ART. VI, SEC.

28

125) Southern Cross vs. Philippine Cement (G.R. No. 158540, July 8, 2004)

FACTS:

Petitioner Southern Cross Cement Corporation (Southern Cross) is a domestic corporation

engaged in the business of cement manufacturing, production, importation and exportation.
Private respondent Philippine Cement Manufacturers Corporation (Philcemcor) is an association
of domestic cement manufacturers. DTI accepted an application from Philcemcor, alleging that
the importation of gray Portland cement in increased quantities has caused declines in domestic
production, capacity utilization, market share, sales and employment; as well as caused
depressed local prices. Accordingly, Philcemcor sought the imposition a definitive safeguard
measures on the import of cement pursuant to the Safeguard Measures Act.

The Tariff Commission received a request from the DTI for a formal investigation to determine
whether or not to impose a definitive safeguard measure on imports of gray Portland cement

Tariff Commission’s report: 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.

After reviewing the report, then DTI Secretary Manuel Roxas II (DTI Secretary) disagreed with
the conclusion of the Tariff Commission that there was no serious injury to the local cement
industry caused by the surge of imports. In view of this disagreement, the DTI requested an
opinion from the Department of Justice (DOJ) on the DTI Secretarys scope of options in acting
on the Commission’s recommendations.

Subsequently, then DOJ Secretary Hernando Perez rendered an opinion stating that Section 13
of the SMA precluded a review by the DTI Secretary of the Tariff Commissions negative finding,
or finding that a definitive safeguard measure should not be imposed.

DTI then denied application for safeguard measures against the importation of gray Portland
cement

Philcemcor received a copy of the DTI Decision on 12 April 2002. Ten days later, it filed with the
Court of Appeals a Petition for Certiorari, Prohibition and Mandamus seeking to set aside the
DTI Decision, as well as the Tariff Commissions Report. On the other hand, Southern Cross
filed its Comment arguing that the Court of Appeals had no jurisdiction over Philcemcors
Petition, for it is on the Court of Tax Appeals (CTA) that the SMA conferred jurisdiction to review
rulings of the Secretary in connection with the imposition of a safeguard measure.
ISSUE:

Whether or not the DTI Secretary is barred from imposing a general safeguard measure absent
a final determination rendered by the Tariff Commission?

RULING:

Yes, absent a final determination rendered by the Tariff Commission, the DTI secretary is
barred from imposing a general safeguard measure.

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.

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.

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
WorldTrade 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.

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.

126) Loan Association vs. Topeka (20 Wall. 655, 664 (US 1975)

1. A statute which authorizes towns to contract debts or other obligations payable in money
implies the duty to levy taxes to pay them unless some other fund or source of payment is
provided.

2. If there is no power in the legislature which passed such a statute to authorize the levy of
taxes in aid of the purpose for which the obligation is to be contracted, the statute is void, and
so are the bonds or other forms of contract based on the statute.

3. There is no such thing in the theory of our governments, state and national, as unlimited
power in any of their branches. The executive, the legislative, and the judicial departments are
all of limited and defined powers.

4. There are limitations of such powers which arise out of the essential nature of all free
governments; implied reservations of individual rights, without which the social compact could
not exist, and which are respected by all governments entitled to the name.

5. Among these is the limitation of the right of taxation, that it can only be used in aid of a public
object, an object which is within the purpose for which governments are established.
6. It cannot, therefore, be exercised in aid of enterprises strictly private, for the benefit of
individuals, though in a remote or collateral way the local public may be benefited thereby.

7. Though the line which distinguishes the public use for which taxes may be assessed from the
private use for which they may not, is not always easy to discern, yet it is the duty of the courts,
where the case falls clearly within the latter class, to interpose when properly called on for the
protection of the rights of the citizen, and aid to prevent his private property from being
unlawfully appropriated to the use of others.

8. A statute which authorizes a town to issue its bonds in aid of the manufacturing enterprise of
individuals is void, because the taxes necessary to pay the bonds would, if collected, be a
transfer of the property of individuals to aid in the projects of gain and profit of others, and not
for a public use, in the proper sense of that term.

9. And in a suit brought on such bonds or the interest coupons attached thereon, they are
properly declared void.

10. The fact that the town authorities paid one installment of interest on the bonds, by means of
a levy of taxes, does not alter the case. It works no estoppel.

The Citizens' Savings and Loan Association of Cleveland brought their action in the court below,
against the City of Topeka, on coupons for interest attached to bonds of the City of Topeka.

The bonds on their face purported to be payable to the King Wrought-Iron Bridge Manufacturing
and Iron-Works Company, of Topeka, to aid and encourage that company in establishing and
operating bridge shops in said City of Topeka, under and in pursuance of section twenty-six of
an act of the Legislature of the State of Kansas, entitled "An act to incorporate cities of the
second class," approved February 29, 1872; and also of another

"Act to authorize cities and counties to issue bonds for the purpose of building bridges, aiding
railroads, water power, or other works of internal improvement,"

The city issued one hundred of these bonds for $1,000 each, as a donation (and so it was
stated in the declaration), to encourage that company in its design of establishing a manufactory
of iron bridges in that city.

The declaration also alleged that the interest coupons first due were paid out of a fund raised by
taxation for that purpose, and that after this payment the plaintiff became the purchaser of the
bonds and the coupons on which suit was brought, for value.

A demurrer was interposed by the City of Topeka to this declaration.

The section of the Act of February 29, on which the main reliance was placed for the authority to
issue these bonds, reads as follows:

"SECTION 76. The council shall have power to encourage the establishment of manufactories
and such other enterprises as may tend to develop and improve such city, either by direct
appropriation from the general fund or by the issuance of bonds of such city in such amounts as
the council may determine, provided that no greater amount than one thousand dollars shall be
granted for any one purpose, unless a majority of the votes cast at an election called for that
purpose shall authorize the same. The bonds thus issued shall be made payable at any time
within twenty years, and bear interest not exceeding ten percent per annum."

It was conceded that the steps required by this act prerequisite as to issuing the bonds were
regular, as were also the other details, and that the language of the statute was sufficient to
justify the action of the city authorities, if the statute was within the constitutional competency of
the legislature.

The single question, therefore, for consideration raised by the demurrer was the authority of the
legislature of the State of Kansas to enact this part of the statute.

The court below denied the authority, placing the denial on two grounds:

1st. That this part of the statute violated the fifth section of Article XII of the Constitution of the
State of Kansas, a section in these words:

"SECTION 5. Provision shall be made by general law for the organization of cities, towns, and
villages; and their power of taxation, assessment, borrowing money, contracting debts, and
loaning their credit, shall be so restricted as to prevent the abuse of such power."

[The argument here was that the section of the Act of February 29, 1872, conferring the power
to issue bonds contained no restriction as to the amount which the city might issue to aid
manufacturing enterprises, and that the failure of the legislature to limit and restrict the power so
as to prevent abuse, violated the fifth section of Article XII of the constitution above referred to.]

2nd. That the act authorized the towns and other municipalities to which it applied, by issuing
bonds or lending its credit, to take the property of the citizen under the guise of taxation to pay
these bonds, and use it in aid of the enterprises of others which were not of a public character;
that this was a perversion of the right of taxation, which could only be exercised for a public use,
to the aid of individual interests and personal purposes of profit and gain.

The court below accordingly, sustaining the demurrer, gave judgment in favor of the defendant,
the City of Topeka, and to its judgment this writ of error was taken.

ART. XIV, SEC. 4 (3)

(3) All revenues and assets of non-stock, non-profit educational institutions used actually,
directly, and exclusively for educational purposes shall be exempt from taxes and duties. Upon
the dissolution or cessation of the corporate existence of such institutions, their assets shall be
disposed of in the manner provided by law.
Proprietary educational institutions, including those cooperatively owned, may likewise be
entitled to such exemptions, subject to the limitations provided by law, including restrictions on
dividends and provisions for reinvestment.

ART. X, SEC. 5

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

127) Icard vs. City of Baguio [(83 Phil 870 (1940)]

FACTS:

The City of Baguio has enacted the following ordinances:

1. No. 6-v, providing among other things for an amusement tax ofP0.20 for every person
entering a night club licensed to do business in the city;

2. No. 11-V, providing for a property tax on motor vehicles kept and operated in the city; and

3. No. 12-V, imposing a graduated license fee on every admission ticket sold by enterprises
enumerated in said ordinance among them, cinematographs.

Petitioner, a resident of the City of Baguio is holder of a municipal license for the
operation of a night club called "El Club Monaco. As such, he has to pay to the
National Government an amusement tax on its total gross receipts under section 260 of the
Internal Revenue Code, and to the City of Baguio the annual license fee provided for in said
Ordinance No. 6-V. But in addition to said amusement tax and license fee, he has also
been required to pay the amusement tax imposed in that same ordinance which he paid under
protest.

As owner of a six-passenger automobile for private use a Chevrolet Ford or Sedan

kept and operated in the City of Baguio, heal ready paid registration fee under the Revised
Motor Vehicle Law, but pursuant to Ordinance No. 11-V of said city he would also have to pay in
addition an annual property tax on the same automobile. He contends that the
ordinances above mentioned are unjust and ultra vires.

The lower court ruled in favor of petitioner.

ISSUE:

Whether or not municipal corporations have an inherent power of taxation?

Whether or not the City of Baguio is empowered to levy a property tax on motor and an
amusement tax on night clubs?

PROVISIONS SUBJECT TO STATUTORY CONSTRUCTION:

Section 2553 (b) of the Revised Administrative Code

City of Baguio Ordinances:

No. 6-v, providing among other things for an amusement tax of PO.20 for every person entering
a night club licensed to do business in the city

Section 260 of the Internal Revenue Code

No. 11-Y, providing for a property fax on motor vehicles kept and operated in the city

Section 70 (b) of the Revised Motor Vehicle Law

RULING:

No. The Court concluded that that Ordinance No. 6-V, in so far as it provides for an amusement
tax of PO.20 for each person entering a night club, and Ordinance No. 11-V, which provides for
a property tax on motor vehicles, should be declared illegal and void as beyond the authority of
the City of Baguio to enact.

 It is settled that a municipal corporation unlike a sovereign state is clothed with no

inherent power of taxation. The charter or statute must plainly show intent to confer that
power. Any doubt or ambiguity [off that power must be resolved against the municipality.
Inferences, implications, deductions.. have no place in the interpretation of the taxing
power of a municipal corporation.

No. The City of Baguio may not levy taxes as it pleases, but only as the Legislature may
specifically provide. No specific provision in the charter of that city empowering it to levy such
taxes. The absence of a similar express grant in the case of the city of Baguio is proof that the
power to levy those taxes has been intentionally withheld from it.

RATIO DECIDENDI:

Principle: The power of a municipal corporation to tax, in order to exist, must be granted
expressly, never impliedly or inferentially. The power, when granted, is to be construed
in strictissimi juris.
Ratio Decidendi Notes:

On amusement tax:

 The Charter of the City of Manila contains specific provision naming the subject on which
the said may levy taxes and the argument is made that the absence of such specific
provision from the Charter of the City of Baguio is indicative of the legislative intent to
grant the latter city the general power of taxation.

On municipal property tax:

 The wording of the proviso obviously refers to a tax lawfully imposed so that the City of
Baguio may not collect the tax in the absence of a specific legal provision authorizing it
to do so.

**** No It is settled that a municipal corporation unlike a sovereign state is clothed with no
inherent power of taxation. The charter or statute must plainly show an intent to confer that
power or the municipality, cannot assume it. And the power when granted is to be construed
instrictissimi juris. Any doubt or ambiguity, that power must be resolved against the
municipality. In this case, there is no legal provision authorizing its levy by the City of Baguio.
Thus, it is our conclusion that Ordinance No. 6-V, in so far as it provides for an amusement tax
of P0.20 for each person entering a night club, and Ordinance No. 11-V, which provides for a
property tax on motor vehicles, should be declared illegal and void as beyond the authority of
the City of Baguio to enact.

128) Manila Electric Co. vs. Province of Laguna (G.R. No. 131359, May 5, 1999)

FACTS:

On various dates, certain municipalities of the Province of Laguna, including, Biñan, Sta. Rosa,
San Pedro, Luisiana, Calauan and Cabuyao, by virtue of existing laws then in effect, issued
resolutions through their respective municipal councils granting franchise in favor of the Manila
Electric Company (Meralco) for the supply of electric light, heat and power within their
concerned areas. On 19 January 1983, Meralco was likewise granted a franchise by the
National Electrification Administration to operate an electric light and power service in the
Municipality of Calamba, Laguna.

On 12 September 1991, Republic Act 7160 (1991 Local Government Code [LGC]) was enacted
to take effect on 1 January 1992 enjoining local government units to create their own sources of
revenue and to levy taxes, fees and charges, subject to the limitations expressed therein,
consistent with the basic policy of local autonomy. Pursuant to the provisions of the Code,
Laguna enacted Provincial Ordinance 01-92, effective 1 January 1993, which provided a
Franchise Tax (Section 2.09).
On the basis of the ordinance, Provincial Treasurer sent a demand letter to Meralco for the
corresponding tax payment. Meralco paid the tax under protest.

A formal claim for refund was thereafter sent by Meralco to the Provincial Treasurer of Laguna
claiming that the franchise tax it had paid and continued to pay to the National Government
pursuant to PD 551 (Section 1) already included the franchise tax imposed by the Provincial Tax
Ordinance.

On 28 August 1995, the claim for refund of Meralco was denied in a letter signed by Governor
Lina. In denying the claim, the province relied on a more recent law, RA 7160 (1991 LGC), than
the old decree invoked by Meralco (PD 551).

On 14 February 1996, Meralco filed with the Regional Trial Court (RTC) of Sta. Cruz, Laguna, a
complaint for refund, with a prayer for the issuance of a writ of preliminary injunction and/or
TRO, against the Province of Laguna and Balazo in his capacity as the Provincial Treasurer of
Laguna.

The trial court, in its assailed decision of 30 September 1997, dismissed the complaint and
declared the ordinance valid, binding, reasonable, and enforceable. Hence, the petition.

RULING:

The Supreme Court ruled in favor of the Province of Laguna.

RATIO: Local governments do not have the inherent power to tax except to the extent
that such power might be delegated to them either by the basic law or by statute.

Presently, under Article X of the 1987 Constitution, a general delegation of that power has been
given in favor of local government units. Where there is neither a grant nor a prohibition by
statute, the tax power must be deemed to exist although Congress may provide statutory
limitations and guidelines.

The basic rationale for the current rule is to safeguard the viability and self-sufficiency of local
government units by directly granting them general and broad tax powers.

---------------------------------------

No, the local governments do not have the inherent power to tax except to the extent that such
power might be delegated to them either by the basic law or by statute.

Presently, under Article X of the 1987 Constitution, a general delegation of that power has been
given in favor of local government units.

Under the now prevailing Constitution, where there is neither a grant nor a prohibition by
statute, the tax power must be deemed to exist although Congress may provide statutory
limitations and guidelines.
The basic rationale for the current rule is to safeguard the viability and self-sufficiency of local
government units by directly granting them general and broad tax powers. Nevertheless, the
fundamental law did not intend the delegation to be absolute and unconditional; the
constitutional objective obviously is to ensure that, while the local government units are being
strengthened and made more autonomous, the legislature must still see to it that:

(a) The taxpayer will not be over-burdened or saddled with multiple and unreasonable
impositions;

(b) Each local government unit will have its fair share of available resources;

(c) The resources of the national government will not be unduly disturbed; and

(d) Local taxation will be fair, uniform, and just.

The Local Government Code of 1991 has incorporated and adopted, by and large, the
provisions of the now repealed Local Tax Code. The Local Government Code explicitly
authorizes provincial governments, notwithstanding “any exemption granted by any law or other
special law, . . . (to) impose a tax on businesses enjoying a franchise.” Indicative of the
legislative intent to carry out the Constitutional mandate of vesting broad tax powers to local
government units, the Local Government Code has effectively withdrawn under Section 193
thereof, tax exemptions or incentives theretofore enjoyed by certain entities. The Code, in
addition, contains a general repealing which all general and special laws, acts, city charters,
decrees, executive orders, proclamations and administrative regulations, or part or parts thereof
which are inconsistent with any of the provisions of this Code are hereby repealed or modified
accordingly. These policy considerations are consistent with the State policy to ensure
autonomy to local governments and the objective of the LGC that they enjoy genuine and
meaningful local autonomy to enable them to attain their fullest development as self-reliant
communities and make them effective partners in the attainment of national goals. The power to
tax is the most effective instrument to raise needed revenues to finance and support myriad
activities if 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. It
may also be relevant to recall that the original reasons for the withdrawal of tax exemption
privileges granted to government-owned and 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 similarity situated enterprises, and there was a need for these entities to share
in the requirements of development, fiscal or otherwise, by paying the taxes and other charges
due from them.

While the Court has, not too infrequently, referred to tax exemptions contained in special
franchises as being in the nature of contracts and a part of the inducement for carrying on the
franchise, these exemptions, nevertheless, are far from being strictly contractual in nature.
Contractual tax exemptions, in the real sense of the term and where the non-impairment clause
of the Constitution can rightly be invoked, are those agreed to by the taxing authority in
contracts, such as those contained in government bonds or debentures, lawfully entered into by
them under enabling laws in which the government, acting in its private capacity, sheds its cloak
of authority and waives its governmental immunity. Truly, tax exemptions of this kind may not be
revoked without impairing the obligations of contracts. 14 These contractual tax exemptions,
however, are not to be confused with tax exemptions granted under franchises. A franchise
partakes the nature of a grant which is beyond the purview of the non-impairment clause of the
Constitution.

Indeed, Article XII, Section 11, of the 1987 Constitution, like its precursor provisions in the 1935
and the 1973 Constitutions, is explicit that no franchise for the operation of a public utility shall
be granted except under the condition that such privilege shall be subject to amendment,
alteration or repeal by Congress as and when the common good so requires.

129) Smart Communications vs. City of Davao (G.R. No. 155491, September 16,
2008)

FACTS:

On February 18, 2002, Smart filed a special civil action for declaratory relief3for the
ascertainment of its rights and obligations under the Tax Code of the City of Davao (DAVAO).

The tax being imposed is a tax on businesses enjoying a franchise, at the rate of seventy-five
percent of one percent of the gross annual receipts for the preceding calendar year based on
the income or receipts realized within the territorial jurisdiction of Davao City.

Among the objections raised by Smart were:

a. The issuance of its franchise under RA No. 7294, which is subsequent to RA 7160 (Local
Government Code) shows the clear legislative intent to exempt it from the provisions of RA
7160

b. Sec. 137 of the LGC is meant to apply to exemptions already existing at the time of its
effectivity and not to future exemption

c. The power of the City of Davao to impose a franchise tax is subject to statutory limitation such
as the “in lieu of all taxes” clause found in RA 7294

d. The imposition of franchise tax by the City of Davao would amount to a violation of the
constitutional provision against impairment of contract.

Davao, however, invoked the power granted by the Constitution to local government units (LGU)
to create their own sources of revenue.

The RTC held a decision in favor of Davao stating that the ambiguity in RA 7294 regarding “in
lieu of all taxes” must be resolved against the taxpayer. Tax exemptions are construed in
strictly against the taxpayer and liberally in favor of the taxing authority.
 The RTC also held that there was no violation of the non-impairment clause of the Constitution
since the power to tax is based not merely on a valid delegation of legislative power but on the
direct authority granted to it by the fundamental law. It added that while such power may be
subject to restrictions or conditions imposed by Congress, any such legislative limitation must
be consistent with the basic policy of local autonomy.

ISSUE:

Whether Smart is liable to pay the franchise tax imposed by the City of Davao- YES

HELD:

1. Smart alleges that the “in lieu of all taxes” clause of its franchise exempts it from all taxes,
both local and national, except the national franchise tax (now VAT), income tax and real
property tax. The uncertainty in the “in lieu of all taxes” clause in RA No. 7294 on whether Smart
is exempted from both local and national franchise tax must be construed strictly against Smart
which claims exemption. Smart has the burden of providing that, aside from the imposed 3%
franchise tax, Congress intended it to be exempt from all kinds of franchise taxes-whether local
or national. Smart, failed in this regard.

2. Tax exemptions can only be given force if they are clear and categorical. If Congress
intended Smart to be exempted from municipal and provincial taxes, it could have used the
same language as the Clavecilla franchise which stated: “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 the grantee is hereby expressly exempted. The interpretation
of the franchise granted to Smart is that it refers only to national and not to local taxes.

3. Smart also claims that the clause “in lieu of all taxes” is in the nature of tax exclusion and not
a tax exemption.

The distinction between the two:

 Tax Exemption- This means that the taxpayer does not pay any tax at all. An exemption
is an immunity or privilege, it is the freedom from a charge or burden to which others are
subjected.

 Tax Exclusion- The removal of otherwise taxable items from the reach of taxation
e.g exclusions from gross income and allowable deductions.

Exclusion is also an immunity or privilege which frees a taxpayer from a charge to which
others are subjected. The rule that a tax exemption should be applied strictly against the
taxpayer and liberally in favor of the government applies equally to tax exclusion. Smart pays
VAT, income tax and real property tax. Thus, what it enjoys it more accurately tax exclusion.

4. Smart posits that the franchise of GLOBE contains a provision exempting it from municipal or
local franchise tax, and that Smart should like benefit by these. In granting the franchise of
GLOBE under RA No. 7925, Congress did not intend it to operate as a blanket tax exemption to
all telecommunications entities. GLOBE pays only 1.5% of its gross receipts in lieu of any and
all taxes of any kind, nature or description levies, established or collected by any authority
whatsoever, municipal, provincial or national. This grant to GLOBE is clear and categorical. No
such provision is found in the franchise of Smart, the kind of tax from which it is exempted is not
clearly specified.

5. If the contention of Smart is to be followed. The Government will be burdened of having to

keep track of all granted telecommunications franchises, lest some companies be treated
unequally. It is different if Congress enacts a law specifically granting uniform advantages,
favor, privilege, exemption or immunity to all telecommunication entities.

6. Smart likewise claims a violation of the non-impairment clause since the franchise is in the
nature of the contract between the government and Smart. Smart’s franchise was granted with
the express condition that it is subject to amendment, alteration or repeal.

 As held in Tolentino vs. Secretary of Finance: “Existing laws are read into contracts in
order to fix obligations as between parties, the reservation of essential attributes of
sovereign power is also read into contracts as a basic postulate of the legal order. The
policy of protecting contracts against impairment presupposes the maintenance of a
government which retains adequate authority to secure the peace and good order of
society.

In truth, the Contract Clause was never been though as a limitation on the exercise of the
State’s power of taxation save only where a tax exemption has been granted for a valid
consideration xxx.”

Dispositive: Wherefore, the instant petition is denied for lack of merit. Costs against petitioner.

130) Petron vs. Mayor (G.R. No. 158881, April 16, 2008)

FACTS:

The present Petition for Review on Certiorari under Rule 45 filed by petitioner Petron Corp.
directly assails the Decision of the RTC of Malabon. As the issues raised are pure questions of
law, we need not dwell on the facts at length.

“While local government units are authorized to burden all such other class of goods with “taxes,
fees and charges,” excepting excise taxes, a specific prohibition is imposed barring the levying
of any other type of taxes with respect to petroleum products”.

In accordance to the New Navotas Revenue Code or Ordinance 92-03, petitioner Petron
Corporation was assessed a total tax of P6,259,087.62. Petron filed a letter protest arguing that
it is exempt from paying local business taxes as provided by Article 232 (h) of the Implementing
Rules of the Local Government Code. The letter-protest was denied. A Complaint for
Cancellation of Assessment was filed before the Regional Trial Court (RTC) of Malabon. The
RTC dismissed the Complaint and required Petron to pay the assessed tax. A Motion for
Reconsideration was filed but it was later denied by the court. Hence, the filing of this petition.

ISSUE:

Whether or not a local government unit is empowered under the Local Government Code (LGC)
to impose business taxes on persons or entities engaged in the sale of petroleum products.

HELD:

Petition GRANTED.

Section 133(h) of the LGC reads as follows:

Sec.133. Common Limitations on the Taxing Powers of Local Government Units. - Unless
otherwise provided herein, the exercise of the taxing powers of provinces, cities, municipalities,
and Barangays shall not extend to the levy of the following:

(h) Excise taxes on articles enumerated under the National Internal Revenue Code, as
amended, and taxes, fees or charges on petroleum products;

Evidently, Section 133 prescribes the limitations on the capacity of local government units to
exercise their taxing powers otherwise granted to them under the LGC. Apparently, paragraph
(h) of the Section mentions two kinds of taxes which cannot be imposed by local government
units, namely: “excise taxes on articles enumerated under the National Internal Revenue Code
[(NIRC)], as amended;” and “taxes, fees or charges on petroleum products.”

The power of a municipality to impose business taxes is provided for in Section 143 of the LGC.
Under the provision, a municipality is authorized to impose business taxes on a whole host of
business activities. Suffice it to say, unless there is another provision of law which states
otherwise, Section 143, broad in scope as it is, would undoubtedly cover the business of selling
diesel fuels, or any other petroleum product for that matter.

Section 133(h) provides two kinds of taxes which cannot be imposed by local government units:
“excise taxes on articles enumerated” under the NIRC, as amended; and “taxes, fees or
charges on petroleum products.” There is no doubt that among the excise taxes on articles
enumerated under the NIRC are those levied on petroleum products, per Section 148 of the
NIRC.

The power of a municipality to impose business taxes derives from Section 143 of the Code that
specifically enumerates several types of business on which it may impose taxes, including
manufacturers, wholesalers, distributors, dealers of any article of commerce of whatever nature;
those engaged in the export or commerce of essential commodities; retailers; contractors and
other independent contractors; banks and financial institutions; and peddlers engaged in the
sale of any merchandise or article of commerce. This obviously broad power is further
supplemented by paragraph (h) of Section 143 which authorizes the sanggunian to impose
taxes on any other businesses not otherwise specified under Section 143 which the sanggunian
concerned may deem proper to tax.

This ability of local government units to impose business or other local taxes is ultimately rooted
in the 1987 Constitution. Section 5, Article X assures that “[e]ach local government unit
shall have the power to create its own sources of revenues and to levy taxes, fees and
charges,” though the power is “subject to such guidelines and limitations as the
Congress may provide.”

There is no doubt that following the 1987 Constitution and the Code, the fiscal autonomy of local
government units has received greater affirmation than ever. Previous decisions that have been
skeptical of the viability, if not the wisdom of reposing fiscal autonomy to local government units
have fallen by the wayside.

Section 5(a) of the Code states that “[a]ny provision on a power of a local government unit shall
be liberally interpreted in its favor, and in case of doubt, any question thereon shall be resolved
in favor of devolution of powers and of the lower local government unit.” But somewhat
conversely, Section 5(b) then proceeds to assert that “[i]n case of doubt, any tax ordinance or
revenue measure shall be construed strictly against the local government unit enacting it, and
liberally in favor of the taxpayer.” And this latter qualification has to be respected as a
constitutionally authorized limitation which Congress has seen fit to provide. Evidently, local
fiscal autonomy should not necessarily translate into abject deference to the power of local
government units to impose taxes.

Section 133(h) states that local government units “shall not extend to the levy of xxx taxes, fees
or charges on petroleum products.” Respondents assert that the phrase “taxes, fees or charges
on petroleum products” pertains to the imposition of direct or excise taxes on petroleum
products, and not business taxes. If the phrase actually pertains to excise taxes, then it would
be an exercise in utter redundancy, since the preceding phrase already prohibits the imposition
of excise taxes on articles already subject to such taxes under the NIRC, such as petroleum
products. There would be no sense on the part of the legislature to twice emphasize in the same
sentence that excise taxes on petroleum products are beyond the pale of local government
taxation.
TAX EXEMPTIONS

131)Abra Valley College vs. Aquino [162 SCRA 106 (1988)]

FACTS:

Petitioner, an educational corporation and institution of higher learning duly incorporated with
the Securities and Exchange Commission in 1948, filed a complaint to annul and declare void
the Notice of Seizure‘ and the .Notice of Sale of its lot and building located at Bangued, Abra,
for non-payment of real estate taxes and penalties amounting to P5,140.31. Said Notice of
Seizure by respondents Municipal Treasurer and Provincial Treasurer, defendants below, was
issued for the satisfaction of the said taxes thereon.

The parties entered into a stipulation of facts adopted and embodied by the trial court in its
questioned decision. The trial court ruled for the government, holding that the second floor of
the building is being used by the director for residential purposes and that the ground floor used
and rented by Northern Marketing Corporation, a commercial establishment, and thus the
property is not being used exclusively for educational purposes.

Instead of perfecting an appeal, petitioner availed of the instant petition for review on certiorari
with prayer for preliminary injunction before the Supreme Court, by filing said petition on 17
August 1974.

ISSUE:

Whether or not the lot and building are used exclusively for educational purposes.

HELD:

NO.

Section 22, paragraph 3, Article VI, of the then 1935 Philippine Constitution, expressly grants
exemption from realty taxes for:

Cemeteries, churches and parsonages or convents appurtenant thereto, and all lands,
buildings, and improvements used exclusively for religious, charitable or educational purposes.

Reasonable emphasis has always been made that the exemption extends to facilities which are
incidental to and reasonably necessary for the accomplishment of the main purposes. The use
of the school building or lot for commercial purposes is neither contemplated by law, nor by
jurisprudence.
In the case at bar, the lease of the first floor of the building to the Northern Marketing
Corporation cannot by any stretch of the imagination be considered incidental to the purpose of
education. The test of exemption from taxation is the use of the property for purposes
mentioned in the Constitution.

The decision of the CFI Abra (Branch I) is affirmed subject to the modification that half of the
assessed tax be returned to the petitioner. The modification is derived from the fact that the
ground floor is being used for commercial purposes (leased) and the second floor being used as
incidental to education (residence of the director).

132) Central Mindanao University vs. DAR (G.R. No. 100091, October 22, 1993)

FACTS:

Central Mindanao University (CMU) is an agricultural university. From its beginning,

CMU was the answer to the crying need for training people in order to develop the agricultural
potential of the island of Mindanao. Those who planned and established the school had a vision
as to the future development of that part of the Philippines.

Then Pres. Carlos Garcia issued Proclamation No. 476, withdrawing from sale or settlement
and reserving for the Mindanao Agricultural College, a site which would be the future campus of
what is now the CMU.

In the course of the cadastral hearing of the school's petition for registration of the
aforementioned grant of agricultural land, several tribes belonging to cultural communities,
opposed the petition claiming ownership of certain ancestral lands forming part of the tribal
reservations. Some of the claims were granted so that what was titled to the present petitioner
school was reduced from 3,401 hectares to 3,080 hectares.

It was 1984, the CMU approved Resolution No. 160, adopting a livelihood program
called"Kilusang Sariling Sikap Program" under which the land resources of the school were
leased to its faculty and employees. Under this program the faculty and staff combine
themselves to groups of five members each, and the CMU provided technical know-how,
practical training and all kinds of assistance, to enable each group to cultivate 4 to 5 hectares of
land for the lowland rice project. Each group pays the University a service fee and also a land
use participant's fee. The contract prohibits participants and their hired workers to establish
houses or live in the project area and to use the cultivated land as a collateral for any kind of
loan. It was expressly stipulated that no landlord-tenant relationship existed between the CMU
and the faculty and/or employees. This particular program was conceived as a multi-disciplinary
applied research extension and productivity program to utilize available land, train people in
modern agricultural technology and at the same time give the faculty and staff opportunities
within the confines of the CMU reservation to earn additional income to augment their salaries.
RULING:

The education of the youth and agrarian reform are admittedly among the highest priorities in
the government socio-economic programs. In this case, neither need give way to the other.
Certainly, there must still be vast tracts of agricultural land in Mindanao outside the CMU land
reservation which can be made available to landless peasants, assuming the claimants here, or
some of them, can qualify as CARP beneficiaries. To our mind, the taking of the CMU land
which had been segregated for educational purposes for distribution to yet uncertain
beneficiaries is a gross misinterpretation of the authority and jurisdiction granted by law to the
DARAB.

The decision in this case is of far-reaching significance as far as it concerns state colleges
and universities whose resources and research facilities may be gradually eroded by
misconstruing the exemptions from the CARP. These state colleges and universities are the
main vehicles for our scientific and technological advancement in the field of agriculture, so vital
to the existence, growth and development of this country.

It is the opinion of this Court, in the light of the foregoing analysis and for the reasons
indicated, that the evidence is sufficient to sustain a finding of grave abuse of discretion by
respondent’s Court of Appeals and DAR Adjudication Board.

We hereby declare the decision of the DARAB dated September 4, 1989 and the decision of
the Court of Appeals dated August 20, 1990, affirming the decision of the quasi-judicial body, as
null and void and hereby order that they be set aside, with costs against the private
respondents.

Also, the 400 hectares ordered segregated by the DARAB is not covered by the CARP
because:

1. It is not alienable and disposable land of the public domain;

2. The CMU land reservation is not in excess of specific limits as determined by Congress;

3. It is private land registered and titled in the name of its lawful owner, the CMU;

4. It is exempt from coverage under Section 10 of R.A. 6657 because the lands are actually,
directly and exclusively used and found to be necessary for school site and campus, including
experimental farm stations for educational purposes, and for establishing seed and seedling
research and pilot production centers.
 133) Province of Abra vs. Hernando [107 SCRA 104 (1981)]

FACTS:

The real properties of the Roman Catholic Bishop of Banqued, Inc. sought to be taxed by the
Province of Abra. Hence, the latter filed a petition for declaratory, relief contending that the said
real properties are used "actually, directly and exclusively" as sources of support of the parish
priest and his helpers and also of private respondent Bishop, thus, said properties shall be
exempted from payment of real estate taxes. The respondent Judge Hernando granted the
exemption without hearing the side of petitioner.

The petitioner them filed a motion to dismiss but the same was denied, hence, this present
petition for certiorari and mandamus alleging denial of procedural due process.

ISSUE:

Whether or not the properties of the church (in this case) is exempt from taxes.

HELD:

No, they are not tax exempt. It is true that the Constitution provides that “charitable institutions,
mosques, and non-profit cemeteries” are required that for the exemption of “lands, buildings,
and improvements,” they should not only be “exclusively” but also “actually” and “directly” used
for religious or charitable purposes. The exemption from taxation is not favored and is never
presumed, so that if granted it must be strictly construed against the taxpayer. However, in this
case, there is no showing that the said properties are actually and directly used for
religious or charitable uses.

"No, the above mentioned real properties are not tax exempt. It has been the constant and
uniform holding that exemption from taxation is not favored and is never presumed, so that if
granted it must be strictly construed against the taxpayer. Affirmatively put the low frowns on
exemption from taxation, hence, an exempting provision should be construed strictissimi juris."
However, in this case, there is no showing that the said properties are actually and directly used
for religious or charitable uses.

COURT RATIONALE ON THE ABOVE FACTS

Under the 1935 Constitution

"Cemeteries, churches, and parsonages or convents appurtenant thereto, and all lands,
buildings and improvements used exclusively for religious, charitable, or educational purposes
shall be exempt from taxation."

The present Constitution

- added.

-"charitable institutions, mosques, and non-profit cemeteries* and required that for the
exemption of

"Lands, buildings, and improvements," they should not only be "exclusively" but also "actually
and "directly" used for religious or charitable purposes. The Constitution is worded differently,

The change should not be ignored.

it must be duly taken into consideration. Reliance on past decisions would have sufficed were
the words "actually" as well as "directly" riot added. There must be proof therefore of the actual
and direct use of the lands, buildings, and improvements for religious or charitable purposes to
be exempt from taxation.

Under Article VI, Section 22, paragraph 3 of the 1935 Constitution:

"Cemeteries, churches, and parsonages or convents appurtenant thereto, and all lands,
building, and improvements used exclusively for religious, charitable, or educational purposes
shall be exempt from taxation."

The present Constitution (Article VIII, Section 17, paragraph 3) added

"Charitable institutions, mosques, and non-profit cemeteries" and required that for the
exemption of "lands, buildings, and improvements," they should not only be "exclusively" but
also "actually" and "directly" used for religious or charitable purposes.

The Constitution is worded differently. The change should not be ignored. It must be duly taken
into consideration. Petitioner Province of Abra is therefore fully justified in invoking the
protection of procedural due process. If there is any case where proof is necessary to
demonstrate that there is compliance with the constitutional provision that allows an exemption,
this is it. Instead, respondent Judge accepted at its face the allegation of private respondent.

All that was alleged in the petition for declaratory relief filed by private respondents, after
mentioning certain parcels of land owned by it, are that they are used "actually, directly and
exclusively" as sources of support of the parish priest and his helpers and also of private
respondent Bishop.

In the motion to dismiss filed on behalf of petitioner Province of Abra, the objection was based
primarily on the lack of jurisdiction, as the validity of a tax assessment may be questioned
before the Local Board of Assessment Appeals and not with a court. There was also mention of
a lack of a cause of action, but only because, in its view, declaratory relief is not proper, as there
had been breach or violation of the right of government to assess and collect taxes on such
property. It clearly appears, therefore, that in failing to accord a hearing to petitioner Province of
Abra and deciding the case immediately in favor of private respondent, respondent Judge failed
to abide by the constitutional command of procedural due process.
134)Bishop of Nueva Segovia vs. Provincial Board [51 Phil. 352 (1927)]

135)CIR vs. Bishop of the Missionary District of the Philippine Islands (14 SCRA 991)

136)Lladoc vs. CIR [14 SCRA 292 (1965)]

137)American Bible Society vs. City of Manila [101 Phil. 386 (1957)]

138)CIR vs. CA (G.R. No. 124043, October 14, 1998)