, the Court’s fairly recent ruling in Manila International
Airport Authority v. Court of Appeals, a case likewise involving real estate tax assessments by a
Metro Manila city on the real properties administered by MIAA, argues for the non-tax liability of
GSIS for real estate taxes. x x x.
x x x x
_______________
84 Government Service Insurance System v. City Treasurer and City Assessor of the City of Manila, supra note 70
at pp. 978-980; pp. 346-347.
385
VOL. 757, JUNE 15, 2015 385
City of Lapu-Lapu
While perhaps not of governing sway in all fours inasmuch as what were involved in Manila
International Airport Authority, e.g., airfields and runways, are properties of the public dominion
and, hence, outside the commerce of man, the rationale underpinning the disposition in that case is
squarely applicable to GSIS, both MIAA and GSIS being similarly situated. First, while created
under CA 186 as a non-stock corporation, a status that has remained unchanged even when it
operated under PD 1146 and RA 8291, GSIS is not, in the context of the aforequoted Sec. 193 of the
LGC, a GOCC following the teaching of Manila International Airport Authority, for, like MIAA,
GSIS’s capital is not divided into unit shares. Also, GSIS has no members to speak of. And by
members, the reference is to those who, under Sec. 87 of the Corporation Code, make up the non-
stock corporation, and not to the compulsory members of the system who are government
employees. Its management is entrusted to a Board of Trustees whose members are appointed by
the President.
Second, the subject properties under GSIS’s name are likewise owned by the Republic. The
GSIS is but a mere trustee of the subject properties which have either been ceded to it by the
Government or acquired for the enhancement of the system. This particular property arrangement
is clearly shown by the fact that the disposal or conveyance of said subject properties are either
done by or through the authority of the President of the Philippines. x x x. (Emphasis added,
citations omitted)

All the more do we find that petitioner MCIAA, with its many similarities to the MIAA,
should be classified as a government instrumentality, as its properties are being used for
public purposes, and should be exempt from real estate taxes. This is not to derogate in any
way the delegated authority of local government units to collect realty taxes, but to uphold
the fundamental doctrines of uniformity in taxation and equal protection of the laws, by
applying all the jurisprudence that have exempted from said taxes similar authorities,
agencies,
386
City of Lapu-Lapu
and instrumentalities, whether covered by the 2006 MIAA ruling or not.
To reiterate, petitioner MCIAA is vested with corporate powers but it is not a stock or
non-stock corporation, which is a necessary condition before an agency or instrumentality
is deemed a government-owned or -controlled corporation. Like MIAA, petitioner MCIAA
has capital under its charter but it is not divided into shares of stock. It also has no
stockholders or voting shares. Republic Act No. 6958 provides:
Section 9. Capital.—The [Mactan-Cebu International Airport] Authority shall have an
authorized capital stock equal to and consisting of:
(a) the value of fixed assets (including airport facilities, runways and equipment) and such
other properties, movable and immovable, currently administered by or belonging to the airports
as valued on the date of the effectivity of this Act;
(b) the value of such real estate owned and/or administered by the airports; and
(c) government contribution in such amount as may be deemed an appropriate initial balance.
Such initial amount, as approved by the President of the Philippines, which shall be more or less
equivalent to six (6) months working capital requirement of the Authority, is hereby authorized to
be appropriated in the General Appropriations Act of the year following its enactment into law.
Thereafter, the government contribution to the capital of the Authority shall be provided for in
the General Appropriations Act.

Like in MIAA, the airport lands and buildings of MCIAA are properties of public
dominion because they are intended for public use. As properties of public dominion, they
indisputably belong to the State or the Republic of the Philippines, and are outside the
commerce of man. This, unless petitioner leases its real property to a taxable person, the
specific prop-
387
VOL. 757, JUNE 15, 2015 387
City of Lapu-Lapu
erty leased becomes subject to real property tax; in which case, only those portions of
petitioner’s properties which are leased to taxable persons like private parties are subject
to real property tax by the City of Lapu-Lapu.
We hereby adopt and apply to petitioner MCIAA the findings and conclusions of the
Court in the 2006 MIAA case, and we quote:
To summarize, MIAA is not a government-owned or -controlled corporation under Section
2(13) of the Introductory Provisions of the Administrative Code because it is not organized as a
stock or non-stock corporation. Neither is MIAA a government-owned or -controlled corporation
under Section 16, Article XII of the 1987 Constitution because MIAA is not required to meet the
test of economic viability. 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. x x x.
x x x x
The term “ports x x x constructed by the State” includes airports and seaports. The Airport
Lands and Buildings of MIAA are intended for public use, and at the very least intended for public
service. Whether intended for public use or public service, the Airport Lands and Buildings are
properties of public dominion. As properties of public dominion,
388
City of Lapu-Lapu
the Airport Lands and Buildings are owned by the Republic and thus exempt from real estate
tax under Section 234(a) of the Local Government Code.
4. Conclusion
-controlled corporation. Under Section 133(o) of the Local Government Code, MIAA as a
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. (Emphases added)
85
_______________
85 Manila International Airport Authority v. Court of Appeals, supra note 21 at pp. 240-241; pp. 645-646.
389
VOL. 757, JUNE 15, 2015 389
City of Lapu-Lapu
WHEREFORE, we hereby GRANT the petition. We REVERSE and SET
ASIDE the Decision dated October 8, 2007 and the Resolution dated February 12, 2008 of
the Court of Appeals (Cebu City) in C.A.-G.R. S.P. No. 01360. Accordingly,
we DECLARE:
1. Petitioner’s properties that are actually, solely and exclusively used for public
purpose, consisting of the airport terminal building, airfield, runway, taxiway and the lots
on which they are situated, EXEMPT from real property tax imposed by the City of Lapu-
Lapu.
2. VOID all the real property tax assessments, including the additional tax for the
special education fund and the penalty interest, as well as the final notices of real property
tax delinquencies, issued by the City of Lapu-Lapu on petitioner’s properties, except the
assessment covering the portions that petitioner has leased to private parties.
3. NULL and VOID the sale in public auction of 27 of petitioner’s properties and the
eventual forfeiture and purchase of the said properties by respondent City of Lapu-Lapu.
We likewise declare VOID the corresponding Certificates of Sale of Delinquent Property
issued to respondent City of Lapu-Lapu.
SO ORDERED.
Sereno (CJ., Chairperson), Bersamin, Perez and Perlas-Bernabe, JJ., concur.
Petition granted, judgment and resolution reversed and set aside.
Notes.—For real property taxes, the incidental generation of income is permissible
because the test of exemption is the use of the property; The effect of failing to meet the use
re-
390
City of Lapu-Lapu
quirement is simply to remove from the tax exemption that portion of the property not
devoted to charity. (Commissioner of Internal Revenue vs. St. Luke’s Medical Center,
Inc., 682 SCRA 66 [2012])
The requirement of “payment under protest” is a condition sine qua non before a
protest or an appeal questioning the correctness of an assessment of real property tax may
be entertained. (Camp John Hay Development Corporation vs. Central Board of Assessment
Appeals, 706 SCRA 547 [2013])
——o0o——

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F.

Scope and Limitations of Taxation

G.R. No. 87479. June 4, 1990. *

NATIONAL POWER CORPORATION, petitioner, vs. THE PROVINCE OF ALBAY,

Same; Same; Executive Order No. 93 validly restored NAPOCOR’S tax exemption.—Does

VOL. 186, JUNE 4, 1990 199

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

The Court gathers from the records that:

Chairman —Secretary of Finance

1. (4)Meanwhile, FIRB Resolution No. 10-85 was issued, “restoring”

4. (7)On December 17, 1986, Executive Order No. 93 was promulgated by

Pres. Decree No. 776 (1975).

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

in character and can not affect the Board’s past acts.

1. (1)Collections in the provinces: Fifty per cent shall accrue

must also be shown to

Pres. Decree No. 464, secs. 86, 87.

G.R. No. 162015. March 6, 2006. *

THE CITY GOVERNMENT OF QUEZON CITY, AND THE CITY TREASURER OF

1 SUPREME COURT REPORTS ANNOTATED

VOL. 484, MARCH 6, 2006 17

1 SUPREME COURT REPORTS ANNOTATED

The facts are stated in the opinion of the Court.

telecommunications, radiophone, broadcasting and telecasting.

1. (a)Tax Declaration Nos. D-096-04071, D-096-04074, D-096-04072 and D-096-

on all real properties in Quezon City, and, reiterating in

This took effect on July 1, 1993.

1. (1)Tax Declaration No. D-096-04071—

government units to impose taxes. There, the Court wrote:

VOL. 484, MARCH 6, 2006 187

No. L-31156. February 27, 1976. *

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

VOL. 69, FEBRUARY 27, 1976 46

4 SUPREME COURT REPORTS ANNOTATED

APPEAL from a decision of the Court of First Instance of Leyte. Garlitos, J.

The facts are stated in the opinion of the Court.

as the Local Autonomy Act,

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

Cooley, The Law of Taxation, Vol. 1, Fourth Edition, 149-150.

Rubi v. Prov. Brd. of Mindoro, 39 Phil. 702 (1919).

other by the city or municipality. 17

Commissioner of Internal Revenue v. Lednicky, L-18169, July 31, 1964, 11 SCRA 609.

SMB, Inc. v. City of Cebu, L-20312, February 26, 1972, 43 SCRA 280.

Palawan, L-20125, July 20, 1965, 14 SCRA 663-64.

SMB, Inc. v. City of Cebu, ante, Footnote 16.

drink is not one of those specified.

June 20, 1953.

bottles; a family-size contains 26 oz., or 312 oz. per case of 12 bottles.

474 SUPREME COURT REPORTS ANNOTATED

b. Taxation is for a public purpose

G.R. No. 166006. March 14, 2008.*

4 SUPREME COURT REPORTS ANNOTATED

VOL. 548, MARCH 14, 2008 48

4 SUPREME COURT REPORTS ANNOTATED

4 SUPREME COURT REPORTS ANNOTATED

VOL. 548, MARCH 14, 2008 49

PETITION for review on certiorari of a decision of the Court of Appeals.

VOL. 548, MARCH 14, 2008 493

VOL. 548, MARCH 14, 2008 495

12 Id., at pp. 76-77.

VOL. 548, MARCH 14, 2008 497

16 Id., at pp. 54-55.

498 SUPREME COURT REPORTS ANNOTATED