[G.R. No. L-9408. October 31, 1956.

EMILIO Y. HILADO, Petitioner, v. THE COLLECTOR OF INTERNAL REVENUE and THE

COURT OF TAX APPEALS, Respondents.

Emilio Y. Hilado in his own behalf.

Solicitor General Ambrosio Padilla, Assistant Solicitor General Ramon Avanceña and
Solicitor Jose P. Alejandrofor Respondents.

BAUTISTA ANGELO, J.:

Facts:

Emilio Hilado filed his income tax return for 1951 with the treasurer of Bacolod City. He is
claiming a deductible item of P12,837.65 from his gross income under the General Circular V-
123 issued by the Collector of Internal Revenue. Subsequently, the Secretary of Finance, through
the Collector, issued General Circular V-139 which revoked and declared void Circular V-123. It
provided that losses of property which occurred in World War II from fires, storms, shipwreck or
other casualty, or from robbery, theft, or embezzlement are deductible in the year of actual loss
or destruction of said property. Thereafter, the deductions were disallowed.

Issue:
Whether or not the internal revenue laws can be enforced during war

Ruling:

Yes. It is well known that our internal revenue laws are not political in nature and as such were
continued in force during the period of enemy occupation and in effect were actually enforced
by the occupation government. As a matter of fact, income tax returns were filed during that
period and income tax payment were effected and considered valid and legal. Such tax laws are
deemed to be the laws of the occupied territory and not of the occupying enemy.

"Furthermore, it is a legal maxim, that excepting that of a political nature, ‘Law once
established continues until changed by some competent legislative power. It is not changed
merely by change of sovereignty.’ (Joseph H. Beale, Cases on Conflict of Laws, III, Summary
section 9, citing Commonwealth v. Chapman, 13 Met., 68.) As the same author says, in his
Treatise on the Conflict of Laws (Cambridge, 1916, section 131): ‘There can be no break or
interregnun in law. From the time the law comes into existence with the first-felt corporateness
of a primitive people it must last until the final disappearance of human society. Once created,
it persists until a change takes place, and when changed it continues in such changed condition
until the next change and so forever. Conquest or colonization is impotent to bring law to an
end; inspite of change of constitution, the law continues unchanged until the new sovereign by
legislative act creates a change.’ " (Co Kim Chan v. Valdes Tan Keh and Dizon, 75 Phil., 113,
142-143.)

It is likewise contended that the power to pass upon the validity of General Circular No. V-123
is vested exclusively in our courts in view of the principle of separation of powers and,
therefore, the Secretary of Finance acted without valid authority in revoking it and approving in
lieu thereof General Circular No. V-139. It cannot be denied, however, that the Secretary of
Finance is vested with authority to revoke, repeal or abrogate the acts or previous rulings of his
predecessor in office because the construction of a statute by those administering it is not
binding on their successors if thereafter the latter become satisfied that a different construction
should be given. [Association of Clerical Employees v. Brotherhood of Railways & Steamship
Clerks, 85 F. (2d) 152, 109 A.L.R., 345.]

Wherefore, the decision appealed from is affirmed Without pronouncement as to costs.

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

ANTERO M. SISON, JR., petitioner, 

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

Antero Sison for petitioner and for his own behalf. 

The Solicitor General for respondents.

FERNANDO, C.J.:

Facts:

Petitioner challenged the constitutionality of Section 1 of Batas Pambansa Blg. 135. It amended 
Section 21 of the National Internal Revenue Code of 1977, which provides for rates of tax on citizens
or residents on (a) taxable compensation income, (b) taxable net income, (c) royalties, prizes, and
other winnings, (d) interest from bank deposits and yield or any other monetary benefit from deposit
substitutes and from trust fund and similar arrangements, (e) dividends and share of individual
partner in the net profits of taxable partnership, (f) adjusted gross income. 

Petitioner as taxpayer alleged that "he would be unduly discriminated against by the imposition of
higher rates of tax upon his income arising from the exercise of his profession vis-a-vis those which
are imposed upon fixed income or salaried individual taxpayers."

Issue:

Whether or not there is a transgression of both the equal protection and due process
clauses 6 of the Constitution as well as of the rule requiring uniformity in taxation. 

Ruling:

No. The petition must be dismissed.

Now for equal protection. The applicable standard to avoid the charge that there is a denial of
this constitutional mandate whether the assailed act is in the exercise of the lice power or the
power of eminent domain is to demonstrated that the governmental act assailed, far from being
inspired by the attainment of the common weal was prompted by the spirit of hostility, or at the
very least, discrimination that finds no support in reason. It suffices then that the laws operate
equally and uniformly on all persons under similar circumstances or that all persons must be
treated in the same manner, the conditions not being different, both in the privileges conferred
and the liabilities imposed. Favoritism and undue preference cannot be allowed. For the
principle is that equal protection and security shall be given to every person under circumtances
which if not Identical are analogous. If law be looked upon in terms of burden or charges, those
that fall within a class should be treated in the same fashion, whatever restrictions cast on
some in the group equally binding on the rest." 20 That same formulation applies as well to
taxation measures. The equal protection clause is, of course, inspired by the noble concept of
approximating the Ideal of the laws benefits being available to all and the affairs of men being
governed by that serene and impartial uniformity, which is of the very essence of the Idea of
law. There is, however, wisdom, as well as realism in these words of Justice Frankfurter: "The
equality at which the 'equal protection' clause aims is not a disembodied equality. The
Fourteenth Amendment enjoins 'the equal protection of the laws,' and laws are not abstract
propositions. They do not relate to abstract units A, B and C, but are expressions of policy
arising out of specific difficulties, address to the attainment of specific ends by the use of
specific remedies. The Constitution does not require things which are different in fact or opinion
to be treated in law as though they were the same." 21 Hence the constant reiteration of the
view that classification if rational in character is allowable. As a matter of fact, in a leading case
of Lutz V. Araneta, 22 this Court, through Justice J.B.L. Reyes, went so far as to hold "at any
rate, it is inherent in the power to tax that a state be free to select the subjects of taxation, and
it has been repeatedly held that 'inequalities which result from a singling out of one particular
class for taxation, or exemption infringe no constitutional limitation.'" 23

Petitioner likewise invoked the kindred concept of uniformity. According to the Constitution:
"The rule of taxation shag be uniform and equitable." 24 This requirement is met according to
Justice Laurel in Philippine Trust Company v. Yatco,25 decided in 1940, when the tax "operates
with the same force and effect in every place where the subject may be found. " 26 He likewise
added: "The rule of uniformity does not call for perfect uniformity or perfect equality, because
this is hardly attainable." 27 The problem of classification did not present itself in that case. It
did not arise until nine years later, when the Supreme Court held: "Equality and uniformity in
taxation means that all taxable articles or kinds of property of the same class shall be taxed at
the same rate. The taxing power has the authority to make reasonable and natural
classifications for purposes of taxation, ... . 28 As clarified by Justice Tuason, where "the
differentiation" complained of "conforms to the practical dictates of justice and equity" it "is not
discriminatory within the meaning of this clause and is therefore uniform." 29 There is quite a
similarity then to the standard of equal protection for all that is required is that the tax "applies
equally to all persons, firms and corporations placed in similar situation." 30

8. Further on this point. Apparently, what misled petitioner is his failure to take into
consideration the distinction between a tax rate and a tax base. There is no legal objection to a
broader tax base or taxable income by eliminating all deductible items and at the same time
reducing the applicable tax rate. Taxpayers may be classified into different categories. To
repeat, it. is enough that the classification must rest upon substantial distinctions that make
real differences. In the case of the gross income taxation embodied in Batas Pambansa Blg.
135, the, discernible basis of classification is the susceptibility of the income to the application
of generalized rules removing all deductible items for all taxpayers within the class and fixing a
set of reduced tax rates to be applied to all of them. Taxpayers who are recipients of
compensation income are set apart as a class. As there is practically no overhead expense,
these taxpayers are e not entitled to make deductions for income tax purposes because they
are in the same situation more or less. On the other hand, in the case of professionals in the
practice of their calling and businessmen, there is no uniformity in the costs or expenses
necessary to produce their income. It would not be just then to disregard the disparities by
giving all of them zero deduction and indiscriminately impose on all alike the same tax rates on
the basis of gross income. There is ample justification then for the Batasang Pambansa to adopt
the gross system of income taxation to compensation income, while continuing the system of
net income taxation as regards professional and business income.

9. Nothing can be clearer, therefore, than that the petition is without merit, considering the (1)
lack of factual foundation to show the arbitrary character of the assailed provision; 31 (2) the
force of controlling doctrines on due process, equal protection, and uniformity in taxation and
(3) the reasonableness of the distinction between compensation and taxable net income of
professionals and businessman certainly not a suspect classification,

WHEREFORE, the petition is dismissed. Costs against petitioner.

Makasiar, Concepcion, Jr., Guerero, Melencio-Herrera, Escolin, Relova, Gutierrez, Jr., De la

Fuente and Cuevas, JJ., concur.

Teehankee, J., concurs in the result.

Plana, J., took no part.

G.R. No. L-22074             April 30, 1965
THE PHILIPPINE GUARANTY CO., INC., petitioner, 
vs.
THE COMMISSIONER OF INTERNAL REVENUE and THE COURT OF TAX
APPEALS, respondents.

Josue H. Gustilo and Ramirez and Ortigas for petitioner.

Office of the Solicitor General and Attorney V.G. Saldajena for respondents.

BENGZON, J.P., J.:

FACTS: The petitioner Philippine Guaranty Co., Inc., a domestic insurance company, entered into
reinsurance contracts with foreign insurance companies not doing business in the country, thereby ceding to
foreign  reinsurers a portion of the premiums on insurance it has originally underwritten in the Philippines. The
premiums paid by such companies were excluded by the petitioner from its gross income when it file its
income tax returns for 1953 and 1954. Furthermore, it did not withhold or pay tax on them. Consequently, the
CIR assessed against the petitioner withholding taxes on the ceded reinsurance premiums to which the latter
protested the assessment on the ground that the premiums are not subject to tax for the premiums did not
constitute income from sources within the Philippines because the foreign reinsurers did not engage in business
in the Philippines, and CIR's previous rulings did not require insurance companies to withhold income tax due
from foreign 
companies.

ISSUE: Are insurance companies not required to withhold tax on reinsurance premiums ceded to foreign 
insurance companies, which deprives the government from collecting the tax due from them?

HELD: No. The power to tax is an attribute of sovereignty. It is a power emanating from necessity. It is a 
necessary burden to preserve the State's sovereignty and a means to give the citizenry an army to resist
an aggression, a navy to defend its shores from invasion, a corps of civil servants to serve, public
improvement designed for the enjoyment of the citizenry and those which come within the State's territory, and
facilities and protection which a government is supposed to provide. Considering that the reinsurance
premiums in question were afforded protection by the government and the recipient foreign reinsurers
exercised rights and privileges guaranteed by our laws, such reinsurance premiums and reinsurers should share
the burden of maintaining the state. The petitioner's defense of reliance of good faith on rulings of the CIR
requiring no withholding of tax due on reinsurance premiums may free the taxpayer from the payment of
surcharges or penalties imposed for failure to pay the corresponding withholding tax, but it certainly would not
exculpate it from liability to pay such withholding tax. The Government is not estopped from collecting taxes
by the mistakes or errors of its agents.

WHEREFORE, in affirming the decision appealed from, the Philippine Guaranty Co., Inc. is hereby
ordered to pay to the Commissioner of Internal Revenue the sums of P202,192.00 and P173,153.00,
or a total amount of P375,345.00, as withholding tax for the years 1953 and 1954, respectively. If the
amount of P375,345.00 is not paid within 30 days from the date this judgement becomes final, there
shall be collected a surcharged of 5% on the amount unpaid, plus interest at the rate of 1% a month
from the date of delinquency to the date of payment, provided that the maximum amount that may
be collected as interest shall not exceed the amount corresponding to a period of three (3) years.
With costs againsts petitioner.
June 18, 1987

G.R. No. L-75697

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

Nelson Y. Ng for petitioner.

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

MELENCIO-HERRERA, J.:

Facts:

Petitioner on his own behalf and purportedly on behalf of other videogram operators adversely
affected assailed the constitutionality of PD 1987 entitled "An Act Creating the Videogram
Regulatory Board" with broad powers to regulate and supervise the videogram industry, citing
especially Section 10 thereof, which imposes a tax of 30% on the gross receipts payable to the
local government. Petitioner contends that aside from its being a rider and not germane to the
subject matter thereof, and such imposition was being harsh, confiscatory, oppressive and/or
unlawfully restraints trade in violation of the due process clause of the Constitution.

ISSUE: Whether or not the PD 1987 is unconstitutional due to the tax provision
included

Ruling:

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

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

The public purpose of a tax may legally exist even if the motive which impelled the legislature
to impose the tax was to favor one industry over another. 11

It is inherent in the power to tax that a state be free to select the subjects of taxation, and it
has been repeatedly held that "inequities which result from a singling out of one particular class
for taxation or exemption infringe no constitutional limitation". 12 Taxation has been made the
implement of the state's police power. 13

WHEREFORE, the instant Petition is hereby dismissed.

G.R. No. 168584             October 15, 2007
REPUBLIC OF THE PHILIPPINES, represented by THE HONORABLE SECRETARY OF
FINANCE, THE HONORABLE COMMISSIONER OF BUREAU OF INTERNAL REVENUE, THE
HONORABLE COMMISSIONER OF CUSTOMS, and THE COLLECTOR OF CUSTOMS OF THE
PORT OF SUBIC, petitioners, 
vs.
HON. RAMON S. CAGUIOA, Presiding Judge, Branch 74, RTC, Third Judicial Region,
Olongapo City, INDIGO DISTRIBUTION CORP., herein represented by ARIEL G.
CONSOLACION, W STAR TRADING AND WAREHOUSING CORP., herein represented by
HIERYN R. ECLARINAL, FREEDOM BRANDS PHILS., CORP., herein represented by ANA LISA
RAMAT, BRANDED WAREHOUSE, INC., herein represented by MARY AILEEN S. GOZUN,
ALTASIA INC., herein represented by ALAN HARROW, TAINAN TRADE (TAIWAN), INC.,
herein represented by ELENA RANULLO, SUBIC PARK N’ SHOP, herein represented by
NORMA MANGALINO DIZON, TRADING GATEWAYS INTERNATIONAL PHILS., herein
represented by MA. CHARINA FE C. RODOLFO, DUTY FREE SUPERSTORE (DFS), herein
represented by RAJESH R. SADHWANI, CHJIMES TRADING INC., herein represented by
ANGELO MARK M. PICARDAL, PREMIER FREEPORT, INC., herein represented by ROMMEL
P. GABALDON, FUTURE TRADE SUBIC FREEPORT, INC., herein represented by WILLIE S.
VERIDIANO, GRAND COMTRADE INTERNATIONAL CORP., herein represented by JULIUS
MOLINDA, and FIRST PLATINUM INTERNATIONAL, INC., herein represented by ISIDRO M.
MUÑOZ,respondents.

DECISION

CARPIO MORALES, J.:

Petitioners seek via petition for certiorari and prohibition to annul (1) the May 4, 2005 Order 1 issued
by public respondent Judge Ramon S. Caguioa of the Regional Trial Court (RTC), Branch 74,
Olongapo City, granting private respondents’ application for the issuance of a writ of preliminary
injunction and (2) the Writ of Preliminary Injunction 2that was issued pursuant to such Order, which
stayed the implementation of Republic Act (R.A.) No. 9334, AN ACT INCREASING THE EXCISE
TAX RATES IMPOSED ON ALCOHOL AND TOBACCO PRODUCTS, AMENDING FOR THE
PURPOSE SECTIONS 131, 141, 142, 143, 144, 145 AND 288 OF THE NATIONAL INTERNAL
REVENUE CODE OF 1997, AS AMENDED. 

Petitioners likewise seek to enjoin, restrain and inhibit public respondent from enforcing the
impugned issuances and from further proceeding with the trial of Civil Case No. 102-0-05.

The relevant facts are as follows: 

In 1992, Congress enacted Republic Act (R.A) No. 7227 3 or the Bases Conversion and Development
Act of 1992 which, among other things, created the Subic Special Economic and Freeport Zone
(SBF4) and the Subic Bay Metropolitan Authority (SBMA).

R.A. No. 7227 envisioned the SBF to be developed into a "self-sustaining, industrial, commercial,
financial and investment center to generate employment opportunities in and around the zone and to
attract and promote productive foreign investments."5 In line with this vision, Section 12 of the law
provided: 

(b) The Subic Special Economic Zone shall be operated and managed as a separate
customs territory ensuring free flow or movement of goods and capital within, into
and exported out of the Subic Special Economic Zone, as well as provide incentives
such as tax and duty-free importations of raw materials, capital and equipment.
However, exportation or removal of goods from the territory of the Subic Special
Economic Zone to the other parts of the Philippine territory shall be subject to
customs duties and taxes under the Customs and Tariff Code and other relevant tax
laws of the Philippines; 

(c) The provisions of existing laws, rules and regulations to the contrary

notwithstanding, no taxes, local and national, shall be imposed within the Subic
Special Economic Zone. In lieu of paying taxes, three percent (3%) of the gross income
 earned by all businesses and enterprises within the Subic Special Economic Zone shall be
remitted to the National Government, one percent (1%) each to the local government units
affected by the declaration of the zone in proportion to their population area, and other
factors. In addition, there is hereby established a development fund of one percent (1%) of
the gross income earned by all businesses and enterprises within the Subic Special
Economic Zone to be utilized for the development of municipalities outside the City of
Olongapo and the Municipality of Subic, and other municipalities contiguous to be base
areas. 

In case of conflict between national and local laws with respect to tax exemption privileges in
the Subic Special Economic Zone, the same shall be resolved in favor of the latter; 

(d) No exchange control policy shall be applied and free markets for foreign exchange, gold,
securities and future shall be allowed and maintained in the Subic Special Economic Zone; 

(e) The Central Bank, through the Monetary Board, shall supervise and regulate the
operations of banks and other financial institutions within the Subic Special Economic Zone; 

(f) Banking and finance shall be liberalized with the establishment of foreign currency
depository units of local commercial banks and offshore banking units of foreign banks with
minimum Central Bank regulation; 

(g) Any investor within the Subic Special Economic Zone whose continuing investment shall
not be less than Two hundred fifty thousand dollars ($250,000), his/her spouse and
dependent children under twenty-one (21) years of age, shall be granted permanent resident
status within the Subic Special Economic Zone. They shall have freedom of ingress and
egress to and from the Subic Special Economic Zone without any need of special
authorization from the Bureau of Immigration and Deportation. The Subic Bay Metropolitan
Authority referred to in Section 13 of this Act may also issue working visas renewal every two
(2) years to foreign executives and other aliens possessing highly-technical skills which no
Filipino within the Subic Special Economic Zone possesses, as certified by the Department
of Labor and Employment. The names of aliens granted permanent residence status and
working visas by the Subic Bay Metropolitan Authority shall be reported to the Bureau of
Immigration and Deportation within thirty (30) days after issuance thereof; 

x x x x. (Emphasis supplied)

Pursuant to the law, private respondents Indigo Distribution Corporation, W Star Trading and
Warehousing Corporation, Freedom Brands Philippines Corporation, Branded Warehouse, Inc.,
Altasia, Inc., Tainan Trade (Taiwan) Inc., Subic Park ‘N Shop, Incorporated, Trading Gateways
International Philipines, Inc., Duty Free Superstore (DFS) Inc., Chijmes Trading, Inc., Premier
Freeport, Inc., Future Trade Subic Freeport, Inc., Grand Comtrade Int’l., Corp., and First Platinum
International, Inc., which are all domestic corporations doing business at the SBF, applied for and
were granted Certificates of Registration and Tax Exemption 6 by the SBMA.

These certificates allowed them to engage in the business either of trading, retailing or wholesaling,
import and export, warehousing, distribution and/or transshipment of general merchandise, including
alcohol and tobacco products, and uniformly granted them tax exemptions for such importations as
contained in the following provision of their respective Certificates: 

ARTICLE IV. The Company shall be entitled to tax and duty-free importation of raw
materials, capital equipment, and household and personal items for use solely within
the Subic Bay Freeport Zonepursuant to Sections 12(b) and 12(c) of the Act and Sections
43, 45, 46 and 49 of the Implementing Rules. All importations by the Company are exempt
from inspection by the Societe Generale de Surveillance if such importations are delivered
immediately to and for use solely within the Subic Bay Freeport Zone. (Emphasis supplied)

Congress subsequently passed R.A. No. 9334, however, effective on January 1, 2005, 7 Section 6 of
which provides: 

Sec. 6. Section 131 of the National Internal Revenue Code of 1977, as amended, is hereby
amended to read as follows:
 Sec. 131. Payment of Excise Taxes on Imported Articles. –

(A) Persons Liable. – Excise taxes on imported articles shall be paid by the owner or
importer to the Customs Officers, conformably with the regulations of the Department of
Finance and before the release of such articles from the customshouse or by the person who
is found in possession of articles which are exempt from excise taxes other than those
legally entitled to exemption.

In the case of tax-free articles brought or imported into the Philippines by persons, entities or
agencies exempt from tax which are subsequently sold, transferred or exchanged in the
Philippines to non-exempt persons or entities, the purchasers or recipients shall be
considered the importers thereof, and shall be liable for the duty and internal revenue tax
due on such importation.

The provision of any special or general law to the contrary notwithstanding, the
importation of cigars and cigarettes, distilled spirits, fermented liquors and wines into
the Philippines, even if destined for tax and duty free shops, shall be subject to all
applicable taxes, duties, charges, including excise taxes due thereon. This shall apply
to cigars and cigarettes, distilled spirits, fermented liquors and wines brought directly
into the duly chartered or legislated freeports of the Subic Economic Freeport Zone,
created under Republic Act No. 7227; x x x and such other freeports as may hereafter be
established or created by law: Provided, further, That importations of cigars and cigarettes,
distilled spirits, fermented liquors and wines made directly by a government-owned and
operated duty-free shop, like the Duty Free Philippines (DFP), shall be exempted from all
applicable duties only: x x x Provided, finally, That the removal and transfer of tax and duty-
free goods, products, machinery, equipment and other similar articles other than cigars and
cigarettes, distilled spirits, fermented liquors and wines, from one Freeport to another
Freeport, shall not be deemed an introduction into the Philippine customs territory. x x x.
(Emphasis and underscoring supplied)

On the basis of Section 6 of R.A. No. 9334, SBMA issued on January 10, 2005 a
Memorandum8 declaring that effective January 1, 2005, all importations of cigars, cigarettes, distilled
spirits, fermented liquors and wines into the SBF, including those intended to be transshipped to
other free ports in the Philippines, shall be treated as ordinary importations subject to all applicable
taxes, duties and charges, including excise taxes. 

Meanwhile, on February 3, 2005, former Bureau of Internal Revenue (BIR) Commissioner Guillermo
L. Parayno, Jr. requested then Customs Commissioner George M. Jereos to immediately collect the
excise tax due on imported alcohol and tobacco products brought to the Duty Free Philippines (DFP)
and Freeport zones.9

Accordingly, the Collector of Customs of the port of Subic directed the SBMA Administrator to
require payment of all appropriate duties and taxes on all importations of cigars and cigarettes,
distilled spirits, fermented liquors and wines; and for all transactions involving the said items to be
covered from then on by a consumption entry and no longer by a warehousing entry. 10

On February 7, 2005, SBMA issued a Memorandum 11 directing the departments concerned to

require locators/importers in the SBF to pay the corresponding duties and taxes on their importations
of cigars, cigarettes, liquors and wines before said items are cleared and released from the freeport.
However, certain SBF locators which were "exclusively engaged in the transshipment of cigarette
products for foreign destinations" were allowed by the SBMA to process their import documents
subject to their submission of an Undertaking with the Bureau of Customs. 12

On February 15, 2005, private respondents wrote the offices of respondent Collector of Customs
and the SBMA Administrator requesting for a reconsideration of the directives on the imposition of
duties and taxes, particularly excise taxes, on their shipments of cigars, cigarettes, wines and
liquors.13 Despite these letters, however, they were not allowed to file any warehousing entry for their
shipments. 

Thus, private respondent enterprises, through their representatives, brought before the RTC of
Olongapo City a special civil action for declaratory relief 14 to have certain provisions of R.A. No. 9334
declared as unconstitutional, which case was docketed as Civil Case No. 102-0-05.
In the main, private respondents submitted that (1) R.A. No. 9334 should not be interpreted as
altering, modifying or amending the provisions of R.A. No. 7227 because repeals by implication are
not favored; (2) a general law like R.A. No. 9334 cannot amend R.A. No. 7727, which is a special
law; and (3) the assailed law violates the one bill-one subject rule embodied in Section 26(1), Article
VI15 of the Constitution as well as the constitutional proscription against the impairment of the
obligation of contracts.16

Alleging that great and irreparable loss and injury would befall them as a consequence of the
imposition of taxes on alcohol and tobacco products brought into the SBF, private respondents
prayed for the issuance of a writ of preliminary injunction and/or Temporary Restraining Order (TRO)
and preliminary mandatory injunction to enjoin the directives of herein petitioners.

Petitioners duly opposed the private respondents’ prayer for the issuance of a writ of preliminary
injunction and/or TRO, arguing that (1) tax exemptions are not presumed and even when granted,
are strictly construed against the grantee; (2) an increase in business expense is not the injury
contemplated by law, it being a case of damnum absque injuria; and (3) the drawback mechanism
established in the law clearly negates the possibility of the feared injury. 17

Petitioners moreover pointed out that courts are enjoined from issuing a writ of injunction and/or
TRO on the grounds of an alleged nullity of a law, ordinance or administrative regulation or circular
or in a manner that would effectively dispose of the main case. Taxes, they stressed, are the
lifeblood of the government and their prompt and certain availability is an imperious need. They
maintained that greater injury would be inflicted on the public should the writ be granted. 

On May 4, 2005, the court a quo granted private respondents’ application for the issuance of a writ
of preliminary injunction, after it found that the essential requisites for the issuance of a preliminary
injunction were present. 

As investors duly licensed to operate inside the SBF, the trial court declared that private respondents
were entitled to enjoy the benefits of tax incentives under R.A. No. 7227, particularly the exemption
from local and national taxes under Section 12(c); the aforecited provision of R.A. No. 7227, coupled
with private respondents’ Certificates of Registration and Tax Exemption from the SBMA, vested in
them a clear and unmistakable right or right in esse that would be violated should R.A. No. 9334 be
implemented; and the invasion of such right is substantial and material as private respondents would
be compelled to pay more than what they should by way of taxes to the national government.

The trial court thereafter ruled that the prima facie presumption of validity of R.A. No. 9334 had been
overcome by private respondents, it holding that as a partial amendment of the National Internal
Revenue Code (NIRC) of 1997, 18 as amended, R.A. No. 9334 is a general law that could not prevail
over a special statute like R.A. No. 7227 notwithstanding the fact that the assailed law is of later
effectivity. 

The trial court went on to hold that the repealing provision of Section 10 of R.A. No. 9334 does not
expressly mention the repeal of R. A. No. 7227, hence, its repeal can only be an implied repeal,
which is not favored; and since R.A. No. 9334 imposes new tax burdens, whatever doubts arising
therefrom should be resolved against the taxing authority and in favor of the taxpayer.

The trial court furthermore held that R.A. No. 9334 violates the terms and conditions of private
respondents’ subsisting contracts with SBMA, which are embodied in their Certificates of
Registration and Exemptions in contravention of the constitutional guarantee against the impairment
of contractual obligations; that greater damage would be inflicted on private respondents if the writ of
injunction is not issued as compared to the injury that the government and the general public would
suffer from its issuance; and that the damage that private respondents are bound to suffer once the
assailed statute is implemented – including the loss of confidence of their foreign principals, loss of
business opportunity and unrealized income, and the danger of closing down their businesses due to
uncertainty of continued viability – cannot be measured accurately by any standard.

With regard to the rule that injunction is improper to restrain the collection of taxes under Section
21819 of the NIRC, the trial court held that what is sought to be enjoined is not per se the collection of
taxes, but the implementation of a statute that has been found preliminarily to be unconstitutional. 

Additionally, the trial court pointed out that private respondents’ taxes have not yet been assessed,
as they have not filed consumption entries on all their imported tobacco and alcohol products,
hence, their duty to pay the corresponding excise taxes and the concomitant right of the government
to collect the same have not yet materialized.

On May 11, 2005, the trial court issued a Writ of Preliminary Injunction directing petitioners and the
SBMA Administrator as well as all persons assisting or acting for and in their behalf "1) to allow the
operations of [private respondents] in accordance with R.A. No. 7227; 2) to allow [them] to file
warehousing entries instead of consumption entries as regards their importation of tobacco and
alcohol products; and 3) to cease and desist from implementing the pertinent provisions of R.A. No.
9334 by not compelling [private respondents] to immediately pay duties and taxes on said alcohol
and tobacco products as a condition to their removal from the port area for transfer to the
warehouses of [private respondents]." 20

The injunction bond was approved at One Million pesos (P1,000,000).21

Without moving for reconsideration, petitioners have come directly to this Court to question the May
4, 2005 Order and the Writ of Preliminary Injunction which, they submit, were issued by public
respondent with grave abuse of discretion amounting to lack or excess of jurisdiction. 

In particular, petitioners contend that public respondent peremptorily and unjustly issued the
injunctive writ despite the absence of the legal requisites for its issuance, resulting in heavy
government revenue losses.22 They emphatically argue that since the tax exemption previously
enjoyed by private respondents has clearly been withdrawn by R.A. No. 9334, private respondents
do not have any right in esse nor can they invoke legal injury to stymie the enforcement of R.A. No.
9334.

Furthermore, petitioners maintain that in issuing the injunctive writ, public respondent showed
manifest bias and prejudice and prejudged the merits of the case in utter disregard of the caveat
issued by this Court in Searth Commodities Corporation, et al. v. Court of Appeals 23 and Vera v.
Arca.24

Regarding the P1 million injunction bond fixed by public respondent, petitioners argue that the same
is grossly disproportionate to the damages that have been and continue to be sustained by the
Republic.

In their Reply25 to private respondents’ Comment, petitioners additionally plead public respondent’s
bias and partiality in allowing the motions for intervention of a number of corporations 26 without notice
to them and in disregard of their present pending petition for certiorari and prohibition before this
Court. The injunction bond filed by private respondent Indigo Distribution Corporation, they stress, is
not even sufficient to cover all the original private respondents, much less, intervenor-corporations.

The petition is partly meritorious.

At the outset, it bears emphasis that only questions relating to the propriety of the issuance of the
May 4, 2005 Order and the Writ of Preliminary Injunction are properly within the scope of the present
petition and shall be so addressed in order to determine if public respondent committed grave abuse
of discretion. The arguments raised by private respondents which pertain to the constitutionality of
R.A. No. 9334 subject matter of the case pending litigation before the trial court have no bearing in
resolving the present petition. 

Section 3 of Rule 58 of the Revised Rules of Court provides: 

SEC. 3. Grounds for issuance of preliminary injunction. – A preliminary injunction may be

granted when it is established.

(a) That the applicant is entitled to the relief demanded, and the whole or part of such relief
consists in restraining the commission or continuance of the act or acts complained of, or in
requiring the performance of an act or acts, either for a limited period or perpetually;

(b) That the commission, continuance or non-performance of the act or acts complained of
during the litigation would probably work injustice to the applicant; or

(c) That a party, court, agency or a person is doing, threatening, or is attempting to do, or is
procuring or suffering to be done, some act or acts probably in violation of the rights of the
 applicant respecting the subject of the action or proceeding, and tending to render the
judgment ineffectual.

For a writ of preliminary injunction to issue, the plaintiff must be able to establish that (1) there is a
clear and unmistakable right to be protected, (2) the invasion of the right sought to be protected is
material and substantial, and (3) there is an urgent and paramount necessity for the writ to prevent
serious damage.27

Conversely, failure to establish either the existence of a clear and positive right which should be
judicially protected through the writ of injunction, or of the acts or attempts to commit any act which
endangers or tends to endanger the existence of said right, or of the urgent need to prevent serious
damage, is a sufficient ground for denying the preliminary injunction. 28

It is beyond cavil that R.A. No. 7227 granted private respondents exemption from local and national
taxes, including excise taxes, on their importations of general merchandise, for which reason they
enjoyed tax-exempt status until the effectivity of R.A. No. 9334. 

By subsequently enacting R.A. No. 9334, however, Congress expressed its intention to withdraw
private respondents’ tax exemption privilege on their importations of cigars, cigarettes, distilled
spirits, fermented liquors and wines. Juxtaposed to show this intention are the respective provisions
of Section 131 of the NIRC before and after its amendment by R.A. No. 9334:

x x x x. 

Sec. 131 of NIRC before R.A. No. 9334 Sec. 131, as amended by R.A. No. 9334
Sec. 131. Payment of Excise Taxes on Sec. 131. Payment of Excise Taxes on
Imported Articles. – Imported Articles. –

(A) Persons Liable. – Excise taxes on (A) Persons Liable. – Excise taxes on
imported articles shall be paid by the imported articles shall be paid by the
owner or importer to the Customs owner or importer to the Customs
Officers, conformably with the Officers, conformably with the
regulations of the Department of Finance regulations of the Department of Finance
and before the release of such articles and before the release of such articles
from the customs house or by the person from the customs house or by the person
who is found in possession of articles who is found in possession of articles
which are exempt from excise taxes which are exempt from excise taxes
other than those legally entitled to other than those legally entitled to
exemption. exemption.

In the case of tax-free articles brought or
imported into the Philippines by persons,
entities or agencies exempt from tax
which are subsequently sold, transferred
or exchanged in the Philippines to non-
exempt persons or entities, the
purchasers or recipients shall be
considered the importers thereof, and
shall be liable for the duty and internal
revenue tax due on such importation.
In the case of tax-free articles brought or
imported into the Philippines by persons,
entities or agencies exempt from tax
which are subsequently sold, transferred
or exchanged in the Philippines to non-
exempt persons or entities, the
purchasers or recipients shall be
considered the importers thereof, and
shall be liable for the duty and internal
revenue tax due on such importation.

The provision of any special or general The provision of any special or

law to the contrary notwithstanding, the
importation of cigars and cigarettes,
distilled spirits, fermented liquors and
wines into the Philippines, even if
destined for tax and duty free shops,
shall be subject to all applicable taxes,
duties, charges, including excise taxes
due thereon. Provided,
however, That this shall not apply to
cigars and cigarettes, fermented
spirits and wines brought directly into
general law to the contrary
notwithstanding, the importation of
cigars and cigarettes, distilled spirits,
fermented liquors and wines into the
Philippines, even if destined for tax
and duty free shops, shall be subject
to all applicable taxes, duties,
charges, including excise taxes due
thereon. This shall apply to cigars and
cigarettes, distilled spirits, fermented
liquors and wines brought directly
 the duly chartered or legislated into the duly chartered or legislated
freeports of the Subic Economic freeports of the Subic Economic
Freeport Zone, created under Freeport Zone, created under
Republic Act No. 7227; the Cagayan Republic Act No. 7227; the Cagayan
Special Economic Zone and Freeport, Special Economic Zone and Freeport,
created under Republic Act No. 7922; created under Republic Act No. 7922;
and the Zamboanga City Special and the Zamboanga City Special
Economic Zone, created under Republic Economic Zone, created under Republic
Act No. 7903, and are not transshipped Act No. 7903, and such other freeports
to any other port in the as may hereafter be established or
Philippines: Provided, further, That created by law: Provided, further, That
importations of cigars and cigarettes, importations of cigars and cigarettes,
distilled spirits, fermented liquors and distilled spirits, fermented liquors and
wines made directly by a government- wines made directly by a government-
owned and operated duty-free shop, like owned and operated duty-free shop, like
the Duty Free Philippines (DFP), shall be the Duty Free Philippines (DFP), shall be
exempted from all applicable duties, exempted from all applicable duties
charges, including excise tax due only: Provided still further, That such
thereon; Provided still further, That such articles directly imported by a
articles directly imported by a government-owned and operated duty-
government-owned and operated duty- free shop, like the Duty-Free Philippines,
free shop, like the Duty-Free Philippines, shall be labeled "tax and duty-free" and
shall be labeled "tax and duty-free" and "not for resale": Provided, finally, That
"not for resale": Provided, still further, the removal and transfer of tax and duty-
That if such articles brought into the duly free goods, products, machinery,
chartered or legislated freeports under equipment and other similar articles
Republic Acts Nos. 7227, 7922 and 7903 other than cigars and cigarettes, distilled
are subsequently introduced into the spirits, fermented liquors and wines, from
Philippine customs territory, then such one Freeport to another Freeport, shall
articles shall, upon such introduction, be not be deemed an introduction into the
deemed imported into the Philippines Philippine customs territory. 
and shall be subject to all imposts and
excise taxes provided herein and other x x x x.
statutes: Provided, finally, That the
removal and transfer of tax and duty-free
goods, products, machinery, equipment
and other similar articles, from one
freeport to another freeport, shall not be
deemed an introduction into the
Philippine customs territory. 

x x x x. 

(Emphasis and underscoring supplied)

To note, the old Section 131 of the NIRC expressly provided that all taxes, duties, charges, including
excise taxes shall not apply to importations of cigars, cigarettes, fermented spirits and wines brought
directly into the duly chartered or legislated freeports of the SBF. 

On the other hand, Section 131, as amended by R.A. No. 9334, now provides that such taxes, duties
and charges, including excise taxes, shall apply to importation of cigars and cigarettes, distilled
spirits, fermented liquors and wines into the SBF. 

Without necessarily passing upon the validity of the withdrawal of the tax exemption privileges of
private respondents, it behooves this Court to state certain basic principles and observations that
should throw light on the propriety of the issuance of the writ of preliminary injunction in this case. 

First. Every presumption must be indulged in favor of the constitutionality of a statute. 29 The burden
of proving the unconstitutionality of a law rests on the party assailing the law. 30 In passing upon the
validity of an act of a co-equal and coordinate branch of the government, courts must ever be
mindful of the time-honored principle that a statute is presumed to be valid. 
Second. There is no vested right in a tax exemption, more so when the latest expression of
legislative intent renders its continuance doubtful. Being a mere statutory privilege, 31 a tax exemption
may be modified or withdrawn at will by the granting authority. 32

To state otherwise is to limit the taxing power of the State, which is unlimited, plenary,
comprehensive and supreme. The power to impose taxes is one so unlimited in force and so
searching in extent, it is subject only to restrictions which rest on the discretion of the authority
exercising it.33

Third. As a general rule, tax exemptions are construed strictissimi juris against the taxpayer and
liberally in favor of the taxing authority.34 The burden of proof rests upon the party claiming
exemption to prove that it is in fact covered by the exemption so claimed. 35 In case of doubt, non-
exemption is favored.36

Fourth. A tax exemption cannot be grounded upon the continued existence of a statute which
precludes its change or repeal. 37 Flowing from the basic precept of constitutional law that no law is
irrepealable, Congress, in the legitimate exercise of its lawmaking powers, can enact a law
withdrawing a tax exemption just as efficaciously as it may grant the same under Section 28(4) of
Article VI38 of the Constitution. There is no gainsaying therefore that Congress can amend Section
131 of the NIRC in a manner it sees fit, as it did when it passed R.A. No. 9334.

Fifth. The rights granted under the Certificates of Registration and Tax Exemption of private
respondents are not absolute and unconditional as to constitute rights in esse – those clearly
founded on or granted by law or is enforceable as a matter of law. 39

These certificates granting private respondents a "permit to operate" their respective businesses are
in the nature of licenses, which the bulk of jurisprudence considers as neither a property nor a
property right.40 The licensee takes his license subject to such conditions as the grantor sees fit to
impose, including its revocation at pleasure. 41 A license can thus be revoked at any time since it
does not confer an absolute right.42

While the tax exemption contained in the Certificates of Registration of private respondents may
have been part of the inducement for carrying on their businesses in the SBF, this exemption,
nevertheless, is far from being contractual in nature in the sense that the non-impairment clause of
the Constitution can rightly be invoked.43

Sixth. Whatever right may have been acquired on the basis of the Certificates of Registration and
Tax Exemption must yield to the State’s valid exercise of police power. 44 It is well to remember that
taxes may be made the implement of the police power. 45

It is not difficult to recognize that public welfare and necessity underlie the enactment of R.A. No.
9334. As petitioners point out, the now assailed provision was passed to curb the pernicious practice
of some unscrupulous business enterprises inside the SBF of using their tax exemption privileges for
smuggling purposes. Smuggling in whatever form is bad enough; it is worse when the same is
allegedly perpetrated, condoned or facilitated by enterprises hiding behind the cloak of their tax
exemption privileges. 

Seventh. As a rule, courts should avoid issuing a writ of preliminary injunction which would in effect
dispose of the main case without trial. 46 This rule is intended to preclude a prejudgment of the main
case and a reversal of the rule on the burden of proof since by issuing the injunctive writ, the court
would assume the proposition that petitioners are inceptively duty bound to prove. 47

Eighth. A court may issue a writ of preliminary injunction only when the petitioner assailing a statute
has made out a case of unconstitutionality or invalidity strong enough, in the mind of the judge, to
overcome the presumption of validity, in addition to a showing of a clear legal right to the remedy
sought.48

Thus, it is not enough that petitioners make out a case of unconstitutionality or invalidity to overcome
the prima faciepresumption of validity of a statute; they must also be able to show a clear legal right
that ought to be protected by the court. The issuance of the writ is therefore not proper when the
complainant’s right is doubtful or disputed. 49
Ninth. The feared injurious effects of the imposition of duties, charges and taxes on imported cigars,
cigarettes, distilled spirits, fermented liquors and wines on private respondents’ businesses cannot
possibly outweigh the dire consequences that the non-collection of taxes, not to mention the
unabated smuggling inside the SBF, would wreak on the government. Whatever damage would
befall private respondents must perforce take a back seat to the pressing need to curb smuggling
and raise revenues for governmental functions. 

All told, while the grant or denial of an injunction generally rests on the sound discretion of the lower
court, this Court may and should intervene in a clear case of abuse. 50

One such case of grave abuse obtained in this case when public respondent issued his Order of
May 4, 2005 and the Writ of Preliminary Injunction on May 11, 2005 51 despite the absence of a clear
and unquestioned legal right of private respondents. 

In holding that the presumption of constitutionality and validity of R.A. No. 9334 was overcome by
private respondents for the reasons public respondent cited in his May 4, 2005 Order, he
disregarded the fact that as a condition sine qua non to the issuance of a writ of preliminary
injunction, private respondents needed also to show a clear legal right that ought to be protected.
That requirement is not satisfied in this case. 

To stress, the possibility of irreparable damage without proof of an actual existing right would not
justify an injunctive relief.52

Besides, private respondents are not altogether lacking an appropriate relief under the law. As
petitioners point out in their Petition 53 before this Court, private respondents may avail themselves of
a tax refund or tax credit should R.A. No. 9334 be finally declared invalid. 

Indeed, Sections 20454 and 22955 of the NIRC provide for the recovery of erroneously or illegally
collected taxes which would be the nature of the excise taxes paid by private respondents should
Section 6 of R.A. No. 9334 be declared unconstitutional or invalid. 

It may not be amiss to add that private respondents can also opt not to import, or to import less of,
those items which no longer enjoy tax exemption under R.A. No. 9334 to avoid the payment of taxes
thereon. 

The Court finds that public respondent had also ventured into the delicate area which courts are
cautioned from taking when deciding applications for the issuance of the writ of preliminary
injunction. Having ruled preliminarily against the prima facie validity of R.A. No. 9334, he assumed in
effect the proposition that private respondents in their petition for declaratory relief were duty bound
to prove, thereby shifting to petitioners the burden of proving that R.A. No. 9334 is not
unconstitutional or invalid.

In the same vein, the Court finds public respondent to have overstepped his discretion when he
arbitrarily fixed the injunction bond of the SBF enterprises at only P1million. 

The alleged sparseness of the testimony of Indigo Corporation’s representative 56 on the injury to be
suffered by private respondents may be excused because evidence for a preliminary injunction need
not be conclusive or complete. Nonetheless, considering the number of private respondent
enterprises and the volume of their businesses, the injunction bond is undoubtedly not sufficient to
answer for the damages that the government was bound to suffer as a consequence of the
suspension of the implementation of the assailed provisions of R.A. No. 9334. 

Rule 58, Section 4(b) provides that a bond is executed in favor of the party enjoined to answer for all
damages which it may sustain by reason of the injunction. The purpose of the injunction bond is to
protect the defendant against loss or damage by reason of the injunction in case the court finally
decides that the plaintiff was not entitled to it, and the bond is usually conditioned accordingly. 57

Recalling this Court’s pronouncements in Olalia v. Hizon58 that: 

x x x [T]here is no power the exercise of which is more delicate, which requires greater
caution, deliberation and sound discretion, or more dangerous in a doubtful case, than the
issuance of an injunction. It is the strong arm of equity that should never be extended unless
 to cases of great injury, where courts of law cannot afford an adequate or commensurate
remedy in damages. 

Every court should remember that an injunction is a limitation upon the freedom of action of
the defendant and should not be granted lightly or precipitately. It should be granted only
when the court is fully satisfied that the law permits it and the emergency demands it, 

it cannot be overemphasized that any injunction that restrains the collection of taxes, which is the
inevitable result of the suspension of the implementation of the assailed Section 6 of R.A. No. 9334,
is a limitation upon the right of the government to its lifeline and wherewithal. 

The power to tax emanates from necessity; without taxes, government cannot fulfill its mandate of
promoting the general welfare and well-being of the people. 59 That the enforcement of tax laws and
the collection of taxes are of paramount importance for the sustenance of government has been
repeatedly observed. Taxes being the lifeblood of the government that should be collected without
unnecessary hindrance,60 every precaution must be taken not to unduly suppress it. 

Whether this Court must issue the writ of prohibition, suffice it to stress that being possessed of the
power to act on the petition for declaratory relief, public respondent can proceed to determine the
merits of the main case. To halt the proceedings at this point may be acting too prematurely and
would not be in keeping with the policy that courts must decide controversies on the merits. 

Moreover, lacking the requisite proof of public respondent’s alleged partiality, this Court has no
ground to prohibit him from proceeding with the case for declaratory relief. For these reasons,
prohibition does not lie.

WHEREFORE, the Petition is PARTLY GRANTED. The writ of certiorari to nullify and set aside the
Order of May 4, 2005 as well as the Writ of Preliminary Injunction issued by respondent Judge
Caguioa on May 11, 2005 is GRANTED. The assailed Order and Writ of Preliminary Injunction are
hereby declared NULL AND VOID and accordingly SET ASIDE. The writ of prohibition prayed for is,
however, DENIED.
G.R. No. L-28896 February 17, 1988
COMMISSIONER OF INTERNAL REVENUE, petitioner, 
vs.
ALGUE, INC., and THE COURT OF TAX APPEALS, respondents.

CRUZ, J.:

Taxes are the lifeblood of the government and so should be collected without unnecessary
hindrance On the other hand, such collection should be made in accordance with law as any
arbitrariness will negate the very reason for government itself. It is therefore necessary to reconcile
the apparently conflicting interests of the authorities and the taxpayers so that the real purpose of
taxation, which is the promotion of the common good, may be achieved. 

The main issue in this case is whether or not the Collector of Internal Revenue correctly disallowed
the P75,000.00 deduction claimed by private respondent Algue as legitimate business expenses in
its income tax returns. The corollary issue is whether or not the appeal of the private respondent
from the decision of the Collector of Internal Revenue was made on time and in accordance with
law. 

Private respondent received a letter from the petitioner assessing it in the total amount of
P83,183.85 as delinquency income taxes for the years 1958 and 1959.  On January 18, 1965, Algue
1

flied a letter of protest or request for reconsideration, which letter was stamp received on the same
day in the office of the petitioner.   On March 12, 1965, a warrant of distraint and levy was presented
2

to the private respondent, through its counsel, Atty. Alberto Guevara, Jr., who refused to receive it
on the ground of the pending protest.   A search of the protest in the dockets of the case proved
3

fruitless. Atty. Guevara produced his file copy and gave a photostat to BIR agent Ramon Reyes, who
deferred service of the warrant.   On April 7, 1965, Atty. Guevara was finally informed that the BIR
4

was not taking any action on the protest and it was only then that he accepted the warrant of
distraint and levy earlier sought to be served.  Sixteen days later, on April 23, 1965, Algue filed a
5

petition for review of the decision of the Commissioner of Internal Revenue with the Court of Tax
Appeals. 6

The above chronology shows that the petition was filed seasonably. According to Rep. Act No. 1125,
the appeal may be made within thirty days after receipt of the decision or ruling challenged.  It is true
7

that as a rule the warrant of distraint and levy is "proof of the finality of the assessment"   and
8

renders hopeless a request for reconsideration,"   being "tantamount to an outright denial thereof
9

and makes the said request deemed rejected."   But there is a special circumstance in the case at
10

bar that prevents application of this accepted doctrine. 

The proven fact is that four days after the private respondent received the petitioner's notice of
assessment, it filed its letter of protest. This was apparently not taken into account before the
warrant of distraint and levy was issued; indeed, such protest could not be located in the office of the
petitioner. It was only after Atty. Guevara gave the BIR a copy of the protest that it was, if at all,
considered by the tax authorities. During the intervening period, the warrant was premature and
could therefore not be served. 

As the Court of Tax Appeals correctly noted,"   the protest filed by private respondent was not pro
11

forma and was based on strong legal considerations. It thus had the effect of suspending on January
18, 1965, when it was filed, the reglementary period which started on the date the assessment was
received, viz., January 14, 1965. The period started running again only on April 7, 1965, when the
private respondent was definitely informed of the implied rejection of the said protest and the warrant
was finally served on it. Hence, when the appeal was filed on April 23, 1965, only 20 days of the
reglementary period had been consumed. 

Now for the substantive question. 

The petitioner contends that the claimed deduction of P75,000.00 was properly disallowed because
it was not an ordinary reasonable or necessary business expense. The Court of Tax Appeals had
seen it differently. Agreeing with Algue, it held that the said amount had been legitimately paid by the
private respondent for actual services rendered. The payment was in the form of promotional fees.
These were collected by the Payees for their work in the creation of the Vegetable Oil Investment
Corporation of the Philippines and its subsequent purchase of the properties of the Philippine Sugar
Estate Development Company. 

Parenthetically, it may be observed that the petitioner had Originally claimed these promotional fees
to be personal holding company income   but later conformed to the decision of the respondent
12

court rejecting this assertion.  In fact, as the said court found, the amount was earned through the
13

joint efforts of the persons among whom it was distributed It has been established that the Philippine
Sugar Estate Development Company had earlier appointed Algue as its agent, authorizing it to sell
its land, factories and oil manufacturing process. Pursuant to such authority, Alberto Guevara, Jr.,
Eduardo Guevara, Isabel Guevara, Edith, O'Farell, and Pablo Sanchez, worked for the formation of
the Vegetable Oil Investment Corporation, inducing other persons to invest in it.  Ultimately, after its
14

incorporation largely through the promotion of the said persons, this new corporation purchased the
PSEDC properties.  For this sale, Algue received as agent a commission of P126,000.00, and it was
15

from this commission that the P75,000.00 promotional fees were paid to the aforenamed
individuals.
16

There is no dispute that the payees duly reported their respective shares of the fees in their income
tax returns and paid the corresponding taxes thereon.  The Court of Tax Appeals also found, after
17

examining the evidence, that no distribution of dividends was involved. 18

The petitioner claims that these payments are fictitious because most of the payees are members of
the same family in control of Algue. It is argued that no indication was made as to how such
payments were made, whether by check or in cash, and there is not enough substantiation of such
payments. In short, the petitioner suggests a tax dodge, an attempt to evade a legitimate
assessment by involving an imaginary deduction. 

We find that these suspicions were adequately met by the private respondent when its President,
Alberto Guevara, and the accountant, Cecilia V. de Jesus, testified that the payments were not made
in one lump sum but periodically and in different amounts as each payee's need arose.   It should be
19

remembered that this was a family corporation where strict business procedures were not applied
and immediate issuance of receipts was not required. Even so, at the end of the year, when the
books were to be closed, each payee made an accounting of all of the fees received by him or her,
to make up the total of P75,000.00.   Admittedly, everything seemed to be informal. This
20

arrangement was understandable, however, in view of the close relationship among the persons in
the family corporation. 

We agree with the respondent court that the amount of the promotional fees was not excessive. The
total commission paid by the Philippine Sugar Estate Development Co. to the private respondent
was P125,000.00.  After deducting the said fees, Algue still had a balance of P50,000.00 as clear
21

profit from the transaction. The amount of P75,000.00 was 60% of the total commission. This was a
reasonable proportion, considering that it was the payees who did practically everything, from the
formation of the Vegetable Oil Investment Corporation to the actual purchase by it of the Sugar
Estate properties. This finding of the respondent court is in accord with the following provision of the
Tax Code: 

SEC. 30. Deductions from gross income.--In computing net income there shall be
allowed as deductions — 

(a) Expenses: 

(1) In general.--All the ordinary and necessary expenses paid or incurred during the
taxable year in carrying on any trade or business, including a reasonable allowance
for salaries or other compensation for personal services actually rendered; ... 22

and Revenue Regulations No. 2, Section 70 (1), reading as follows: 

SEC. 70. Compensation for personal services.--Among the ordinary and necessary

expenses paid or incurred in carrying on any trade or business may be included a
reasonable allowance for salaries or other compensation for personal services
actually rendered. The test of deductibility in the case of compensation payments is
whether they are reasonable and are, in fact, payments purely for service. This test
and deductibility in the case of compensation payments is whether they are
 reasonable and are, in fact, payments purely for service. This test and its practical
application may be further stated and illustrated as follows:

Any amount paid in the form of compensation, but not in fact as the purchase price of
services, is not deductible. (a) An ostensible salary paid by a corporation may be a
distribution of a dividend on stock. This is likely to occur in the case of a corporation
having few stockholders, Practically all of whom draw salaries. If in such a case the
salaries are in excess of those ordinarily paid for similar services, and the excessive
payment correspond or bear a close relationship to the stockholdings of the officers
of employees, it would seem likely that the salaries are not paid wholly for services
rendered, but the excessive payments are a distribution of earnings upon the
stock. . . . (Promulgated Feb. 11, 1931, 30 O.G. No. 18, 325.) 

It is worth noting at this point that most of the payees were not in the regular employ of Algue nor
were they its controlling stockholders. 
23

The Solicitor General is correct when he says that the burden is on the taxpayer to prove the validity
of the claimed deduction. In the present case, however, we find that the onus has been discharged
satisfactorily. The private respondent has proved that the payment of the fees was necessary and
reasonable in the light of the efforts exerted by the payees in inducing investors and prominent
businessmen to venture in an experimental enterprise and involve themselves in a new business
requiring millions of pesos. This was no mean feat and should be, as it was, sufficiently
recompensed. 

It is said that taxes are what we pay for civilization society. Without taxes, the government would be
paralyzed for lack of the motive power to activate and operate it. Hence, despite the natural
reluctance to surrender part of one's hard earned income to the taxing authorities, every person who
is able to must contribute his share in the running of the government. The government for its part, is
expected to respond in the form of tangible and intangible benefits intended to improve the lives of
the people and enhance their moral and material values. This symbiotic relationship is the rationale
of taxation and should dispel the erroneous notion that it is an arbitrary method of exaction by those
in the seat of power. 

But even as we concede the inevitability and indispensability of taxation, it is a requirement in all
democratic regimes that it be exercised reasonably and in accordance with the prescribed
procedure. If it is not, then the taxpayer has a right to complain and the courts will then come to his
succor. For all the awesome power of the tax collector, he may still be stopped in his tracks if the
taxpayer can demonstrate, as it has here, that the law has not been observed. 

We hold that the appeal of the private respondent from the decision of the petitioner was filed on
time with the respondent court in accordance with Rep. Act No. 1125. And we also find that the
claimed deduction by the private respondent was permitted under the Internal Revenue Code and
should therefore not have been disallowed by the petitioner. 

ACCORDINGLY, the appealed decision of the Court of Tax Appeals is AFFIRMED in toto, without
costs. 

SO ORDERED.
G.R. No. L-28896 February 17, 1988
COMMISSIONER OF INTERNAL REVENUE, petitioner, 
vs.
ALGUE, INC., and THE COURT OF TAX APPEALS, respondents.

CRUZ, J.:

Taxes are the lifeblood of the government and so should be collected without unnecessary
hindrance On the other hand, such collection should be made in accordance with law as any
arbitrariness will negate the very reason for government itself. It is therefore necessary to reconcile
the apparently conflicting interests of the authorities and the taxpayers so that the real purpose of
taxation, which is the promotion of the common good, may be achieved. 

The main issue in this case is whether or not the Collector of Internal Revenue correctly disallowed
the P75,000.00 deduction claimed by private respondent Algue as legitimate business expenses in
its income tax returns. The corollary issue is whether or not the appeal of the private respondent
from the decision of the Collector of Internal Revenue was made on time and in accordance with
law. 

Private respondent received a letter from the petitioner assessing it in the total amount of
P83,183.85 as delinquency income taxes for the years 1958 and 1959.  On January 18, 1965, Algue
1

flied a letter of protest or request for reconsideration, which letter was stamp received on the same
day in the office of the petitioner.   On March 12, 1965, a warrant of distraint and levy was presented
2

to the private respondent, through its counsel, Atty. Alberto Guevara, Jr., who refused to receive it
on the ground of the pending protest.   A search of the protest in the dockets of the case proved
3

fruitless. Atty. Guevara produced his file copy and gave a photostat to BIR agent Ramon Reyes, who
deferred service of the warrant.   On April 7, 1965, Atty. Guevara was finally informed that the BIR
4

was not taking any action on the protest and it was only then that he accepted the warrant of
distraint and levy earlier sought to be served.  Sixteen days later, on April 23, 1965, Algue filed a
5

petition for review of the decision of the Commissioner of Internal Revenue with the Court of Tax
Appeals. 6

The above chronology shows that the petition was filed seasonably. According to Rep. Act No. 1125,
the appeal may be made within thirty days after receipt of the decision or ruling challenged.  It is true
7

that as a rule the warrant of distraint and levy is "proof of the finality of the assessment"   and
8

renders hopeless a request for reconsideration,"   being "tantamount to an outright denial thereof
9

and makes the said request deemed rejected."   But there is a special circumstance in the case at
10

bar that prevents application of this accepted doctrine. 

The proven fact is that four days after the private respondent received the petitioner's notice of
assessment, it filed its letter of protest. This was apparently not taken into account before the
warrant of distraint and levy was issued; indeed, such protest could not be located in the office of the
petitioner. It was only after Atty. Guevara gave the BIR a copy of the protest that it was, if at all,
considered by the tax authorities. During the intervening period, the warrant was premature and
could therefore not be served. 

As the Court of Tax Appeals correctly noted,"   the protest filed by private respondent was not pro
11

forma and was based on strong legal considerations. It thus had the effect of suspending on January
18, 1965, when it was filed, the reglementary period which started on the date the assessment was
received, viz., January 14, 1965. The period started running again only on April 7, 1965, when the
private respondent was definitely informed of the implied rejection of the said protest and the warrant
was finally served on it. Hence, when the appeal was filed on April 23, 1965, only 20 days of the
reglementary period had been consumed. 

Now for the substantive question. 

The petitioner contends that the claimed deduction of P75,000.00 was properly disallowed because
it was not an ordinary reasonable or necessary business expense. The Court of Tax Appeals had
seen it differently. Agreeing with Algue, it held that the said amount had been legitimately paid by the
private respondent for actual services rendered. The payment was in the form of promotional fees.
These were collected by the Payees for their work in the creation of the Vegetable Oil Investment
Corporation of the Philippines and its subsequent purchase of the properties of the Philippine Sugar
Estate Development Company. 

Parenthetically, it may be observed that the petitioner had Originally claimed these promotional fees
to be personal holding company income   but later conformed to the decision of the respondent
12

court rejecting this assertion.  In fact, as the said court found, the amount was earned through the
13

joint efforts of the persons among whom it was distributed It has been established that the Philippine
Sugar Estate Development Company had earlier appointed Algue as its agent, authorizing it to sell
its land, factories and oil manufacturing process. Pursuant to such authority, Alberto Guevara, Jr.,
Eduardo Guevara, Isabel Guevara, Edith, O'Farell, and Pablo Sanchez, worked for the formation of
the Vegetable Oil Investment Corporation, inducing other persons to invest in it.  Ultimately, after its
14

incorporation largely through the promotion of the said persons, this new corporation purchased the
PSEDC properties.  For this sale, Algue received as agent a commission of P126,000.00, and it was
15

from this commission that the P75,000.00 promotional fees were paid to the aforenamed
individuals.
16

There is no dispute that the payees duly reported their respective shares of the fees in their income
tax returns and paid the corresponding taxes thereon.  The Court of Tax Appeals also found, after
17

examining the evidence, that no distribution of dividends was involved. 18

The petitioner claims that these payments are fictitious because most of the payees are members of
the same family in control of Algue. It is argued that no indication was made as to how such
payments were made, whether by check or in cash, and there is not enough substantiation of such
payments. In short, the petitioner suggests a tax dodge, an attempt to evade a legitimate
assessment by involving an imaginary deduction. 

We find that these suspicions were adequately met by the private respondent when its President,
Alberto Guevara, and the accountant, Cecilia V. de Jesus, testified that the payments were not made
in one lump sum but periodically and in different amounts as each payee's need arose.   It should be
19

remembered that this was a family corporation where strict business procedures were not applied
and immediate issuance of receipts was not required. Even so, at the end of the year, when the
books were to be closed, each payee made an accounting of all of the fees received by him or her,
to make up the total of P75,000.00.   Admittedly, everything seemed to be informal. This
20

arrangement was understandable, however, in view of the close relationship among the persons in
the family corporation. 

We agree with the respondent court that the amount of the promotional fees was not excessive. The
total commission paid by the Philippine Sugar Estate Development Co. to the private respondent
was P125,000.00.  After deducting the said fees, Algue still had a balance of P50,000.00 as clear
21

profit from the transaction. The amount of P75,000.00 was 60% of the total commission. This was a
reasonable proportion, considering that it was the payees who did practically everything, from the
formation of the Vegetable Oil Investment Corporation to the actual purchase by it of the Sugar
Estate properties. This finding of the respondent court is in accord with the following provision of the
Tax Code: 

SEC. 30. Deductions from gross income.--In computing net income there shall be
allowed as deductions — 

(a) Expenses: 

(1) In general.--All the ordinary and necessary expenses paid or incurred during the
taxable year in carrying on any trade or business, including a reasonable allowance
for salaries or other compensation for personal services actually rendered; ... 22

and Revenue Regulations No. 2, Section 70 (1), reading as follows: 

SEC. 70. Compensation for personal services.--Among the ordinary and necessary

expenses paid or incurred in carrying on any trade or business may be included a
reasonable allowance for salaries or other compensation for personal services
actually rendered. The test of deductibility in the case of compensation payments is
whether they are reasonable and are, in fact, payments purely for service. This test
and deductibility in the case of compensation payments is whether they are
 reasonable and are, in fact, payments purely for service. This test and its practical
application may be further stated and illustrated as follows:

Any amount paid in the form of compensation, but not in fact as the purchase price of
services, is not deductible. (a) An ostensible salary paid by a corporation may be a
distribution of a dividend on stock. This is likely to occur in the case of a corporation
having few stockholders, Practically all of whom draw salaries. If in such a case the
salaries are in excess of those ordinarily paid for similar services, and the excessive
payment correspond or bear a close relationship to the stockholdings of the officers
of employees, it would seem likely that the salaries are not paid wholly for services
rendered, but the excessive payments are a distribution of earnings upon the
stock. . . . (Promulgated Feb. 11, 1931, 30 O.G. No. 18, 325.) 

It is worth noting at this point that most of the payees were not in the regular employ of Algue nor
were they its controlling stockholders. 
23

The Solicitor General is correct when he says that the burden is on the taxpayer to prove the validity
of the claimed deduction. In the present case, however, we find that the onus has been discharged
satisfactorily. The private respondent has proved that the payment of the fees was necessary and
reasonable in the light of the efforts exerted by the payees in inducing investors and prominent
businessmen to venture in an experimental enterprise and involve themselves in a new business
requiring millions of pesos. This was no mean feat and should be, as it was, sufficiently
recompensed. 

It is said that taxes are what we pay for civilization society. Without taxes, the government would be
paralyzed for lack of the motive power to activate and operate it. Hence, despite the natural
reluctance to surrender part of one's hard earned income to the taxing authorities, every person who
is able to must contribute his share in the running of the government. The government for its part, is
expected to respond in the form of tangible and intangible benefits intended to improve the lives of
the people and enhance their moral and material values. This symbiotic relationship is the rationale
of taxation and should dispel the erroneous notion that it is an arbitrary method of exaction by those
in the seat of power. 

But even as we concede the inevitability and indispensability of taxation, it is a requirement in all
democratic regimes that it be exercised reasonably and in accordance with the prescribed
procedure. If it is not, then the taxpayer has a right to complain and the courts will then come to his
succor. For all the awesome power of the tax collector, he may still be stopped in his tracks if the
taxpayer can demonstrate, as it has here, that the law has not been observed. 

We hold that the appeal of the private respondent from the decision of the petitioner was filed on
time with the respondent court in accordance with Rep. Act No. 1125. And we also find that the
claimed deduction by the private respondent was permitted under the Internal Revenue Code and
should therefore not have been disallowed by the petitioner. 

ACCORDINGLY, the appealed decision of the Court of Tax Appeals is AFFIRMED in toto, without
costs. 

SO ORDERED.
G.R. No. L-43082             June 18, 1937
PABLO LORENZO, as trustee of the estate of Thomas Hanley, deceased, plaintiff-appellant, 
vs.
JUAN POSADAS, JR., Collector of Internal Revenue, defendant-appellant.

Pablo Lorenzo and Delfin Joven for plaintiff-appellant.

Office of the Solicitor-General Hilado for defendant-appellant.

LAUREL, J.:

On October 4, 1932, the plaintiff Pablo Lorenzo, in his capacity as trustee of the estate of Thomas
Hanley, deceased, brought this action in the Court of First Instance of Zamboanga against the
defendant, Juan Posadas, Jr., then the Collector of Internal Revenue, for the refund of the amount of
P2,052.74, paid by the plaintiff as inheritance tax on the estate of the deceased, and for the
collection of interst thereon at the rate of 6 per cent per annum, computed from September 15, 1932,
the date when the aforesaid tax was [paid under protest. The defendant set up a counterclaim for
P1,191.27 alleged to be interest due on the tax in question and which was not included in the
original assessment. From the decision of the Court of First Instance of Zamboanga dismissing both
the plaintiff's complaint and the defendant's counterclaim, both parties appealed to this court.

It appears that on May 27, 1922, one Thomas Hanley died in Zamboanga, Zamboanga, leaving a
will (Exhibit 5) and considerable amount of real and personal properties. On june 14, 1922,
proceedings for the probate of his will and the settlement and distribution of his estate were begun in
the Court of First Instance of Zamboanga. The will was admitted to probate. Said will provides,
among other things, as follows:

4. I direct that any money left by me be given to my nephew Matthew Hanley.

5. I direct that all real estate owned by me at the time of my death be not sold or otherwise
disposed of for a period of ten (10) years after my death, and that the same be handled and
managed by the executors, and proceeds thereof to be given to my nephew, Matthew
Hanley, at Castlemore, Ballaghaderine, County of Rosecommon, Ireland, and that he be
directed that the same be used only for the education of my brother's children and their
descendants.

6. I direct that ten (10) years after my death my property be given to the above mentioned
Matthew Hanley to be disposed of in the way he thinks most advantageous.

xxx     xxx     xxx

8. I state at this time I have one brother living, named Malachi Hanley, and that my nephew,
Matthew Hanley, is a son of my said brother, Malachi Hanley.

The Court of First Instance of Zamboanga considered it proper for the best interests of ther estate to
appoint a trustee to administer the real properties which, under the will, were to pass to Matthew
Hanley ten years after the two executors named in the will, was, on March 8, 1924, appointed
trustee. Moore took his oath of office and gave bond on March 10, 1924. He acted as trustee until
February 29, 1932, when he resigned and the plaintiff herein was appointed in his stead.

During the incumbency of the plaintiff as trustee, the defendant Collector of Internal Revenue,
alleging that the estate left by the deceased at the time of his death consisted of realty valued at
P27,920 and personalty valued at P1,465, and allowing a deduction of P480.81, assessed against
the estate an inheritance tax in the amount of P1,434.24 which, together with the penalties for
deliquency in payment consisting of a 1 per cent monthly interest from July 1, 1931 to the date of
payment and a surcharge of 25 per cent on the tax, amounted to P2,052.74. On March 15, 1932, the
defendant filed a motion in the testamentary proceedings pending before the Court of First Instance
of Zamboanga (Special proceedings No. 302) praying that the trustee, plaintiff herein, be ordered to
pay to the Government the said sum of P2,052.74. The motion was granted. On September 15,
1932, the plaintiff paid said amount under protest, notifying the defendant at the same time that
unless the amount was promptly refunded suit would be brought for its recovery. The defendant
overruled the plaintiff's protest and refused to refund the said amount hausted, plaintiff went to court
with the result herein above indicated.

In his appeal, plaintiff contends that the lower court erred:

I. In holding that the real property of Thomas Hanley, deceased, passed to his instituted heir,
Matthew Hanley, from the moment of the death of the former, and that from the time, the
latter became the owner thereof.

II. In holding, in effect, that there was deliquency in the payment of inheritance tax due on
the estate of said deceased.

III. In holding that the inheritance tax in question be based upon the value of the estate upon
the death of the testator, and not, as it should have been held, upon the value thereof at the
expiration of the period of ten years after which, according to the testator's will, the property
could be and was to be delivered to the instituted heir.

IV. In not allowing as lawful deductions, in the determination of the net amount of the estate
subject to said tax, the amounts allowed by the court as compensation to the "trustees" and
paid to them from the decedent's estate.

V. In not rendering judgment in favor of the plaintiff and in denying his motion for new trial.

The defendant-appellant contradicts the theories of the plaintiff and assigns the following error
besides:

The lower court erred in not ordering the plaintiff to pay to the defendant the sum of
P1,191.27, representing part of the interest at the rate of 1 per cent per month from April 10,
1924, to June 30, 1931, which the plaintiff had failed to pay on the inheritance tax assessed
by the defendant against the estate of Thomas Hanley.

The following are the principal questions to be decided by this court in this appeal: (a) When does
the inheritance tax accrue and when must it be satisfied? (b) Should the inheritance tax be
computed on the basis of the value of the estate at the time of the testator's death, or on its value ten
years later? (c) In determining the net value of the estate subject to tax, is it proper to deduct the
compensation due to trustees? (d) What law governs the case at bar? Should the provisions of Act
No. 3606 favorable to the tax-payer be given retroactive effect? (e) Has there been deliquency in the
payment of the inheritance tax? If so, should the additional interest claimed by the defendant in his
appeal be paid by the estate? Other points of incidental importance, raised by the parties in their
briefs, will be touched upon in the course of this opinion.

(a) The accrual of the inheritance tax is distinct from the obligation to pay the same. Section 1536 as
amended, of the Administrative Code, imposes the tax upon "every transmission by virtue of
inheritance, devise, bequest, gift mortis causa, or advance in anticipation of inheritance,devise, or
bequest." The tax therefore is upon transmission or the transfer or devolution of property of a
decedent, made effective by his death. (61 C. J., p. 1592.) It is in reality an excise or privilege tax
imposed on the right to succeed to, receive, or take property by or under a will or the intestacy law,
or deed, grant, or gift to become operative at or after death. Acording to article 657 of the Civil Code,
"the rights to the succession of a person are transmitted from the moment of his death." "In other
words", said Arellano, C. J., ". . . the heirs succeed immediately to all of the property of the deceased
ancestor. The property belongs to the heirs at the moment of the death of the ancestor as
completely as if the ancestor had executed and delivered to them a deed for the same before his
death." (Bondad vs. Bondad, 34 Phil., 232. See also, Mijares vs. Nery, 3 Phil., 195; Suilong & Co.,
vs. Chio-Taysan, 12 Phil., 13; Lubrico vs. Arbado, 12 Phil., 391; Innocencio vs. Gat-Pandan, 14
Phil., 491; Aliasas vs.Alcantara, 16 Phil., 489; Ilustre vs. Alaras Frondosa, 17 Phil., 321; Malahacan
vs. Ignacio, 19 Phil., 434; Bowa vs. Briones, 38 Phil., 27; Osario vs. Osario & Yuchausti Steamship
Co., 41 Phil., 531; Fule vs. Fule, 46 Phil., 317; Dais vs. Court of First Instance of Capiz, 51 Phil.,
396; Baun vs. Heirs of Baun, 53 Phil., 654.) Plaintiff, however, asserts that while article 657 of the
Civil Code is applicable to testate as well as intestate succession, it operates only in so far as forced
heirs are concerned. But the language of article 657 of the Civil Code is broad and makes no
distinction between different classes of heirs. That article does not speak of forced heirs; it does not
even use the word "heir". It speaks of the rights of succession and the transmission thereof from the
moment of death. The provision of section 625 of the Code of Civil Procedure regarding the
authentication and probate of a will as a necessary condition to effect transmission of property does
not affect the general rule laid down in article 657 of the Civil Code. The authentication of a will
implies its due execution but once probated and allowed the transmission is effective as of the death
of the testator in accordance with article 657 of the Civil Code. Whatever may be the time when
actual transmission of the inheritance takes place, succession takes place in any event at the
moment of the decedent's death. The time when the heirs legally succeed to the inheritance may
differ from the time when the heirs actually receive such inheritance. "Poco importa", says Manresa
commenting on article 657 of the Civil Code, "que desde el falleimiento del causante, hasta que el
heredero o legatario entre en posesion de los bienes de la herencia o del legado, transcurra mucho
o poco tiempo, pues la adquisicion ha de retrotraerse al momento de la muerte, y asi lo ordena el
articulo 989, que debe considerarse como complemento del presente." (5 Manresa, 305; see also,
art. 440, par. 1, Civil Code.) Thomas Hanley having died on May 27, 1922, the inheritance tax
accrued as of the date.

From the fact, however, that Thomas Hanley died on May 27, 1922, it does not follow that the
obligation to pay the tax arose as of the date. The time for the payment on inheritance tax is clearly
fixed by section 1544 of the Revised Administrative Code as amended by Act No. 3031, in relation to
section 1543 of the same Code. The two sections follow:

SEC. 1543. Exemption of certain acquisitions and transmissions. — The following shall not
be taxed:

(a) The merger of the usufruct in the owner of the naked title.

(b) The transmission or delivery of the inheritance or legacy by the fiduciary heir or
legatee to the trustees.

(c) The transmission from the first heir, legatee, or donee in favor of another
beneficiary, in accordance with the desire of the predecessor.

In the last two cases, if the scale of taxation appropriate to the new beneficiary is greater
than that paid by the first, the former must pay the difference.

SEC. 1544. When tax to be paid. — The tax fixed in this article shall be paid:

(a) In the second and third cases of the next preceding section, before entrance into
possession of the property.

(b) In other cases, within the six months subsequent to the death of the predecessor;
but if judicial testamentary or intestate proceedings shall be instituted prior to the
expiration of said period, the payment shall be made by the executor or administrator
before delivering to each beneficiary his share.

If the tax is not paid within the time hereinbefore prescribed, interest at the rate of twelve per
centum per annum shall be added as part of the tax; and to the tax and interest due and
unpaid within ten days after the date of notice and demand thereof by the collector, there
shall be further added a surcharge of twenty-five per centum.

A certified of all letters testamentary or of admisitration shall be furnished the Collector of

Internal Revenue by the Clerk of Court within thirty days after their issuance.

It should be observed in passing that the word "trustee", appearing in subsection (b) of section 1543,
should read "fideicommissary" or "cestui que trust". There was an obvious mistake in translation
from the Spanish to the English version.

The instant case does fall under subsection (a), but under subsection (b), of section 1544 above-
quoted, as there is here no fiduciary heirs, first heirs, legatee or donee. Under the subsection, the
tax should have been paid before the delivery of the properties in question to P. J. M. Moore as
trustee on March 10, 1924.

(b) The plaintiff contends that the estate of Thomas Hanley, in so far as the real properties are
concerned, did not and could not legally pass to the instituted heir, Matthew Hanley, until after the
expiration of ten years from the death of the testator on May 27, 1922 and, that the inheritance tax
should be based on the value of the estate in 1932, or ten years after the testator's death. The
plaintiff introduced evidence tending to show that in 1932 the real properties in question had a
reasonable value of only P5,787. This amount added to the value of the personal property left by the
deceased, which the plaintiff admits is P1,465, would generate an inheritance tax which, excluding
deductions, interest and surcharge, would amount only to about P169.52.

If death is the generating source from which the power of the estate to impose inheritance taxes
takes its being and if, upon the death of the decedent, succession takes place and the right of the
estate to tax vests instantly, the tax should be measured by the vlaue of the estate as it stood at the
time of the decedent's death, regardless of any subsequent contingency value of any subsequent
increase or decrease in value. (61 C. J., pp. 1692, 1693; 26 R. C. L., p. 232; Blakemore and
Bancroft, Inheritance Taxes, p. 137. See also Knowlton vs. Moore, 178 U.S., 41; 20 Sup. Ct. Rep.,
747; 44 Law. ed., 969.) "The right of the state to an inheritance tax accrues at the moment of death,
and hence is ordinarily measured as to any beneficiary by the value at that time of such property as
passes to him. Subsequent appreciation or depriciation is immaterial." (Ross, Inheritance Taxation,
p. 72.)

Our attention is directed to the statement of the rule in Cyclopedia of Law of and Procedure (vol. 37,
pp. 1574, 1575) that, in the case of contingent remainders, taxation is postponed until the estate
vests in possession or the contingency is settled. This rule was formerly followed in New York and
has been adopted in Illinois, Minnesota, Massachusetts, Ohio, Pennsylvania and Wisconsin. This
rule, horever, is by no means entirely satisfactory either to the estate or to those interested in the
property (26 R. C. L., p. 231.). Realizing, perhaps, the defects of its anterior system, we find upon
examination of cases and authorities that New York has varied and now requires the immediate
appraisal of the postponed estate at its clear market value and the payment forthwith of the tax on its
out of the corpus of the estate transferred. (In re Vanderbilt, 172 N. Y., 69; 69 N. E., 782; In
re Huber, 86 N. Y. App. Div., 458; 83 N. Y. Supp., 769; Estate of Tracy, 179 N. Y., 501; 72 N. Y.,
519; Estate of Brez, 172 N. Y., 609; 64 N. E., 958; Estate of Post, 85 App. Div., 611; 82 N. Y. Supp.,
1079. Vide also, Saltoun vs. Lord Advocate, 1 Peter. Sc. App., 970; 3 Macq. H. L., 659; 23 Eng. Rul.
Cas., 888.) California adheres to this new rule (Stats. 1905, sec. 5, p. 343).

But whatever may be the rule in other jurisdictions, we hold that a transmission by inheritance is
taxable at the time of the predecessor's death, notwithstanding the postponement of the actual
possession or enjoyment of the estate by the beneficiary, and the tax measured by the value of the
property transmitted at that time regardless of its appreciation or depreciation.

(c) Certain items are required by law to be deducted from the appraised gross in arriving at the net
value of the estate on which the inheritance tax is to be computed (sec. 1539, Revised
Administrative Code). In the case at bar, the defendant and the trial court allowed a deduction of
only P480.81. This sum represents the expenses and disbursements of the executors until March
10, 1924, among which were their fees and the proven debts of the deceased. The plaintiff contends
that the compensation and fees of the trustees, which aggregate P1,187.28 (Exhibits C, AA, EE, PP,
HH, JJ, LL, NN, OO), should also be deducted under section 1539 of the Revised Administrative
Code which provides, in part, as follows: "In order to determine the net sum which must bear the tax,
when an inheritance is concerned, there shall be deducted, in case of a resident, . . . the judicial
expenses of the testamentary or intestate proceedings, . . . ."

A trustee, no doubt, is entitled to receive a fair compensation for his services (Barney vs. Saunders,
16 How., 535; 14 Law. ed., 1047). But from this it does not follow that the compensation due him
may lawfully be deducted in arriving at the net value of the estate subject to tax. There is no statute
in the Philippines which requires trustees' commissions to be deducted in determining the net value
of the estate subject to inheritance tax (61 C. J., p. 1705). Furthermore, though a testamentary trust
has been created, it does not appear that the testator intended that the duties of his executors and
trustees should be separated. (Ibid.; In re Vanneck's Estate, 161 N. Y. Supp., 893; 175 App. Div.,
363; In re Collard's Estate, 161 N. Y. Supp., 455.) On the contrary, in paragraph 5 of his will, the
testator expressed the desire that his real estate be handled and managed by his executors until the
expiration of the period of ten years therein provided. Judicial expenses are expenses of
administration (61 C. J., p. 1705) but, in State vs. Hennepin County Probate Court (112 N. W., 878;
101 Minn., 485), it was said: ". . . The compensation of a trustee, earned, not in the administration of
the estate, but in the management thereof for the benefit of the legatees or devises, does not come
properly within the class or reason for exempting administration expenses. . . . Service rendered in
that behalf have no reference to closing the estate for the purpose of a distribution thereof to those
entitled to it, and are not required or essential to the perfection of the rights of the heirs or legatees. .
. . Trusts . . . of the character of that here before the court, are created for the the benefit of those to
whom the property ultimately passes, are of voluntary creation, and intended for the preservation of
the estate. No sound reason is given to support the contention that such expenses should be taken
into consideration in fixing the value of the estate for the purpose of this tax."

(d) The defendant levied and assessed the inheritance tax due from the estate of Thomas Hanley
under the provisions of section 1544 of the Revised Administrative Code, as amended by section 3
of Act No. 3606. But Act No. 3606 went into effect on January 1, 1930. It, therefore, was not the law
in force when the testator died on May 27, 1922. The law at the time was section 1544 above-
mentioned, as amended by Act No. 3031, which took effect on March 9, 1922.

It is well-settled that inheritance taxation is governed by the statute in force at the time of the death
of the decedent (26 R. C. L., p. 206; 4 Cooley on Taxation, 4th ed., p. 3461). The taxpayer can not
foresee and ought not to be required to guess the outcome of pending measures. Of course, a tax
statute may be made retroactive in its operation. Liability for taxes under retroactive legislation has
been "one of the incidents of social life." (Seattle vs. Kelleher, 195 U. S., 360; 49 Law. ed., 232 Sup.
Ct. Rep., 44.) But legislative intent that a tax statute should operate retroactively should be perfectly
clear. (Scwab vs. Doyle, 42 Sup. Ct. Rep., 491; Smietanka vs. First Trust & Savings Bank, 257 U.
S., 602; Stockdale vs. Insurance Co., 20 Wall., 323; Lunch vs. Turrish, 247 U. S., 221.) "A statute
should be considered as prospective in its operation, whether it enacts, amends, or repeals an
inheritance tax, unless the language of the statute clearly demands or expresses that it shall have a
retroactive effect, . . . ." (61 C. J., P. 1602.) Though the last paragraph of section 5 of Regulations
No. 65 of the Department of Finance makes section 3 of Act No. 3606, amending section 1544 of the
Revised Administrative Code, applicable to all estates the inheritance taxes due from which have not
been paid, Act No. 3606 itself contains no provisions indicating legislative intent to give it retroactive
effect. No such effect can begiven the statute by this court.

The defendant Collector of Internal Revenue maintains, however, that certain provisions of Act No.
3606 are more favorable to the taxpayer than those of Act No. 3031, that said provisions are penal in
nature and, therefore, should operate retroactively in conformity with the provisions of article 22 of
the Revised Penal Code. This is the reason why he applied Act No. 3606 instead of Act No. 3031.
Indeed, under Act No. 3606, (1) the surcharge of 25 per cent is based on the tax only, instead of on
both the tax and the interest, as provided for in Act No. 3031, and (2) the taxpayer is allowed twenty
days from notice and demand by rthe Collector of Internal Revenue within which to pay the tax,
instead of ten days only as required by the old law.

Properly speaking, a statute is penal when it imposes punishment for an offense committed against
the state which, under the Constitution, the Executive has the power to pardon. In common use,
however, this sense has been enlarged to include within the term "penal statutes" all status which
command or prohibit certain acts, and establish penalties for their violation, and even those which,
without expressly prohibiting certain acts, impose a penalty upon their commission (59 C. J., p.
1110). Revenue laws, generally, which impose taxes collected by the means ordinarily resorted to
for the collection of taxes are not classed as penal laws, although there are authorities to the
contrary. (See Sutherland, Statutory Construction, 361; Twine Co. vs. Worthington, 141 U. S., 468;
12 Sup. Ct., 55; Rice vs. U. S., 4 C. C. A., 104; 53 Fed., 910; Com. vs. Standard Oil Co., 101 Pa. St.,
150; State vs. Wheeler, 44 P., 430; 25 Nev. 143.) Article 22 of the Revised Penal Code is not
applicable to the case at bar, and in the absence of clear legislative intent, we cannot give Act No.
3606 a retroactive effect.

(e) The plaintiff correctly states that the liability to pay a tax may arise at a certain time and the tax
may be paid within another given time. As stated by this court, "the mere failure to pay one's tax
does not render one delinqent until and unless the entire period has eplased within which the
taxpayer is authorized by law to make such payment without being subjected to the payment of
penalties for fasilure to pay his taxes within the prescribed period." (U. S. vs. Labadan, 26 Phil.,
239.)

The defendant maintains that it was the duty of the executor to pay the inheritance tax before the
delivery of the decedent's property to the trustee. Stated otherwise, the defendant contends that
delivery to the trustee was delivery to the cestui que trust, the beneficiery in this case, within the
meaning of the first paragraph of subsection (b) of section 1544 of the Revised Administrative Code.
This contention is well taken and is sustained. The appointment of P. J. M. Moore as trustee was
made by the trial court in conformity with the wishes of the testator as expressed in his will. It is true
that the word "trust" is not mentioned or used in the will but the intention to create one is clear. No
particular or technical words are required to create a testamentary trust (69 C. J., p. 711). The words
"trust" and "trustee", though apt for the purpose, are not necessary. In fact, the use of these two
words is not conclusive on the question that a trust is created (69 C. J., p. 714). "To create a trust by
will the testator must indicate in the will his intention so to do by using language sufficient to
separate the legal from the equitable estate, and with sufficient certainty designate the beneficiaries,
their interest in the ttrust, the purpose or object of the trust, and the property or subject matter
thereof. Stated otherwise, to constitute a valid testamentary trust there must be a concurrence of
three circumstances: (1) Sufficient words to raise a trust; (2) a definite subject; (3) a certain or
ascertain object; statutes in some jurisdictions expressly or in effect so providing." (69 C. J., pp.
705,706.) There is no doubt that the testator intended to create a trust. He ordered in his will that
certain of his properties be kept together undisposed during a fixed period, for a stated purpose. The
probate court certainly exercised sound judgment in appointment a trustee to carry into effect the
provisions of the will (see sec. 582, Code of Civil Procedure).

P. J. M. Moore became trustee on March 10, 1924. On that date trust estate vested in him (sec. 582
in relation to sec. 590, Code of Civil Procedure). The mere fact that the estate of the deceased was
placed in trust did not remove it from the operation of our inheritance tax laws or exempt it from the
payment of the inheritance tax. The corresponding inheritance tax should have been paid on or
before March 10, 1924, to escape the penalties of the laws. This is so for the reason already stated
that the delivery of the estate to the trustee was in esse delivery of the same estate to the cestui que
trust, the beneficiary in this case. A trustee is but an instrument or agent for the cestui que
trust (Shelton vs. King, 299 U. S., 90; 33 Sup. Ct. Rep., 689; 57 Law. ed., 1086). When Moore
accepted the trust and took possesson of the trust estate he thereby admitted that the estate
belonged not to him but to his cestui que trust (Tolentino vs. Vitug, 39 Phil.,126, cited in 65 C. J., p.
692, n. 63). He did not acquire any beneficial interest in the estate. He took such legal estate only as
the proper execution of the trust required (65 C. J., p. 528) and, his estate ceased upon the
fulfillment of the testator's wishes. The estate then vested absolutely in the beneficiary (65 C. J., p.
542).

The highest considerations of public policy also justify the conclusion we have reached. Were we to
hold that the payment of the tax could be postponed or delayed by the creation of a trust of the type
at hand, the result would be plainly disastrous. Testators may provide, as Thomas Hanley has
provided, that their estates be not delivered to their beneficiaries until after the lapse of a certain
period of time. In the case at bar, the period is ten years. In other cases, the trust may last for fifty
years, or for a longer period which does not offend the rule against petuities. The collection of the tax
would then be left to the will of a private individual. The mere suggestion of this result is a sufficient
warning against the accpetance of the essential to the very exeistence of government. (Dobbins vs.
Erie Country, 16 Pet., 435; 10 Law. ed., 1022; Kirkland vs. Hotchkiss, 100 U. S., 491; 25 Law. ed.,
558; Lane County vs. Oregon, 7 Wall., 71; 19 Law. ed., 101; Union Refrigerator Transit Co. vs.
Kentucky, 199 U. S., 194; 26 Sup. Ct. Rep., 36; 50 Law. ed., 150; Charles River Bridge vs. Warren
Bridge, 11 Pet., 420; 9 Law. ed., 773.) The obligation to pay taxes rests not upon the privileges
enjoyed by, or the protection afforded to, a citizen by the government but upon the necessity of
money for the support of the state (Dobbins vs. Erie Country, supra). For this reason, no one is
allowed to object to or resist the payment of taxes solely because no personal benefit to him can be
pointed out. (Thomas vs. Gay, 169 U. S., 264; 18 Sup. Ct. Rep., 340; 43 Law. ed., 740.) While
courts will not enlarge, by construction, the government's power of taxation (Bromley vs. McCaughn,
280 U. S., 124; 74 Law. ed., 226; 50 Sup. Ct. Rep., 46) they also will not place upon tax laws so
loose a construction as to permit evasions on merely fanciful and insubstantial distictions. (U. S. vs.
Watts, 1 Bond., 580; Fed. Cas. No. 16,653; U. S. vs. Wigglesirth, 2 Story, 369; Fed. Cas. No.
16,690, followed in Froelich & Kuttner vs. Collector of Customs, 18 Phil., 461, 481; Castle Bros.,
Wolf & Sons vs. McCoy, 21 Phil., 300; Muñoz & Co. vs. Hord, 12 Phil., 624; Hongkong & Shanghai
Banking Corporation vs. Rafferty, 39 Phil., 145; Luzon Stevedoring Co. vs. Trinidad, 43 Phil., 803.)
When proper, a tax statute should be construed to avoid the possibilities of tax evasion. Construed
this way, the statute, without resulting in injustice to the taxpayer, becomes fair to the government.

That taxes must be collected promptly is a policy deeply intrenched in our tax system. Thus, no court
is allowed to grant injunction to restrain the collection of any internal revenue tax ( sec. 1578,
Revised Administrative Code; Sarasola vs. Trinidad, 40 Phil., 252). In the case of Lim Co Chui vs.
Posadas (47 Phil., 461), this court had occassion to demonstrate trenchment adherence to this
policy of the law. It held that "the fact that on account of riots directed against the Chinese on
October 18, 19, and 20, 1924, they were prevented from praying their internal revenue taxes on time
and by mutual agreement closed their homes and stores and remained therein, does not authorize
the Collector of Internal Revenue to extend the time prescribed for the payment of the taxes or to
accept them without the additional penalty of twenty five per cent." (Syllabus, No. 3.) 
". . . It is of the utmost importance," said the Supreme Court of the United States, ". . . that the
modes adopted to enforce the taxes levied should be interfered with as little as possible. Any delay
in the proceedings of the officers, upon whom the duty is developed of collecting the taxes, may
derange the operations of government, and thereby, cause serious detriment to the public." (Dows
vs. Chicago, 11 Wall., 108; 20 Law. ed., 65, 66; Churchill and Tait vs. Rafferty, 32 Phil., 580.)

It results that the estate which plaintiff represents has been delinquent in the payment of inheritance
tax and, therefore, liable for the payment of interest and surcharge provided by law in such cases.

The delinquency in payment occurred on March 10, 1924, the date when Moore became trustee.
The interest due should be computed from that date and it is error on the part of the defendant to
compute it one month later. The provisions cases is mandatory (see and cf. Lim Co Chui vs.
Posadas, supra), and neither the Collector of Internal Revenuen or this court may remit or decrease
such interest, no matter how heavily it may burden the taxpayer.

To the tax and interest due and unpaid within ten days after the date of notice and demand thereof
by the Collector of Internal Revenue, a surcharge of twenty-five per centum should be added (sec.
1544, subsec. (b), par. 2, Revised Administrative Code). Demand was made by the Deputy Collector
of Internal Revenue upon Moore in a communiction dated October 16, 1931 (Exhibit 29). The date
fixed for the payment of the tax and interest was November 30, 1931. November 30 being an official
holiday, the tenth day fell on December 1, 1931. As the tax and interest due were not paid on that
date, the estate became liable for the payment of the surcharge.

In view of the foregoing, it becomes unnecessary for us to discuss the fifth error assigned by the
plaintiff in his brief.

We shall now compute the tax, together with the interest and surcharge due from the estate of
Thomas Hanley inaccordance with the conclusions we have reached.

At the time of his death, the deceased left real properties valued at P27,920 and personal properties
worth P1,465, or a total of P29,385. Deducting from this amount the sum of P480.81, representing
allowable deductions under secftion 1539 of the Revised Administrative Code, we have P28,904.19
as the net value of the estate subject to inheritance tax.

The primary tax, according to section 1536, subsection (c), of the Revised Administrative Code,
should be imposed at the rate of one per centum upon the first ten thousand pesos and two per
centum upon the amount by which the share exceed thirty thousand pesos, plus an additional two
hundred per centum. One per centum of ten thousand pesos is P100. Two per centum of
P18,904.19 is P378.08. Adding to these two sums an additional two hundred per centum, or
P965.16, we have as primary tax, correctly computed by the defendant, the sum of P1,434.24.

To the primary tax thus computed should be added the sums collectible under section 1544 of the
Revised Administrative Code. First should be added P1,465.31 which stands for interest at the rate
of twelve per centum per annum from March 10, 1924, the date of delinquency, to September 15,
1932, the date of payment under protest, a period covering 8 years, 6 months and 5 days. To the tax
and interest thus computed should be added the sum of P724.88, representing a surhcarge of 25
per cent on both the tax and interest, and also P10, the compromise sum fixed by the defendant
(Exh. 29), giving a grand total of P3,634.43.

As the plaintiff has already paid the sum of P2,052.74, only the sums of P1,581.69 is legally due
from the estate. This last sum is P390.42 more than the amount demanded by the defendant in his
counterclaim. But, as we cannot give the defendant more than what he claims, we must hold that the
plaintiff is liable only in the sum of P1,191.27 the amount stated in the counterclaim.

The judgment of the lower court is accordingly modified, with costs against the plaintiff in both
instances. So ordered.
G.R. No. 119286             October 13, 2004
PASEO REALTY & DEVELOPMENT CORPORATION, petitioner, 
vs.
COURT OF APPEALS, COURT OF TAX APPEALS and COMMISSIONER OF INTERNAL
REVENUE,respondents.

DECISION

TINGA, J.:

The changes in the reportorial requirements and payment schedules of corporate income taxes from
annual to quarterly have created problems, especially on the matter of tax refunds. 1 In this case, the
Court is called to resolve the question of whether alleged excess taxes paid by a corporation during
a taxable year should be refunded or credited against its tax liabilities for the succeeding year. 

Paseo Realty and Development Corporation, a domestic corporation engaged in the lease of two (2)
parcels of land at Paseo de Roxas in Makati City, seeks a review of the Decision2 of the Court of
Appeals dismissing its petition for review of the resolution 3 of the Court of Tax Appeals (CTA) which,
in turn, denied its claim for refund.

The factual antecedents4 are as follows:

On April 16, 1990, petitioner filed its Income Tax Return for the calendar year 1989 declaring
a gross income of ₱1,855,000.00, deductions of ₱1,775,991.00, net income of ₱79,009.00,
an income tax due thereon in the amount of ₱27,653.00, prior year’s excess credit of
₱146,026.00, and creditable taxes withheld in 1989 of ₱54,104.00 or a total tax credit of
₱200,130.00 and credit balance of ₱172,477.00.

On November 14, 1991, petitioner filed with respondent a claim for "the refund of excess
creditable withholding and income taxes for the years 1989 and 1990 in the aggregate
amount of ₱147,036.15."

On December 27, 1991 alleging that the prescriptive period for refunds for 1989 would expire
on December 30, 1991 and that it was necessary to interrupt the prescriptive period,
petitioner filed with the respondent Court of Tax Appeals a petition for review praying for the
refund of "₱54,104.00 representing creditable taxes withheld from income payments of
petitioner for the calendar year ending December 31, 1989."

On February 25, 1992, respondent Commissioner filed an Answer and by way of special
and/or affirmative defenses averred the following: a) the petition states no cause of action for
failure to allege the dates when the taxes sought to be refunded were paid; b) petitioner’s
claim for refund is still under investigation by respondent Commissioner; c) the taxes claimed
are deemed to have been paid and collected in accordance with law and existing pertinent
rules and regulations; d) petitioner failed to allege that it is entitled to the refund or
deductions claimed; e) petitioner’s contention that it has available tax credit for the current
and prior year is gratuitous and does not ipso facto warrant the refund; f) petitioner failed to
show that it has complied with the provision of Section 230 in relation to Section 204 of the
Tax Code.

After trial, the respondent Court rendered a decision ordering respondent Commissioner "to
refund in favor of petitioner the amount of ₱54,104.00, representing excess creditable
withholding taxes paid for January to July1989."

Respondent Commissioner moved for reconsideration of the decision, alleging that the
₱54,104.00 ordered to be refunded "has already been included and is part and parcel of the
₱172,477.00 which petitioner automatically applied as tax credit for the succeeding taxable
year 1990."

In a resolution dated October 21, 1993 Respondent Court reconsidered its decision of July
29, 1993 and dismissed the petition for review, stating that it has "overlooked the fact that
 the petitioner’s 1989 Corporate Income Tax Return (Exh. "A") indicated that the amount of
₱54,104.00 subject of petitioner’s claim for refund has already been included as part and
parcel of the ₱172,477.00 which the petitioner automatically applied as tax credit for the
succeeding taxable year 1990."

Petitioner filed a Motion for Reconsideration which was denied by respondent Court on
March 10, 1994.5

Petitioner filed a Petition for Review6 dated April 3, 1994 with the Court of Appeals. Resolving the
twin issues of whether petitioner is entitled to a refund of ₱54,104.00 representing creditable taxes
withheld in 1989 and whether petitioner applied such creditable taxes withheld to its 1990 income tax
liability, the appellate court held that petitioner is not entitled to a refund because it had already
elected to apply the total amount of ₱172,447.00, which includes the ₱54,104.00 refund claimed,
against its income tax liability for 1990. The appellate court elucidated on the reason for its dismissal
of petitioner’s claim for refund, thus:

In the instant case, it appears that when petitioner filed its income tax return for the year
1989, it filled up the box stating that the total amount of ₱172,477.00 shall be applied against
its income tax liabilities for the succeeding taxable year.

Petitioner did not specify in its return the amount to be refunded and the amount to be
applied as tax credit to the succeeding taxable year, but merely marked an "x" to the box
indicating "to be applied as tax credit to the succeeding taxable year." Unlike what petitioner
had done when it filed its income tax return for the year 1988, it specifically stated that out of
the ₱146,026.00 the entire refundable amount, only ₱64,623.00 will be made available as
tax credit, while the amount of ₱81,403.00 will be refunded.

In its 1989 income tax return, petitioner filled up the box "to be applied as tax credit to
succeeding taxable year," which signified that instead of refund, petitioner will apply the total
amount of ₱172,447.00, which includes the amount of ₱54,104.00 sought to be refunded, as
tax credit for its tax liabilities in 1990. Thus, there is really nothing left to be refunded to
petitioner for the year 1989. To grant petitioner’s claim for refund is tantamount to granting
twice the refund herein sought to be refunded, to the prejudice of the Government.

The Court of Appeals denied petitioner’s Motion for Reconsideration7 dated November 8, 1994 in

its Resolution8dated February 21, 1995 because the motion merely restated the grounds which have
already been considered and passed upon in its Decision.9

Petitioner thus filed the instant Petition for Review10 dated April 14, 1995 arguing that the evidence
presented before the lower courts conclusively shows that it did not apply the ₱54,104.00 to its 1990
income tax liability; that the Decision subject of the instant petition is inconsistent with a final
decision11 of the Sixteenth Division of the appellate court in C.A.-G.R. Sp. No. 32890 involving the
same parties and subject matter; and that the affirmation of the questioned Decision would lead to
absurd results in the manner of claiming refunds or in the application of prior years’ excess tax
credits.

The Office of the Solicitor General (OSG) filed a Comment12 dated May 16, 1996 on behalf of
respondents asserting that the claimed refund of ₱54,104.00 was, by petitioner’s election in its
Corporate Annual Income Tax Return for 1989, to be applied against its tax liability for 1990. Not
having submitted its tax return for 1990 to show whether the said amount was indeed applied
against its tax liability for 1990, petitioner’s election in its tax return stands. The OSG also contends
that petitioner’s election to apply its overpaid income tax as tax credit against its tax liabilities for the
succeeding taxable year is mandatory and irrevocable.

On September 2, 1997, petitioner filed a Reply13 dated August 31, 1996 insisting that the issue in this
case is not whether the amount of ₱54,104.00 was included as tax credit to be applied against its
1990 income tax liability but whether the same amount was actually applied as tax credit for 1990.
Petitioner claims that there is no need to show that the amount of ₱54,104.00 had not been
automatically applied against its 1990 income tax liability because the appellate court’s decision in
C.A.-G.R. Sp. No. 32890 clearly held that petitioner charged its 1990 income tax liability against its
tax credit for 1988 and not 1989. Petitioner also disputes the OSG’s assertion that the taxpayer’s
election as to the application of excess taxes is irrevocable averring that there is nothing in the law
that prohibits a taxpayer from changing its mind especially if subsequent events leave the latter no
choice but to change its election. 
The OSG filed a Rejoinder14 dated March 5, 1997 stating that petitioner’s 1988 tax return shows a
prior year’s excess credit of ₱81,403.00, creditable tax withheld of ₱92,750.00 and tax due of
₱27,127.00. Petitioner indicated that the prior year’s excess credit of ₱81,403.00 was to be
refunded, while the remaining amount of ₱64,623.00 (₱92,750.00 - ₱27,127.00) shall be considered
as tax credit for 1989. However, in its 1989 tax return, petitioner included the ₱81,403.00 which had
already been segregated for refund in the computation of its excess credit, and specified that the full
amount of ₱172,479.00* (₱81,403.00 + ₱64,623.00 + ₱54,104.00** - ₱27,653.00***) be considered
as its tax credit for 1990. Considering that it had obtained a favorable ruling for the refund of its
excess credit for 1988 in CA-G.R. SP. No. 32890, its remaining tax credit for 1989 should be the
excess credit to be applied against its 1990 tax liability. In fine, the OSG argues that by its own
election, petitioner can no longer ask for a refund of its creditable taxes withheld in 1989 as the
same had been applied against its 1990 tax due.

In its Resolution15 dated July 16, 1997, the Court gave due course to the petition and required the
parties to simultaneously file their respective memoranda within 30 days from notice. In compliance
with this directive, petitioner submitted its Memorandum16 dated September 18, 1997 in due time,
while the OSG filed its Memorandum17 dated April 27, 1998 only on April 29, 1998 after several
extensions.

The petition must be denied.

As a matter of principle, it is not advisable for this Court to set aside the conclusion reached by an
agency such as the CTA which is, by the very nature of its functions, dedicated exclusively to the
study and consideration of tax problems and has necessarily developed an expertise on the subject,
unless there has been an abuse or improvident exercise of its authority. 18

This interdiction finds particular application in this case since the CTA, after careful consideration of
the merits of the Commissioner of Internal Revenue’s motion for reconsideration, reconsidered its
earlier decision which ordered the latter to refund the amount of ₱54,104.00 to petitioner. Its
resolution cannot be successfully assailed based, as it is, on the pertinent laws as applied to the
facts.

Petitioner’s 1989 tax return indicates an aggregate creditable tax of ₱172,477.00, representing its
1988 excess credit of ₱146,026.00 and 1989 creditable tax of ₱54,104.00 less tax due for 1989,
which it elected to apply as tax credit for the succeeding taxable year. 19 According to petitioner, it
successively utilized this amount when it obtained refunds in CTA Case No. 4439 (C.A.-G.R. Sp. No.
32300) and CTA Case No. 4528 (C.A.-G.R. Sp. No. 32890), and applied its 1990 tax liability, leaving
a balance of ₱54,104.00, the amount subject of the instant claim for refund. 20Represented
mathematically, petitioner accounts for its claim in this wise:

₱172,477.00 Amount indicated in petitioner’s 1989 tax return to be applied

as tax credit for the succeeding taxable year

- 25,623.00 Claim for refund in CTA Case No. 4439 (C.A.-G.R. Sp. No.
32300)

₱146,854.00 Balance as of April 16, 1990

- 59,510.00 Claim for refund in CTA Case No. 4528 (C.A.-G.R. Sp. No.
32890)

₱87,344.00 Balance as of January 2, 1991

- 33,240.00 Income tax liability for calendar year 1990 applied as of April
15, 1991

₱54,104.00 Balance as of April 15, 1991 now subject of the instant claim for
refund21

Other than its own bare allegations, however, petitioner offers no proof to the effect that its creditable
tax of ₱172,477.00 was applied as claimed above. Instead, it anchors its assertion of entitlement to
refund on an alleged finding in C.A.-G.R. Sp. No. 32890 22 involving the same parties to the effect that
petitioner charged its 1990 income tax liability to its tax credit for 1988 and not its 1989 tax credit.
Hence, its excess creditable taxes withheld of ₱54,104.00 for 1989 was left untouched and may be
refunded. 

Note should be taken, however, that nowhere in the case referred to by petitioner did the Court of
Appeals make a categorical determination that petitioner’s tax liability for 1990 was applied against
its 1988 tax credit. The statement adverted to by petitioner was actually presented in the appellate
court’s decision in CA-G.R. Sp No. 32890 as part of petitioner’s own narration of facts. The pertinent
portion of the decision reads:

It would appear from petitioner’s submission as follows:

x x x since it has already applied to its prior year’s excess credit of ₱81,403.00 (which
petitioner wanted refunded when it filed its 1988 Income Tax Return on April 14, 1989) the
income tax liability for 1988 of ₱28,127.00 and the income tax liability for 1989 of
₱27,653.00, leaving a balance refundable of ₱25,623.00 subject of C.T.A. Case No. 4439,
the ₱92,750.00 (₱64,623.00 plus ₱28,127.00, since this second amount was already applied
to the amount refundable of ₱81,403.00) should be the refundable amount. But since the
taxpayer again used part of it to satisfy its income tax liability of ₱33,240.00 for 1990, the
amount refundable was ₱59,510.00, which is the amount prayed for in the claim for refund
and also in the petitioner (sic) for review.

That the present claim for refund already consolidates its claims for refund for 1988, 1989,
and 1990, when it filed a claim for refund of ₱59,510.00 in this case (CTA Case No. 4528).
Hence, the present claim should be resolved together with the previous claims. 23

The confusion as to petitioner’s entitlement to a refund could altogether have been avoided had it
presented its tax return for 1990. Such return would have shown whether petitioner actually applied
its 1989 tax credit of ₱172,477.00, which includes the ₱54,104.00 creditable taxes withheld for 1989
subject of the instant claim for refund, against its 1990 tax liability as it had elected in its 1989 return,
or at least, whether petitioner’s tax credit of ₱172,477.00 was applied to its approved refunds as it
claims. 

The return would also have shown whether there remained an excess credit refundable to petitioner
after deducting its tax liability for 1990. As it is, we only have petitioner’s allegation that its tax due for
1990 was ₱33,240.00 and that this was applied against its remaining tax credits using its own "first
in, first out" method of computation.

It would have been different had petitioner not included the ₱54,104.00 creditable taxes for 1989 in
the total amount it elected to apply against its 1990 tax liabilities. Then, all that would have been
required of petitioner are: proof that it filed a claim for refund within the two (2)-year prescriptive
period provided under Section 230 of the NIRC; evidence that the income upon which the taxes
were withheld was included in its return; and to establish the fact of withholding by a copy of the
statement (BIR Form No. 1743.1) issued by the payor 24 to the payee showing the amount paid and
the amount of tax withheld therefrom. However, since petitioner opted to apply its aggregate excess
credits as tax credit for 1990, it was incumbent upon it to present its tax return for 1990 to show that
the claimed refund had not been automatically credited and applied to its 1990 tax liabilities. 

The grant of a refund is founded on the assumption that the tax return is valid, i.e., that the facts
stated therein are true and correct.25 Without the tax return, it is error to grant a refund since it would
be virtually impossible to determine whether the proper taxes have been assessed and paid. 

Why petitioner failed to present such a vital piece of evidence confounds the Court. Petitioner could
very well have attached a copy of its final adjustment return for 1990 when it filed its claim for refund
on November 13, 1991. Annex "B" of its Petition for Review26 dated December 26, 1991 filed with the
CTA, in fact, states that its annual tax return for 1990 was submitted in support of its claim. Yet,
petitioner’s tax return for 1990 is nowhere to be found in the records of this case. 

Had petitioner presented its 1990 tax return in refutation of respondent Commissioner’s allegation
that it did not present evidence to prove that its claimed refund had already been automatically
credited against its 1990 tax liability, the CTA would not have reconsidered its earlier Decision. As it
is, the absence of petitioner’s 1990 tax return was the principal basis of the
CTA’s Resolution reconsidering its earlier Decision to grant petitioner’s claim for refund. 
Petitioner could even still have attached a copy of its 1990 tax return to its petition for review before
the Court of Appeals. The appellate court, being a trier of facts, is authorized to receive it in evidence
and would likely have taken it into account in its disposition of the petition. 

In BPI-Family Savings Bank v. Court of Appeals,27 although petitioner failed to present its 1990 tax
return, it presented other evidence to prove its claim that it did not apply and could not have applied
the amount in dispute as tax credit. Importantly, petitioner therein attached a copy of its final
adjustment return for 1990 to its motion for reconsideration before the CTA buttressing its claim that
it incurred a net loss and is thus entitled to refund. Considering this fact, the Court held that there is
no reason for the BIR to withhold the tax refund.

In this case, petitioner’s failure to present sufficient evidence to prove its claim for refund is fatal to
its cause. After all, it is axiomatic that a claimant has the burden of proof to establish the factual
basis of his or her claim for tax credit or refund. Tax refunds, like tax exemptions, are construed
strictly against the taxpayer.28

Section 69, Chapter IX, Title II of the National Internal Revenue Code of the Philippines (NIRC)
provides:

Sec. 69. Final Adjustment Return.—Every corporation liable to tax under Section 24 shall file
a final adjustment return covering the total net income for the preceding calendar or fiscal
year. If the sum of the quarterly tax payments made during the said taxable year is not equal
to the total tax due on the entire taxable net income of that year the corporation shall either:

(a) Pay the excess tax still due; or

(b) Be refunded the excess amount paid, as the case may be.

In case the corporation is entitled to a refund of the excess estimated quarterly

income taxes paid, the refundable amount shown on its final adjustment return may
be credited against the estimated quarterly income tax liabilities for the taxable
quarters of the succeeding taxable year. [Emphasis supplied]

Revenue Regulation No. 10-77 of the Bureau of Internal Revenue clarifies:

SEC. 7. Filing of final or adjustment return and final payment of income tax. – A final or an
adjustment return on B.I.R. Form No. 1702 covering the total taxable income of the
corporation for the preceding calendar or fiscal year shall be filed on or before the 15th day
of the fourth month following the close of the calendar or fiscal year. The return shall include
all the items of gross income and deductions for the taxable year. The amount of income tax
to be paid shall be the balance of the total income tax shown on the final or adjustment
return after deducting therefrom the total quarterly income taxes paid during the preceding
first three quarters of the same calendar or fiscal year.

Any excess of the total quarterly payments over the actual income tax computed and shown
in the adjustment or final corporate income tax return shall either (a) be refunded to the
corporation, or (b) may be credited against the estimated quarterly income tax liabilities for
the quarters of the succeeding taxable year. The corporation must signify in its annual
corporate adjustment return its intention whether to request for refund of the overpaid
income tax or claim for automatic credit to be applied against its income tax liabilities for the
quarters of the succeeding taxable year by filling up the appropriate box on the corporate tax
return (B.I.R. Form No. 1702). [Emphasis supplied]

As clearly shown from the above-quoted provisions, in case the corporation is entitled to a refund of
the excess estimated quarterly income taxes paid, the refundable amount shown on its final
adjustment return may be credited against the estimated quarterly income tax liabilities for the
taxable quarters of the succeeding year. The carrying forward of any excess or overpaid income tax
for a given taxable year is limited to the succeeding taxable year only.

In the recent case of AB Leasing and Finance Corporation v. Commissioner of Internal
Revenue,29 where the Court declared that "[T]he carrying forward of any excess or overpaid income
tax for a given taxable year then is limited to the succeeding taxable year only," we ruled that since
the case involved a claim for refund of overpaid taxes for 1993, petitioner could only have applied
the 1993 excess tax credits to its 1994 income tax liabilities. To further carry-over to 1995 the 1993
excess tax credits is violative of Section 69 of the NIRC.

In this case, petitioner included its 1988 excess credit of ₱146,026.00 in the computation of its total
excess credit for 1989. It indicated this amount, plus the 1989 creditable taxes withheld of
₱54,104.00 or a total of ₱172,477.00, as its total excess credit to be applied as tax credit for 1990.
By its own disclosure, petitioner effectively combined its 1988 and 1989 tax credits and applied its
1990 tax due of ₱33,240.00 against the total, and not against its creditable taxes for 1989 only as
allowed by Section 69. This is a clear admission that petitioner’s 1988 tax credit was incorrectly and
illegally applied against its 1990 tax liabilities.

Parenthetically, while a taxpayer is given the choice whether to claim for refund or have its excess
taxes applied as tax credit for the succeeding taxable year, such election is not final. Prior
verification and approval by the Commissioner of Internal Revenue is required. The availment of the
remedy of tax credit is not absolute and mandatory. It does not confer an absolute right on the
taxpayer to avail of the tax credit scheme if it so chooses. Neither does it impose a duty on the part
of the government to sit back and allow an important facet of tax collection to be at the sole control
and discretion of the taxpayer.30

Contrary to petitioner’s assertion however, the taxpayer’s election, signified by the ticking of boxes in
Item 10 of BIR Form No. 1702, is not a mere technical exercise. It aids in the proper management of
claims for refund or tax credit by leading tax authorities to the direction they should take in
addressing the claim. 

The amendment of Section 69 by what is now Section 76 of Republic Act No. 8424 31 emphasizes
that it is imperative to indicate in the tax return or the final adjustment return whether a tax credit or
refund is sought by making the taxpayer’s choice irrevocable. Section 76 provides:

SEC. 76. Final Adjustment Return.—Every corporation liable to tax under Section 27 shall
file a final adjustment return covering the total taxable income for the preceding calendar or
fiscal year. If the sum of the quarterly tax payments made during the said taxable year is not
equal to the total tax due on the entire taxable income of that year, the corporation shall
either:

(A) Pay the balance of the tax still due; or

(B) Carry-over the excess credit; or

(C) Be credited or refunded with the excess amount paid, as the case may be.

In case the corporation is entitled to a tax credit or refund of the excess estimated quarterly
income taxes paid, the excess amount shown on its final adjustment return may be carried
over and credited against the estimated quarterly income tax liabilities for the taxable
quarters of the succeeding taxable years. Once the option to carry-over and apply the
excess quarterly income tax against income tax due for the taxable quarters of the
succeeding taxable years has been made, such option shall be considered irrevocable
for that taxable period and no application for cash refund or issuance of a tax credit
certificate shall be allowed therefore. [Emphasis supplied]

As clearly seen from this provision, the taxpayer is allowed three (3) options if the sum of its
quarterly tax payments made during the taxable year is not equal to the total tax due for that year:
(a) pay the balance of the tax still due; (b) carry-over the excess credit; or (c) be credited or refunded
the amount paid. If the taxpayer has paid excess quarterly income taxes, it may be entitled to a tax
credit or refund as shown in its final adjustment return which may be carried over and applied
against the estimated quarterly income tax liabilities for the taxable quarters of the succeeding
taxable years. However, once the taxpayer has exercised the option to carry-over and to apply the
excess quarterly income tax against income tax due for the taxable quarters of the succeeding
taxable years, such option is irrevocable for that taxable period and no application for cash refund or
issuance of a tax credit certificate shall be allowed.

Had this provision been in effect when the present claim for refund was filed, petitioner’s excess
credits for 1988 could have been properly applied to its 1990 tax liabilities. Unfortunately for
petitioner, this is not the case. 
Taxation is a destructive power which interferes with the personal and property rights of the people
and takes from them a portion of their property for the support of the government. And since taxes
are what we pay for civilized society, or are the lifeblood of the nation, the law frowns against
exemptions from taxation and statutes granting tax exemptions are thus construed strictissimi
juris against the taxpayer and liberally in favor of the taxing authority. A claim of refund or exemption
from tax payments must be clearly shown and be based on language in the law too plain to be
mistaken. Elsewise stated, taxation is the rule, exemption therefrom is the exception. 32

WHEREFORE, the instant petition is DENIED. The challenged decision of the Court of Appeals is
hereby AFFIRMED. No pronouncement as to costs.

SO ORDERED.
G.R. No. 149110            April 9, 2003
NATIONAL POWER CORPORATION, petitioner, 
vs.
CITY OF CABANATUAN, respondent.

PUNO, J.:

This is a petition for review1 of the Decision2 and the Resolution3 of the Court of Appeals dated March
12, 2001 and July 10, 2001, respectively, finding petitioner National Power Corporation (NPC) liable
to pay franchise tax to respondent City of Cabanatuan.

Petitioner is a government-owned and controlled corporation created under Commonwealth Act No.
120, as amended.4 It is tasked to undertake the "development of hydroelectric generations of power
and the production of electricity from nuclear, geothermal and other sources, as well as, the
transmission of electric power on a nationwide basis."5 Concomitant to its mandated duty, petitioner
has, among others, the power to construct, operate and maintain power plants, auxiliary plants,
power stations and substations for the purpose of developing hydraulic power and supplying such
power to the inhabitants.6

For many years now, petitioner sells electric power to the residents of Cabanatuan City, posting a
gross income of P107,814,187.96 in 1992. 7 Pursuant to section 37 of Ordinance No. 165-92, 8 the
respondent assessed the petitioner a franchise tax amounting to P808,606.41, representing 75% of
1% of the latter's gross receipts for the preceding year.9

Petitioner, whose capital stock was subscribed and paid wholly by the Philippine
Government,10 refused to pay the tax assessment. It argued that the respondent has no authority to
impose tax on government entities. Petitioner also contended that as a non-profit organization, it is
exempted from the payment of all forms of taxes, charges, duties or fees 11 in accordance with sec.
13 of Rep. Act No. 6395, as amended, viz:

"Sec.13. Non-profit Character of the Corporation; Exemption from all Taxes, Duties, Fees,
Imposts and Other Charges by Government and Governmental Instrumentalities.- The
Corporation shall be non-profit and shall devote all its return 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 is hereby exempt:

(a) From the payment of all taxes, duties, fees, imposts, charges, costs and service fees in
any court or administrative proceedings in which it may be a party, restrictions and duties to
the Republic of the Philippines, its provinces, cities, municipalities and other government
agencies and instrumentalities;

(b) From all income taxes, franchise taxes and realty taxes to be paid to the National
Government, its provinces, cities, municipalities and other government agencies and
instrumentalities;

(c) From all import duties, compensating taxes and advanced sales tax, and wharfage fees
on import of foreign goods required for its operations and projects; and

(d) From all taxes, duties, fees, imposts, and all other charges imposed by the Republic of
the Philippines, its provinces, cities, municipalities and other government agencies and
instrumentalities, on all petroleum products used by the Corporation in the generation,
transmission, utilization, and sale of electric power." 12

The respondent filed a collection suit in the Regional Trial Court of Cabanatuan City, demanding that
petitioner pay the assessed tax due, plus a surcharge equivalent to 25% of the amount of tax, and
2% monthly interest.13Respondent alleged that petitioner's exemption from local taxes has been
repealed by section 193 of Rep. Act No. 7160, 14 which reads as follows:
 "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. No. 6938, non-stock and non-profit
hospitals and educational institutions, are hereby withdrawn upon the effectivity of this
Code."

On January 25, 1996, the trial court issued an Order 15 dismissing the case. It ruled that the tax
exemption privileges granted to petitioner subsist despite the passage of Rep. Act No. 7160 for the
following reasons: (1) Rep. Act No. 6395 is a particular law and it may not be repealed by Rep. Act
No. 7160 which is a general law; (2) section 193 of Rep. Act No. 7160 is in the nature of an implied
repeal which is not favored; and (3) local governments have no power to tax instrumentalities of the
national government. Pertinent portion of the Order reads:

"The question of whether a particular law has been repealed or not by a subsequent law is a
matter of legislative intent. The lawmakers may expressly repeal a law by incorporating
therein repealing provisions which expressly and specifically cite(s) the particular law or
laws, and portions thereof, that are intended to be repealed. A declaration in a statute,
usually in its repealing clause, that a particular and specific law, identified by its number or
title is repealed is an express repeal; all others are implied repeal. Sec. 193 of R.A. No. 7160
is an implied repealing clause because it fails to identify the act or acts that are intended to
be repealed. It is a well-settled rule of statutory construction that repeals of statutes by
implication are not favored. The presumption is against inconsistency and repugnancy for
the legislative is presumed to know the existing laws on the subject and not to have enacted
inconsistent or conflicting statutes. It is also a well-settled rule that, generally, general law
does not repeal a special law unless it clearly appears that the legislative has intended by
the latter general act to modify or repeal the earlier special law. Thus, despite the passage of
R.A. No. 7160 from which the questioned Ordinance No. 165-92 was based, the tax
exemption privileges of defendant NPC remain.

Another point going against plaintiff in this case is the ruling of the Supreme Court in the
case of Basco vs. Philippine Amusement and Gaming Corporation, 197 SCRA 52, where it
was held that:

'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. xxx Being an instrumentality of the government, PAGCOR should be
and actually is exempt from local taxes. Otherwise, its operation might be burdened,
impeded or subjected to control by mere local government.'

Like PAGCOR, NPC, being a government owned and controlled corporation with an original
charter and its shares of stocks owned by the National Government, is beyond the taxing
power of the Local Government. Corollary to this, it should be noted here that in the NPC
Charter's declaration of Policy, Congress declared that: 'xxx (2) the total electrification of the
Philippines through the development of power from all services to meet the needs of
industrial development and dispersal and needs of rural electrification are primary objectives
of the nations which shall be pursued coordinately and supported by all instrumentalities and
agencies of the government, including its financial institutions.' (underscoring supplied). To
allow plaintiff to subject defendant to its tax-ordinance would be to impede the avowed goal
of this government instrumentality.

Unlike the State, a city or municipality has no inherent power of taxation. Its taxing power is
limited to that which is provided for in its charter or other statute. Any grant of taxing power is
to be construed strictly, with doubts resolved against its existence.

From the existing law and the rulings of the Supreme Court itself, it is very clear that the
plaintiff could not impose the subject tax on the defendant." 16

On appeal, the Court of Appeals reversed the trial court's Order 17 on the ground that section 193, in
relation to sections 137 and 151 of the LGC, expressly withdrew the exemptions granted to the
petitioner.18 It ordered the petitioner to pay the respondent city government the following: (a) the sum
of P808,606.41 representing the franchise tax due based on gross receipts for the year 1992, (b) the
tax due every year thereafter based in the gross receipts earned by NPC, (c) in all cases, to pay a
surcharge of 25% of the tax due and unpaid, and (d) the sum of P 10,000.00 as litigation expense. 19

On April 4, 2001, the petitioner filed a Motion for Reconsideration on the Court of Appeal's Decision.
This was denied by the appellate court, viz:

"The Court finds no merit in NPC's motion for reconsideration. Its arguments reiterated
therein that the taxing power of the province under Art. 137 (sic) of the Local Government
Code refers merely to private persons or corporations in which category it (NPC) does not
belong, and that the LGC (RA 7160) which is a general law may not impliedly repeal the
NPC Charter which is a special law—finds the answer in Section 193 of the LGC to the effect
that '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 xxx are hereby withdrawn.' The repeal is direct and unequivocal, not implied.

IN VIEW WHEREOF, the motion for reconsideration is hereby DENIED.

SO ORDERED."20

In this petition for review, petitioner raises the following issues:

"A. THE COURT OF APPEALS GRAVELY ERRED IN HOLDING THAT NPC, A PUBLIC
NON-PROFIT CORPORATION, IS LIABLE TO PAY A FRANCHISE TAX AS IT FAILED TO
CONSIDER THAT SECTION 137 OF THE LOCAL GOVERNMENT CODE IN RELATION
TO SECTION 131 APPLIES ONLY TO PRIVATE PERSONS OR CORPORATIONS
ENJOYING A FRANCHISE.

B. THE COURT OF APPEALS GRAVELY ERRED IN HOLDING THAT NPC'S EXEMPTION

FROM ALL FORMS OF TAXES HAS BEEN REPEALED BY THE PROVISION OF THE
LOCAL GOVERNMENT CODE AS THE ENACTMENT OF A LATER LEGISLATION,
WHICH IS A GENERAL LAW, CANNOT BE CONSTRUED TO HAVE REPEALED A
SPECIAL LAW.

C. THE COURT OF APPEALS GRAVELY ERRED IN NOT CONSIDERING THAT AN

EXERCISE OF POLICE POWER THROUGH TAX EXEMPTION SHOULD PREVAIL OVER
THE LOCAL GOVERNMENT CODE."21

It is beyond dispute that the respondent city government has the authority to issue Ordinance No.
165-92 and impose an annual tax on "businesses enjoying a franchise," pursuant to section 151 in
relation to section 137 of the LGC, viz:

"Sec. 137. Franchise Tax. - Notwithstanding any exemption granted by any law or other
special law, the province may impose a tax on businesses enjoying a franchise, at a rate not
exceeding fifty percent (50%) of one percent (1%) of the gross annual receipts for the
preceding calendar year based on the incoming receipt, or realized, within its territorial
jurisdiction.

In the case of a newly started business, the tax shall not exceed one-twentieth (1/20) of one
percent (1%) of the capital investment. In the succeeding calendar year, regardless of when
the business started to operate, the tax shall be based on the gross receipts for the
preceding calendar year, or any fraction thereof, as provided herein." (emphasis supplied)

x   x   x

Sec. 151. Scope of Taxing Powers.- Except as otherwise provided in this Code, the city, may
levy the taxes, fees, and charges which the province or municipality may impose: Provided,
however, That the taxes, fees and charges levied and collected by highly urbanized and
independent component cities shall accrue to them and distributed in accordance with the
provisions of this Code.

The rates of taxes that the city may levy may exceed the maximum rates allowed for the
province or municipality by not more than fifty percent (50%) except the rates of professional
and amusement taxes."
Petitioner, however, submits that it is not liable to pay an annual franchise tax to the respondent city
government. It contends that sections 137 and 151 of the LGC in relation to section 131, limit the
taxing power of the respondent city government to private entities that are engaged in trade or
occupation for profit.22

Section 131 (m) of the LGC defines a "franchise" as "a right or privilege, affected with public interest
which is conferred upon private persons or corporations, under such terms and conditions as the
government and its political subdivisions may impose in the interest of the public welfare, security
and safety." From the phraseology of this provision, the petitioner claims that the word "private"
modifies the terms "persons" and "corporations." Hence, when the LGC uses the term "franchise,"
petitioner submits that it should refer specifically to franchises granted to private natural persons and
to private corporations.23 Ergo, its charter should not be considered a "franchise" for the purpose of
imposing the franchise tax in question.

On the other hand, section 131 (d) of the LGC defines "business" as "trade or commercial activity
regularly engaged in as means of livelihood or with a view to profit." Petitioner claims that it is not
engaged in an activity for profit, in as much as its charter specifically provides that it is a "non-profit
organization." In any case, petitioner argues that the accumulation of profit is merely incidental to its
operation; all these profits are required by law to be channeled for expansion and improvement of its
facilities and services.24

Petitioner also alleges that it is an instrumentality of the National Government, 25 and as such, may
not be taxed by the respondent city government. It cites the doctrine in Basco vs. Philippine
Amusement and Gaming Corporation26where this Court held that local governments have no power
to tax instrumentalities of the National Government, viz: 

"Local governments have no power to tax instrumentalities of the National Government.

PAGCOR has a dual role, to operate and 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 Government, 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. (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 political subdivision can regulate a federal
instrumentality in such a way as to prevent it from consummating its federal
responsibilities, or even seriously burden it from accomplishment of them.'
(Antieau, Modern Constitutional Law, Vol. 2, p. 140, italics 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 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."27

Petitioner contends that section 193 of Rep. Act No. 7160, withdrawing the tax privileges of
government-owned or controlled corporations, is in the nature of an implied repeal. A special law, its
charter cannot be amended or modified impliedly by the local government code which is a general
law. Consequently, petitioner claims that its exemption from all taxes, fees or charges under its
charter subsists despite the passage of the LGC, viz:
 "It is a well-settled rule of statutory construction that repeals of statutes by implication are not
favored and as much as possible, effect must be given to all enactments of the legislature.
Moreover, it has to be conceded that the charter of the NPC constitutes a special law.
Republic Act No. 7160, is a general law. It is a basic rule in statutory construction that the
enactment of a later legislation which is a general law cannot be construed to have repealed
a special law. Where there is a conflict between a general law and a special statute, the
special statute should prevail since it evinces the legislative intent more clearly than the
general statute."28

Finally, petitioner submits that the charter of the NPC, being a valid exercise of police power, should
prevail over the LGC. It alleges that the power of the local government to impose franchise tax is
subordinate to petitioner's exemption from taxation; "police power being the most pervasive, the
least limitable and most demanding of all powers, including the power of taxation." 29

The petition is without merit.

Taxes are the lifeblood of the government, 30 for without taxes, the government can neither exist nor
endure. A principal attribute of sovereignty,31 the exercise of taxing power derives its source from the
very existence of the state whose social contract with its citizens obliges it to promote public interest
and common good. The theory behind the exercise of the power to tax emanates from
necessity;32 without taxes, government cannot fulfill its mandate of promoting the general welfare and
well-being of the people.

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.33 Taxation assumes even greater significance with the ratification of the 1987
Constitution. Thenceforth, the power to tax is no longer vested exclusively on Congress; local
legislative bodies are now given direct authority to levy taxes, fees and other charges 34 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, 36 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, 37 the Local Autonomy Act of 1959, 38 the Decentralization Act of
196739 and the Local Government Code of 1983. 40 Despite these initiatives, however, the shackles of
dependence on the national government remained. Local government units were faced with the
same problems that hamper their capabilities to participate effectively in the national development
efforts, among which are: (a) inadequate tax base, (b) lack of fiscal control over external sources of
income, (c) limited authority to prioritize and approve development projects, (d) heavy dependence
on external sources of income, and (e) limited supervisory control over personnel of national line
agencies.41

Considered as the most revolutionary piece of legislation on local autonomy, 42 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.43

One of the most significant provisions of the LGC is the removal of the blanket exclusion of
instrumentalities and agencies of the national government from the coverage of local taxation.
Although as a general rule, LGUs cannot impose taxes, fees or charges of any kind on the National
Government, its agencies and instrumentalities, this rule now admits an exception, i.e., when
specific provisions of the LGC authorize the LGUs to impose taxes, fees or charges on the
aforementioned entities, viz:

"Section 133. Common Limitations on the Taxing Powers of the 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

(o) Taxes, fees, or charges of any kind on the National Government, its agencies and
instrumentalities, and local government units." (emphasis supplied)

In view of the afore-quoted provision of the LGC, the doctrine in Basco vs. Philippine Amusement
and Gaming Corporation44 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,45 nothing prevents Congress from decreeing that even instrumentalities or agencies of the
government performing governmental functions may be subject to tax.46 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, viz:

"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 power of local governments 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 the item
(a) of the first paragraph of section 12.'"47

In the case at bar, section 151 in relation to section 137 of the LGC clearly authorizes the
respondent city government to impose on the petitioner the franchise tax in question.

In its general signification, a franchise is a privilege conferred by government authority, which does
not belong to citizens of the country generally as a matter of common right. 48 In its specific sense, a
franchise may refer to a general or primary franchise, or to a special or secondary franchise. The
former relates to the right to exist as a corporation, by virtue of duly approved articles of
incorporation, or a charter pursuant to a special law creating the corporation. 49 The right under a
primary or general franchise is vested in the individuals who compose the corporation and not in the
corporation itself.50 On the other hand, the latter refers to the right or privileges conferred upon an
existing corporation such as the right to use the streets of a municipality to lay pipes of tracks, erect
poles or string wires.51 The rights under a secondary or special franchise are vested in the
corporation and may ordinarily be conveyed or mortgaged under a general power granted to a
corporation to dispose of its property, except such special or secondary franchises as are charged
with a public use.52
In section 131 (m) of the LGC, Congress unmistakably defined a franchise in the sense of a
secondary or special franchise. This is to avoid any confusion when the word franchise is used in the
context of taxation. As commonly used, a franchise tax is "a tax on the privilege of transacting
business in the state and exercising corporate franchises granted by the state." 53 It is not levied on
the corporation simply for existing as a corporation, upon its property 54 or its income,55 but on its
exercise of the rights or privileges granted to it by the government. Hence, a corporation need not
pay franchise tax from the time it ceased to do business and exercise its franchise. 56 It is within this
context that the phrase "tax on businesses enjoying a franchise" in section 137 of the LGC should be
interpreted and understood. Verily, to determine whether the petitioner is covered by the franchise
tax in question, the following requisites should concur: (1) that petitioner has a "franchise" in the
sense of a secondary or special franchise; and (2) that it is exercising its rights or privileges under
this franchise within the territory of the respondent city government.

Petitioner fulfills the first requisite. Commonwealth Act No. 120, as amended by Rep. Act No. 7395,
constitutes petitioner's primary and secondary franchises. It serves as the petitioner's charter,
defining its composition, capitalization, the appointment and the specific duties of its corporate
officers, and its corporate life span.57 As its secondary franchise, Commonwealth Act No. 120, as
amended, vests the petitioner the following powers which are not available to ordinary
corporations, viz:

"x x x

(e) To conduct investigations and surveys for the development of water power in any part of
the Philippines;

(f) To take water from any public stream, river, creek, lake, spring or waterfall in the
Philippines, for the purposes specified in this Act; to intercept and divert the flow of waters
from lands of riparian owners and from persons owning or interested in waters which are or
may be necessary for said purposes, upon payment of just compensation therefor; to alter,
straighten, obstruct or increase the flow of water in streams or water channels intersecting or
connecting therewith or contiguous to its works or any part thereof: Provided, That just
compensation shall be paid to any person or persons whose property is, directly or indirectly,
adversely affected or damaged thereby;

(g) To construct, operate and maintain power plants, auxiliary plants, dams, reservoirs,
pipes, mains, transmission lines, power stations and substations, and other works for the
purpose of developing hydraulic power from any river, creek, lake, spring and waterfall in the
Philippines and supplying such power to the inhabitants thereof; to acquire, construct, install,
maintain, operate, and improve gas, oil, or steam engines, and/or other prime movers,
generators and machinery in plants and/or auxiliary plants for the production of electric
power; to establish, develop, operate, maintain and administer power and lighting systems
for the transmission and utilization of its power generation; to sell electric power in bulk to (1)
industrial enterprises, (2) city, municipal or provincial systems and other government
institutions, (3) electric cooperatives, (4) franchise holders, and (5) real estate subdivisions x
x x;

(h) To acquire, promote, hold, transfer, sell, lease, rent, mortgage, encumber and otherwise
dispose of property incident to, or necessary, convenient or proper to carry out the purposes
for which the Corporation was created: Provided, That in case a right of way is necessary for
its transmission lines, easement of right of way shall only be sought: Provided, however,
That in case the property itself shall be acquired by purchase, the cost thereof shall be the
fair market value at the time of the taking of such property;

(i) To construct works across, or otherwise, any stream, watercourse, canal, ditch, flume,
street, avenue, highway or railway of private and public ownership, as the location of said
works may require xxx;

(j) To exercise the right of eminent domain for the purpose of this Act in the manner provided
by law for instituting condemnation proceedings by the national, provincial and municipal
governments;

x   x   x
 (m) To cooperate with, and to coordinate its operations with those of the National
Electrification Administration and public service entities;

(n) To exercise complete jurisdiction and control over watersheds surrounding the reservoirs
of plants and/or projects constructed or proposed to be constructed by the Corporation.
Upon determination by the Corporation of the areas required for watersheds for a specific
project, the Bureau of Forestry, the Reforestation Administration and the Bureau of Lands
shall, upon written advice by the Corporation, forthwith surrender jurisdiction to the
Corporation of all areas embraced within the watersheds, subject to existing private rights,
the needs of waterworks systems, and the requirements of domestic water supply;

(o) In the prosecution and maintenance of its projects, the Corporation shall adopt measures
to prevent environmental pollution and promote the conservation, development and
maximum utilization of natural resources xxx "58

With these powers, petitioner eventually had the monopoly in the generation and distribution of
electricity. This monopoly was strengthened with the issuance of Pres. Decree No. 40, 59 nationalizing
the electric power industry. Although Exec. Order No. 215 60 thereafter allowed private sector
participation in the generation of electricity, the transmission of electricity remains the monopoly of
the petitioner.

Petitioner also fulfills the second requisite. It is operating within the respondent city government's
territorial jurisdiction pursuant to the powers granted to it by Commonwealth Act No. 120, as
amended. From its operations in the City of Cabanatuan, petitioner realized a gross income of
P107,814,187.96 in 1992. Fulfilling both requisites, petitioner is, and ought to be, subject of the
franchise tax in question.

Petitioner, however, insists that it is excluded from the coverage of the franchise tax simply because
its stocks are wholly owned by the National Government, and its charter characterized it as a "non-
profit" organization.

These contentions must necessarily fail.

To stress, a franchise tax is imposed based not on the ownership but on the exercise by the
corporation of a privilege to do business. The taxable entity is the corporation which exercises the
franchise, and not the individual stockholders. By virtue of its charter, petitioner was created as a
separate and distinct entity from the National Government. It can sue and be sued under its own
name,61 and can exercise all the powers of a corporation under the Corporation Code. 62

To be sure, the ownership by the National Government of its entire capital stock does not
necessarily imply that petitioner is not engaged in business. Section 2 of Pres. Decree No.
202963 classifies government-owned or controlled corporations (GOCCs) into those performing
governmental functions and those performing proprietary functions, viz:

"A government-owned or controlled corporation is a stock or a non-stock

corporation, whether performing governmental or proprietary functions, which is directly
chartered by special law or if organized under the general corporation law is owned or
controlled by the government directly, or indirectly through a parent corporation or subsidiary
corporation, to the extent of at least a majority of its outstanding voting capital stock x x x."
(emphases supplied)

Governmental functions are those pertaining to the administration of government, and as such, are
treated as absolute obligation on the part of the state to perform while proprietary functions are those
that are undertaken only by way of advancing the general interest of society, and are merely optional
on the government.64 Included in the class of GOCCs performing proprietary functions are "business-
like" entities such as the National Steel Corporation (NSC), the National Development Corporation
(NDC), the Social Security System (SSS), the Government Service Insurance System (GSIS), and
the National Water Sewerage Authority (NAWASA),65 among others. 

Petitioner was created to "undertake the development of hydroelectric generation of power and the
production of electricity from nuclear, geothermal and other sources, as well as the transmission of
electric power on a nationwide basis."66 Pursuant to this mandate, petitioner generates power and
sells electricity in bulk. Certainly, these activities do not partake of the sovereign functions of the
government. They are purely private and commercial undertakings, albeit imbued with public
interest. The public interest involved in its activities, however, does not distract from the true nature
of the petitioner as a commercial enterprise, in the same league with similar public utilities like
telephone and telegraph companies, railroad companies, water supply and irrigation companies,
gas, coal or light companies, power plants, ice plant among others; all of which are declared by this
Court as ministrant or proprietary functions of government aimed at advancing the general interest of
society.67

A closer reading of its charter reveals that even the legislature treats the character of the petitioner's
enterprise as a "business," although it limits petitioner's profits to twelve percent (12%), viz:68

"(n) When essential to the proper administration of its corporate affairs or necessary for the
proper transaction of its business or to carry out the purposes for which it was organized, to
contract indebtedness and issue bonds subject to approval of the President upon
recommendation of the Secretary of Finance;

(o) To exercise such powers and do such things as may be reasonably necessary to carry
out the business and purposes for which it was organized, or which, from time to time, may
be declared by the Board to be necessary, useful, incidental or auxiliary to accomplish the
said purpose xxx."(emphases supplied)

It is worthy to note that all other private franchise holders receiving at least sixty percent (60%) of its
electricity requirement from the petitioner are likewise imposed the cap of twelve percent (12%) on
profits.69 The main difference is that the petitioner is mandated to devote "all its returns from its
capital investment, as well as excess revenues from its operation, for expansion" 70 while other
franchise holders have the option to distribute their profits to its stockholders by declaring dividends.
We do not see why this fact can be a source of difference in tax treatment. In both instances, the
taxable entity is the corporation, which exercises the franchise, and not the individual stockholders. 

We also do not find merit in the petitioner's contention that its tax exemptions under its charter
subsist despite the passage of the LGC.

As a rule, tax exemptions are construed strongly against the claimant. Exemptions must be shown to
exist clearly and categorically, and supported by clear legal provisions. 71 In the case at bar, the
petitioner's sole refuge is section 13 of Rep. Act No. 6395 exempting from, among others, "all
income taxes, franchise taxes and realty taxes to be paid to the National Government, its provinces,
cities, municipalities and other government agencies and instrumentalities." However, section 193 of
the LGC withdrew, subject to limited exceptions, the sweeping tax privileges previously enjoyed by
private and public corporations. Contrary to the contention of petitioner, section 193 of the LGC is an
express, albeit general, repeal of all statutes granting tax exemptions from local taxes. 72 It reads:

"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. No. 6938, non-stock and non-profit
hospitals and educational institutions, are hereby withdrawn upon the effectivity of this
Code." (emphases supplied)

It is a basic precept of statutory construction that the express mention of one person, thing, act, or
consequence excludes all others as expressed in the familiar maxim expressio unius est exclusio
alterius.73 Not being a local water district, a cooperative registered under R.A. No. 6938, or a non-
stock and non-profit hospital or educational institution, petitioner clearly does not belong to the
exception. It is therefore incumbent upon the petitioner to point to some provisions of the LGC that
expressly grant it exemption from local taxes.

But this would be an exercise in futility. Section 137 of the LGC clearly states that the LGUs can
impose franchise tax "notwithstanding any exemption granted by any law or other special law." This
particular provision of the LGC does not admit any exception. In City Government of San Pablo,
Laguna v. Reyes,74 MERALCO's exemption from the payment of franchise taxes was brought as an
issue before this Court. The same issue was involved in the subsequent case of Manila Electric
Company v. Province of Laguna.75 Ruling in favor of the local government in both instances, we ruled
that the franchise tax in question is imposable despite any exemption enjoyed by MERALCO under
special laws, viz:
 "It is our view that petitioners correctly rely on provisions of Sections 137 and 193 of the LGC
to support their position that MERALCO's tax exemption has been withdrawn. The explicit
language of section 137 which authorizes the province to impose franchise tax
'notwithstanding any exemption granted by any law or other special law' is all-encompassing
and clear. The franchise tax is imposable despite any exemption enjoyed under special laws.

Section 193 buttresses the withdrawal of extant tax exemption privileges. By stating that
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 (1) local water districts, (2) cooperatives duly registered under
R.A. 6938, (3) non-stock and non-profit hospitals and educational institutions, are withdrawn
upon the effectivity of this code, the obvious import is to limit the exemptions to the three
enumerated entities. It is a basic precept of statutory construction that the express mention
of one person, thing, act, or consequence excludes all others as expressed in the familiar
maxim expressio unius est exclusio alterius. In the absence of any provision of the Code to
the contrary, and we find no other provision in point, any existing tax exemption or incentive
enjoyed by MERALCO under existing law was clearly intended to be withdrawn.

Reading together sections 137 and 193 of the LGC, we conclude that under the LGC the
local government unit may now impose a local tax at a rate not exceeding 50% of 1% of the
gross annual receipts for the preceding calendar based on the incoming receipts realized
within its territorial jurisdiction. The legislative purpose to withdraw tax privileges enjoyed
under existing law or charter is clearly manifested by the language used on (sic) Sections
137 and 193 categorically withdrawing such exemption subject only to the exceptions
enumerated. Since it would be not only tedious and impractical to attempt to enumerate all
the existing statutes providing for special tax exemptions or privileges, the LGC provided for
an express, albeit general, withdrawal of such exemptions or privileges. No more
unequivocal language could have been used." 76(emphases supplied).

It is worth mentioning that section 192 of the LGC empowers the LGUs, through ordinances duly
approved, to grant tax exemptions, initiatives or reliefs. 77 But in enacting section 37 of Ordinance No.
165-92 which imposes an annual franchise tax "notwithstanding any exemption granted by law or
other special law," the respondent city government clearly did not intend to exempt the petitioner
from the coverage thereof. 

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."78 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. 

IN VIEW WHEREOF, the instant petition is DENIED and the assailed Decision and Resolution of the
Court of Appeals dated March 12, 2001 and July 10, 2001, respectively, are hereby AFFIRMED. 

SO ORDERED.
G.R. No. 87479 June 4, 1990
NATIONAL POWER CORPORATION, petitioner, 
vs.
THE PROVINCE OF ALBAY, ALBAY GOVERNOR ROMEO R. SALALIMA, and ALBAY
PROVINCIAL TREASURER ABUNDIO M. NUÑEZ, respondents. 
Romulo L. Ricafort and Jesus R. Cornago for respondents. 

SARMIENTO, J.:

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

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

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

BE IT RESOLVED, AS IT IS HEREBY RESOLVED, That the tax and duty exemption

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

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

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

On March 10, 1989, the Court resolved to issue a temporary restraining order directing the Albay
provincial government "to CEASE AND DESIST from selling and disposing of the NAPOCOR
properties subject matter of this petition.   It appears, however, that "the temporary restraining order
3

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

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

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

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

Chairman - Secretary of Finance 

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

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

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

Section 1. The provisions of special or general law to the contrary notwithstanding,

all exemptions from the payment of duties, taxes, fees, impost and other charges
heretofore granted in favor of government-owned or controlled corporations including
their subsidiaries are hereby withdrawn.  7

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

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

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

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

SECTION 1. The provisions of any general or special law to the contrary

notwithstanding, all tax and duty incentives granted to government and private
entities are hereby withdrawn, except.  9

and 

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

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

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

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

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

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

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

It is to be pointed out that under Presidential Decree No. 776, the power of the FIRB was merely to
"recommend to the President of the Philippines and for reasons of compatibility with the declared
economic policy, the withdrawal, modification, revocation or suspension of the enforceability of any
of the above-cited statutory subsidies or tax exemption grants, except those granted by the
Constitution." It has no authority to impose taxes or revoke existing ones, which, after all, under the
Constitution, only the legislature may accomplish.   The question therefore is whether or not the
12

various tax exemptions granted by virtue of FIRB Resolutions Nos. 10-85, 1-86, and 17-87 are valid
and constitutional. 

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

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

The fact that under Executive Order No. 93, the FIRB has been given the prerogative to "restore tax
and/or duty exemptions withdrawn hereunder in whole or in part,"   and "impose conditions for ... tax
13

and/or duty exemption"  is of no moment. These provisions are prospective in character and can not
14

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);  but by no means can we say that it has "ratified" the acts of FIRB. It is to
15

misinterpret the scope of FIRB's powers under Presidential Decree No. 776 to say that it has. Apart
from that, Section 2 of the Executive Order was clearly intended to amend Presidential Decree No.
776, which means, mutatis mutandis, that FIRB did not have the right, in the first place, to grant tax
exemptions or withdraw existing ones. 

Does Executive Order No. 93 constitute an unlawful delegation of legislative power? It is to be

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

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

The last issue to be resolved is whether or not the private-respondent is liable for the
fixed and deficiency percentage taxes in the amount of P3,025.96 (i.e. for the period
from January 1, 1946 to February 29, 1948) before the approval of its municipal
franchises. As aforestated, the franchises were approved by the President only on
February 24,1948. Therefore, before the said date, the private respondent was liable
for the payment of percentage and fixed taxes as seller of light, heat, and power
which, as the petitioner claims, amounted to P3,025.96. The legislative franchise
(R.A. No. 3843) exempted the grantee from all kinds of taxes other than the 2% tax
from the date the original franchise was granted. The exemption, therefore, did not
cover the period before the franchise was granted, i.e. before February 24, 1948. ...  16

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

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

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

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

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

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

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

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

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

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

However, any increase in the shares of provinces, cities and

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

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

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

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

As a rule finally, claims of tax exemption are construed strongly against the claimant.   They must
18

also be shown to 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 to
20

finance the needs of the citizenry and to advance the common weal. 

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

SO ORDERED.
G.R. No. 115455 October 30, 1995
ARTURO M. TOLENTINO, petitioner, 
vs.
THE SECRETARY OF FINANCE and THE COMMISSIONER OF INTERNAL
REVENUE, respondents.

G.R. No. 115525 October 30, 1995

JUAN T. DAVID, petitioner, 
vs.
TEOFISTO T. GUINGONA, JR., as Executive Secretary; ROBERTO DE OCAMPO, as Secretary
of Finance; LIWAYWAY VINZONS-CHATO, as Commissioner of Internal Revenue; and their
AUTHORIZED AGENTS OR REPRESENTATIVES, respondents.

G.R. No. 115543 October 30, 1995

RAUL S. ROCO and the INTEGRATED BAR OF THE PHILIPPINES, petitioners, 

vs.
THE SECRETARY OF THE DEPARTMENT OF FINANCE; THE COMMISSIONERS OF THE
BUREAU OF INTERNAL REVENUE AND BUREAU OF CUSTOMS, respondents.

G.R. No. 115544 October 30, 1995

PHILIPPINE PRESS INSTITUTE, INC.; EGP PUBLISHING CO., INC.; KAMAHALAN PUBLISHING
CORPORATION; PHILIPPINE JOURNALISTS, INC.; JOSE L. PAVIA; and OFELIA L.
DIMALANTA, petitioners, 
vs.
HON. LIWAYWAY V. CHATO, in her capacity as Commissioner of Internal Revenue; HON.
TEOFISTO T. GUINGONA, JR., in his capacity as Executive Secretary; and HON. ROBERTO B.
DE OCAMPO, in his capacity as Secretary of Finance, respondents.

G.R. No. 115754 October 30, 1995

CHAMBER OF REAL ESTATE AND BUILDERS ASSOCIATIONS, INC., (CREBA), petitioner, 

vs.
THE COMMISSIONER OF INTERNAL REVENUE, respondent.

G.R. No. 115781 October 30, 1995

KILOSBAYAN, INC., JOVITO R. SALONGA, CIRILO A. RIGOS, ERME CAMBA, EMILIO C.

CAPULONG, JR., JOSE T. APOLO, EPHRAIM TENDERO, FERNANDO SANTIAGO, JOSE
ABCEDE, CHRISTINE TAN, FELIPE L. GOZON, RAFAEL G. FERNANDO, RAOUL V.
VICTORINO, JOSE CUNANAN, QUINTIN S. DOROMAL, MOVEMENT OF ATTORNEYS FOR
BROTHERHOOD, INTEGRITY AND NATIONALISM, INC. ("MABINI"), FREEDOM FROM DEBT
COALITION, INC., and PHILIPPINE BIBLE SOCIETY, INC. and WIGBERTO
TAÑADA, petitioners, 
vs.
THE EXECUTIVE SECRETARY, THE SECRETARY OF FINANCE, THE COMMISSIONER OF
INTERNAL REVENUE and THE COMMISSIONER OF CUSTOMS, respondents.

G.R. No. 115852 October 30, 1995

PHILIPPINE AIRLINES, INC., petitioner, 

vs.
THE SECRETARY OF FINANCE and COMMISSIONER OF INTERNAL REVENUE, respondents.

G.R. No. 115873 October 30, 1995

COOPERATIVE UNION OF THE PHILIPPINES, petitioner, 

vs.
HON. LIWAYWAY V. CHATO, in her capacity as the Commissioner of Internal Revenue, HON.
TEOFISTO T. GUINGONA, JR., in his capacity as Executive Secretary, and HON. ROBERTO B.
DE OCAMPO, in his capacity as Secretary of Finance, respondents.

G.R. No. 115931 October 30, 1995

PHILIPPINE EDUCATIONAL PUBLISHERS ASSOCIATION, INC. and ASSOCIATION OF

PHILIPPINE BOOK SELLERS, petitioners, 
vs.
HON. ROBERTO B. DE OCAMPO, as the Secretary of Finance; HON. LIWAYWAY V. CHATO,
as the Commissioner of Internal Revenue; and HON. GUILLERMO PARAYNO, JR., in his
capacity as the Commissioner of Customs, respondents.

RESOLUTION

MENDOZA, J.:

These are motions seeking reconsideration of our decision dismissing the petitions filed in these
cases for the declaration of unconstitutionality of R.A. No. 7716, otherwise known as the Expanded
Value-Added Tax Law. The motions, of which there are 10 in all, have been filed by the several
petitioners in these cases, with the exception of the Philippine Educational Publishers Association,
Inc. and the Association of Philippine Booksellers, petitioners in G.R. No. 115931.

The Solicitor General, representing the respondents, filed a consolidated comment, to which the
Philippine Airlines, Inc., petitioner in G.R. No. 115852, and the Philippine Press Institute, Inc.,
petitioner in G.R. No. 115544, and Juan T. David, petitioner in G.R. No. 115525, each filed a reply.
In turn the Solicitor General filed on June 1, 1995 a rejoinder to the PPI's reply.

On June 27, 1995 the matter was submitted for resolution.

I. Power of the Senate to propose amendments to revenue bills. Some of the petitioners (Tolentino,
Kilosbayan, Inc., Philippine Airlines (PAL), Roco, and Chamber of Real Estate and Builders
Association (CREBA)) reiterate previous claims made by them that R.A. No. 7716 did not "originate
exclusively" in the House of Representatives as required by Art. VI, §24 of the Constitution. Although
they admit that H. No. 11197 was filed in the House of Representatives where it passed three
readings and that afterward it was sent to the Senate where after first reading it was referred to the
Senate Ways and Means Committee, they complain that the Senate did not pass it on second and
third readings. Instead what the Senate did was to pass its own version (S. No. 1630) which it
approved on May 24, 1994. Petitioner Tolentino adds that what the Senate committee should have
done was to amend H. No. 11197 by striking out the text of the bill and substituting it with the text of
S. No. 1630. That way, it is said, "the bill remains a House bill and the Senate version just becomes
the text (only the text) of the House bill."

The contention has no merit.

The enactment of S. No. 1630 is not the only instance in which the Senate proposed an amendment
to a House revenue bill by enacting its own version of a revenue bill. On at least two occasions
during the Eighth Congress, the Senate passed its own version of revenue bills, which, in
consolidation with House bills earlier passed, became the enrolled bills. These were:

R.A. No. 7369 (AN ACT TO AMEND THE OMNIBUS INVESTMENTS CODE OF 1987 BY
EXTENDING FROM FIVE (5) YEARS TO TEN YEARS THE PERIOD FOR TAX AND DUTY
EXEMPTION AND TAX CREDIT ON CAPITAL EQUIPMENT) which was approved by the President
on April 10, 1992. This Act is actually a consolidation of H. No. 34254, which was approved by the
House on January 29, 1992, and S. No. 1920, which was approved by the Senate on February 3,
1992.

R.A. No. 7549 (AN ACT GRANTING TAX EXEMPTIONS TO WHOEVER SHALL GIVE REWARD
TO ANY FILIPINO ATHLETE WINNING A MEDAL IN OLYMPIC GAMES) which was approved by
the President on May 22, 1992. This Act is a consolidation of H. No. 22232, which was approved by
the House of Representatives on August 2, 1989, and S. No. 807, which was approved by the
Senate on October 21, 1991.

On the other hand, the Ninth Congress passed revenue laws which were also the result of the
consolidation of House and Senate bills. These are the following, with indications of the dates on
which the laws were approved by the President and dates the separate bills of the two chambers of
Congress were respectively passed:

1. R.A. NO. 7642

AN ACT INCREASING THE PENALTIES FOR TAX EVASION, AMENDING FOR

THIS PURPOSE THE PERTINENT SECTIONS OF THE NATIONAL INTERNAL
REVENUE CODE (December 28, 1992).

House Bill No. 2165, October 5, 1992

Senate Bill No. 32, December 7, 1992

2. R.A. NO. 7643

AN ACT TO EMPOWER THE COMMISSIONER OF INTERNAL REVENUE TO

REQUIRE THE PAYMENT OF THE VALUE-ADDED TAX EVERY MONTH AND TO
ALLOW LOCAL GOVERNMENT UNITS TO SHARE IN VAT REVENUE,
AMENDING FOR THIS PURPOSE CERTAIN SECTIONS OF THE NATIONAL
INTERNAL REVENUE CODE (December 28, 1992)

House Bill No. 1503, September 3, 1992

Senate Bill No. 968, December 7, 1992

3. R.A. NO. 7646

AN ACT AUTHORIZING THE COMMISSIONER OF INTERNAL REVENUE TO

PRESCRIBE THE PLACE FOR PAYMENT OF INTERNAL REVENUE TAXES BY
LARGE TAXPAYERS, AMENDING FOR THIS PURPOSE CERTAIN PROVISIONS
OF THE NATIONAL INTERNAL REVENUE CODE, AS AMENDED (February 24,
1993)

House Bill No. 1470, October 20, 1992

Senate Bill No. 35, November 19, 1992

4. R.A. NO. 7649

AN ACT REQUIRING THE GOVERNMENT OR ANY OF ITS POLITICAL

SUBDIVISIONS, INSTRUMENTALITIES OR AGENCIES INCLUDING
GOVERNMENT-OWNED OR CONTROLLED CORPORATIONS (GOCCS) TO
DEDUCT AND WITHHOLD THE VALUE-ADDED TAX DUE AT THE RATE OF
THREE PERCENT (3%) ON GROSS PAYMENT FOR THE PURCHASE OF
GOODS AND SIX PERCENT (6%) ON GROSS RECEIPTS FOR SERVICES
RENDERED BY CONTRACTORS (April 6, 1993)

House Bill No. 5260, January 26, 1993

Senate Bill No. 1141, March 30, 1993

5. R.A. NO. 7656

AN ACT REQUIRING GOVERNMENT-OWNED OR CONTROLLED

CORPORATIONS TO DECLARE DIVIDENDS UNDER CERTAIN CONDITIONS TO
THE NATIONAL GOVERNMENT, AND FOR OTHER PURPOSES (November 9,
1993)
 House Bill No. 11024, November 3, 1993

Senate Bill No. 1168, November 3, 1993

6. R.A. NO. 7660

AN ACT RATIONALIZING FURTHER THE STRUCTURE AND ADMINISTRATION

OF THE DOCUMENTARY STAMP TAX, AMENDING FOR THE PURPOSE
CERTAIN PROVISIONS OF THE NATIONAL INTERNAL REVENUE CODE, AS
AMENDED, ALLOCATING FUNDS FOR SPECIFIC PROGRAMS, AND FOR
OTHER PURPOSES (December 23, 1993)

House Bill No. 7789, May 31, 1993

Senate Bill No. 1330, November 18, 1993

7. R.A. NO. 7717

AN ACT IMPOSING A TAX ON THE SALE, BARTER OR EXCHANGE OF SHARES

OF STOCK LISTED AND TRADED THROUGH THE LOCAL STOCK EXCHANGE
OR THROUGH INITIAL PUBLIC OFFERING, AMENDING FOR THE PURPOSE
THE NATIONAL INTERNAL REVENUE CODE, AS AMENDED, BY INSERTING A
NEW SECTION AND REPEALING CERTAIN SUBSECTIONS THEREOF (May 5,
1994)

House Bill No. 9187, November 3, 1993

Senate Bill No. 1127, March 23, 1994

Thus, the enactment of S. No. 1630 is not the only instance in which the Senate, in the exercise of
its power to propose amendments to bills required to originate in the House, passed its own version
of a House revenue measure. It is noteworthy that, in the particular case of S. No. 1630, petitioners
Tolentino and Roco, as members of the Senate, voted to approve it on second and third readings.

On the other hand, amendment by substitution, in the manner urged by petitioner Tolentino,
concerns a mere matter of form. Petitioner has not shown what substantial difference it would make
if, as the Senate actually did in this case, a separate bill like S. No. 1630 is instead enacted as a
substitute measure, "taking into Consideration . . . H.B. 11197."

Indeed, so far as pertinent, the Rules of the Senate only provide:

RULE XXIX

AMENDMENTS

xxx xxx xxx

§68. Not more than one amendment to the original amendment shall be considered.

No amendment by substitution shall be entertained unless the text thereof is

submitted in writing.

Any of said amendments may be withdrawn before a vote is taken thereon.

§69. No amendment which seeks the inclusion of a legislative provision foreign to the
subject matter of a bill (rider) shall be entertained.

xxx xxx xxx

§70-A. A bill or resolution shall not be amended by substituting it with another which
covers a subject distinct from that proposed in the original bill or resolution.
(emphasis added).
Nor is there merit in petitioners' contention that, with regard to revenue bills, the Philippine Senate
possesses less power than the U.S. Senate because of textual differences between constitutional
provisions giving them the power to propose or concur with amendments.

Art. I, §7, cl. 1 of the U.S. Constitution reads:

All Bills for raising Revenue shall originate in the House of Representatives; but the
Senate may propose or concur with amendments as on other Bills.

Art. VI, §24 of our Constitution reads:

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

The addition of the word "exclusively" in the Philippine Constitution and the decision to drop the
phrase "as on other Bills" in the American version, according to petitioners, shows the intention of
the framers of our Constitution to restrict the Senate's power to propose amendments to revenue
bills. Petitioner Tolentino contends that the word "exclusively" was inserted to modify "originate" and
"the words 'as in any other bills' (sic) were eliminated so as to show that these bills were not to be
like other bills but must be treated as a special kind."

The history of this provision does not support this contention. The supposed indicia of constitutional
intent are nothing but the relics of an unsuccessful attempt to limit the power of the Senate. It will be
recalled that the 1935 Constitution originally provided for a unicameral National Assembly. When it
was decided in 1939 to change to a bicameral legislature, it became necessary to provide for the
procedure for lawmaking by the Senate and the House of Representatives. The work of proposing
amendments to the Constitution was done by the National Assembly, acting as a constituent
assembly, some of whose members, jealous of preserving the Assembly's lawmaking powers,
sought to curtail the powers of the proposed Senate. Accordingly they proposed the following
provision:

All bills appropriating public funds, revenue or tariff bills, bills of local application, and
private bills shall originate exclusively in the Assembly, but the Senate may propose
or concur with amendments. In case of disapproval by the Senate of any such bills,
the Assembly may repass the same by a two-thirds vote of all its members, and
thereupon, the bill so repassed shall be deemed enacted and may be submitted to
the President for corresponding action. In the event that the Senate should fail to
finally act on any such bills, the Assembly may, after thirty days from the opening of
the next regular session of the same legislative term, reapprove the same with a vote
of two-thirds of all the members of the Assembly. And upon such reapproval, the bill
shall be deemed enacted and may be submitted to the President for corresponding
action.

The special committee on the revision of laws of the Second National Assembly vetoed the proposal.
It deleted everything after the first sentence. As rewritten, the proposal was approved by the National
Assembly and embodied in Resolution No. 38, as amended by Resolution No. 73. (J. ARUEGO,
KNOW YOUR CONSTITUTION 65-66 (1950)). The proposed amendment was submitted to the
people and ratified by them in the elections held on June 18, 1940.

This is the history of Art. VI, §18 (2) of the 1935 Constitution, from which Art. VI, §24 of the present
Constitution was derived. It explains why the word "exclusively" was added to the American text from
which the framers of the Philippine Constitution borrowed and why the phrase "as on other Bills" was
not copied. Considering the defeat of the proposal, the power of the Senate to propose amendments
must be understood to be full, plenary and complete "as on other Bills." Thus, because revenue bills
are required to originate exclusively in the House of Representatives, the Senate cannot enact
revenue measures of its own without such bills. After a revenue bill is passed and sent over to it by
the House, however, the Senate certainly can pass its own version on the same subject matter. This
follows from the coequality of the two chambers of Congress.

That this is also the understanding of book authors of the scope of the Senate's power to concur is
clear from the following commentaries:
 The power of the Senate to propose or concur with amendments is apparently
without restriction. It would seem that by virtue of this power, the Senate can
practically re-write a bill required to come from the House and leave only a trace of
the original bill. For example, a general revenue bill passed by the lower house of the
United States Congress contained provisions for the imposition of an inheritance tax .
This was changed by the Senate into a corporation tax. The amending authority of
the Senate was declared by the United States Supreme Court to be sufficiently broad
to enable it to make the alteration. [Flint v. Stone Tracy Company, 220 U.S. 107, 55
L. ed. 389].

(L. TAÑADA AND F. CARREON, POLITICAL LAW OF THE PHILIPPINES 247

(1961))

The above-mentioned bills are supposed to be initiated by the House of

Representatives because it is more numerous in membership and therefore also
more representative of the people. Moreover, its members are presumed to be more
familiar with the needs of the country in regard to the enactment of the legislation
involved.

The Senate is, however, allowed much leeway in the exercise of its power to propose
or concur with amendments to the bills initiated by the House of Representatives.
Thus, in one case, a bill introduced in the U.S. House of Representatives was
changed by the Senate to make a proposed inheritance tax a corporation tax. It is
also accepted practice for the Senate to introduce what is known as an amendment
by substitution, which may entirely replace the bill initiated in the House of
Representatives.

(I. CRUZ, PHILIPPINE POLITICAL LAW 144-145 (1993)).

In sum, while Art. VI, §24 provides that all appropriation, revenue or tariff bills, bills authorizing
increase of the public debt, bills of local application, and private bills must "originate exclusively in
the House of Representatives," it also adds, "but the Senate may propose or concur with
amendments." In the exercise of this power, the Senate may propose an entirely new bill as a
substitute measure. As petitioner Tolentino states in a high school text, a committee to which a bill is
referred may do any of the following:

(1) to endorse the bill without changes; (2) to make changes in the bill omitting or
adding sections or altering its language; (3) to make and endorse an entirely new bill
as a substitute, in which case it will be known as a committee bill; or (4) to make no
report at all.

(A. TOLENTINO, THE GOVERNMENT OF THE PHILIPPINES 258 (1950))

To except from this procedure the amendment of bills which are required to originate in the House
by prescribing that the number of the House bill and its other parts up to the enacting clause must be
preserved although the text of the Senate amendment may be incorporated in place of the original
body of the bill is to insist on a mere technicality. At any rate there is no rule prescribing this form. S.
No. 1630, as a substitute measure, is therefore as much an amendment of H. No. 11197 as any
which the Senate could have made.

II. S. No. 1630 a mere amendment of H. No. 11197. Petitioners' basic error is that they assume that
S. No. 1630 is an independent and distinct bill. Hence their repeated references to its certification
that it was passed by the Senate "in substitution of S.B. No. 1129, taking into consideration P.S.
Res. No. 734 and H.B. No. 11197," implying that there is something substantially different between
the reference to S. No. 1129 and the reference to H. No. 11197. From this premise, they conclude
that R.A. No. 7716 originated both in the House and in the Senate and that it is the product of two
"half-baked bills because neither H. No. 11197 nor S. No. 1630 was passed by both houses of
Congress."

In point of fact, in several instances the provisions of S. No. 1630, clearly appear to be mere
amendments of the corresponding provisions of H. No. 11197. The very tabular comparison of the
provisions of H. No. 11197 and S. No. 1630 attached as Supplement A to the basic petition of
petitioner Tolentino, while showing differences between the two bills, at the same time indicates that
the provisions of the Senate bill were precisely intended to be amendments to the House bill.

Without H. No. 11197, the Senate could not have enacted S. No. 1630. Because the Senate bill was
a mere amendment of the House bill, H. No. 11197 in its original form did not have to pass the
Senate on second and three readings. It was enough that after it was passed on first reading it was
referred to the Senate Committee on Ways and Means. Neither was it required that S. No. 1630 be
passed by the House of Representatives before the two bills could be referred to the Conference
Committee.

There is legislative precedent for what was done in the case of H. No. 11197 and S. No. 1630. When
the House bill and Senate bill, which became R.A. No. 1405 (Act prohibiting the disclosure of bank
deposits), were referred to a conference committee, the question was raised whether the two bills
could be the subject of such conference, considering that the bill from one house had not been
passed by the other and vice versa. As Congressman Duran put the question:

MR. DURAN. Therefore, I raise this question of order as to procedure: If a House bill
is passed by the House but not passed by the Senate, and a Senate bill of a similar
nature is passed in the Senate but never passed in the House, can the two bills be
the subject of a conference, and can a law be enacted from these two bills? I
understand that the Senate bill in this particular instance does not refer to
investments in government securities, whereas the bill in the House, which was
introduced by the Speaker, covers two subject matters: not only investigation of
deposits in banks but also investigation of investments in government securities.
Now, since the two bills differ in their subject matter, I believe that no law can be
enacted.

Ruling on the point of order raised, the chair (Speaker Jose B. Laurel, Jr.) said:

THE SPEAKER. The report of the conference committee is in order. It is precisely in

cases like this where a conference should be had. If the House bill had been
approved by the Senate, there would have been no need of a conference; but
precisely because the Senate passed another bill on the same subject matter, the
conference committee had to be created, and we are now considering the report of
that committee.

(2 CONG. REC. NO. 13, July 27, 1955, pp. 3841-42 (emphasis added))

III. The President's certification. The fallacy in thinking that H. No. 11197 and S. No. 1630 are distinct
and unrelated measures also accounts for the petitioners' (Kilosbayan's and PAL's) contention that
because the President separately certified to the need for the immediate enactment of these
measures, his certification was ineffectual and void. The certification had to be made of the version
of the same revenue bill which at the moment was being considered. Otherwise, to follow petitioners'
theory, it would be necessary for the President to certify as many bills as are presented in a house of
Congress even though the bills are merely versions of the bill he has already certified. It is enough
that he certifies the bill which, at the time he makes the certification, is under consideration. Since on
March 22, 1994 the Senate was considering S. No. 1630, it was that bill which had to be certified.
For that matter on June 1, 1993 the President had earlier certified H. No. 9210 for immediate
enactment because it was the one which at that time was being considered by the House. This bill
was later substituted, together with other bills, by H. No. 11197.

As to what Presidential certification can accomplish, we have already explained in the main decision
that the phrase "except when the President certifies to the necessity of its immediate enactment,
etc." in Art. VI, §26 (2) qualifies not only the requirement that "printed copies [of a bill] in its final form
[must be] distributed to the members three days before its passage" but also the requirement that
before a bill can become a law it must have passed "three readings on separate days." There is not
only textual support for such construction but historical basis as well.

Art. VI, §21 (2) of the 1935 Constitution originally provided:

(2) No bill shall be passed by either House unless it shall have been printed and
copies thereof in its final form furnished its Members at least three calendar days
prior to its passage, except when the President shall have certified to the necessity of
 its immediate enactment. Upon the last reading of a bill, no amendment thereof shall
be allowed and the question upon its passage shall be taken immediately thereafter,
and the yeas and nays entered on the Journal.

When the 1973 Constitution was adopted, it was provided in Art. VIII, §19 (2):

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

This provision of the 1973 document, with slight modification, was adopted in Art. VI, §26 (2) of the
present Constitution, thus:

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

The exception is based on the prudential consideration that if in all cases three readings on separate
days are required and a bill has to be printed in final form before it can be passed, the need for a law
may be rendered academic by the occurrence of the very emergency or public calamity which it is
meant to address.

Petitioners further contend that a "growing budget deficit" is not an emergency, especially in a
country like the Philippines where budget deficit is a chronic condition. Even if this were the case, an
enormous budget deficit does not make the need for R.A. No. 7716 any less urgent or the situation
calling for its enactment any less an emergency.

Apparently, the members of the Senate (including some of the petitioners in these cases) believed
that there was an urgent need for consideration of S. No. 1630, because they responded to the call
of the President by voting on the bill on second and third readings on the same day. While the
judicial department is not bound by the Senate's acceptance of the President's certification, the
respect due coequal departments of the government in matters committed to them by the
Constitution and the absence of a clear showing of grave abuse of discretion caution a stay of the
judicial hand.

At any rate, we are satisfied that S. No. 1630 received thorough consideration in the Senate where it
was discussed for six days. Only its distribution in advance in its final printed form was actually
dispensed with by holding the voting on second and third readings on the same day (March 24,
1994). Otherwise, sufficient time between the submission of the bill on February 8, 1994 on second
reading and its approval on March 24, 1994 elapsed before it was finally voted on by the Senate on
third reading.

The purpose for which three readings on separate days is required is said to be two-fold: (1) to
inform the members of Congress of what they must vote on and (2) to give them notice that a
measure is progressing through the enacting process, thus enabling them and others interested in
the measure to prepare their positions with reference to it. (1 J. G. SUTHERLAND, STATUTES AND
STATUTORY CONSTRUCTION §10.04, p. 282 (1972)). These purposes were substantially
achieved in the case of R.A. No. 7716.

IV. Power of Conference Committee. It is contended (principally by Kilosbayan, Inc. and the

Movement of Attorneys for Brotherhood, Integrity and Nationalism, Inc. (MABINI)) that in violation of
the constitutional policy of full public disclosure and the people's right to know (Art. II, §28 and Art.
III, §7) the Conference Committee met for two days in executive session with only the conferees
present.
As pointed out in our main decision, even in the United States it was customary to hold such
sessions with only the conferees and their staffs in attendance and it was only in 1975 when a new
rule was adopted requiring open sessions. Unlike its American counterpart, the Philippine Congress
has not adopted a rule prescribing open hearings for conference committees.

It is nevertheless claimed that in the United States, before the adoption of the rule in 1975, at least
staff members were present. These were staff members of the Senators and Congressmen,
however, who may be presumed to be their confidential men, not stenographers as in this case who
on the last two days of the conference were excluded. There is no showing that the conferees
themselves did not take notes of their proceedings so as to give petitioner Kilosbayan basis for
claiming that even in secret diplomatic negotiations involving state interests, conferees keep notes of
their meetings. Above all, the public's right to know was fully served because the Conference
Committee in this case submitted a report showing the changes made on the differing versions of
the House and the Senate.

Petitioners cite the rules of both houses which provide that conference committee reports must
contain "a detailed, sufficiently explicit statement of the changes in or other amendments." These
changes are shown in the bill attached to the Conference Committee Report. The members of both
houses could thus ascertain what changes had been made in the original bills without the need of a
statement detailing the changes.

The same question now presented was raised when the bill which became R.A. No. 1400 (Land
Reform Act of 1955) was reported by the Conference Committee. Congressman Bengzon raised a
point of order. He said:

MR. BENGZON. My point of order is that it is out of order to consider the report of
the conference committee regarding House Bill No. 2557 by reason of the provision
of Section 11, Article XII, of the Rules of this House which provides specifically that
the conference report must be accompanied by a detailed statement of the effects of
the amendment on the bill of the House. This conference committee report is not
accompanied by that detailed statement, Mr. Speaker. Therefore it is out of order to
consider it.

Petitioner Tolentino, then the Majority Floor Leader, answered:

MR. TOLENTINO. Mr. Speaker, I should just like to say a few words in connection
with the point of order raised by the gentleman from Pangasinan.

There is no question about the provision of the Rule cited by the gentleman from
Pangasinan, but this provision applies to those cases where only portions of the bill
have been amended. In this case before us an entire bill is presented; therefore, it
can be easily seen from the reading of the bill what the provisions are. Besides, this
procedure has been an established practice.

After some interruption, he continued:

MR. TOLENTINO. As I was saying, Mr. Speaker, we have to look into the reason for
the provisions of the Rules, and the reason for the requirement in the provision cited
by the gentleman from Pangasinan is when there are only certain words or phrases
inserted in or deleted from the provisions of the bill included in the conference report,
and we cannot understand what those words and phrases mean and their relation to
the bill. In that case, it is necessary to make a detailed statement on how those
words and phrases will affect the bill as a whole; but when the entire bill itself is
copied verbatim in the conference report, that is not necessary. So when the reason
for the Rule does not exist, the Rule does not exist.

(2 CONG. REC. NO. 2, p. 4056. (emphasis added))

Congressman Tolentino was sustained by the chair. The record shows that when the ruling was
appealed, it was upheld by viva voce and when a division of the House was called, it was sustained
by a vote of 48 to 5. (Id., 
p. 4058)
Nor is there any doubt about the power of a conference committee to insert new provisions as long
as these are germane to the subject of the conference. As this Court held in Philippine Judges
Association v. Prado, 227 SCRA 703 (1993), in an opinion written by then Justice Cruz, the
jurisdiction of the conference committee is not limited to resolving differences between the Senate
and the House. It may propose an entirely new provision. What is important is that its report is
subsequently approved by the respective houses of Congress. This Court ruled that it would not
entertain allegations that, because new provisions had been added by the conference committee,
there was thereby a violation of the constitutional injunction that "upon the last reading of a bill, no
amendment thereto shall be allowed."

Applying these principles, we shall decline to look into the petitioners' charges that

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

(Id. at 710. (emphasis added))

It is interesting to note the following description of conference committees in the Philippines in a

1979 study:

Conference committees may be of two types: free or instructed. These committees

may be given instructions by their parent bodies or they may be left without
instructions. Normally the conference committees are without instructions, and this is
why they are often critically referred to as "the little legislatures." Once bills have
been sent to them, the conferees have almost unlimited authority to change the
clauses of the bills and in fact sometimes introduce new measures that were not in
the original legislation. No minutes are kept, and members' activities on conference
committees are difficult to determine. One congressman known for his idealism put it
this way: "I killed a bill on export incentives for my interest group [copra] in the
conference committee but I could not have done so anywhere else." The conference
committee submits a report to both houses, and usually it is accepted. If the report is
not accepted, then the committee is discharged and new members are appointed.

(R. Jackson, Committees in the Philippine Congress, in COMMITTEES AND

LEGISLATURES: A COMPARATIVE ANALYSIS 163 (J. D. LEES AND M. SHAW,
eds.)).

In citing this study, we pass no judgment on the methods of conference committees. We cite it only
to say that conference committees here are no different from their counterparts in the United States
whose vast powers we noted in Philippine Judges Association v. Prado, supra. At all events, under
Art. VI, §16(3) each house has the power "to determine the rules of its proceedings," including those
of its committees. Any meaningful change in the method and procedures of Congress or its
committees must therefore be sought in that body itself.

V. The titles of S. No. 1630 and H. No. 11197. PAL maintains that R.A. No. 7716 violates Art. VI, §26
(1) of the Constitution which provides that "Every bill passed by Congress shall embrace only one
subject which shall be expressed in the title thereof." PAL contends that the amendment of its
franchise by the withdrawal of its exemption from the VAT is not expressed in the title of the law.

Pursuant to §13 of P.D. No. 1590, PAL pays a franchise tax of 2% on its gross revenue "in lieu of all
other taxes, duties, royalties, registration, license and other fees and charges of any kind, nature, or
description, imposed, levied, established, assessed or collected by any municipal, city, provincial or
national authority or government agency, now or in the future."

PAL was exempted from the payment of the VAT along with other entities by §103 of the National
Internal Revenue Code, which provides as follows:

§103. Exempt transactions. — The following shall be exempt from the value-added

tax:
 xxx xxx xxx

(q) Transactions which are exempt under special laws or international agreements to
which the Philippines is a signatory.

R.A. No. 7716 seeks to withdraw certain exemptions, including that granted to PAL, by amending
§103, as follows:

§103. Exempt transactions. — The following shall be exempt from the value-added

tax:

xxx xxx xxx

(q) Transactions which are exempt under special laws, except those granted under
Presidential Decree Nos. 66, 529, 972, 1491, 1590. . . .

The amendment of §103 is expressed in the title of R.A. No. 7716 which reads:

AN ACT RESTRUCTURING THE VALUE-ADDED TAX (VAT) SYSTEM, WIDENING

ITS TAX BASE AND ENHANCING ITS ADMINISTRATION, AND FOR THESE
PURPOSES AMENDING AND REPEALING THE RELEVANT PROVISIONS OF
THE NATIONAL INTERNAL REVENUE CODE, AS AMENDED, AND FOR OTHER
PURPOSES.

By stating that R.A. No. 7716 seeks to "[RESTRUCTURE] THE VALUE-ADDED TAX (VAT)
SYSTEM [BY] WIDENING ITS TAX BASE AND ENHANCING ITS ADMINISTRATION, AND FOR
THESE PURPOSES AMENDING AND REPEALING THE RELEVANT PROVISIONS OF THE
NATIONAL INTERNAL REVENUE CODE, AS AMENDED AND FOR OTHER PURPOSES,"
Congress thereby clearly expresses its intention to amend any provision of the NIRC which stands in
the way of accomplishing the purpose of the law.

PAL asserts that the amendment of its franchise must be reflected in the title of the law by specific
reference to P.D. No. 1590. It is unnecessary to do this in order to comply with the constitutional
requirement, since it is already stated in the title that the law seeks to amend the pertinent provisions
of the NIRC, among which is §103(q), in order to widen the base of the VAT. Actually, it is the bill
which becomes a law that is required to express in its title the subject of legislation. The titles of H.
No. 11197 and S. No. 1630 in fact specifically referred to §103 of the NIRC as among the provisions
sought to be amended. We are satisfied that sufficient notice had been given of the pendency of
these bills in Congress before they were enacted into what is now R.A.
No. 7716.

In Philippine Judges Association v. Prado, supra, a similar argument as that now made by PAL was
rejected. R.A. No. 7354 is entitled AN ACT CREATING THE PHILIPPINE POSTAL CORPORATION,
DEFINING ITS POWERS, FUNCTIONS AND RESPONSIBILITIES, PROVIDING FOR
REGULATION OF THE INDUSTRY AND FOR OTHER PURPOSES CONNECTED THEREWITH. It
contained a provision repealing all franking privileges. It was contended that the withdrawal of
franking privileges was not expressed in the title of the law. In holding that there was sufficient
description of the subject of the law in its title, including the repeal of franking privileges, this Court
held:

To require every end and means necessary for the accomplishment of the general
objectives of the statute to be expressed in its title would not only be unreasonable
but would actually render legislation impossible. [Cooley, Constitutional Limitations,
8th Ed., p. 297] As has been correctly explained:

The details of a legislative act need not be specifically stated in its

title, but matter germane to the subject as expressed in the title, and
adopted to the accomplishment of the object in view, may properly be
included in the act. Thus, it is proper to create in the same act the
machinery by which the act is to be enforced, to prescribe the
penalties for its infraction, and to remove obstacles in the way of its
execution. If such matters are properly connected with the subject as
expressed in the title, it is unnecessary that they should also have
 special mention in the title. (Southern Pac. Co. v. Bartine, 170 Fed.
725)

(227 SCRA at 707-708)

VI. Claims of press freedom and religious liberty. We have held that, as a general proposition, the
press is not exempt from the taxing power of the State and that what the constitutional guarantee of
free press prohibits are laws which single out the press or target a group belonging to the press for
special treatment or which in any way discriminate against the press on the basis of the content of
the publication, and R.A. No. 7716 is none of these.

Now it is contended by the PPI that by removing the exemption of the press from the VAT while
maintaining those granted to others, the law discriminates against the press. At any rate, it is
averred, "even nondiscriminatory taxation of constitutionally guaranteed freedom is unconstitutional."

With respect to the first contention, it would suffice to say that since the law granted the press a
privilege, the law could take back the privilege anytime without offense to the Constitution. The
reason is simple: by granting exemptions, the State does not forever waive the exercise of its
sovereign prerogative.

Indeed, in withdrawing the exemption, the law merely subjects the press to the same tax burden to
which other businesses have long ago been subject. It is thus different from the tax involved in the
cases invoked by the PPI. The license tax in Grosjean v. American Press Co., 297 U.S. 233, 80 L.
Ed. 660 (1936) was found to be discriminatory because it was laid on the gross advertising receipts
only of newspapers whose weekly circulation was over 20,000, with the result that the tax applied
only to 13 out of 124 publishers in Louisiana. These large papers were critical of Senator Huey Long
who controlled the state legislature which enacted the license tax. The censorial motivation for the
law was thus evident.

On the other hand, in Minneapolis Star & Tribune Co. v. Minnesota Comm'r of Revenue, 460 U.S.
575, 75 L. Ed. 2d 295 (1983), the tax was found to be discriminatory because although it could have
been made liable for the sales tax or, in lieu thereof, for the use tax on the privilege of using, storing
or consuming tangible goods, the press was not. Instead, the press was exempted from both taxes.
It was, however, later made to pay a special use tax on the cost of paper and ink which made these
items "the only items subject to the use tax that were component of goods to be sold at retail." The
U.S. Supreme Court held that the differential treatment of the press "suggests that the goal of
regulation is not related to suppression of expression, and such goal is presumptively
unconstitutional." It would therefore appear that even a law that favors the press is constitutionally
suspect. (See the dissent of Rehnquist, J. in that case)

Nor is it true that only two exemptions previously granted by E.O. No. 273 are withdrawn "absolutely
and unqualifiedly" by R.A. No. 7716. Other exemptions from the VAT, such as those previously
granted to PAL, petroleum concessionaires, enterprises registered with the Export Processing Zone
Authority, and many more are likewise totally withdrawn, in addition to exemptions which are partially
withdrawn, in an effort to broaden the base of the tax.

The PPI says that the discriminatory treatment of the press is highlighted by the fact that
transactions, which are profit oriented, continue to enjoy exemption under R.A. No. 7716. An
enumeration of some of these transactions will suffice to show that by and large this is not so and
that the exemptions are granted for a purpose. As the Solicitor General says, such exemptions are
granted, in some cases, to encourage agricultural production and, in other cases, for the personal
benefit of the end-user rather than for profit. The exempt transactions are:

(a) Goods for consumption or use which are in their original state (agricultural,
marine and forest products, cotton seeds in their original state, fertilizers, seeds,
seedlings, fingerlings, fish, prawn livestock and poultry feeds) and goods or services
to enhance agriculture (milling of palay, corn, sugar cane and raw sugar, livestock,
poultry feeds, fertilizer, ingredients used for the manufacture of feeds).

(b) Goods used for personal consumption or use (household and personal effects of
citizens returning to the Philippines) or for professional use, like professional
instruments and implements, by persons coming to the Philippines to settle here.
 (c) Goods subject to excise tax such as petroleum products or to be used for
manufacture of petroleum products subject to excise tax and services subject to
percentage tax.

(d) Educational services, medical, dental, hospital and veterinary services, and
services rendered under employer-employee relationship.

(e) Works of art and similar creations sold by the artist himself.

(f) Transactions exempted under special laws, or international agreements.

(g) Export-sales by persons not VAT-registered.

(h) Goods or services with gross annual sale or receipt not exceeding P500,000.00.

(Respondents' Consolidated Comment on the Motions for Reconsideration, pp. 58-

60)

The PPI asserts that it does not really matter that the law does not discriminate against the press
because "even nondiscriminatory taxation on constitutionally guaranteed freedom is
unconstitutional." PPI cites in support of this assertion the following statement in Murdock
v. Pennsylvania, 319 U.S. 105, 87 L. Ed. 1292 (1943):

The fact that the ordinance is "nondiscriminatory" is immaterial. The protection

afforded by the First Amendment is not so restricted. A license tax certainly does not
acquire constitutional validity because it classifies the privileges protected by the
First Amendment along with the wares and merchandise of hucksters and peddlers
and treats them all alike. Such equality in treatment does not save the ordinance.
Freedom of press, freedom of speech, freedom of religion are in preferred position.

The Court was speaking in that case of a license tax, which, unlike an ordinary tax, is mainly for
regulation. Its imposition on the press is unconstitutional because it lays a prior restraint on the
exercise of its right. Hence, although its application to others, such those selling goods, is valid, its
application to the press or to religious groups, such as the Jehovah's Witnesses, in connection with
the latter's sale of religious books and pamphlets, is unconstitutional. As the U.S. Supreme Court put
it, "it is one thing to impose a tax on income or property of a preacher. It is quite another thing to
exact a tax on him for delivering a sermon."

A similar ruling was made by this Court in American Bible Society v. City of Manila, 101 Phil. 386
(1957) which invalidated a city ordinance requiring a business license fee on those engaged in the
sale of general merchandise. It was held that the tax could not be imposed on the sale of bibles by
the American Bible Society without restraining the free exercise of its right to propagate.

The VAT is, however, different. It is not a license tax. It is not a tax on the exercise of a privilege,
much less a constitutional right. It is imposed on the sale, barter, lease or exchange of goods or
properties or the sale or exchange of services and the lease of properties purely for revenue
purposes. To subject the press to its payment is not to burden the exercise of its right any more than
to make the press pay income tax or subject it to general regulation is not to violate its freedom
under the Constitution.

Additionally, the Philippine Bible Society, Inc. claims that although it sells bibles, the proceeds
derived from the sales are used to subsidize the cost of printing copies which are given free to those
who cannot afford to pay so that to tax the sales would be to increase the price, while reducing the
volume of sale. Granting that to be the case, the resulting burden on the exercise of religious
freedom is so incidental as to make it difficult to differentiate it from any other economic imposition
that might make the right to disseminate religious doctrines costly. Otherwise, to follow the
petitioner's argument, to increase the tax on the sale of vestments would be to lay an impermissible
burden on the right of the preacher to make a sermon.

On the other hand the registration fee of P1,000.00 imposed by §107 of the NIRC, as amended by
§7 of R.A. No. 7716, although fixed in amount, is really just to pay for the expenses of registration
and enforcement of provisions such as those relating to accounting in §108 of the NIRC. That the
PBS distributes free bibles and therefore is not liable to pay the VAT does not excuse it from the
payment of this fee because it also sells some copies. At any rate whether the PBS is liable for the
VAT must be decided in concrete cases, in the event it is assessed this tax by the Commissioner of
Internal Revenue.

VII. Alleged violations of the due process, equal protection and contract clauses and the rule on
taxation. CREBA asserts that R.A. No. 7716 (1) impairs the obligations of contracts, (2) classifies
transactions as covered or exempt without reasonable basis and (3) violates the rule that taxes
should be uniform and equitable and that Congress shall "evolve a progressive system of taxation."

With respect to the first contention, it is claimed that the application of the tax to existing contracts of
the sale of real property by installment or on deferred payment basis would result in substantial
increases in the monthly amortizations to be paid because of the 10% VAT. The additional amount, it
is pointed out, is something that the buyer did not anticipate at the time he entered into the contract.

The short answer to this is the one given by this Court in an early case: "Authorities from numerous
sources are cited by the plaintiffs, but none of them show that a lawful tax on a new subject, or an
increased tax on an old one, interferes with a contract or impairs its obligation, within the meaning of
the Constitution. Even though such taxation may affect particular contracts, as it may increase the
debt of one person and lessen the security of another, or may impose additional burdens upon one
class and release the burdens of another, still the tax must be paid unless prohibited by the
Constitution, nor can it be said that it impairs the obligation of any existing contract in its true legal
sense." (La Insular v. Machuca Go-Tauco and Nubla Co-Siong, 39 Phil. 567, 574 (1919)). Indeed not
only existing laws but also "the reservation of the essential attributes of sovereignty, is . . . read into
contracts as a postulate of the legal order." (Philippine-American Life Ins. Co. v. Auditor General, 22
SCRA 135, 147 (1968)) Contracts must be understood as having been made in reference to the
possible exercise of the rightful authority of the government and no obligation of contract can extend
to the defeat of that authority. (Norman v. Baltimore and Ohio R.R., 79 L. Ed. 885 (1935)).

It is next pointed out that while §4 of R.A. No. 7716 exempts such transactions as the sale of
agricultural products, food items, petroleum, and medical and veterinary services, it grants no
exemption on the sale of real property which is equally essential. The sale of real property for
socialized and low-cost housing is exempted from the tax, but CREBA claims that real estate
transactions of "the less poor," i.e., the middle class, who are equally homeless, should likewise be
exempted.

The sale of food items, petroleum, medical and veterinary services, etc., which are essential goods
and services was already exempt under §103, pars. (b) (d) (1) of the NIRC before the enactment of
R.A. No. 7716. Petitioner is in error in claiming that R.A. No. 7716 granted exemption to these
transactions, while subjecting those of petitioner to the payment of the VAT. Moreover, there is a
difference between the "homeless poor" and the "homeless less poor" in the example given by
petitioner, because the second group or middle class can afford to rent houses in the meantime that
they cannot yet buy their own homes. The two social classes are thus differently situated in life. "It is
inherent in the power to tax that the State be free to select the subjects of taxation, and it has been
repeatedly held that 'inequalities which result from a singling out of one particular class for taxation,
or exemption infringe no constitutional limitation.'" (Lutz v. Araneta, 98 Phil. 148, 153 (1955). Accord,
City of Baguio v. De Leon, 134 Phil. 912 (1968); Sison, Jr. v. Ancheta, 130 SCRA 654, 663 (1984);
Kapatiran ng mga Naglilingkod sa Pamahalaan ng Pilipinas, Inc. v. Tan, 163 SCRA 371 (1988)).

Finally, it is contended, for the reasons already noted, that R.A. No. 7716 also violates Art. VI, §28(1)
which provides that "The rule of taxation shall be uniform and equitable. The Congress shall evolve a
progressive system of taxation."

Equality and uniformity of taxation means that all taxable articles or kinds of property of the same
class be taxed at the same rate. The taxing power has the authority to make reasonable and natural
classifications for purposes of taxation. To satisfy this requirement it is enough that the statute or
ordinance applies equally to all persons, forms and corporations placed in similar situation. (City of
Baguio v. De Leon, supra; Sison, Jr. v. Ancheta, supra)

Indeed, the VAT was already provided in E.O. No. 273 long before R.A. No. 7716 was enacted. R.A.
No. 7716 merely expands the base of the tax. The validity of the original VAT Law was questioned
in Kapatiran ng Naglilingkod sa Pamahalaan ng Pilipinas, Inc. v. Tan, 163 SCRA 383 (1988) on
grounds similar to those made in these cases, namely, that the law was "oppressive, discriminatory,
unjust and regressive in violation of Art. VI, §28(1) of the Constitution." (At 382) Rejecting the
challenge to the law, this Court held:
 As the Court sees it, EO 273 satisfies all the requirements of a valid tax. It is uniform.
...

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

The disputed sales tax is also equitable. It is imposed only on sales of goods or
services by persons engaged in business with an aggregate gross annual sales
exceeding P200,000.00. Small corner sari-sari stores are consequently exempt from
its application. Likewise exempt from the tax are sales of farm and marine products,
so that the costs of basic food and other necessities, spared as they are from the
incidence of the VAT, are expected to be relatively lower and within the reach of the
general public.

(At 382-383)

The CREBA claims that the VAT is regressive. A similar claim is made by the Cooperative Union of
the Philippines, Inc. (CUP), while petitioner Juan T. David argues that the law contravenes the
mandate of Congress to provide for a progressive system of taxation because the law imposes a flat
rate of 10% and thus places the tax burden on all taxpayers without regard to their ability to pay.

The Constitution does not really prohibit the imposition of indirect taxes which, like the VAT, are
regressive. What it simply provides is that Congress shall "evolve a progressive system of taxation."
The constitutional provision has been interpreted to mean simply that "direct taxes are . . . to be
preferred [and] as much as possible, indirect taxes should be minimized." (E. FERNANDO, THE
CONSTITUTION OF THE PHILIPPINES 221 (Second ed. (1977)). Indeed, the mandate to Congress
is not to prescribe, but to evolve, a progressive tax system. Otherwise, sales taxes, which perhaps
are the oldest form of indirect taxes, would have been prohibited with the proclamation of Art. VIII,
§17(1) of the 1973 Constitution from which the present Art. VI, §28(1) was taken. Sales taxes are
also regressive.

Resort to indirect taxes should be minimized but not avoided entirely because it is difficult, if not

impossible, to avoid them by imposing such taxes according to the taxpayers' ability to pay. In the
case of the VAT, the law minimizes the regressive effects of this imposition by providing for zero
rating of certain transactions (R.A. No. 7716, §3, amending §102 (b) of the NIRC), while
granting exemptions to other transactions. (R.A. No. 7716, §4, amending §103 of the NIRC).

Thus, the following transactions involving basic and essential goods and services are exempted from
the VAT:

(a) Goods for consumption or use which are in their original state (agricultural,
marine and forest products, cotton seeds in their original state, fertilizers, seeds,
seedlings, fingerlings, fish, prawn livestock and poultry feeds) and goods or services
to enhance agriculture (milling of palay, corn sugar cane and raw sugar, livestock,
poultry feeds, fertilizer, ingredients used for the manufacture of feeds).

(b) Goods used for personal consumption or use (household and personal effects of
citizens returning to the Philippines) and or professional use, like professional
instruments and implements, by persons coming to the Philippines to settle here.

(c) Goods subject to excise tax such as petroleum products or to be used for
manufacture of petroleum products subject to excise tax and services subject to
percentage tax.

(d) Educational services, medical, dental, hospital and veterinary services, and
services rendered under employer-employee relationship.

(e) Works of art and similar creations sold by the artist himself.

(f) Transactions exempted under special laws, or international agreements.

(g) Export-sales by persons not VAT-registered.

 (h) Goods or services with gross annual sale or receipt not exceeding P500,000.00.

(Respondents' Consolidated Comment on the Motions for Reconsideration, pp. 58-

60)

On the other hand, the transactions which are subject to the VAT are those which involve goods and
services which are used or availed of mainly by higher income groups. These include real properties
held primarily for sale to customers or for lease in the ordinary course of trade or business, the right
or privilege to use patent, copyright, and other similar property or right, the right or privilege to use
industrial, commercial or scientific equipment, motion picture films, tapes and discs, radio, television,
satellite transmission and cable television time, hotels, restaurants and similar places, securities,
lending investments, taxicabs, utility cars for rent, tourist buses, and other common carriers, services
of franchise grantees of telephone and telegraph.

The problem with CREBA's petition is that it presents broad claims of constitutional violations by
tendering issues not at retail but at wholesale and in the abstract. There is no fully developed record
which can impart to adjudication the impact of actuality. There is no factual foundation to show in
the concrete the application of the law to actual contracts and exemplify its effect on property rights.
For the fact is that petitioner's members have not even been assessed the VAT. Petitioner's case is
not made concrete by a series of hypothetical questions asked which are no different from those
dealt with in advisory opinions.

The difficulty confronting petitioner is thus apparent. He alleges arbitrariness. A mere

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

(Sison, Jr. v. Ancheta, 130 SCRA at 661)

Adjudication of these broad claims must await the development of a concrete case. It may be that
postponement of adjudication would result in a multiplicity of suits. This need not be the case,
however. Enforcement of the law may give rise to such a case. A test case, provided it is an actual
case and not an abstract or hypothetical one, may thus be presented.

Nor is hardship to taxpayers alone an adequate justification for adjudicating abstract issues.
Otherwise, adjudication would be no different from the giving of advisory opinion that does not really
settle legal issues.

We are told that it is our duty under Art. VIII, §1, ¶2 to decide whenever a claim is made that "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." This duty can only arise if an actual case or
controversy is before us. Under Art . VIII, §5 our jurisdiction is defined in terms of "cases" and all that
Art. VIII, §1, ¶2 can plausibly mean is that in the exercise of that jurisdiction we have the judicial
power to determine questions of grave abuse of discretion by any branch or instrumentality of the
government.

Put in another way, what is granted in Art. VIII, §1, ¶2 is "judicial power," which is "the power of a
court to hear and decide cases pending between parties who have the right to sue and be sued in
the courts of law and equity" (Lamb v. Phipps, 22 Phil. 456, 559 (1912)), as distinguished from
legislative and executive power. This power cannot be directly appropriated until it is apportioned
among several courts either by the Constitution, as in the case of Art. VIII, §5, or by statute, as in the
case of the Judiciary Act of 1948 (R.A. No. 296) and the Judiciary Reorganization Act of 1980 (B.P.
Blg. 129). The power thus apportioned constitutes the court's "jurisdiction," defined as "the power
conferred by law upon a court or judge to take cognizance of a case, to the exclusion of all others."
(United States v. Arceo, 6 Phil. 29 (1906)) Without an actual case coming within its jurisdiction, this
Court cannot inquire into any allegation of grave abuse of discretion by the other departments of the
government.
VIII. Alleged violation of policy towards cooperatives. On the other hand, the Cooperative Union of
the Philippines (CUP), after briefly surveying the course of legislation, argues that it was to adopt a
definite policy of granting tax exemption to cooperatives that the present Constitution embodies
provisions on cooperatives. To subject cooperatives to the VAT would therefore be to infringe a
constitutional policy. Petitioner claims that in 1973, P.D. No. 175 was promulgated exempting
cooperatives from the payment of income taxes and sales taxes but in 1984, because of the crisis
which menaced the national economy, this exemption was withdrawn by P.D. No. 1955; that in 1986,
P.D. No. 2008 again granted cooperatives exemption from income and sales taxes until December
31, 1991, but, in the same year, E.O. No. 93 revoked the exemption; and that finally in 1987 the
framers of the Constitution "repudiated the previous actions of the government adverse to the
interests of the cooperatives, that is, the repeated revocation of the tax exemption to
cooperatives and instead upheld the policy of strengthening the cooperatives by way of the grant of
tax exemptions," by providing the following in Art. XII:

§1. The goals of the national economy are a more equitable distribution of
opportunities, income, and wealth; a sustained increase in the amount of goods and
services produced by the nation for the benefit of the people; and an expanding
productivity as the key to raising the quality of life for all, especially the
underprivileged.

The State shall promote industrialization and full employment based on sound
agricultural development and agrarian reform, through industries that make full and
efficient use of human and natural resources, and which are competitive in both
domestic and foreign markets. However, the State shall protect Filipino enterprises
against unfair foreign competition and trade practices.

In the pursuit of these goals, all sectors of the economy and all regions of the country
shall be given optimum opportunity to develop. Private enterprises, including
corporations, cooperatives, and similar collective organizations, shall be encouraged
to broaden the base of their ownership.

§15. The Congress shall create an agency to promote the viability and growth of
cooperatives as instruments for social justice and economic development.

Petitioner's contention has no merit. In the first place, it is not true that P.D. No. 1955 singled out
cooperatives by withdrawing their exemption from income and sales taxes under P.D. No. 175, §5.
What P.D. No. 1955, §1 did was to withdraw the exemptions and preferential treatments theretofore
granted to private business enterprises in general, in view of the economic crisis which then beset
the nation. It is true that after P.D. No. 2008, §2 had restored the tax exemptions of cooperatives in
1986, the exemption was again repealed by E.O. No. 93, §1, but then again cooperatives were not
the only ones whose exemptions were withdrawn. The withdrawal of tax incentives applied to all,
including government and private entities. In the second place, the Constitution does not really
require that cooperatives be granted tax exemptions in order to promote their growth and viability.
Hence, there is no basis for petitioner's assertion that the government's policy toward cooperatives
had been one of vacillation, as far as the grant of tax privileges was concerned, and that it was to put
an end to this indecision that the constitutional provisions cited were adopted. Perhaps as a matter
of policy cooperatives should be granted tax exemptions, but that is left to the discretion of
Congress. If Congress does not grant exemption and there is no discrimination to cooperatives, no
violation of any constitutional policy can be charged.

Indeed, petitioner's theory amounts to saying that under the Constitution cooperatives are exempt
from taxation. Such theory is contrary to the Constitution under which only the following are exempt
from taxation: charitable institutions, churches and parsonages, by reason of Art. VI, §28 (3), and
non-stock, non-profit educational institutions by reason of Art. XIV, §4 (3).

CUP's further ground for seeking the invalidation of R.A. No. 7716 is that it denies cooperatives the
equal protection of the law because electric cooperatives are exempted from the VAT. The
classification between electric and other cooperatives (farmers cooperatives, producers
cooperatives, marketing cooperatives, etc.) apparently rests on a congressional determination that
there is greater need to provide cheaper electric power to as many people as possible, especially
those living in the rural areas, than there is to provide them with other necessities in life. We cannot
say that such classification is unreasonable.
We have carefully read the various arguments raised against the constitutional validity of R.A. No.
7716. We have in fact taken the extraordinary step of enjoining its enforcement pending resolution of
these cases. We have now come to the conclusion that the law suffers from none of the infirmities
attributed to it by petitioners and that its enactment by the other branches of the government does
not constitute a grave abuse of discretion. Any question as to its necessity, desirability or expediency
must be addressed to Congress as the body which is electorally responsible, remembering that, as
Justice Holmes has said, "legislators are the ultimate guardians of the liberties and welfare of the
people in quite as great a degree as are the courts." (Missouri, Kansas & Texas Ry. Co. v. May, 194
U.S. 267, 270, 48 L. Ed. 971, 973 (1904)). It is not right, as petitioner in G.R. No. 115543 does in
arguing that we should enforce the public accountability of legislators, that those who took part in
passing the law in question by voting for it in Congress should later thrust to the courts the burden of
reviewing measures in the flush of enactment. This Court does not sit as a third branch of the
legislature, much less exercise a veto power over legislation.

WHEREFORE, the motions for reconsideration are denied with finality and the temporary restraining
order previously issued is hereby lifted.

SO ORDERED.
G.R. No. 158540. August 3, 2005
SOUTHERN CROSS CEMENT CORPORATION, Petitioners, 
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, Respondent.

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
1 

2004 (Decision), which granted the petition of petitioner Southern Cross Cement Corporation
(Southern Cross).

This case, of course, is ultimately not just about cement. For respondents, it is about love of country
and the future of the domestic industry in the face of foreign competition. For this Court, it is about
elementary statutory construction, constitutional limitations on the executive power to impose tariffs
and similar measures, and obedience to the law. Just as much was asserted in the Decision, and the
same holds true with this present Resolution.

An extensive narration of facts can be found in the Decision. As can well be recalled, the case
2 

centers on the interpretation of provisions of Republic Act No. 8800, the Safeguard Measures Act
("SMA"), which was one of the laws enacted by Congress soon after the Philippines ratified the
General Agreement on Tariff and Trade (GATT) and the World Trade Organization (WTO)
Agreement. The SMA provides the structure and mechanics for the imposition of emergency
3 

measures, including tariffs, to protect domestic industries and producers from increased imports
which inflict or could inflict serious injury on them.
4 

A brief summary as to how the present petition came to be filed by Southern Cross. Philcemcor, an
association of at least eighteen (18) domestic cement manufacturers filed with the DTI a petition
seeking the imposition of safeguard measures on gray Portland cement, in accordance with the
5 

SMA. After the DTI issued a provisional safeguard measure, the application was referred to the
6 

Tariff Commission for a formal investigation pursuant to Section 9 of the SMA and its Implementing
Rules and Regulations, in order to determine whether or not to impose a definitive safeguard
measure on imports of gray Portland cement. The Tariff Commission held public hearings and
conducted its own investigation, then on 13 March 2002, issued its Formal Investigation Report
("Report"). The Report determined as follows:

The elements of serious injury and imminent threat of serious injury not having been established, it is
hereby recommended that no definitive general safeguard measure be imposed on the importation
of gray Portland cement. 7 

The DTI sought the opinion of the Secretary of Justice whether it could still impose a definitive
safeguard measure notwithstanding the negative finding of the Tariff Commission. After the
Secretary of Justice opined that the DTI could not do so under the SMA, the DTI Secretary then
8 

promulgated a Decision wherein he expressed the DTI’s disagreement with the conclusions of the
9 

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.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
11 

the Tariff 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. 12 

The Court of Appeals Twelfth Division, in a Decision penned by Court of Appeals Associate Justice
13 

Elvi John Asuncion, partially granted Philcemcor’s petition. The appellate court ruled that it had
14 

jurisdiction over the petition for certiorari since it alleged grave abuse of discretion. While it refused
to annul the findings of the Tariff Commission, it also held that the DTI Secretary was not bound by
15 

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. 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,
17 

contrary to the findings of the Tariff Commission, the local cement industry had suffered serious
injury as a result of the import surges. Accordingly, he imposed a definitive safeguard measure on
18 

the importation of gray Portland cement, in the form of a definitive safeguard duty in the amount of
₱20.60/40 kg. bag for three years on imported gray Portland Cement. 19 

On 7 July 2003, Southern Cross filed with the Court a "Very Urgent Application for a Temporary
Restraining Order and/or A Writ of Preliminary Injunction" ("TRO Application"), seeking to enjoin the
DTI Secretary from enforcing his Decision of 25 June 2003 in view of the pending petition before this
Court. Philcemcor filed an opposition, claiming, among others, that it is not this Court but the CTA
that has jurisdiction over the application under the law.

On 1 August 2003, Southern Cross filed with the CTA a Petition for Review, assailing the DTI
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. 20 

Philcemcor argued before this Court that Southern Cross had deliberately and willfully resorted to
forum-shopping; that the CTA, being a special court of limited jurisdiction, could only review the
ruling of the DTI Secretary when a safeguard measure is imposed; and that the factual findings of
the Tariff Commission are not binding on the DTI Secretary. 21 

After giving due course to Southern 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
22 

Cross and the Office of the Solicitor General, the Court simplified the issues in this wise: (i) whether
the Decision of the DTI Secretary is appealable to the CTA or the Court of Appeals; (ii) assuming
that the Court of Appeals has jurisdiction, whether its Decision is in accordance with law; and,
whether a Temporary Restraining Order is warranted. 23 

After the parties had filed their respective memoranda, the Court’s Second Division, to which the
case had been assigned, promulgated its Decision granting Southern
Cross’s Petition. The Decision was unanimous, without any separate or concurring opinion.
24 

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. Accordingly, the Decision of the Court of Appeals dated 5
June 2003 was declared null and void.

The Court likewise found it necessary to nullify the Decision of the DTI Secretary dated 25 June
2003, rendered after the filing of this present Petition. This Decision by the DTI Secretary had cited
the obligatory force of the null and void Court of Appeals’ Decision, notwithstanding the fact that the
decision of the appellate court was not yet final and executory. Considering that the decision of the
Court of Appeals was a nullity to begin with, the inescapable conclusion was that the new decision of
the DTI Secretary, prescinding as it did from the imprimatur of the decision of the Court of Appeals,
was a nullity as well.

After the Decision was reported in the media, there was a flurry of newspaper articles citing alleged
negative reactions to the ruling by the counsel for Philcemcor, the DTI Secretary, and others. Both
25 

respondents promptly filed their respective motions for reconsideration.

On 21 September 2004, the Court En Banc resolved, upon motion of respondents, to accept the
petition and resolve the Motions for Reconsideration. The case was then reheard on oral argument
26  27 

on 1 March 2005. During the hearing, the Court elicited from the parties their arguments on the two
central issues as discussed in the assailed Decision, pertaining to the jurisdictional aspect and to the
substantive aspect of whether the DTI Secretary may impose a general safeguard measure despite
a negative determination by the Tariff Commission. The Court chose not to hear argumentation on
the peripheral issue of forum-shopping, although this question shall be tackled herein shortly.
28 

Another point of concern emerged during oral arguments on the exercise of quasi-judicial powers by
the Tariff Commission, and the parties were required by the Court to discuss in their respective
memoranda whether the Tariff Commission could validly exercise quasi-judicial powers in the
exercise of its mandate under the SMA.

The Court has likewise been notified that subsequent to the rendition of the 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
29 

prayed that Philcemcor, the DTI, the Bureau of Customs, and the Tariff Commission be directed to
"cease and desist from taking any and all actions pursuant to or under the null and void CA Decision
and DTI Decision, including proceedings to extend the safeguard measure. In a Manifestation and
30 

Motion dated 23 June 2004, the Tariff Commission informed the Court that since no prohibitory
injunction or order of such nature had been issued by any court against the Tariff Commission, the
Commission proceeded to complete its investigation on the petition for extension, pursuant to
Section 9 of the SMA, but opted to defer transmittal of its report to the DTI Secretary pending
"guidance" from this Court on the propriety of such a step considering this pending Motion for
Reconsideration. In a Resolution dated 5 July 2005, the Court directed the parties to maintain the
status quo effective of even date, and until further orders from this Court. The denial of the pending
motions for reconsideration will obviously render the pending petition for extension academic.

I. Jurisdiction of the Court of Tax Appeals

Under Section 29 of the SMA

The first core issue resolved in the assailed Decision was whether the Court of Appeals had
jurisdiction over the special civil action for certiorari filed by Philcemcor assailing the 5 April
2002 Decision of the DTI Secretary. The general jurisdiction of the Court of Appeals over special civil
actions for certiorari is beyond doubt. The Constitution itself assures that judicial review avails to
determine whether or not there has been a grave abuse of discretion amounting to lack or excess of
jurisdiction on the part of any branch or instrumentality of the Government. At the same time, the
special civil action of certiorari is available only when there is no plain, speedy and adequate remedy
in the ordinary course of law. Philcemcor’s recourse of special civil action before the Court of
31 

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.

The answer hinged on the proper interpretation of Section 29 of the SMA, which reads:

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

The petition for review shall comply with the same requirements and shall follow the same rules of
procedure and shall be subject to the same disposition as in appeals in connection with adverse
rulings on tax matters to the Court of Appeals. (Emphasis supplied)
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 of Appeals, in asserting that it had
33 

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 Decisiondated 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
34 

that any future attempts to advance the literalist position of the respondents would consequently fail.
However, since Republic Act No. 9282 has no retroactive effect, this Court had to decide whether
Section 29 vests jurisdiction on the CTA over rulings of the DTI Secretary not to impose a safeguard
measure. And the Court, in its assailed Decision, ruled that the CTA is endowed with such
jurisdiction.

Both respondents reiterate their fundamentalist reading that Section 29 authorizes the petition for
review before the CTA only when the DTI Secretary decides to impose a safeguard measure, but not
when he decides not to. In doing so, they fail to address what the Court earlier pointed out would be
the absurd consequences if their interpretation is followed to its logical end. But in affirming, as the
Court now does, its previous holding that the CTA has jurisdiction over petitions for review
questioning the non-imposition of safeguard measures by the DTI Secretary, the Court relies on the
plain reading that Section 29 explicitly vests jurisdiction over such petitions on the CTA.

Under Section 29, there are three requisites to enable the CTA to acquire jurisdiction over the
petition for review contemplated therein: (i) there must be a ruling by the DTI Secretary; (ii) the
petition must be filed by an interested party adversely affected by the ruling; and (iii) such ruling
must be "in connection with the imposition of a safeguard measure." Obviously, there are differences
between "a ruling for the imposition of a safeguard measure," and one issued "in connection with the
imposition of a safeguard measure." The first adverts to a singular type of ruling, namely one that
imposes a safeguard measure. The second does not contemplate only one kind of ruling, but a
myriad of rulings issued "in connection with the imposition of a safeguard measure."

Respondents argue that the Court has given an expansive interpretation to Section 29, contrary to
the established rule requiring strict construction against the existence of jurisdiction in specialized
courts. But it is the express provision of Section 29, and not this Court, that mandates CTA
35 

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
36 

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
37 

Ins. Both cases considered the interpretation of the phrase "relates to" as used in a federal statute,
38 

the Employee Retirement Security Act of 1974. Respondents criticize the citations on the premise
that the cases are not binding in our jurisdiction and do not involve safeguard measures. The
criticisms are off-tangent considering that our ruling did not call for the application of the Employee
Retirement Security Act of 1974 in the Philippine milieu. The American cases are not relied upon as
precedents, but as guides of interpretation. Certainly, if there are applicable local precedents
pertaining to the interpretation of the phrase "in connection with," then these certainly would have
some binding force. But none avail, and neither do the respondents demonstrate a countervailing
holding in Philippine jurisprudence.

Yet we should consider the claim that an "expansive interpretation" was favored in Shaw because
the law in question was an 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
39 

was alarmed by the expansive interpretation in Shaw and thus in Blue Cross, the Shaw ruling was
reversed and a more restrictive interpretation was applied based on congressional intent. 40 

Respondents would like to make it appear that the Court acted rashly in applying a discarded
precedent in Shaw, a non-binding foreign precedent nonetheless. But the Court did make the
following observation in its Decisionpertaining 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
41 

"relate to" or "in connection with" may be extended to the farthest stretch of indeterminacy for,
universally, relations or connections are infinite and stop nowhere. Thus, in the case the U.S. High
42 

Court, examining the same phrase of the same provision of law involved in Shaw, resorted to
looking at the statute and its objectives as the alternative to an "uncritical literalism." A
similar inquiry into the other provisions of the SMA is in order to determine the scope of
review accorded therein to the CTA. 43 

In the next four paragraphs of the Decision, encompassing four pages, the Court proceeded to
inquire into the SMA and its objectives as a means to determine the scope of rulings to be deemed
as "in connection with the imposition of a safeguard measure." Certainly, this Court did not resort to
the broadest interpretation possible of the phrase "in connection with," but instead sought to bring it
into the context of the scope and objectives of the SMA. The ultimate conclusion of the Court was
that the phrase includes all rulings of the DTI Secretary which arise from the time an application
or motu proprio initiation for the imposition of a safeguard measure is taken. This conclusion was
44 

derived from the observation that the imposition of a general safeguard measure is a process,
initiated motu proprioor through application, which undergoes several stages upon which the DTI
Secretary is obliged or may be called upon to issue a ruling.

It should be emphasized again that by utilizing the phrase "in connection with," it is the SMA that
expressly vests jurisdiction on the CTA over petitions questioning the non-imposition by the DTI
Secretary of safeguard measures. The Court is simply asserting, as it should, the clear intent of the
legislature in enacting the SMA. Without "in connection with" or a synonymous phrase, the Court
would be compelled to favor the respondents’ position that only rulings imposing safeguard
measures may be elevated on appeal to the CTA. But considering that the statute does make use of
the phrase, there is little sense in delving into alternate scenarios.

Respondents fail to convincingly address the absurd consequences pointed out by the Decision had
their proposed interpretation been adopted. Indeed, suffocated beneath the respondents’ legalistic
tinsel is the elemental question¾what sense is there in vesting jurisdiction on the CTA over a
decision to impose a safeguard measure, but not on one choosing not to impose. Of course, it is not
for the Court to inquire into the wisdom of legislative acts, hence the rule that jurisdiction must be
expressly vested and not presumed. Yet ultimately, respondents muddle the issue by making it
appear that the Decision has uniquely expanded the jurisdictional rules. For the respondents, the
proper statutory interpretation of the crucial phrase "in connection with" is to pretend that the phrase
did not exist at all in the statute. The Court, in taking the effort to examine the meaning and extent of
the phrase, is merely giving breath to the legislative will.

The Court likewise stated that the respondents’ position calls for split jurisdiction, which is judicially
abhorred. In rebuttal, the public respondents cite Sections 2313 and 2402 of the Tariff and Customs
Code (TCC), which allegedly provide for a splitting of jurisdiction of the CTA. According to public
respondents, under Section 2313 of the TCC, a decision of the Commissioner of Customs affirming
a decision of the Collector of Customs adverse to the government is elevated for review to the
Secretary of Finance. However, under Section 2402 of the TCC, a ruling of the Commissioner of the
Bureau of Customs against a taxpayer must be appealed to the Court of Tax Appeals, and not to the
Secretary of Finance.

Strictly speaking, the review by the Secretary of Finance of the decision of the Commissioner of
Customs is not judicial review, since the Secretary of Finance holds an executive and not a judicial
office. The contrast is apparent with the situation in this case, wherein the interpretation favored by
the respondents calls for the exercise of judicial review by two different courts over essentially the
same question¾whether 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 to review decisions of the Ombudsman in
administrative cases while the Court retaining appellate jurisdiction of decisions of the Ombudsman
in non-administrative cases, effectively sanctioned split jurisdiction between the Court and the Court
of Appeals.46 

Nonetheless, this argument is successfully undercut by Southern Cross, which points out the
essential differences in the power exercised by the Ombudsman in administrative cases and non-
administrative cases relating to criminal complaints. In the former, the Ombudsman may impose an
administrative penalty, while in acting upon a criminal complaint what the Ombudsman undertakes is
a preliminary investigation. Clearly, the capacity in which the Ombudsman takes on in deciding an
administrative complaint is wholly different from that in conducting a preliminary investigation. In
contrast, in ruling upon a safeguard measure, the DTI Secretary acts in one and the same role. The
variance between an order granting or denying an application for a safeguard measure is polar
though emanating from the same equator, and does not arise from the distinct character of the
putative actions involved.

Philcemcor imputes intelligent design behind the alleged intent of Congress to limit CTA review only
to impositions of the general safeguard measures. It claims that there is a necessary tax implication
in case of an imposition of a tariff where the 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 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
47 
may not exercise judicial review over a decision not to impose a safeguard measure, a prohibition
that finds no statutory support. It is likewise settled in statutory construction that an interpretation that
would cause inconvenience and absurdity is not favored. Respondents do not address the particular
illogic that the Court pointed out would ensue if their position on judicial review were adopted.
According to the respondents, while a ruling by the DTI Secretary imposing a safeguard measure
may be elevated on review to the CTA and assailed on the ground of errors in fact and in law, a
ruling denying the imposition of safeguard measures may be assailed only on the ground that the
DTI Secretary committed grave abuse of discretion. As stressed in the Decision, "[c]ertiorari is a
remedy narrow in its scope and inflexible in its character. It is not a general utility tool in the legal
workshop." 48 

It is incorrect to say that the Decision bars any effective remedy should the Tariff Commission act or
conclude erroneously in making its determination whether the factual conditions exist which
necessitate the imposition of the general safeguard measure. If the Tariff Commission makes a
negative final determination, the DTI Secretary, bound as he is by this negative determination, has to
render a decision denying the application for safeguard measures citing the Tariff 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 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.

II. Positive Final Determination

By the Tariff Commission an

Indispensable Requisite to the

Imposition of General Safeguard Measures

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

Congressional Limitations Pursuant

To Constitutional Authority on the 

Delegated Power to Impose 

Safeguard Measures

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

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

The Court acknowledges the basic postulates ingrained in the provision, and, hence, governing in
this case. They are:

(1) It is Congress which authorizes the President to impose tariff rates, import and export
quotas, tonnage and wharfage dues, and other duties or imposts. Thus, the authority cannot
come from the Finance Department, the National Economic Development Authority, or the World
Trade Organization, no matter how insistent or persistent these bodies may be.

(2) The authorization granted to the President must be embodied in a law. Hence, the
justification cannot be supplied simply by inherent executive powers. It cannot arise from
administrative or executive orders promulgated by the executive branch or from the wisdom or whim
of the President.

(3) The authorization to the President can be exercised only within the specified limits set in
the law and is further subject to limitations and restrictions which Congress may
impose. Consequently, if Congress specifies that the tariff rates should not exceed a given amount,
the President cannot impose a tariff rate that exceeds such amount. If Congress stipulates that no
duties may be imposed on the importation of corn, the President cannot impose duties on corn, no
matter how actively the local corn producers lobby the President. Even the most picayune of limits or
restrictions imposed by Congress must be observed by the President.

There is one fundamental principle that animates these constitutional postulates. These

impositions under Section 28(2), Article VI fall within the realm of the power of taxation, a
power which is within the sole province of the legislature under the Constitution.

Without Section 28(2), Article VI, the executive branch has no authority to impose tariffs and
other similar tax levies involving the importation of foreign goods. Assuming that Section 28(2)
Article VI did not exist, the enactment of the SMA by Congress would be voided on the ground that it
would constitute an undue delegation of the legislative power to tax. The constitutional provision
shields such delegation from constitutional infirmity, and should be recognized as an exceptional
grant of legislative power to the President, rather than the affirmation of an inherent executive power.

This being the case, the qualifiers mandated by the Constitution on this presidential authority attain
primordial consideration. First, there must be a law, such as the SMA. Second, there must be
specified limits, a detail which would be filled in by the law. And further, Congress is further
empowered to impose limitations and restrictions on this presidential authority. On this last power,
the provision does not provide for specified conditions, such as that the limitations and restrictions
must conform to prior statutes, internationally accepted practices, accepted jurisprudence, or the
considered opinion of members of the executive branch.

The Court recognizes that the authority delegated to the President under Section 28(2), Article VI
may be exercised, in accordance with legislative sanction, by the alter egos of the President, such
as department secretaries. Indeed, for purposes of the 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 President may be considered as an agent of Congress for the purpose of imposing
safeguard measures. It is Congress, not the President, which possesses inherent powers to
impose tariffs and imposts. Without legislative authorization through statute, the President
has no power, authority or right to impose such safeguard measures because taxation is
inherently legislative, not executive.

When Congress tasks the President or his/her alter egos to impose safeguard measures
under the delineated conditions, the President or the alter 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.
50 

There is only one viable ground for challenging the legality of the limitations and restrictions imposed
by Congress under Section 28(2) Article VI, and that is such limitations and restrictions are
themselves violative of the Constitution. Thus, no matter how distasteful or noxious these limitations
and restrictions may seem, the Court has no choice but to uphold their validity unless their
constitutional infirmity can be demonstrated.

What are these limitations and restrictions that are material to the present case? The entire SMA
provides for a limited framework under which the President, through the DTI and Agriculture
Secretaries, may impose safeguard measures in the form of tariffs and similar imposts. The
limitation most relevant to this case is contained in Section 5 of the SMA, captioned "Conditions for
the Application of General Safeguard Measures," and stating:

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

Positive Final Determination

By Tariff Commission Plainly

Required by Section 5 of SMA

There is no question that Section 5 of the SMA operates as a limitation validly imposed by Congress
on the presidential 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.

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
53 

only been justified had Section 5 read "shall apply a general safeguard measure upon, and only
upon, a positive final determination of the Tariff Commission."

Statutes are not designed for the easy comprehension of the five-year old child. Certainly, general
propositions laid down in statutes need not be expressly qualified by clauses denoting exclusivity in
order that they gain efficacy. Indeed, applying this argument, the President would, under the
Constitution, be authorized to declare martial law despite the absence of the invasion, rebellion or
public safety requirement just because the first paragraph of Section 18, Article VII fails to state the
magic word "only." 54 

But let us for the nonce pursue 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, 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" ¾ express declarations from the legislators that the DTI Secretary
may impose a general safeguard measure even if the Tariff Commission refuses to render a positive
final determination. Such "smoking gun," if it exists, would characterize our Decision as
disingenuous for ignoring such contrary expression of intent from the legislators who enacted the
SMA. But as with many things, the anticipation is more dramatic than the truth.

The excerpts cited by respondents are derived from the interpellation of the late Congressman
Marcial Punzalan Jr., by then (and still is) Congressman Simeon Datumanong. Nowhere in these
55 

records is the view expressed that the DTI Secretary may impose the general safeguard measures if
the Tariff Commission issues a negative final determination or otherwise is unable to make a positive
final determination. Instead, respondents hitch on the observations of Congressman Punzalan Jr.,
that "the results of the [Tariff] 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]." 56 

There is nothing in the remarks of Congressman Punzalan which contradict our Decision. His
observations fall in accord with the respective roles of the Tariff Commission and the DTI Secretary
under the SMA. Under the SMA, it is the Tariff Commission that conducts an investigation as to
whether the conditions exist to warrant the imposition of the safeguard measures. These conditions
are enumerated in Section 5, namely; that a product is being imported into the country in increased
quantities, whether absolute or relative to the domestic production, as to be a substantial cause of
serious injury or threat thereof to the domestic industry. After the investigation of the Tariff
Commission, it submits a report to the DTI Secretary which states, among others, whether the
above-stated conditions for the imposition of the general safeguard measures exist. Upon a positive
final determination that these conditions are present, the Tariff Commission then is mandated to
recommend what appropriate safeguard measures should be undertaken by the DTI Secretary.
Section 13 of the SMA gives five (5) specific options on the type of safeguard measures the Tariff
Commission recommends to the DTI Secretary.

At the same time, nothing in the SMA obliges the DTI Secretary to adopt the recommendations
made by the Tariff Commission. In fact, the SMA requires that the DTI Secretary establish that the
application of such safeguard measures is in the public interest, notwithstanding the Tariff
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.

Respondents employed considerable effort to becloud Section 5 with undeserved ambiguity in order
that a proper resort to the legislative deliberations may be had. Yet assuming that Section 5
deserves to be clarified through an inquiry into the legislative record, the excerpts cited by the
respondents are far more ambiguous than the language of the assailed provision regarding the key
question of whether the DTI Secretary may impose safeguard measures in the face of a negative
determination by the Tariff Commission. Moreover, even Southern Cross counters with its own
excerpts of the legislative record in support of their own view. 57 

It will not be difficult, especially as to heavily-debated legislation, for two sides with contrapuntal
interpretations of a statute to highlight their respective citations from the legislative debate in support
of their particular views. A futile exercise of second-guessing is happily avoided if the meaning of
58 

the statute is clear on its face. It is evident from the text of Section 5 that there must be a
positive final determination by the Tariff Commission that a product is being imported into
the country in increased quantities (whether absolute or relative to domestic production), as
to be a substantial cause of serious injury or threat to the domestic industry. Any disputation
to the contrary is, at best, the product of wishful thinking.

For the same reason that Section 5 is explicit as regards the essentiality of a positive final
determination by the Tariff Commission, there is no need to refer to the Implementing Rules of the
SMA to ascertain a contrary intent. If there is indeed a provision in the Implementing Rules that
allows the DTI Secretary to impose a general safeguard measure even without the positive final
determination by the Tariff Commission, said rule is void as it cannot supplant the express language
of the legislature. Respondents essentially rehash their previous arguments on this point, and there
is no reason to consider them anew. The Decision made it clear that nothing in Rule 13.2 of the
Implementing Rules, even though captioned "Final Determination by the Secretary," authorizes the
DTI Secretary to impose a general safeguard measure in the absence of a positive final
determination by the Tariff Commission. Similarly, the "Rules and Regulations to Govern the
59 

Conduct of Investigation by the Tariff Commission Pursuant to Republic Act No. 8800" now cited by
the respondent does not contain any provision that the DTI Secretary may impose the general
safeguard measures in the absence of a positive final determination by the Tariff Commission.

Section 13 of the SMA further bolsters the interpretation as argued by Southern Cross and upheld by
the Decision. The first paragraph thereof states that "[u]pon its positive determination, the [Tariff]
Commission shall recommend to the Secretary an appropriate definitive measure…", clearly
referring to the Tariff Commission as the entity that makes the positive determination. On the other
hand, the penultimate paragraph of the same provision states that "[i]n the event of a negative final
determination", the DTI Secretary is to immediately issue through the Secretary of Finance, a written
instruction to the Commissioner of Customs authorizing the return of the cash bonds previously
collected as a provisional safeguard measure. Since the first paragraph of the same provision states
that it is the Tariff Commission which makes the positive determination, it necessarily follows that it,
and not the DTI Secretary, makes the negative final determination as referred to in the penultimate
paragraph of Section 13. 60 

The Separate Opinion considers as highly persuasive of former Tariff Commission Chairman Abon,

who stated that the Commission’s findings are merely recommendatory. Again, the considered
61 

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
62 

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
63 

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
64 

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?

III. DTI Secretary has No Power of Review

Over Final Determination of the Tariff Commission

We should reemphasize that it is only because of the SMA, a legislative enactment, that the
executive branch has the power to impose safeguard measures. At the same time, by constitutional
fiat, the exercise of such power is subjected to the limitations and restrictions similarly enforced by
the SMA. In examining the relationship of the DTI and the Tariff Commission as established in the
SMA, it is essential to acknowledge and consider these predicates.

It is necessary to clarify the paradigm established by the SMA and affirmed by the Constitution under
which the Tariff Commission and the DTI operate, especially in light of the suggestions that the
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
65 

fundamental constitutional precept under Section 28(2), Article VI, on the ability of Congress to
impose restrictions and limitations in its delegation to the President to impose tariffs and imposts, as
well as the express condition of Section 5 of the SMA requiring a positive final determination of the
Tariff Commission.

Absent Section 5 of the SMA, the President has no inherent, constitutional, or statutory
power to impose a general safeguard measure. Tellingly, the Separate Opinion does not directly
confront the inevitable question as to how the DTI Secretary may get away with imposing a general
safeguard measure absent a positive final determination from the Tariff Commission without violating
Section 5 of the SMA, which along with Section 13 of the same law, stands as the only direct legal
authority for the DTI Secretary to impose such measures. This is a constitutionally guaranteed
limitation of the highest order, considering that the presidential authority exercised under the SMA is
inherently legislative.
Nonetheless, the Separate Opinion brings to fore the issue of whether the DTI Secretary, acting
either as alter ego of the President or in his capacity as head of an executive department, may
review, modify or otherwise alter the final determination of the Tariff Commission under the SMA.
The succeeding discussion shall focus on that question.

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

Indeed, in Marc Donnelly & Associates v. Agregado 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 67 

case, Congress itself authorized the DTI Secretary as alter ego of the President to impose the
safeguard measures. If the Court was previously willing to uphold the alter 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 the independent planning agency of the government.
68  69 

The Tariff Commission does not fall under the administrative supervision of the DTI. On the other
70 

hand, the administrative relationship between the NEDA and the Tariff Commission is established
not only by the Administrative Code, but similarly affirmed by the Tariff and Customs Code.

Justice Florentino Feliciano, in his ponencia in Garcia v. Executive Secretary , 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 Section 401 of the same law, it is upon periodic investigations by the Tariff
72 

Commission and recommendation of the NEDA that the President may cause a gradual reduction of
protection levels granted under the law. 73 

At the same time, under the Tariff and Customs Code, no similar role or influence is allocated to the
DTI in the matter of imposing tariff duties. In fact, the long-standing tradition has been for the Tariff
Commission and the DTI to proceed independently in the exercise of their respective functions. Only
very recently have our statutes directed any significant interplay between the Tariff Commission and
the DTI, with the enactment in 1999 of Republic Act No. 8751 on the imposition of countervailing
duties and Republic Act No. 8752 on the imposition of anti-dumping duties, and of course the
promulgation a year later of the SMA. In all these three laws, the Tariff Commission is tasked, upon
referral of the matter by the DTI, to determine whether the factual conditions exist to warrant the
imposition by the DTI of a countervailing duty, an anti-dumping duty, or a general safeguard
measure, respectively. In all three laws, the determination by the Tariff Commission that these
required factual conditions exist is necessary before the DTI Secretary may impose the
corresponding duty or safeguard measure. And in all three laws, there is no express provision
authorizing the DTI Secretary to reverse the factual determination of the Tariff Commission. 74 

In fact, the SMA indubitably establishes that the Tariff Commission is no mere flunky of the DTI
Secretary when it mandates that the positive final recommendation of the former be indispensable to
the 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 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
75 

may be alter egos of the President, yet their authority to review is limited to those agencies or
bureaus which are, pursuant to statutes such as the Administrative Code of 1987, under the
administrative control and supervision of their respective departments. Thus, under the express
provision of the Administrative Code expressly provides that the CAB is an attached agency of the
DOTC , and that the PCA is an attached agency of the Department of Agriculture. The same law
76  77 

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. 79 

As repeatedly stated, the Tariff Commission does not fall under the administrative control of the DTI,
but under the NEDA, pursuant to the Administrative Code. The reliance made by the Separate
Opinion to those three examples are thus misplaced.

Nonetheless, the Separate Opinion asserts that the SMA created a functional relationship between
the Tariff Commission and the DTI Secretary, sufficient to allow the DTI Secretary to exercise alter
ego powers to reverse the determination of the Tariff Commission. Again, considering that the power
to impose tariffs in the first place is not inherent in the President but arises only from congressional
grant, we should affirm the congressional prerogative to impose limitations and restrictions on such
powers which do not normally belong to the executive in the first place. Nowhere in the SMA does it
state that the DTI Secretary may impose general safeguard measures without a positive final
determination by the Tariff Commission, or that the DTI Secretary may reverse or even review the
factual determination made by the Tariff Commission.

Congress in enacting the SMA and prescribing the roles to be played therein by the Tariff
Commission and the DTI Secretary did not envision that the President, or his/her alter ego could
exercise supervisory powers over the Tariff Commission. If truly Congress intended to allow the
traditional alter ego principle to come to fore in the peculiar setup established by the SMA, it would
have assigned the role now played by the DTI Secretary under the law instead to the NEDA, the
body to which the Tariff Commission is attached under the Administrative Code.

The Court has no issue with upholding administrative control and supervision exercised by the head
of an executive department, but only over those subordinate offices that are attached to the
department, or which are, under statute, relegated under its supervision and control. To declare that
a department secretary, even if acting as alter ego of the President, may exercise such control or
supervision over all executive offices below cabinet rank would lead to absurd results such as those
adverted to above. As applied to this case, there is no legal justification for the DTI Secretary to
exercise control, supervision, review or amendatory powers over the Tariff Commission and its
positive final determination. In passing, we note that there is, admittedly, a feasible mode by which
administrative review of the Tariff 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
80 

clear that such "executive control" is not absolute. The definition of the structure of the executive
branch of government, and the corresponding degrees of administrative control and supervision, is
not the exclusive preserve of the executive. It may be effectively be limited by the Constitution, by
law, or by judicial decisions.

The Separate Opinion cites the respected constitutional law authority Fr. Joaquin Bernas, in support
of the proposition that such plenary power of executive control of the President cannot be restricted
by a mere statute passed by Congress. However, the cited passage from Fr. Bernas actually states,
"Since the Constitution has given the President the power of control, with all its awesome
implications, it is the Constitution alone which can curtail such power." Does the President have
81 

such tariff powers under the Constitution in the first place which may be curtailed by the executive
power of control? At the risk of redundancy, we quote Section 28(2), Article VI: "The Congress may,
by law, authorize the President to fix within specified limits, and subject to such limitations and
restrictions as it may impose, tariff rates, import and export quotas, tonnage and wharfage dues, and
other duties or imposts within the framework of the national development program of the
Government." Clearly the power to impose tariffs belongs to Congress and not to the President.

It is within reason to assume the framers of the Constitution deemed it too onerous to spell out all
the possible limitations and restrictions on this presidential authority to impose tariffs. Hence, the
Constitution especially allowed Congress itself to prescribe such limitations and restrictions itself, a
prudent move considering that such authority inherently belongs to Congress and not the President.
Since Congress has no power to amend the Constitution, it should be taken to mean that such
limitations and restrictions should be provided "by mere statute". Then again, even the presidential
authority to impose tariffs arises only "by mere statute." Indeed, this presidential privilege is both
contingent in nature and legislative in origin. These characteristics, when weighed against
the aspect of executive control and supervision, cannot militate against Congress’s 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 the administrative head of the executive department, as such obliged to see
82 

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
83 

redefine the executive bureaucracy, including the relationship between various administrative
agencies, bureaus and departments, and ultimately, even the power to abolish executive
departments and their components, hamstrung only by constitutional limitations. The DTI itself can
be abolished with ease by Congress through deleting Title X, Book IV of the Administrative Code.
The Tariff Commission can similarly be abolished through legislative enactment.  84 

At the same time, Congress can enact additional tasks or responsibilities on either the Tariff
Commission or the DTI Secretary, such as their respective roles on the imposition of general
safeguard measures under the SMA. In doing so, the same Congress, which has the putative
authority to abolish the Tariff Commission or the DTI, is similarly empowered to alter or
expand its functions through modalities which do not align with established norms in the
bureaucratic structure. The Court is bound to recognize the legislative prerogative to prescribe
such modalities, no matter how atypical they may be, in affirmation of the legislative power to
restructure the executive branch of government.

There are further limitations on the "executive control" adverted to by the Separate Opinion. The
President, in the exercise of executive control, cannot order a subordinate to disobey a final decision
of this Court or any 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
85 

exercise of executive control must be within the bounds of the Constitution and law, the Separate
Opinion asserts, "the control power of the Chief Executive emanates from the Constitution; no act of
Congress may validly curtail it." Laws are acts of Congress, hence valid confusion arises whether
86 

the Separate Opinion truly believes the first proposition that executive control is bound by law. This
is a quagmire for the Separate Opinion to resolve for itself

The Separate Opinion unduly considers executive control as the ne plus ultra constitutional standard

which must govern in this case. But while the President may generally have the power to control,
modify or set aside the actions of a subordinate, such powers may be constricted by the
Constitution, the legislature, and the judiciary. This is one of the essences of the check-and-balance
system in our tri-partite constitutional democracy. Not one head of a branch of government may
operate as a Caesar within his/her particular fiefdom.

Assuming there is a conflict between the specific limitation in Section 28 (2), Article VI of the
Constitution and the general executive power of control and supervision, the former prevails in the
specific instance of safeguard measures such as tariffs and imposts, and would thus serve to qualify
the general grant to the President of the power to exercise control and supervision over his/her
subalterns.

Thus, if the Congress enacted the law so that the DTI Secretary is "bound" by the Tariff Commission
in the sense the former cannot impose general safeguard measures absent a final positive
determination from the latter the Court is obliged to respect such legislative prerogative, no matter
how such arrangement deviates from traditional norms as may have been enshrined in
jurisprudence. The only ground under which such legislative determination as expressed in statute
may be successfully challenged is if such legislation contravenes the Constitution. No such
argument is posed by the respondents, who do not challenge the validity or constitutionality of the
SMA.

Given these premises, it is utterly reckless to examine the interrelationship between the Tariff
Commission and the DTI Secretary beyond the context of the SMA, applying instead traditional
precepts on administrative control, review and supervision. For that reason, the Decision deemed
inapplicable respondents’ previous citations of Cariño v. Commissioner on Human Rights and Lamb
v. Phipps, since the executive power adverted to in those cases had not been limited by
constitutional restrictions such as those imposed under Section 28(2), Article VI.
87 

A similar observation can be made on the case of Sharp International Marketing v. Court of
Appeals, now cited by Philcemcor, wherein the Court asserted that the Land Bank of the Philippines
88 

was required to exercise independent judgment and not merely rubber-stamp deeds of sale entered
into by the Department of Agrarian Reform in connection with the agrarian reform program.
Philcemcor attempts to demonstrate that the DTI Secretary, as with the Land Bank of the
Philippines, is required to exercise independent discretion and is not expected to just merely accede
to DAR-approved compensation packages. Yet again, such grant of independent discretion is
expressly called for by statute, particularly Section 18 of Rep. Act No. 6657 which specifically
requires the joint concurrence of "the landowner and the DAR and the [Land Bank of the
Philippines]" on the amount of compensation. Such power of review by the Land Bank is a
consequence of clear statutory language, as is our holding in the Decision that Section 5 explicitly
requires a positive final determination by the Tariff Commission before a general safeguard measure
may be imposed. Moreover, such limitations under the SMA are coated by the constitutional
authority of Section 28(2), Article VI of the Constitution.

Nonetheless, is this administrative setup, as envisioned by Congress and enshrined into the SMA,
truly noxious to existing legal standards? The 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 measure of check and balance involving two government offices with
different specializations; and that safeguard measures are the exception rather than the rule,
pursuant to our treaty obligations. 89 
We see no reason to deviate from these observations, and indeed can add similarly oriented
comments. Corollary to the legislative power to decree policies through legislation is the ability of the
legislature to provide for means in the statute itself to ensure that the said policy is strictly
implemented by the body or office tasked so tasked with the duty. As earlier stated, our treaty
obligations dissuade the State for now from implementing default protectionist trade measures such
as tariffs, and allow the same only under specified conditions. The conditions enumerated under the
90 

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
91 

determination from political pressure, and to assure that it be conducted by an entity especially
qualified by reason of its general functions to undertake such investigation, Congress deemed it
necessary to delegate to the Tariff Commission the function of ascertaining whether or not the those
factual conditions exist to warrant the atypical imposition of safeguard measures. After all, the Tariff
Commission retains a degree of relative independence by virtue of its attachment to the National
Economic Development Authority, "an independent planning agency of the government," and also92 

owing to its vaunted expertise and specialization.

The matter of imposing a safeguard measure almost always involves not just one industry, but the
national interest as it encompasses other industries as well. Yet in all candor, any decision to impose
a safeguard measure is susceptible to all sorts of external pressures, especially if the domestic
industry concerned is well-organized. Unwarranted impositions of safeguard measures may similarly
be detrimental to the national interest. Congress could not be blamed if it desired to insulate the
investigatory process by assigning it to a body with a putative degree of independence and
traditional expertise in ascertaining factual conditions. Affected industries would have cause to lobby
for or against the safeguard measures. The decision-maker is in the unenviable position of having to
bend an ear to listen to all concerned voices, including those which may speak softly but carry a big
stick. Had the law mandated that the decision be made on the sole discretion of an executive officer,
such as the DTI Secretary, it would be markedly easier for safeguard measures to be imposed or
withheld based solely on political considerations and not on the factual conditions that are supposed
to predicate the decision.

Reference of the binding positive final determination to the Tariff Commission is of course, not a fail-
safe means to ensure a bias-free determination. But at least the legislated involvement of the
Commission in the process assures some measure of measure of check and balance involving two
different governmental agencies with disparate specializations. There is no legal or constitutional
demand for such a setup, but its wisdom as policy should be acknowledged. As prescribed by
Congress, both the Tariff Commission and the DTI Secretary operate within limited frameworks,
under which nobody acquires an undue advantage over the other.

We recognize that Congress deemed it necessary to insulate the process in requiring that the factual
determination to be made by an ostensibly independent body of specialized competence, the Tariff
Commission. This prescribed framework, constitutionally sanctioned, is intended to prevent the
baseless, whimsical, or consideration-induced imposition of safeguard measures. It removes from
the DTI Secretary jurisdiction over a matter beyond his putative specialized aptitude, the compilation
and analysis of picayune facts and determination of their limited causal relations, and instead vests
in the Secretary the broad choice on a matter within his unquestionable competence, the selection of
what particular safeguard measure would assist the duly beleaguered local industry yet at the same
time conform to national trade policy. Indeed, the SMA recognizes, and places primary importance
on the DTI 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 93 

Court is bound by propriety not to dispute the wisdom of the legislature as long as its acts do not
violate the Constitution. Since there is no convincing demonstration that the SMA contravenes the
Constitution, the Court is wont to respect the administrative regimen propounded by the law, even if
it allots the Tariff Commission a higher degree of puissance than normally expected. It is for this
reason that the traditional conceptions of administrative review or quasi-judicial power cannot control
in this case.
Indeed, to apply the latter concept would cause the Court to fall into a linguistic trap owing to the
multi-faceted denotations the term "quasi-judicial" has come to acquire.

Under the SMA, the Tariff Commission undertakes formal hearings, receives and evaluates
94 

testimony and evidence by interested parties, and renders a decision is rendered on the basis of the
95 

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 96 

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."
97 

However, the Tariff Commission is not empowered to hear actual cases or controversies lodged
directly before it by private parties. It does not have the power to issue writs of injunction or
enforcement of its determination. These considerations militate against a finding of quasi-judicial
powers attributable to the Tariff Commission, considering the pronouncement that "quasi-judicial
adjudication would mean a determination of rights privileges and duties resulting in a decision or
order which applies to a specific situation." 98 

Indeed, a declaration that the Tariff Commission possesses quasi-judicial powers, even if
ascertained for the limited purpose of exercising its functions under the SMA, may have the
unfortunate effect of expanding the 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.

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. 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 SMA does not even require the Tariff Commission, which is tasked with the
100 

custody of the submitted evidence, to turn over to the DTI Secretary such evidence it had evaluated
101 

in order to make its factual determination. Clearly, as Congress tasked it to be, it is the Tariff
102 

Commission and not the DTI Secretary which acquires the necessary intimate acquaintance with the
factual conditions and evidence necessary for the imposition of the general safeguard measure. Why
then favor an interpretation of the SMA that leaves the findings of the Tariff Commission bereft of
operative effect and makes them subservient to the wishes of the DTI Secretary, a personage with
lesser working familiarity with the relevant factual milieu? In fact, the bare theory of the respondents
would effectively allow the DTI Secretary to adopt, under the subterfuge of his "discretion", the
factual determination of a private investigative group hired by the industry concerned, and reject the
investigative findings of the Tariff Commission as mandated by the SMA. It would be highly irregular
to substitute what the law clearly provides for a dubious setup of no statutory basis that would be
readily susceptible to rank chicanery.

Moreover, the SMA guarantees the right of all concerned parties to be heard, an elemental
requirement of due process, by the Tariff Commission in the context of its investigation. The DTI
Secretary is not similarly empowered or tasked to hear out the concerns of other interested parties,
and if he/she does so, it arises purely out of volition and not compulsion under law.

Indeed, in this case, it is essential that the position of other than that of the local cement industry
should be given due consideration, cement being an indispensable need for the operation of other
industries such as housing and construction. While the general safeguard measures may operate to
the better interests of the domestic cement industries, its deprivation of cheaper cement imports may
similarly work to the detriment of these other domestic industries and correspondingly, the national
interest. Notably, the Tariff Commission in this case heard the views on the application of
representatives of other allied industries such as the housing, construction, and cement-bag
industries, and other interested parties such as consumer groups and foreign governments. It is103 

only before the Tariff Commission that their views had been heard, and this is because it is only the
Tariff Commission which is empowered to hear their positions. Since due process requires a
judicious consideration of all relevant factors, the Tariff Commission, which is in a better position to
hear these parties than the DTI Secretary, is similarly more capable to render a determination
conformably with the due process requirements than the DTI Secretary.

In a similar vein, Southern Cross aptly notes that in instances when it is the DTI Secretary who
initiates motu propriothe 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
104 

and judge." Certainly, this anomalous situation is avoided if it is the Tariff Commission which is
105 

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
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.

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.

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 XIII, which
mandates that "[t]he State shall promote the preferential use of Filipino labor, domestic materials and
locally produced goods and adopt measures that help make them competitive." By no means does
this provision dictate that the Court favor the domestic industry in all competing claims that it may
bring before this Court. If it were so, judicial proceedings in this country would be rendered a
mockery, resolved as they would be, on the basis of the personalities of the litigants and not their
legal positions.

Moreover, the duty imposed on by Section 12, Article XIII falls primarily with Congress, which in that
regard enacted the SMA, a law designed to protect domestic industries from the possible ill-effects
of our accession to the global trade order. Inconveniently perhaps for respondents, the SMA also
happens to provide for a procedure under which such protective measures may be enacted. The
Court cannot just impose what it deems as the spirit of the law without giving due regard to its letter.

In like-minded manner, the Separate Opinion loosely states that the purpose of the SMA is to protect
or safeguard local industries from increased importation of foreign products. This inaccurately
106 

leaves the impression that the SMA ipso facto unravels a protective cloak that shelters all local
industries and producers, no matter the conditions. Indeed, our country has knowingly chosen to
accede to the world trade regime, as expressed in the GATT and WTO Agreements, despite the
understanding that local industries might suffer ill-effects, especially with the easier entry of
competing foreign products. At the same time, these international agreements were designed to
constrict protectionist trade policies by its member-countries. Hence, the median, as expressed by
the SMA, does allow for the application of protectionist measures such as tariffs, but only after an
elaborate process of investigation that ensures factual basis and indispensable need for such
measures. More accurately, the purpose of the SMA is to provide a process for the protection or
safeguarding of domestic industries that have duly established that there is substantial injury or
threat thereof directly caused by the increased imports. In short, domestic industries are not entitled
to safeguard measures as a matter of right or influence.

Respondents also make the astounding argument that the imposition of general safeguard
measures should not be seen as a taxation measure, but instead as an exercise of police power.
The vain hope of respondents in divorcing the safeguard measures from the concept of taxation is to
exclude from consideration Section 28(2), Article VI of the Constitution.

This argument can be debunked at length, but it deserves little attention. The motivation behind
many taxation measures is the implementation of police power goals. Progressive income taxes
alleviate the margin between rich and poor; the so-called "sin taxes" on alcohol and tobacco
manufacturers help dissuade the consumers from excessive intake of these potentially harmful
products. Taxation is distinguishable from police power as to the means employed to implement
these public good goals. Those doctrines that are unique to taxation arose from peculiar
considerations such as those especially punitive effects of taxation, and the belief that taxes are the
107 

lifeblood of the state. These considerations necessitated the evolution of taxation as a distinct legal
108 

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. 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
110 

these premises, it is clear that police power, however "illimitable" in theory, is still exercised within
the confines of implementing legislation. To declare otherwise is to sanction rule by whim instead of
rule of law. The Congress, in enacting the SMA, has delegated the power to impose general
safeguard measures to the executive branch, but at the same time subjected such imposition to
limitations, such as the requirement of a positive final determination by the Tariff Commission under
Section 5. For the executive branch to ignore these boundaries imposed by Congress is to set up an
ignoble clash between the two co-equal branches of government. Considering that the exercise of
police power emanates from legislative authority, there is little question that the prerogative of the
legislative branch shall prevail in such a clash.

V. Assailed Decision Consistent

With Ruling in Tañada v. Angara

Public respondents allege that the Decision is contrary to our holding in Tañada v. Angara, since 111 

the Court noted therein that the GATT itself provides built-in protection from unfair foreign
competition and trade practices, which according to the public respondents, was a reason "why the
Honorable [Court] ruled the way it did." On the other hand, the Decision "eliminates safeguard
measures as a mode of defense."

This is balderdash, as with any and all claims that the Decision allows foreign industries to ride
roughshod over our domestic enterprises. The Decision does not prohibit the imposition of general
safeguard measures to protect domestic industries in need of protection. All it affirms is that the
positive final determination of the Tariff Commission is first required before the general safeguard
measures are imposed and implemented, a neutral proposition that gives no regard to the
nationalities of the parties involved. A positive determination by the Tariff Commission is hardly the
elusive Shangri-la of administrative law. If a particular industry finds it difficult to obtain a positive
final determination from the Tariff Commission, it may be simply because the industry is still
sufficiently competitive even in the face of foreign competition. These safeguard measures are
designed to ensure salvation, not avarice.

Respondents well have the right to drape themselves in the colors of the flag. Yet these postures
hardly advance legal claims, or nationalism for that matter. The fineries of the costume pageant are
no better measure of patriotism than simple obedience to the laws of the Fatherland. And even
assuming that respondents are motivated by genuine patriotic impulses, it must be remembered that
under the setup provided by the SMA, it is the facts, and not impulse, that determine whether the
protective safeguard measures should be imposed. As once orated, facts are stubborn things; and
whatever may be our wishes, our inclinations, or the dictates of our passions, they cannot alter the
state of facts and evidence. 112 

It is our goal as judges to enforce the law, and not what we might deem as correct economic policy.
Towards this end, we should not construe the SMA to unduly favor or disfavor domestic industries,
simply because the law itself provides for a mechanism by virtue of which the claims of these
industries are thoroughly evaluated before they are favored or disfavored. What we must do is to
simply uphold what the law says. Section 5 says that the DTI Secretary shall impose the general
safeguard measures upon the positive final determination of the Tariff Commission. Nothing in the
whereas clauses or the invisible ink provisions of the SMA can magically delete the words "positive
final determination" and "Tariff Commission" from Section 5.

VI. On Forum-Shopping

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

VII. Effects of 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 Petition for Extension of the
Safeguard Measure. Obviously, if the imposition of the general safeguard measure is void as we
declared it to be, any extension thereof should likewise be fruitless. The proper remedy instead is to
file a new application for the imposition of safeguard measures, subject to the conditions prescribed
by the SMA. Should this step be eventually availed of, it is only hoped that the parties involved would
content themselves in observing the proper procedure, instead of making a mockery of the rule of
law.

WHEREFORE, respondents’ Motions for Reconsideration are DENIED WITH FINALITY.

Respondent DTI Secretary is hereby ENJOINED from taking any further action on the
pending Petition for Extension of the Safeguard Measure.

Hironobu Ryu, President of petitioner Southern Cross Cement Corporation, and Angara Abello
Concepcion Regala & Cruz, counsel petitioner, are hereby given FIVE (5) days from receipt of
this Resolution to EXPLAIN why they should not be meted disciplinary sanction for failing to timely
inform the Court of the filing of Southern Cross’s Petition for Review with the Court of Tax Appeals,
as adverted to earlier in this Resolution.

SO ORDERED.
G.R. No. 99886 March 31, 1993
JOHN H. OSMEÑA, petitioner, 
vs.
OSCAR ORBOS, in his capacity as Executive Secretary; JESUS ESTANISLAO, in his capacity
as Secretary of Finance; WENCESLAO DELA PAZ, in his capacity as Head of the Office of
Energy Affairs; REX V. TANTIONGCO, and the ENERGY REGULATORY BOARD, respondents.

Nachura & Sarmiento for petitioner.

The Solicitor General for public respondents.

NARVASA, C.J.:

The petitioner seeks the corrective,  prohibitive and coercive remedies provided by Rule 65 of the
1

Rules of Court, upon the following posited grounds, viz.:

2 3

1) the invalidity of the "TRUST ACCOUNT" in the books of account of the Ministry of Energy (now,
the Office of Energy Affairs), created pursuant to § 8, paragraph 1, of P.D. No. 1956, as amended,
"said creation of a trust fund being contrary to Section 29 (3), Article VI of the . . Constitution; 4

2) the unconstitutionality of § 8, paragraph 1 (c) of P.D. No. 1956, as amended by Executive Order
No. 137, for "being an undue and invalid delegation of legislative power . .  to the Energy Regulatory Board;" 5

3) the illegality of the reimbursements to oil companies, paid out of the Oil Price Stabilization
Fund,  because it contravenes § 8, paragraph 2 (2) of
6

P. D. 1956, as amended; and

4) the consequent nullity of the Order dated December 10, 1990 and the necessity of a rollback of
the pump prices and petroleum products to the levels prevailing prior to the said Order.

It will be recalled that on October 10, 1984, President Ferdinand Marcos issued P.D. 1956 creating a
Special Account in the General Fund, designated as the Oil Price Stabilization Fund (OPSF). The
OPSF was designed to reimburse oil companies for cost increases in crude oil and imported
petroleum products resulting from exchange rate adjustments and from increases in the world
market prices of crude oil.

Subsequently, the OPSF was reclassified into a "trust liability account," in virtue of E.O. 1024,  and 7

ordered released from the National Treasury to the Ministry of Energy. The same Executive Order
also authorized the investment of the fund in government securities, with the earnings from such
placements accruing to the fund.

President Corazon C. Aquino, amended P.D. 1956. She promulgated Executive Order No. 137 on
February 27, 1987, expanding the grounds for reimbursement to oil companies for possible cost
underrecovery incurred as a result of the reduction of domestic prices of petroleum products, the
amount of the underrecovery being left for determination by the Ministry of Finance.

Now, the petition alleges that the status of the OPSF as of March 31, 1991 showed a "Terminal Fund
Balance deficit" of some P12.877 billion;  that to abate the worsening deficit, "the Energy Regulatory
8

Board . . issued an Order on December 10, 1990, approving the increase in pump prices of petroleum products," and at the rate of
recoupment, the OPSF deficit should have been fully covered in a span of six (6) months, but this notwithstanding, the respondents — Oscar
Orbos, in his capacity as Executive Secretary; Jesus Estanislao, in his capacity as Secretary of Finance; Wenceslao de la Paz, in his
capacity as Head of the Office of Energy Affairs; Chairman Rex V. Tantiongco and the Energy Regulatory Board — "are poised to accept,
process and pay claims not authorized under P.D. 1956." 9

The petition further avers that the creation of the trust fund violates §
29(3), Article VI of the Constitution, reading as follows:

(3) All money collected on any tax levied for a special purpose shall be treated as a
special fund and paid out for such purposes only. If the purpose for which a special
 fund was created has been fulfilled or abandoned, the balance, if any, shall be
transferred to the general funds of the Government.

The petitioner argues that "the monies collected pursuant to . . P.D. 1956, as amended, must be
treated as a 'SPECIAL FUND,' not as a 'trust account' or a 'trust fund,' and that "if a special tax is
collected for a specific purpose, the revenue generated therefrom shall 'be treated as a special fund'
to be used only for the purpose indicated, and not channeled to another government
objective."   Petitioner further points out that since "a 'special fund' consists of monies collected
10

through the taxing power of a State, such amounts belong to the State, although the use thereof is
limited to the special purpose/objective for which it was created."  11

He also contends that the "delegation of legislative authority" to the ERB violates § 28 (2). Article VI
of the Constitution, viz.:

(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;

and, inasmuch as the delegation relates to the exercise of the power of taxation, "the limits,
limitations and restrictions must be quantitative, that is, the law must not only specify how to
tax, who (shall) be taxed (and) what the tax is for, but also impose a specific limit on how
much to tax." 12

The petitioner does not suggest that a "trust account" is illegal per se, but maintains that the monies
collected, which form part of the OPSF, should be maintained in a special account of the general
fund for the reason that the Constitution so provides, and because they are, supposedly, taxes
levied for a special purpose. He assumes that the Fund is formed from a tax undoubtedly because a
portion thereof is taken from collections of ad valorem taxes and the increases thereon.

It thus appears that the challenge posed by the petitioner is premised primarily on the view that the
powers granted to the ERB under P.D. 1956, as amended, partake of the nature of the taxation
power of the State. The Solicitor General observes that the "argument rests on the assumption that
the OPSF is a form of revenue measure drawing from a special tax to be expended for a special
purpose."   The petitioner's perceptions are, in the Court's view, not quite correct.
13

To address this critical misgiving in the position of the petitioner on these issues, the Court recalls its
holding in Valmonte v. Energy Regulatory Board, et al.   —14

The foregoing arguments suggest the presence of misconceptions about the nature
and functions of the OPSF. The OPSF is a "Trust Account" which was established
"for the purpose of minimizing the frequent price changes brought about by
exchange rate adjustment and/or changes in world market prices of crude oil and
imported petroleum products."   Under P.D. No. 1956, as amended by Executive
15

Order No. 137 dated 27 February 1987, this Trust Account may be funded from any
of the following sources:

a) Any increase in the tax collection from ad valorem tax or customs

duty imposed on petroleum products subject to tax under this
Decree arising from exchange rate adjustment, as may be
determined by the Minister of Finance in consultation with the Board
of Energy;

b) Any increase in the tax collection as a result of the lifting of tax

exemptions of government corporations, as may be determined by
the Minister of Finance in consultation with the Board of Energy:

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

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

xxx xxx xxx

The fact that the world market prices of oil, measured by the spot market in
Rotterdam, vary from day to day is of judicial notice. Freight rates for hauling crude
oil and petroleum products from sources of supply to the Philippines may also vary
from time to time. The exchange rate of the peso vis-a-vis the U.S. dollar and other
convertible foreign currencies also changes from day to day. These fluctuations in
world market prices and in tanker rates and foreign exchange rates would in a
completely free market translate into corresponding adjustments in domestic prices
of oil and petroleum products with sympathetic frequency. But domestic prices which
vary from day to day or even only from week to week would result in a chaotic market
with unpredictable effects upon the country's economy in general. The OPSF was
established precisely to protect local consumers from the adverse consequences
that such frequent oil price adjustments may have upon the economy. Thus, the
OPSF serves as a pocket, as it were, into which a portion of the purchase price of oil
and petroleum products paid by consumers as well as some tax revenues are
inputted and from which amounts are drawn from time to time to reimburse oil
companies, when appropriate situations arise, for increases in, as well as
underrecovery of, costs of crude importation. The OPSF is thus a buffer mechanism
through which the domestic consumer prices of oil and petroleum products are
stabilized, instead of fluctuating every so often, and oil companies are allowed to
recover those portions of their costs which they would not otherwise recover given
the level of domestic prices existing at any given time. To the extent that some tax
revenues are also put into it, the OPSF is in effect a device through which the
domestic prices of petroleum products are subsidized in part. It appears to the Court
that the establishment and maintenance of the OPSF is well within that pervasive
and non-waivable power and responsibility of the government to secure the physical
and economic survival and well-being of the community, that comprehensive
sovereign authority we designate as the police power of the State. The stabilization,
and subsidy of domestic prices of petroleum products and fuel oil — clearly critical in
importance considering, among other things, the continuing high level of dependence
of the country on imported crude oil — are appropriately regarded as public
purposes.

Also of relevance is this Court's ruling in relation to the sugar stabilization fund the nature of which is
not far different from the OPSF. In Gaston v. Republic Planters Bank,   this Court upheld the legality
16

of the sugar stabilization fees and explained their nature and character, viz.:

The stabilization fees collected are in the nature of a tax, which is within the power of
the State to impose for the promotion of the sugar industry (Lutz v. Araneta, 98 Phil.
148). . . . The tax collected is not in a pure exercise of the taxing power. It is levied
with a regulatory purpose, to provide a means for the stabilization of the sugar
industry. The levy is primarily in the exercise of the police power of the State (Lutz v.
Araneta, supra).

xxx xxx xxx

The stabilization fees in question are levied by the State upon sugar millers, planters
and producers for a special purpose — that of "financing the growth and
development of the sugar industry and all its components, stabilization of the
domestic market including the foreign market." The fact that the State has taken
possession of moneys pursuant to law is sufficient to constitute them state funds,
even though they are held for a special purpose (Lawrence v. American Surety Co.
263 Mich. 586, 249 ALR 535, cited in 42 Am Jur Sec. 2, p. 718). Having been levied
for a special purpose, the revenues collected are to be treated as a special fund, to
be, in the language of the statute, "administered in trust" for the purpose intended.
Once the purpose has been fulfilled or abandoned, the balance if any, is to be
transferred to the general funds of the Government. That is the essence of the trust
 intended (SEE 1987 Constitution, Article VI, Sec. 29(3), lifted from the 1935
Constitution, Article VI, Sec. 23(1). 17

The character of the Stabilization Fund as a special kind of fund is emphasized by

the fact that the funds are deposited in the Philippine National Bank and not in the
Philippine Treasury, moneys from which may be paid out only in pursuance of an
appropriation made by law (1987) Constitution, Article VI, Sec. 29 (3), lifted from the
1935 Constitution, Article VI, Sec. 23(1). (Emphasis supplied).

Hence, it seems clear that while the funds collected may be referred to as taxes, they are exacted in
the exercise of the police power of the State. Moreover, that the OPSF is a special fund is plain from
the special treatment given it by E.O. 137. It is segregated from the general fund; and while it is
placed in what the law refers to as a "trust liability account," the fund nonetheless remains subject to
the scrutiny and review of the COA. The Court is satisfied that these measures comply with the
constitutional description of a "special fund." Indeed, the practice is not without precedent.

With regard to the alleged undue delegation of legislative power, the Court finds that the provision
conferring the authority upon the ERB to impose additional amounts on petroleum products provides
a sufficient standard by which the authority must be exercised. In addition to the general policy of the
law to protect the local consumer by stabilizing and subsidizing domestic pump rates, § 8(c) of P.D.
1956   expressly authorizes the ERB to impose additional amounts to augment the resources of the
18

Fund.

What petitioner would wish is the fixing of some definite, quantitative restriction, or "a specific limit on
how much to tax."   The Court is cited to this requirement by the petitioner on the premise that what
19

is involved here is the power of taxation; but as already discussed, this is not the case. What is here
involved is not so much the power of taxation as police power. Although the provision authorizing the
ERB to impose additional amounts could be construed to refer to the power of taxation, it cannot be
overlooked that the overriding consideration is to enable the delegate to act with expediency in
carrying out the objectives of the law which are embraced by the police power of the State.

The interplay and constant fluctuation of the various factors involved in the determination of the price
of oil and petroleum products, and the frequently shifting need to either augment or exhaust the
Fund, do not conveniently permit the setting of fixed or rigid parameters in the law as proposed by
the petitioner. To do so would render the ERB unable to respond effectively so as to mitigate or
avoid the undesirable consequences of such fluidity. As such, the standard as it is expressed,
suffices to guide the delegate in the exercise of the delegated power, taking account of the
circumstances under which it is to be exercised.

For a valid delegation of power, it is essential that the law delegating the power must be (1)
complete in itself, that is it must set forth the policy to be executed by the delegate and (2) it must fix
a standard — limits of which
are sufficiently determinate or determinable — to which the delegate must conform.  20

. . . As pointed out in Edu v. Ericta: "To avoid the taint of unlawful delegation, there
must be a standard, which implies at the very least that the legislature itself
determines matters of principle and lays down fundamental policy. Otherwise, the
charge of complete abdication may be hard to repel. A standard thus defines
legislative policy, marks its limits, maps out its boundaries and specifies the public
agency to apply it. It indicates the circumstances under which the legislative
command is to be effected. It is the criterion by which the legislative purpose may be
carried out. Thereafter, the executive or administrative office designated may in
pursuance of the above guidelines promulgate supplemental rules and regulations.
The standard may either be express or implied. If the former, the non-delegation
objection is easily met. The standard though does not have to be spelled out
specifically. It could be implied from the policy and purpose of the act considered as
a whole.  21

It would seem that from the above-quoted ruling, the petition for prohibition should fail.

The standard, as the Court has already stated, may even be implied. In that light, there can be no
ground upon which to sustain the petition, inasmuch as the challenged law sets forth a determinable
standard which guides the exercise of the power granted to the ERB. By the same token, the proper
exercise of the delegated power may be tested with ease. It seems obvious that what the law
intended was to permit the additional imposts for as long as there exists a need to protect the
general public and the petroleum industry from the adverse consequences of pump rate fluctuations.
"Where the standards set up for the guidance of an administrative officer and the action taken are in
fact recorded in the orders of such officer, so that Congress, the courts and the public are assured
that the orders in the judgment of such officer conform to the legislative standard, there is no failure
in the performance of the legislative functions." 22

This Court thus finds no serious impediment to sustaining the validity of the legislation; the express
purpose for which the imposts are permitted and the general objectives and purposes of the fund are
readily discernible, and they constitute a sufficient standard upon which the delegation of power may
be justified.

In relation to the third question — respecting the illegality of the reimbursements to oil companies,
paid out of the Oil Price Stabilization Fund, because allegedly in contravention of § 8, paragraph 2
(2) of P.D. 1956, amended   — the Court finds for the petitioner.
23

The petition assails the payment of certain items or accounts in favor of the petroleum companies
(i.e., inventory losses, financing charges, fuel oil sales to the National Power Corporation, etc.)
because not authorized by law. Petitioner contends that "these claims are not embraced in the
enumeration in § 8 of P.D. 1956 . . since none of them was incurred 'as a result of the reduction of
domestic prices of petroleum products,'"   and since these items are reimbursements for which the
24

OPSF should not have responded, the amount of the P12.877 billion deficit "should be reduced by
P5,277.2 million."   It is argued "that under the principle of ejusdem generis . . . the term 'other
25

factors' (as used in § 8 of P.D. 1956) . . can only include such 'other factors' which necessarily result
in the reduction of domestic prices of petroleum products."  26

The Solicitor General, for his part, contends that "(t)o place said (term) within the restrictive confines
of the rule of ejusdem generis would reduce (E.O. 137) to a meaningless provision."

This Court, in Caltex Philippines, Inc. v. The Honorable Commissioner on Audit, et al.,   passed
27

upon the application of ejusdem generis to paragraph 2 of § 8 of P.D. 1956, viz.:

The rule of ejusdem generis states that "[w]here words follow an enumeration of

persons or things, by words of a particular and specific meaning, such general words
are not to be construed in their widest extent, but are held to be as applying only to
persons or things of the same kind or class as those specifically mentioned."   A 28

reading of subparagraphs (i) and (ii) easily discloses that they do not have a common
characteristic. The first relates to price reduction as directed by the Board of Energy
while the second refers to reduction in internal ad valorem taxes. Therefore,
subparagraph (iii) cannot be limited by the enumeration in these subparagraphs.
What should be considered for purposes of determining the "other factors" in
subparagraph (iii) is the first sentence of paragraph (2) of the Section which explicitly
allows the cost underrecovery only if such were incurred as a result of the reduction
of domestic prices of petroleum products.

The Court thus holds, that the reimbursement of financing charges is not authorized by paragraph 2
of § 8 of P.D. 1956, for the reason that they were not incurred as a result of the reduction of
domestic prices of petroleum products. Under the same provision, however, the payment of
inventory losses is upheld as valid, being clearly a result of domestic price reduction, when oil
companies incur a cost underrecovery for yet unsold stocks of oil in inventory acquired at a higher
price.

Reimbursement for cost underrecovery from the sales of oil to the National Power Corporation is
equally permissible, not as coming within the provisions of P.D. 1956, but in virtue of other laws and
regulations as held in Caltex   and which have been pointed to by the Solicitor General. At any rate,
29

doubts about the propriety of such reimbursements have been dispelled by the enactment of R.A.
6952, establishing the Petroleum Price Standby Fund, § 2 of which specifically authorizes the
reimbursement of "cost underrecovery incurred as a result of fuel oil sales to the National Power
Corporation."

Anent the overpayment refunds mentioned by the petitioner, no substantive discussion has been
presented to show how this is prohibited by P.D. 1956. Nor has the Solicitor General taken any effort
to defend the propriety of this refund. In fine, neither of the parties, beyond the mere mention of
overpayment refunds, has at all bothered to discuss the arguments for or against the legality of the
so-called overpayment refunds. To be sure, the absence of any argument for or against the validity
of the refund cannot result in its disallowance by the Court. Unless the impropriety or illegality of the
overpayment refund has been clearly and specifically shown, there can be no basis upon which to
nullify the same.

Finally, the Court finds no necessity to rule on the remaining issue, the same having been rendered
moot and academic. As of date hereof, the pump rates of gasoline have been reduced to levels
below even those prayed for in the petition.

WHEREFORE, the petition is GRANTED insofar as it prays for the nullification of the reimbursement
of financing charges, paid pursuant to E.O. 137, and DISMISSED in all other respects.

SO ORDERED.
G.R. No. L- 41383 August 15, 1988
PHILIPPINE AIRLINES, INC., plaintiff-appellant, 
vs.
ROMEO F. EDU in his capacity as Land Transportation Commissioner, and UBALDO
CARBONELL, in his capacity as National Treasurer, defendants-appellants.

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

GUTIERREZ, JR., J.:

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

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

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

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

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

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

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

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

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

After paying under protest, PAL through counsel, wrote a letter dated May 19,1971, to
Commissioner Edu demanding a refund of the amounts paid, invoking the ruling in Calalang v.
Lorenzo (97 Phil. 212 [1951]) where it was held that motor vehicle registration fees are in reality
taxes from the payment of which PAL is exempt by virtue of its legislative franchise. 

Appellee Edu denied the request for refund basing his action on the decision in Republic v.
Philippine Rabbit Bus Lines, Inc., (32 SCRA 211, March 30, 1970) to the effect that motor vehicle
registration fees are regulatory exceptional. and not revenue measures and, therefore, do not come
within the exemption granted to PAL? under its franchise. Hence, PAL filed the complaint against
Land Transportation Commissioner Romeo F. Edu and National Treasurer Ubaldo Carbonell with
the Court of First Instance of Rizal, Branch 18 where it was docketed as Civil Case No. Q-15862.
Appellee Romeo F. Elevate in his capacity as LTC Commissioner, and LOI Carbonell in his capacity
as National Treasurer, filed a motion to dismiss alleging that the complaint states no cause of action.
In support of the motion to dismiss, defendants repatriation the ruling in Republic v. Philippine
Rabbit Bus Lines, Inc., (supra) that registration fees of motor vehicles are not taxes, but regulatory
fees imposed as an incident of the exercise of the police power of the state. They contended that
while Act 4271 exempts PAL from the payment of any tax except two per cent on its gross revenue
or earnings, it does not exempt the plaintiff from paying regulatory fees, such as motor vehicle
registration fees. The resolution of the motion to dismiss was deferred by the Court until after trial on
the merits. 

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

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

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

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

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

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

The charges prescribed by the Revised Motor Vehicle Law for the registration of
motor vehicles are in section 8 of that law called "fees". But the appellation is no
impediment to their being considered taxes if taxes they really are. For not the name
but the object of the charge determines whether it is a tax or a fee. Geveia speaking,
taxes are for revenue, whereas fees are exceptional. for purposes of regulation and
inspection and are for that reason limited in amount to what is necessary to cover the
cost of the services rendered in that connection. Hence, a charge fixed by statute for
the service to be person,-When by an officer, where the charge has no relation to the
value of the services performed and where the amount collected eventually finds its
way into the treasury of the branch of the government whose officer or officers
collected the chauffeur, is not a fee but a tax."(Cooley on Taxation, Vol. 1, 4th ed., p.
110.) 
 From the data submitted in the court below, it appears that the expenditures of the
Motor Vehicle Office are but a small portion—about 5 per centum—of the total
collections from motor vehicle registration fees. And as proof that the money
collected is not intended for the expenditures of that office, the law itself provides that
all such money shall accrue to the funds for the construction and maintenance of
public roads, streets and bridges. It is thus obvious that the fees are not collected for
regulatory purposes, that is to say, as an incident to the enforcement of regulations
governing the operation of motor vehicles on public highways, for their express
object is to provide revenue with which the Government is to discharge one of its
principal functions—the construction and maintenance of public highways for
everybody's use. They are veritable taxes, not merely fees. 

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

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

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

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

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

Section 73. Disposal of moneys collected.—Twenty per centum of the money

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

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

Sec. 61. Disposal of Mortgage. Collected—Monies collected under the provisions of

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

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

Sec. 13. Payment of taxes upon registration.—No original registration of motor

vehicles subject to payment of taxes, customs s duties or other charges shall be
accepted unless proof of payment of the taxes due thereon has been presented to
the Commission.

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

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

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

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

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

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

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

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

The answer is NO. 

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

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

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

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

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

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

Any registration fees collected between June 27, 1968 and April 9, 1979, were correctly imposed
because the tax exemption in the franchise of PAL was repealed during the period. However, an
amended franchise was given to PAL in 1979. Section 13 of Presidential Decree No. 1590, now
provides: 

In consideration of the franchise and rights hereby granted, the grantee shall pay to
the Philippine Government during the lifetime of this franchise whichever of
subsections (a) and (b) hereunder will result in a lower taxes.) 
 (a) The basic corporate income tax based on the grantee's annual net
taxable income computed in accordance with the provisions of the
Internal Revenue Code; or 

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

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

xxx xxx xxx

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

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

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

SO ORDERED.
G.R. No. 76778 June 6, 1990
FRANCISCO I. CHAVEZ, petitioner, 
vs.
JAIME B. ONGPIN, in his capacity as Minister of Finance and FIDELINA CRUZ, in her capacity
as Acting Municipal Treasurer of the Municipality of Las Piñas, respondents, REALTY
OWNERS ASSOCIATION OF THE PHILIPPINES, INC., petitioner-intervenor.

Brotherhood of Nationalistic, Involved and Free Attorneys to Combat Injustice and Oppression
(Bonifacio) for petitioner. 

Ambrosia Padilla, Mempin and Reyes Law Offices for movant Realty Owners Association. 

MEDIALDEA, J.:

The petition seeks to declare unconstitutional Executive Order No. 73 dated November 25, 1986, which We quote in full, as follows (78 O.G.
5861): 

EXECUTIVE ORDER No. 73 

PROVIDING FOR THE COLLECTION OF REAL PROPERTY TAXES BASED ON

THE 1984 REAL PROPERTY VALUES, AS PROVIDED FOR UNDER SECTION 21
OF THE REAL PROPERTY TAX CODE, AS AMENDED 

WHEREAS, the collection of real property taxes is still based on the 1978 revision of
property values; 

WHEREAS, the latest general revision of real property assessments completed in

1984 has rendered the 1978 revised values obsolete; 

WHEREAS, the collection of real property taxes based on the 1984 real property
values was deferred to take effect on January 1, 1988 instead of January 1, 1985,
thus depriving the local government units of an additional source of revenue; 

WHEREAS, there is an urgent need for local governments to augment their financial
resources to meet the rising cost of rendering effective services to the people; 

NOW, THEREFORE, I. CORAZON C. AQUINO, President of the Philippines, do

hereby order: 

SECTION 1. Real property values as of December 31, 1984 as determined by the

local assessors during the latest general revision of assessments shall take effect
beginning January 1, 1987 for purposes of real property tax collection. 

SEC. 2. The Minister of Finance shall promulgate the necessary rules and
regulations to implement this Executive Order. 

SEC. 3. Executive Order No. 1019, dated April 18, 1985, is hereby repealed. 

SEC. 4. All laws, orders, issuances, and rules and regulations or parts thereof
inconsistent with this Executive Order are hereby repealed or modified accordingly. 

SEC. 5. This Executive Order shall take effect immediately.

On March 31, 1987, Memorandum Order No. 77 was issued suspending the implementation of
Executive Order No. 73 until June 30, 1987. 

The petitioner, Francisco I. Chavez,   is a taxpayer and an owner of three parcels of land. He alleges
1

the following: that Executive Order No. 73 accelerated the application of the general revision of
assessments to January 1, 1987 thereby mandating an excessive increase in real property taxes by
100% to 400% on improvements, and up to 100% on land; that any increase in the value of real
property brought about by the revision of real property values and assessments would necessarily
lead to a proportionate increase in real property taxes; that sheer oppression is the result of
increasing real property taxes at a period of time when harsh economic conditions prevail; and that
the increase in the market values of real property as reflected in the schedule of values was brought
about only by inflation and economic recession. 

The intervenor Realty Owners Association of the Philippines, Inc. (ROAP), which is the national
association of owners-lessors, joins Chavez in his petition to declare unconstitutional Executive
Order No. 73, but additionally alleges the following: that Presidential Decree No. 464 is
unconstitutional insofar as it imposes an additional one percent (1%) tax on all property owners to
raise funds for education, as real property tax is admittedly a local tax for local governments; that the
General Revision of Assessments does not meet the requirements of due process as regards
publication, notice of hearing, opportunity to be heard and insofar as it authorizes "replacement cost"
of buildings (improvements) which is not provided in Presidential Decree No. 464, but only in an
administrative regulation of the Department of Finance; and that the Joint Local
Assessment/Treasury Regulations No. 2-86   is even more oppressive and unconstitutional as it
2

imposes successive increase of 150% over the 1986 tax. 

The Office of the Solicitor General argues against the petition. 

The petition is not impressed with merit. 

Petitioner Chavez and intervenor ROAP question the constitutionality of Executive Order No. 73
insofar as the revision of the assessments and the effectivity thereof are concerned. It should be
emphasized that Executive Order No. 73 merely directs, in Section 1 thereof, that: 

SECTION 1. Real property values as of December 31, 1984 as determined by the

local assessors during the latest general revision of assessments shall take effect
beginning January 1, 1987 for purposes of real property tax collection. (emphasis
supplied) 

The general revision of assessments completed in 1984 is based on Section 21 of Presidential

Decree No. 464 which provides, as follows: 

SEC. 21. General Revision of Assessments. — Beginning with the assessor shall

make a calendar year 1978, the provincial or city general revision of real property
assessments in the province or city to take effect January 1, 1979, and once every
five years thereafter: Provided; however, That if property values in a province or city,
or in any municipality, have greatly changed since the last general revision, the
provincial or city assesor may, with the approval of the Secretary of Finance or upon
bis direction, undertake a general revision of assessments in the province or city, or
in any municipality before the fifth year from the effectivity of the last general
revision. 

Thus, We agree with the Office of the Solicitor General that the attack on Executive Order No. 73
has no legal basis as the general revision of assessments is a continuing process mandated by
Section 21 of Presidential Decree No. 464. If at all, it is Presidential Decree No. 464 which should be
challenged as constitutionally infirm. However, Chavez failed to raise any objection against said
decree. It was ROAP which questioned the constitutionality thereof. Furthermore, Presidential
Decree No. 464 furnishes the procedure by which a tax assessment may be questioned: 

SEC. 30. Local Board of Assessment Appeals. — Any owner who is not satisfied with
the action of the provincial or city assessor in the assessment of his property may,
within sixty days from the date of receipt by him of the written notice of assessment
as provided in this Code, appeal to the Board of Assessment Appeals of the province
or city, by filing with it a petition under oath using the form prescribed for the purpose,
together with copies of the tax declarations and such affidavit or documents
submitted in support of the appeal.

xxx xxx xxx

 SEC. 34. Action by the Local Board of assessment Appeals. — The Local Board of
Assessment Appeals shall decide the appeal within one hundred and twenty days
from the date of receipt of such appeal. The decision rendered must be based on
substantial evidence presented at the hearing or at least contained in the record and
disclosed to the parties or such relevant evidence as a reasonable mind might accept
as adequate to support the conclusion. 

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 truth without-necessarily
adhering to technical rules applicable in judicial proceedings. 

The Secretary of the Board shall furnish the property owner and the Provincial or City
Assessor with a copy each 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
property owner of such fact using the form prescribed for the purpose. The owner or
administrator of the property or the assessor who is not satisfied with the decision of
the Board of Assessment Appeals, may, within thirty days after receipt of the
decision of the local Board, appeal to the Central Board of Assessment Appeals by
filing his appeal under oath with the Secretary of the proper provincial or city Board of
Assessment Appeals using the prescribed form stating therein the grounds and the
reasons for the appeal, and attaching thereto any evidence pertinent to the case. A
copy of the appeal should be also furnished the Central Board of Assessment
Appeals, through its Chairman, by the appellant. 

Within ten (10) days from receipt of the appeal, the Secretary of the Board of
Assessment Appeals concerned shall forward the same and all papers related
thereto, to the Central Board of Assessment Appeals through the Chairman thereof.

xxx xxx xxx

SEC. 36. Scope of Powers and Functions. — The Central Board of Assessment

Appeals shall have jurisdiction over appealed assessment cases decided by the
Local Board of Assessment Appeals. The said Board shall decide cases brought on
appeal within twelve (12) months from the date of receipt, which decision shall
become final and executory after the lapse of fifteen (15) days from the date of
receipt of a copy of the decision by the appellant. 

In the exercise of its appellate jurisdiction, the Central Board of Assessment Appeals,
or upon express authority, the Hearing Commissioner, shall have the power to
summon witnesses, administer oaths, take depositions, and
issue subpoenas and subpoenas duces tecum. 

The Central Board of assessment Appeals shall adopt and promulgate rules of
procedure relative to the conduct of its business.

Simply stated, within sixty days from the date of receipt of the, written notice of assessment, any
owner who doubts the assessment of his property, may appeal to the Local Board of Assessment
Appeals. In case the, owner or administrator of the property or the assessor is not satisfied with the
decision of the Local Board of Assessment Appeals, he may, within thirty days from the receipt of
the decision, appeal to the Central Board of Assessment Appeals. The decision of the Central Board
of Assessment Appeals shall become final and executory after the lapse of fifteen days from the
date of receipt of the decision. 

Chavez argues further that the unreasonable increase in real property taxes brought about by
Executive Order No. 73 amounts to a confiscation of property repugnant to the constitutional
guarantee of due process, invoking the cases of Ermita-Malate Hotel, et al. v. Mayor of Manila (G.R.
No. L-24693, July 31, 1967, 20 SCRA 849) and Sison v. Ancheta, et al. (G.R. No. 59431, July 25,
1984, 130 SCRA 654). 
The reliance on these two cases is certainly misplaced because the due process requirement called
for therein applies to the "power to tax." Executive Order No. 73 does not impose new taxes nor
increase taxes. 

Indeed, the government recognized the financial burden to the taxpayers that will result from an
increase in real property taxes. Hence, Executive Order No. 1019 was issued on April 18, 1985,
deferring the implementation of the increase in real property taxes resulting from the revised real
property assessments, from January 1, 1985 to January 1, 1988. Section 5 thereof is quoted herein
as follows: 

SEC. 5. The increase in real property taxes resulting from the revised real property
assessments as provided for under Section 21 of Presidential Decree No. 464, as
amended by Presidential Decree No. 1621, shall be collected beginning January 1,
1988 instead of January 1, 1985 in order to enable the Ministry of Finance and the
Ministry of Local Government to establish the new systems of tax collection and
assessment provided herein and in order to alleviate the condition of the people,
including real property owners, as a result of temporary economic
difficulties. (emphasis supplied) 

The issuance of Executive Order No. 73 which changed the date of implementation of the increase
in real property taxes from January 1, 1988 to January 1, 1987 and therefore repealed Executive
Order No. 1019, also finds ample justification in its "whereas' clauses, as follows: 

WHEREAS, the collection of real property taxes based on the 1984 real property
values was deferred to take effect on January 1, 1988 instead of January 1,
1985, thus depriving the local government units of an additional source of revenue; 

WHEREAS, there is an urgent need for local governments to augment their financial
resources to meet the rising cost of rendering effective services to the
people; (emphasis supplied) 

xxx xxx xxx

The other allegation of ROAP that Presidential Decree No. 464 is unconstitutional, is not proper to
be resolved in the present petition. As stated at the outset, the issue here is limited to the
constitutionality of Executive Order No. 73. Intervention is not an independent proceeding, but an
ancillary and supplemental one which, in the nature of things, unless otherwise provided for by
legislation (or Rules of Court), must be in subordination to the main proceeding, and it may be laid
down as a general rule that an intervention is limited to the field of litigation open to the original
parties (59 Am. Jur. 950. Garcia, etc., et al. v. David, et al., 67 Phil. 279). 

We agree with the observation of the Office of the Solicitor General that without Executive Order No.
73, the basis for collection of real property taxes win still be the 1978 revision of property values.
Certainly, to continue collecting real property taxes based on valuations arrived at several years ago,
in disregard of the increases in the value of real properties that have occurred since then, is not in
consonance with a sound tax system. Fiscal adequacy, which is one of the characteristics of a
sound tax system, requires that sources of revenues must be adequate to meet government
expenditures and their variations. 

ACCORDINGLY, the petition and the petition-in-intervention are hereby DISMISSED. 

SO ORDERED.