G.R. No. 125704 August 28, 1998 PHILEX MINING CORPORATION, petitioner, vs.

COMMISSIONER OF INTERNAL REVENUE, COURT OF APPEALS, and THE COURT OF TAX APPEALS, respondents.

ROMERO, J.: Petitioner Philex Mining Corp. assails the decision of the Court of Appeals promulgated on April 8, 1996 1 in CA-G.R. SP No. 36975 affirming the Court of Tax Appeals decision in CTA Case No. 4872 dated 2 March 16, 1995 ordering it to pay the amount of P110,677,668.52 as excise tax liability for the period from the 2nd quarter of 1991 to the 2nd quarter of 1992 plus 20% annual interest from August 6, 1994 until fully paid pursuant to Sections 248 and 249 of the Tax Code of 1977. The facts show that on August 5, 1992, the BIR sent a letter to Philex asking it to settle its tax liabilities for the 2nd, 3rd and 4th quarter of 1991 as well as the 1st and 2nd quarter of 1992 in the total amount of P123,821.982.52 computed as follows:
PERIOD COVERED BASIC TAX 25% SURCHARGE INTEREST TOTAL EXCISE TAX DUE 2nd Qtr., 1991 12,911,124.60 3,227,781.15 3,378,116.16 19,517,021.91 3rd Qtr., 1991 14,994,749.21 3,748,687.30 2,978,409.09 21,721,845.60 4th Qtr., 1991 19,406,480.13 4,851,620.03 2,631,837.72 26,889,937.88 47,312,353.94 11,828,088.48 8,988,362.97 68,128,805.39 1st Qtr., 1992 23,341,849.94 5,835,462.49 1,710,669.82 30,887,982.25 2nd Qtr., 1992 19,671,691.76 4,917,922.94 215,580.18 24,805,194.88 43,013,541.70 10,753,385.43 1,926,250.00 55,693,177.13 90,325,895.64 22,581,473.91 10,914,612.97 123,821,982.52 ========= ========= ========= =========
3

In a letter dated August 20, 1992, Philex protested the demand for payment of the tax liabilities stating that it has pending claims for VAT input credit/refund for the taxes it paid for the years 1989 to 1991 in the amount of P119,977,037.02 plus interest. Therefore these claims for tax credit/refund should be applied

against the tax liabilities, citing our ruling in Commissioner of Internal Revenue v. Itogon-Suyoc Mines, 5 Inc. In reply, the BIR, in a letter dated September 7, 1992, found no merit in Philex's position. Since these pending claims have not yet been established or determined with certainty, it follows that no legal compensation can take place. Hence, the BIR reiterated its demand that Philex settle the amount plus interest within 30 days from the receipt of the letter. In view of the BIR's denial of the offsetting of Philex's claim for VAT input credit/refund against its excise 7 tax obligation, Philex raised the issue to the Court of Tax Appeals on November 6, 1992. In the course of the proceedings, the BIR issued Tax Credit Certificate SN 001795 in the amount of P13,144,313.88 which, applied to the total tax liabilities of Philex of P123,821,982.52; effectively lowered the latter's tax obligation to P110,677,688.52. Despite the reduction of its tax liabilities, the CTA still ordered Philex to pay the remaining balance of P110,677,688.52 plus interest, elucidating its reason, to wit:
Thus, for legal compensation to take place, both obligations must be liquidated and demandable. "Liquidated" debts are those where the exact amount has already been determined (PARAS, Civil Code of the Philippines, Annotated, Vol. IV, Ninth Edition, p. 259). In the instant case, the claims of the Petitioner for VAT refund is still pending litigation, and still has to be determined by this Court (C.T.A. Case No. 4707). A fortiori, the liquidated debt of the Petitioner to the government cannot, therefore, be set-off against the unliquidated claim which Petitioner conceived to exist in its favor 8 (see Compaia General de Tabacos vs. French and Unson, No. 14027, November 8, 1918, 39 Phil. 34).
6

Moreover, the Court of Tax Appeals ruled that "taxes cannot be subject to set-off on compensation since 9 10 claim for taxes is not a debt or contract." The dispositive portion of the CTA decision provides:
In all the foregoing, this Petition for Review is hereby DENIED for lack of merit and Petitioner is hereby ORDERED to PAY the Respondent the amount of P110,677,668.52 representing excise tax liability for the period from the 2nd quarter of 1991 to the 2nd quarter of 1992 plus 20% annual interest from August 6, 1994 until fully paid pursuant to Section 248 and 249 of the Tax Code, as amended.

Aggrieved with the decision, Philex appealed the case before the Court of Appeals docketed as CA-GR. 11 CV No. 36975. Nonetheless, on April 8, 1996, the Court of Appeals a Affirmed the Court of Tax 12 Appeals observation. The pertinent portion of which reads:
WHEREFORE, the appeal by way of petition for review is hereby DISMISSED and the decision dated March 16, 1995 is AFFIRMED.

Philex filed a motion for reconsideration which was, nevertheless, denied in a Resolution dated July 11, 13 1996. However, a few days after the denial of its motion for reconsideration, Philex was able to obtain its VAT input credit/refund not only for the taxable year 1989 to 1991 but also for 1992 and 1994, computed as 14 follows:
Period Covered Tax Credit Date By Claims For Certificate of VAT refund/credit Number Issue Amount 1994 (2nd Quarter) 007730 11 July 1996 P25,317,534.01 1994 (4th Quarter) 007731 11 July 1996 P21,791,020.61 1989 007732 11 July 1996 P37,322,799.19

1990-1991 007751 16 July 1996 P84,662,787.46 1992 (1st-3rd Quarter) 007755 23 July 1996 P36,501,147.95

In view of the grant of its VAT input credit/refund, Philex now contends that the same should, ipso jure, 15 off-set its excise tax liabilities since both had already become "due and demandable, as well as fully 16 liquidated;" hence, legal compensation can properly take place. We see no merit in this contention. In several instances prior to the instant case, we have already made the pronouncement that taxes cannot be subject to compensation for the simple reason that the government and the taxpayer are not 17 creditors and debtors of each other. There is a material distinction between a tax and debt. Debts are due to the Government in its corporate capacity, while taxes are due to the Government in its sovereign 18 capacity. We find no cogent reason to deviate from the aforementioned distinction. Prescinding from this premise, in Francia v. Intermediate Appellate Court, taxes cannot be subject to set-off or compensation, thus:
19

we categorically held that

We have consistently ruled that there can be no off-setting of taxes against the claims that the taxpayer may have against the government. A person cannot refuse to pay a tax on the ground that the government owes him an amount equal to or greater than the tax being collected. The collection of a tax cannot await the results of a lawsuit against the government.

The ruling in Francia has been applied to the subsequent case of Caltex Philippines, Inc. v. Commission 20 on Audit, which reiterated that:
. . . a taxpayer may not offset taxes due from the claims that he may have against the government. Taxes cannot be the subject of compensation because the government and taxpayer are not mutually creditors and debtors of each other and a claim for taxes is not such a debt, demand, contract or judgment as is allowed to be set-off.

Further, Philex's reliance on our holding in Commissioner of Internal Revenue v. Itogon-Suyoc Mines Inc., wherein we ruled that a pending refund may be set off against an existing tax liability even though the 21 refund has not yet been approved by the Commissioner, is no longer without any support in statutory law. It is important to note, that the premise of our ruling in the aforementioned case was anchored on Section 51 (d) of the National Revenue Code of 1939. However, when the National Internal Revenue Code of 1977 was enacted, the same provision upon which the Itogon-Suyoc pronouncement was based was 22 omitted. Accordingly, the doctrine enunciated in Itogon-Suyoc cannot be invoked by Philex. Despite the foregoing rulings clearly adverse to Philex's position, it asserts that the imposition of surcharge and interest for the non-payment of the excise taxes within the time prescribed was unjustified. Philex posits the theory that it had no obligation to pay the excise tax liabilities within the prescribed 23 period since, after all, it still has pending claims for VAT input credit/refund with BIR. We fail to see the logic of Philex's claim for this is an outright disregard of the basic principle in tax law that taxes are the lifeblood of the government and so should be collected without unnecessary hindrance. 24 Evidently, to countenance Philex's whimsical reason would render ineffective our tax collection system. Too simplistic, it finds no support in law or in jurisprudence. To be sure, we cannot allow Philex to refuse the payment of its tax liabilities on the ground that it has a pending tax claim for refund or credit against the government which has not yet been granted. It must be 25 noted that a distinguishing feature of a tax is that it is compulsory rather than a matter of bargain. 26 Hence, a tax does not depend upon the consent of the taxpayer. If any taxpayer can defer the payment

of taxes by raising the defense that it still has a pending claim for refund or credit, this would adversely affect the government revenue system. A taxpayer cannot refuse to pay his taxes when they fall due simply because he has a claim against the government or that the collection of the tax is contingent on 27 the result of the lawsuit it filed against the government. Moreover, Philex's theory that would automatically apply its VAT input credit/refund against its tax liabilities can easily give rise to confusion and abuse, depriving the government of authority over the manner by which taxpayers credit and offset their tax liabilities. Corollarily, the fact that Philex has pending claims for VAT input claim/refund with the government is immaterial for the imposition of charges and penalties prescribed under Section 248 and 249 of the Tax Code of 1977. The payment of the surcharge is mandatory and the BIR is not vested with any authority to 28 29 waive the collection thereof. The same cannot be condoned for flimsy reasons, similar to the one advanced by Philex in justifying its non-payment of its tax liabilities. Finally, Philex asserts that the BIR violated Section 106 (e) of the National Internal Revenue Code of 31 1977, which requires the refund of input taxes within 60 days, when it took five years for the latter to 32 grant its tax claim for VAT input credit/refund. In this regard, we agree with Philex. While there is no dispute that a claimant has the burden of proof to 33 establish the factual basis of his or her claim for tax credit or refund, however, once the claimant has submitted all the required documents it is the function of the BIR to assess these documents with purposeful dispatch. After all, since taxpayers owe honestly to government it is but just that government 34 render fair service to the taxpayers. In the instant case, the VAT input taxes were paid between 1989 to 1991 but the refund of these erroneously paid taxes was only granted in 1996. Obviously, had the BIR been more diligent and judicious with their duty, it could have granted the refund earlier. We need not remind the BIR that simple 35 justice requires the speedy refund of wrongly-held taxes. Fair dealing and nothing less, is expected by the taxpayer from the BIR in the latter's discharge of its function. As aptly held in Roxas v. Court of Tax 36 Appeals:
The power of taxation is sometimes called also the power to destroy. Therefore it should be exercised with caution to minimize injury to the proprietary rights of a taxpayer. It must be exercised fairly, equally and uniformly, lest the tax collector kill the "hen that lays the golden egg" And, in order to maintain the general public's trust and confidence in the Government this power must be used justly and not treacherously.
30

Despite our concern with the lethargic manner by which the BIR handled Philex's tax claim, it is a settled rule that in the performance of governmental function, the State is not bound by the neglect of its agents 37 and officers. Nowhere is this more true than in the field of taxation. Again, while we understand Philex's predicament, it must be stressed that the same is not a valid reason for the non-payment of its tax liabilities. To be sure, this is not to state that the taxpayer is devoid of remedy against public servants or employees, especially BIR examiners who, in investigating tax claims are seen to drag their feet needlessly. First, if the BIR takes time in acting upon the taxpayer's claim for refund, the latter can seek 38 judicial remedy before the Court of Tax Appeals in the manner prescribed by law. Second, if the inaction can be characterized as willful neglect of duty, then recourse under the Civil Code and the Tax Code can also be availed of. Art. 27 of the Civil Code provides:
Art. 27. Any person suffering material or moral loss because a public servant or employee refuses or neglects, without just cause, to perform his official duty may file an action for damages and other relief against the latter, without prejudice to any disciplinary action that may be taken.

More importantly, Section 269 (c) of the National Internal Revenue Act of 1997 states:
xxx xxx xxx (c) Wilfully neglecting to give receipts, as by law required for any sum collected in the performance of duty or wilfully neglecting to perform, any other duties enjoyed by law.

Simply put, both provisions abhor official inaction, willful neglect and unreasonable delay in the 39 performance of official duties. In no uncertain terms must we stress that every public employee or servant must strive to render service to the people with utmost diligence and efficiency. Insolence and delay have no place in government service. The BIR, being the government collecting arm, must and should do no less. It simply cannot be apathetic and laggard in rendering service to the taxpayer if it wishes to remain true to its mission of hastening the country's development. We take judicial notice of the taxpayer's generally negative perception towards the BIR; hence, it is up to the latter to prove its detractors wrong. In sum, while we can never condone the BIR's apparent callousness in performing its duties, still, the same cannot justify Philex's non-payment of its tax liabilities. The adage "no one should take the law into his own hands" should have guided Philex's action. WHEREFORE, in view of the foregoing, the instant petition is hereby DISMISSED. The assailed decision of the Court of Appeals dated April 8, 1996 is hereby AFFIRMED. SO ORDERED.

ATLAS CONSOLIDATED MINING AND DEVELOPMENT CORPORATION, Petitioner,

G.R. No. 159490

Present:

QUISUMBING, J., Chairperson, CARPIO, - versus CARPIO MORALES, TINGA, and VELASCO, JR., JJ.

COMMISSIONER OF INTERNAL REVENUE,

Promulgated:

Respondent.

February 18, 2008

x-----------------------------------------------------------------------------------------x

DECISION

VELASCO, JR., J.: The Case

Before us is a Petition for Review on Certiorari under Rule 45 assailing the May 16, 2003 Decision1[1] of the Court of Appeals (CA) in CA-G.R. SP No. 46494, which affirmed the October 13, 1997 Decision2[2] of the Court of Tax Appeals (CTA) in CTA Case No. 5205 entitled Atlas Consolidated Mining and Development Corporation (Atlas) v. The Commissioner of Internal Revenue (CIR), involving petitioner Atlas application for issuance of tax credit certificate or refund of value-added tax (VAT) payments in accordance with Section 106(b) of the Tax Code on zero-rated VAT payers. Also assailed is the August 11, 2003 Resolution3[3] of the CA denying Atlas motion for reconsideration.

The Facts

Atlas is a corporation duly organized and existing under Philippine laws engaged in the production of copper concentrates for export. It registered as a VAT entity and was issued VAT Registration Certificate No. 32-0-004622 effective August 15, 1990.

For the first quarter of 1993, Atlas export sales amounted to

PhP

642,685,032.24. Its proceeds were received in acceptable foreign currency and inwardly remitted in accordance with Central Bank regulations. For the same period, Atlas paid PhP 7,907,662.53 for input taxes, as follows:

Local Importation Total

PhP 7,117,222.53 790,440.00 PhP 7,907,662.53

Thereafter, Atlas filed a VAT return for the first quarter of 1993 with the Bureau of Internal Revenue (BIR) on April 20, 1993, and also filed an amended VAT return.

On September 20, 1993, Atlas applied with the BIR for the issuance of a tax credit certificate or refund under Section 106(b) of the Tax Code. The certificate would represent the VAT it paid for the first quarter of 1993 in the amount of PhP 7,907,662.53, which corresponded to the input taxes not applied against any output VAT.

Atlas then filed a petition for review with the CTA on February 22, 1995 to prevent the running of the prescriptive period under Sec. 230 of the Tax Code.

The Ruling of the Court of Tax Appeals

The petition for review before the CTA was docketed as CTA Case No. 5205. On October 13, 1997, the CTA rendered a Decision denying Atlas claim for tax credit or refund. The fallo reads:

WHEREFORE, in the light of all the foregoing, [Atlas] claim for issuance of tax credit certificate or refund of value-added taxes for the first quarter of 1993 is hereby DENIED for insufficiency of evidence. No pronouncement as to costs. SO ORDERED.4[4]

We note that respondent CIR filed his May 24, 1995 Answer asserting that Atlas has the burden of proving erroneous or illegal payment of the tax being claimed for refund, as claims for refund are strictly construed against the taxpayer. However, the CIR did not present any evidence before the CTA nor file a memorandum, thus constraining the CTA to resolve the case before it solely on the basis of the evidence presented by Atlas.

In denying Atlas claim for tax credit or refund, the CTA held that Atlas failed to present sufficient evidence to warrant the grant of tax credit or refund for the alleged input taxes paid by Atlas. Relying on Revenue Regulation No. (RR) 388 which was issued to implement the then VAT law and list the documents to be submitted in actions for refunds or tax credits of input taxes in export sales, it found that the documents submitted by Atlas did not comply with said regulation. It pointed out that Atlas failed to submit photocopies of export documents, invoices, or receipts evidencing the sale of goods and others. Moreover, the Certification by Atlas bank, Hongkong Shanghai Banking Corporation, did not

indicate any conversion rate for US dollars to pesos. Thus, the CTA could not ascertain the veracity of the contents indicated in Atlas VAT return as export sales and creditable or refundable input VAT.

Atlas timely filed its Motion for Reconsideration of the above decision contending that it relied on Sec. 106 of the Tax Code which merely required proof that the foreign exchange proceeds has been accounted for in accordance with the regulations of the Central Bank of the Philippines. Consequently, Atlas asserted that the documents it presented, coupled with the testimony of its Accounting and Finance Manager, Isabel Espeno, sufficiently proved its case. It argued that RR 388 was issued for claims for refund of input VAT to be processed by the BIR, that is, for administrative claims, and not for judicial claims as in the present case. Anyhow, Atlas prayed for a re-trial, even as it admitted that it has committed a mistake or excusable negligence when the CTA ruled that RR 3-88 should be the one applied for Atlas to submit the basis required under the regulation.

Atlas motion for reconsideration was rejected by the CTA through its January 5, 1998 Resolution, ruling that it is within its discretion to ascertain the veracity of the claims for refund which must be strictly construed against Atlas. Moreover, it also rejected Atlas prayer for a re-trial under Sec. 2 of Rule 37 of the Rules of Court, as Atlas failed to submit the required affidavits of merits.

The Ruling of the Court of Appeals

On Atlas appeal, the CA denied and dismissed Atlas petition on the ground of insufficiency of evidence to support Atlas action for tax credit or refund. Thus, through its May 16, 2003 Decision, the CA sustained the CTA; and consequently denied Atlas motion for reconsideration.

The CA ratiocinated that the CTA cannot be faulted in denying Atlas action for tax credit or refund, and in denying Atlas prayer for a new trial. The CA concurred with the CTA in the finding that Atlas failure to submit the required documents in accordance with RR 3-88 is fatal to Atlas action, for, without these documents, Atlas VAT export sales indicated in its amended VAT return and the creditable or refundable input VAT could not be ascertained. The CA struck down Atlas contention that it has sufficiently established the existence of its export sales through the testimony of its Accounting and Finance Manager, as her testimony is not required under RR 3-88 and is self-serving.

Also, the CA rejected Atlas assertion that RR 3-88 is applicable only to administrative claims and not to a judicial proceeding, since it is clear under Sec. 245 (now Sec. 244 of the NIRC) that [t]he Secretary of Finance, upon the recommendation of the Commissioner, shall promulgate all needful rules and regulations for the effective enforcement of the provisions of this Code. Thus, according to the CA, RR 3-88 implementing the VAT law is applicable to judicial

proceedings as this Court held in Eslao v. COA that administrative policies enacted by administrative bodies to interpret the law have the force of law and are entitled to great weight.5[5] The CA likewise agreed with the CTA in denying a new trial for Atlas failure to attach the necessary affidavits of merits required under the rules.

The Issues

Hence, the instant petition of Atlas raising the following grounds for our consideration:

A. In rendering the assailed Decision and Resolution, the Court of Appeals failed to decide this matter in accordance with law or with the applicable decisions of the Supreme Court.

B. In rendering the assailed Decision and Resolution the Court of Appeals is guilty of grave abuse of discretion amounting to a lack or excess of jurisdiction when it violated Atlas right to due process and sanctioned a similar error from the Court of Tax Appeals (CTA), calling for the exercise of this Honorable Courts power of supervision.6[6]

The foregoing issues can be simplified as follows: first, whether Atlas has sufficiently proven entitlement to a tax credit or refund; and second, whether Atlas should have been accorded a new trial.

The Courts Ruling

The petition has no merit.

First Issue: Atlas failed to show sufficient proof

Consistent with its position before the courts a quo, Atlas argues that the requirements under RR 3-88 are only applicable in administrative claims for refunds before the BIR and not for judicial claims, as in the instant case. And that it is CTA Circular No. 1-95, as amended by CTA Circular No. 10-97, which applies and which Atlas asserts it has complied with. It contends that CTA Circular No. 10-97, being the later law, is deemed to have qualified RR 3-88. Thus, it contends that what is only required is a submission of a summary of the invoices and a certification from an independent public accountant.

We are not persuaded.

First, we reiterate the prevailing rule that the findings of fact of the CA are generally conclusive and binding and the Court need not pass upon the supporting evidence. For, it is not this Courts function to analyze or weigh evidence all over again.7[7] Stated a bit differently, the CAs findings of fact affirming those of the trial court will not be disturbed by the Court.8[8] This is as it should be for the trial court, as trier of facts, is best equipped to make the assessment of issues raised and evidence adduced before it. Therefore, its factual findings are generally not disturbed on appeal unless it is perceived to have overlooked, misunderstood, or misinterpreted certain facts or circumstances of weight, which, if properly considered, would affect the result of the case and warrant a reversal of the decision involved. In the instant case, we find no cogent reason to depart from this general principle.

Second, the Rules of Court, which is suppletory in quasi-judicial proceedings, particularly Sec. 349[9] of Rule 132, Revised Rules on Evidence, is clear that no evidence which has not been formally offered shall be considered. Thus, where the pertinent invoices or receipts purportedly evidencing the VAT

paid by Atlas were not submitted, the courts a quo evidently could not determine the veracity of the input VAT Atlas has paid. Moreover, when Atlas likewise failed to submit pertinent export documents to prove actual export sales with due certification from accredited banks on the export proceeds in foreign currency with the corresponding conversion rate into Philippine currency, the courts a quo likewise could not determine the veracity of the export sales as indicated in Atlas amended VAT return.

It must be noted that the most competent evidence must be adduced and presented to prove the allegations in a complaint, petition, or protest before a judicial court. And where the best evidence cannot be submitted, secondary evidence may be presented. In the instant case, the pertinent documents which are the best pieces of evidence were not presented.

Third, the summary presented by Atlas does not replace the pertinent invoices, receipts, and export sales documents as competent evidence to prove the fact of refundable or creditable input VAT. Indeed, the summary presented with the certification by an independent Certified Public Accountant (CPA) and the testimony of Atlas Accounting and Finance Manager are merely corroborative of the actual input VAT it paid and the actual export sales. Otherwise, the pertinent invoices, receipts, and export sales documents are the best and competent pieces of evidence required to substantiate Atlas claim for tax credit or refund which is merely corroborated by the summary duly certified by a CPA and the testimony of

Atlas employee on the export sales. And when these pertinent documents are not presented, these could not be corroborated as is true in the instant case.

Fourth, Atlas mere allegations of the figures in its amended VAT return for the first quarter of 1993 as well as in its petition before the CTA are not sufficient proof of the amount of its refund entitlement. They do not even constitute evidence10[10] adverse to CIR against whom they are being presented.11[11] While Atlas indeed submitted several documents, still, the CTA could not ascertain from them the veracity of the figures as the documents presented by Atlas were not sufficient to prove its action for tax credit or refund. Atlas has failed to meet the burden of proof required in order to establish the factual basis of its claim for a tax credit or refund. Neither can we ascertain the veracity of Atlas alleged input VAT taxes which are refundable nor the alleged actual export sales indicated in the amended VAT return.

Clearly, it would not be proper to allow Atlas to simply prevail and compel a tax credit or refund in the amount it claims without proving the amount of its claim. After all, [t]ax refunds are in the nature of tax exemptions,12[12] and are to be construed strictissimi juris against the taxpayer.

Fifth, it is thus academic whether compliance with the documentary requirements of RR 3-88 is necessary. Suffice it to say that a revenue regulation is binding on the courts as long as the procedure fixed for its promulgation is followed.13[13] It has not been disputed that RR 3-88 has been duly promulgated pursuant to the rule-making power of the Secretary of Finance upon the recommendation of the CIR. As aptly held by the courts a quo, citing Eslao,14[14] these RRs or administrative issuances have the force of law and are entitled to great weight.

Sixth, it would not be amiss to point out that Atlas contention on the applicability of CTA Circular No. 10-97 is misplaced. For one, said circular amended CTA Circular No. 1-95 only in 1997 whereas the proceedings of the

instant case were conducted prior to 1997. In fact, Atlas Formal Offer of Evidence15[15] was filed before the CTA on September 2, 1996. For another, even if said circular is retroactively applied for being procedural, still, it does not afford Atlas relief as the documentary and testimonial pieces of evidence adduced before the CTA are insufficient to prove the claim for refund or tax credit.

Second Issue: No denial of due process

Atlas asserts denial of due process when the courts a quo denied its prayer to be given the opportunity to present the required documents, asserting that the reliance by the courts a quo on Sec. 2 of Rule 37 of the 1997 Revised Rules on Civil Procedure is misplaced as said proviso applies only to a motion for new trial and not to a motion for reconsideration.

We are not convinced.

Clearly, Atlas attempted or showed willingness to submit the required documents only after the CTA rendered its decision. Aside from assailing the applicability of RR 3-88, Atlas argued in its motion for reconsideration before the

CTA that, on the alternative, the case be re-opened to allow it to present the required documents as it followed in good faith the requirement under Sec. 106 of the 1977 Tax Code, and alleged that it has committed a mistake or excusable negligence when the CTA ruled that RR 3-88 should be the one applied requiring Atlas to submit the documents needed.

Obviously, Atlas reliance on Sec. 106 of the 1977 Tax Code is unacceptable for such does not constitute excusable negligence. In short, Atlas is guilty of inexcusable negligence in the prosecution of its case. The courts a quo relied on the procedural deficiency of non-compliance with Sec. 2, Rule 37 of the Rules of Court in denying a new trial. In doing so, the courts a quo recognized Atlas motion for reconsideration also as a motion for new trial, which was alternatively prayed for by Atlas.

Be that as it may, even if Atlas has complied with the affidavits-of-merits requirement, its prayer for a new trial would still not prosper. First, Atlas is guilty of inexcusable negligence in the prosecution of its case. It is duty-bound to ensure that all proofs required under the rules are duly presented. Atlas has indeed repeatedly asserted that in its action for the instant judicial claim, the CTA is bound by its rules and suppletorily by the Rules of Court. It certainly has not exercised the diligence required of a litigant who has the burden of proof to present all that is required. Second, forgotten evidence, not presented during the trial nor formally offered, is not newly found evidence that merits a new trial. Third, and most importantly, it goes against the orderly administration of justice to allow a

party to submit forgotten evidence which it could have offered with the exercise of ordinary diligence, more so when a decision has already been rendered.

In fine, we reiterate our consistent ruling that actions for tax refund, as in the instant case, are in the nature of a claim for exemption and the law is not only construed in strictissimi juris against the taxpayer, but also the pieces of evidence presented entitling a taxpayer to an exemption is strictissimi scrutinized and must be duly proven.

WHEREFORE, we DENY the petition for lack of merit, and AFFIRM the CAs May 16, 2003 Decision and August 11, 2003 Resolution in CA-G.R. SP No. 46494. Costs against petitioner.

SO ORDERED.
G.R. No. L-18994 June 29, 1963

MELECIO R. DOMINGO, as Commissioner of Internal Revenue, petitioner, vs. HON. LORENZO C. GARLITOS, in his capacity as Judge of the Court of First Instance of Leyte, and SIMEONA K. PRICE, as Administratrix of the Intestate Estate of the late Walter Scott Price, respondents. Office of the Solicitor General and Atty. G. H. Mantolino for petitioner. Benedicto and Martinez for respondents. LABRADOR, J.:

This is a petition for certiorari and mandamus against the Judge of the Court of First Instance of Leyte, Ron. Lorenzo C. Garlitos, presiding, seeking to annul certain orders of the court and for an order in this Court directing the respondent court below to execute the judgment in favor of the Government against the estate of Walter Scott Price for internal revenue taxes. It appears that in Melecio R. Domingo vs. Hon. Judge S. C. Moscoso, G.R. No. L-14674, January 30, 1960, this Court declared as final and executory the order for the payment by the estate of the estate and inheritance taxes, charges and penalties, amounting to P40,058.55, issued by the Court of First Instance of Leyte in, special proceedings No. 14 entitled "In the matter of the Intestate Estate of the Late Walter Scott Price." In order to enforce the claims against the estate the fiscal presented a petition dated June 21, 1961, to the court below for the execution of the judgment. The petition was, however, denied by the court which held that the execution is not justifiable as the Government is indebted to the estate under administration in the amount of P262,200. The orders of the court below dated August 20, 1960 and September 28, 1960, respectively, are as follows: Atty. Benedicto submitted a copy of the contract between Mrs. Simeona K. Price, Administratrix of the estate of her late husband Walter Scott Price and Director Zoilo Castrillo of the Bureau of Lands dated September 19, 1956 and acknowledged before Notary Public Salvador V. Esguerra, legal adviser in Malacaang to Executive Secretary De Leon dated December 14, 1956, the note of His Excellency, Pres. Carlos P. Garcia, to Director Castrillo dated August 2, 1958, directing the latter to pay to Mrs. Price the sum ofP368,140.00, and an extract of page 765 of Republic Act No. 2700 appropriating the sum of P262.200.00 for the payment to the Leyte Cadastral Survey, Inc., represented by the administratrix Simeona K. Price, as directed in the above note of the President. Considering these facts, the Court orders that the payment of inheritance taxes in the sum of P40,058.55 due the Collector of Internal Revenue as ordered paid by this Court on July 5, 1960 in accordance with the order of the Supreme Court promulgated July 30, 1960 in G.R. No. L-14674, be deducted from the amount of P262,200.00 due and payable to the Administratrix Simeona K. Price, in this estate, the balance to be paid by the Government to her without further delay. (Order of August 20, 1960) The Court has nothing further to add to its order dated August 20, 1960 and it orders that the payment of the claim of the Collector of Internal Revenue be deferred until the Government shall have paid its accounts to the administratrix herein amounting to P262,200.00. It may not be amiss to repeat that it is only fair for the Government, as a debtor, to its accounts to its citizens-creditors before it can insist in the prompt payment of the latter's account to it, specially taking into consideration that the amount due to the Government draws interests while the credit due to the present state does not accrue any interest. (Order of September 28, 1960) The petition to set aside the above orders of the court below and for the execution of the claim of the Government against the estate must be denied for lack of merit. The ordinary procedure by which to settle claims of indebtedness against the estate of a deceased person, as an inheritance tax, is for the claimant to present a claim before the probate court so that said court may order the

administrator to pay the amount thereof. To such effect is the decision of this Court in Aldamiz vs. Judge of the Court of First Instance of Mindoro, G.R. No. L-2360, Dec. 29, 1949, thus: . . . a writ of execution is not the proper procedure allowed by the Rules of Court for the payment of debts and expenses of administration. The proper procedure is for the court to order the sale of personal estate or the sale or mortgage of real property of the deceased and all debts or expenses of administrator and with the written notice to all the heirs legatees and devisees residing in the Philippines, according to Rule 89, section 3, and Rule 90, section 2. And when sale or mortgage of real estate is to be made, the regulations contained in Rule 90, section 7, should be complied with.1wph1.t Execution may issue only where the devisees, legatees or heirs have entered into possession of their respective portions in the estate prior to settlement and payment of the debts and expenses of administration and it is later ascertained that there are such debts and expenses to be paid, in which case "the court having jurisdiction of the estate may, by order for that purpose, after hearing, settle the amount of their several liabilities, and order how much and in what manner each person shall contribute, and may issue execution if circumstances require" (Rule 89, section 6; see also Rule 74, Section 4; Emphasis supplied.) And this is not the instant case. The legal basis for such a procedure is the fact that in the testate or intestate proceedings to settle the estate of a deceased person, the properties belonging to the estate are under the jurisdiction of the court and such jurisdiction continues until said properties have been distributed among the heirs entitled thereto. During the pendency of the proceedings all the estate is in custodia legis and the proper procedure is not to allow the sheriff, in case of the court judgment, to seize the properties but to ask the court for an order to require the administrator to pay the amount due from the estate and required to be paid. Another ground for denying the petition of the provincial fiscal is the fact that the court having jurisdiction of the estate had found that the claim of the estate against the Government has been recognized and an amount of P262,200 has already been appropriated for the purpose by a corresponding law (Rep. Act No. 2700). Under the above circumstances, both the claim of the Government for inheritance taxes and the claim of the intestate for services rendered have already become overdue and demandable is well as fully liquidated. Compensation, therefore, takes place by operation of law, in accordance with the provisions of Articles 1279 and 1290 of the Civil Code, and both debts are extinguished to the concurrent amount, thus: ART. 1200. When all the requisites mentioned in article 1279 are present, compensation takes effect by operation of law, and extinguished both debts to the concurrent amount, eventhough the creditors and debtors are not aware of the compensation. It is clear, therefore, that the petitioner has no clear right to execute the judgment for taxes against the estate of the deceased Walter Scott Price. Furthermore, the petition for certiorari and mandamus is not the proper remedy for the petitioner. Appeal is the remedy. The petition is, therefore, dismissed, without costs.

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.

We deal first with the procedural question.

The record shows that on January 14, 1965, the private respondent, a domestic corporation engaged in engineering, construction and other allied activities, 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. 1 On January 18, 1965, Algue flied a letter of protest or request for reconsideration, which letter was stamp received on the same day in the office of the petitioner. 2 On March 12, 1965, a warrant of distraint and levy was presented to the private respondent, through its counsel, Atty. Alberto Guevara, Jr., who refused to receive it on the ground of the pending protest. 3 A search of the protest in the dockets of the case proved fruitless. Atty. Guevara produced his file copy and gave a photostat to BIR agent Ramon Reyes, who deferred service of the warrant. 4 On April 7, 1965, Atty. Guevara was finally informed that the BIR 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. 5 Sixteen days later, on April 23, 1965, Algue filed a 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. 7 It is true that as a rule the warrant of distraint and levy is "proof of the finality of the assessment" 8 and renders hopeless a request for reconsideration," 9 being "tantamount to an outright denial thereof and makes the said request deemed rejected." 10 But there is a special circumstance in the case at 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," 11 the protest filed by private respondent was not pro 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 12 but later conformed to the decision of the respondent court rejecting this assertion. 13 In fact, as the said court found, the amount was earned through the 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. 14 Ultimately, after its incorporation largely through the promotion of the said persons, this new corporation purchased the PSEDC properties. 15 For this sale, Algue received as agent a commission of P126,000.00, and it was 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. 17 The Court of Tax Appeals also found, after 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. 19 It should be 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. 20 Admittedly, everything seemed to be informal. This 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. 21 After deducting the said fees, Algue still had a balance of P50,000.00 as clear 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. 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 fees11 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.13 Respondent 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 Order15 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 Order17 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 lawfinds 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. 16592 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)

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 Corporation26 where 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 charges34 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:

(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 property54 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;

(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. 21560 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. 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; Muoz & 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. 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 reexamination 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 portionabout 5 per centumof 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 functionsthe 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 imposedthough called feesare 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. CollectedMonies 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. 591593). 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 onehalf 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. 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 TAADA, 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 ValueAdded 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. TAADA 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. PHILIPPINE COCONUT

G.R. Nos. 177857-58

, PRODUCERS FEDERATION, INC. (COCOFED), MANUEL V. DEL ROSARIO, DOMINGO P. ESPINA, SALVADOR P. BALLARES, JOSELITO A. MORALEDA, PAZ M. YASON,

VICENTE A. CADIZ, CESARIA DE LUNA TITULAR, and RAYMUNDO C. DE VILLA, Petitioners,

- versus -

REPUBLIC OF THE PHILIPPINES, Respondent,

WIGBERTO E. TAADA, OSCAR F. SANTOS, SURIGAO DEL SUR FEDERATION OF AGRICULTURAL COOPERATIVES (SUFAC) and MORO FARMERS ASSOCIATION OF ZAMBOANGA DEL SUR (MOFAZS), represented by ROMEO C. ROYANDOYAN,

Intervenors. x------------------------------------------------x DANILO S. URSUA, G.R. No. 178193 Petitioner,

- versus -

REPUBLIC OF THE PHILIPPINES, Respondent, x------------------------------------------------x

Present:

CORONA, C.J.,

CARPIO,* VELASCO, JR., LEONARDO-DE CASTRO,* BRION,** PERALTA,* BERSAMIN, DEL CASTILLO, ABAD, VILLARAMA, JR., PEREZ, MENDOZA, SERENO, REYES, and PERLAS-BERNABE, JJ.

Promulgated:

January 24, 2012 x-----------------------------------------------------------------------------------------x

DECISION

VELASCO, JR., J.:

The Case

Cast against a similar backdrop, these consolidated petitions for review under Rule 45 of the Rules of Court assail and seek to annul certain issuances of the Sandiganbayan in its Civil Case No. 0033-A entitled, Republic of the Philippines, Plaintiff, v. Eduardo M. Cojuangco, Jr., et al., Defendants, COCOFED, et

al., BALLARES, et al., Class Action Movants, and Civil Case No. 0033-F entitled, Republic of the Philippines, Plaintiff, v. Eduardo M. Cojuangco, Jr., et al., Defendants. Civil Case (CC) Nos. 0033-A and 0033-F are the results of the splitting into eight (8) amended complaints of CC No. 0033 entitled, Republic of the Philippines v. Eduardo Cojuangco, Jr., et al., a suit for recovery of ill-gotten wealth commenced by the Presidential Commission on Good Government (PCGG), for the Republic of the Philippines (Republic), against Ferdinand E. Marcos and several individuals, among them, Ma. Clara Lobregat (Lobregat) and petitioner Danilo S. Ursua (Ursua). Lobregat and Ursua occupied, at one time or another, directorial or top management positions in either the Philippine Coconut Producers Federation, Inc. (COCOFED) or the Philippine Coconut Authority (PCA), or both.16[1] Each of the eight (8) subdivided complaints correspondingly

impleaded as defendants only the alleged participants in the transaction/s subject of the suit, or who are averred as owner/s of the assets involved.

The original complaint, CC No. 0033, as later amended to make the allegations more specific, is described in Republic v. Sandiganbayan17[2] (one of several ill-gotten suits of the same title disposed of by the Court) as revolving around the provisional take over by the PCGG of COCOFED, Cocomark, and Coconut Investment Company and their assets and the sequestration of shares of

stock in United Coconut Planters Bank (UCPB) allegedly owned by, among others, over a million coconut farmers, and the six (6) Coconut Industry Investment Fund (CIIF) corporations,18[3] referred to in some pleadings as CIIF oil mills and the fourteen (14) CIIF holding companies19[4] (hereafter collectively called CIIF companies), so-called for having been either organized, acquired and/or funded as UCPB subsidiaries with the use of the CIIF levy. The basic complaint also contained allegations about the alleged misuse of the coconut levy funds to buy out the majority of the outstanding shares of stock of San Miguel Corporation (SMC).

More particularly, in G.R. Nos. 177857-58, class action petitioners COCOFED and a group of purported coconut farmers and COCOFED members (hereinafter COCOFED et al. collectively)20[5] seek the reversal of the following judgments and resolutions of the anti-graft court insofar as these issuances are adverse to their interests:

1) Partial Summary Judgment21[6] dated July 11, 2003, as reiterated in a resolution22[7] of December 28, 2004, denying COCOFEDs motion for reconsideration, and the May 11, 2007 resolution denying COCOFEDs motion to set case for trial and declaring the partial summary judgment final and appealable,23[8] all issued in Civil Case No. 0033-A; and

2) Partial Summary Judgment24[9] dated May 7, 2004, as also reiterated in a resolution25[10] of December 28, 2004, and the May 11, 2007 resolution26[11] issued in Civil Case No. 0033-F. The December 28, 2004 resolution denied COCOFEDs Class Action Omnibus Motion therein praying to dismiss CC Case No. 0033-F on jurisdictional ground and alternatively, reconsideration and to set case for trial. The May 11, 2007 resolution declared the judgment final and appealable.

For convenience, the partial summary judgment (PSJ) rendered on July 11, 2003 in CC No. 0033-A shall hereinafter be referred to as PSJ-A, and that issued

on May 7, 2004 in CC 0033-F, as PSJ-F. PSJ-A and PSJ-F basically granted the Republics separate motions for summary judgment.

On June 5, 2007, the court a quo issued a Resolution in CC No. 0033-A, which modified PSJ-A by ruling that no further trial is needed on the issue of ownership of the subject properties. Likewise, on May 11, 2007, the said court issued a Resolution in CC No. 0033-F amending PSJ-F in like manner.

On the other hand, petitioner Ursua, in G.R. No. 178193, limits his petition for review on PSJ-A to the extent that it negates his claims over shares of stock in UCPB.

Taada, et al. have intervened27[12] in G.R. Nos. 177857-58 in support of the governments case.

Another petition was filed and docketed as G.R. No. 180705. It involves questions relating to Eduardo M. Cojuangco, Jr.s (Cojuangco, Jr.s) ownership of the UCPB shares, which he allegedly received as option shares, and which is one

of the issues raised in PSJ-A.28[13] G.R. No. 180705 was consolidated with G.R. Nos. 177857-58 and 178193. On September 28, 2011, respondent Republic filed a Motion to Resolve G.R. Nos. 177857-58 and 178193.29[14] On January 17, 2012, the Court issued a Resolution deconsolidating G.R. Nos. 177857-58 and 178193 from G.R. No. 180705. This Decision is therefore separate and distinct from the decision to be rendered in G.R. No. 180705.

The Facts

The relevant facts, as culled from the records and as gathered from Decisions of the Court in a batch of coco levy and illegal wealth cases, are:

In 1971, Republic Act No. (R.A.) 6260 was enacted creating the Coconut Investment Company (CIC) to administer the Coconut Investment Fund (CIF), which, under Section 830[15] thereof, was to be sourced from a PhP 0.55 levy on the sale of every 100 kg. of copra. Of the PhP 0.55 levy of which the copra seller

was, or ought to be, issued COCOFUND receipts, PhP 0.02 was placed at the disposition of COCOFED, the national association of coconut producers declared by the Philippine Coconut Administration (PHILCOA, now PCA31[16]) as having the largest membership.32[17]

The declaration of martial law in September 1972 saw the issuance of several presidential decrees (P.Ds.) purportedly designed to improve the coconut industry through the collection and use of the coconut levy fund. While coming generally from impositions on the first sale of copra, the coconut levy fund came under various names, the different establishing laws and the stated ostensible purpose for the exaction explaining the differing denominations. Charged with the duty of collecting and administering the Fund was PCA.33[18] Like COCOFED with which it had a legal linkage,34[19] the PCA, by statutory provisions scattered in different coco levy decrees, had its share of the coco levy.35[20]

The following were some of the issuances on the coco levy, its collection and utilization, how the proceeds of the levy will be managed and by whom, and the purpose it was supposed to serve: 1. P.D. No. 276 established the Coconut Consumers Stabilization Fund (CCSF) and declared the proceeds of the CCSF levy as trust fund,36[21] to be utilized to subsidize the sale of coconut-based products, thus stabilizing the price of edible oil.37[22]

2. P.D. No. 582 created the Coconut Industry Development Fund (CIDF) to finance the operation of a hybrid coconut seed farm.

3. Then came P.D. No. 755 providing under its Section 1 the following:

It is hereby declared that the policy of the State is to provide readily available credit facilities to the coconut farmers at a preferential rates; that this policy can be expeditiously and efficiently realized by the implementation of the Agreement for the Acquisition of a Commercial Bank for

the benefit of Coconut Farmers executed by the [PCA]; and that the [PCA] is hereby authorized to distribute, for free, the shares of stock of the bank it acquired to the coconut farmers.

Towards achieving the policy thus declared, P.D. No. 755, under its Section 2, authorized PCA to utilize the CCSF and the CIDF collections to acquire a commercial bank and deposit the CCSF levy collections in said bank, interest free, the deposit withdrawable only when the bank has attained a certain level of sufficiency in its equity capital. The same section also decreed that all levies PCA is authorized to collect shall not be considered as special and/or fiduciary funds or form part of the general funds of the government within the contemplation of P.D. No. 711.38[23]

4. P.D. No. 961 codified the various laws relating to the development of coconut/palm oil industries.

5. The relevant provisions of P.D. No. 961, as later amended by P.D. No. 1468 (Revised Coconut Industry Code), read:

ARTICLE III

Levies

Section 1. Coconut Consumers Stabilization Fund Levy. The [PCA] is hereby empowered to impose and collect the Coconut Consumers Stabilization Fund Levy .

Section 5. Exemption. The [CCSF] and the [CIDF] as well as all disbursements as herein authorized, shall not be construed as special and/or fiduciary funds, or as part of the general funds of the national government within the contemplation of PD 711; the intention being that said Fund and the disbursements thereof as herein authorized for the benefit of the coconut farmers shall be owned by them in their private capacities: . (Emphasis supplied.)

6. Letter of Instructions No. (LOI) 926, Series of 1979, made reference to the creation, out of other coco levy funds, of the Coconut Industry Investment Fund (CIIF) in P.D. No. 1468 and entrusted a portion of the CIIF levy to UCPB for investment, on behalf of coconut farmers, in oil mills and other private corporations, with the following equity ownership structure:39[24]

Section 2. Organization of the Cooperative Endeavor. The [UCPB], in its capacity as the investment arm of the coconut farmers thru the *CIIF+ is hereby

directed to invest, on behalf of the coconut farmers, such portion of the CIIF in private corporations under the following guidelines:

a) The coconut farmers shall own or control at least (50%) of the outstanding voting capital stock of the private corporation [acquired] thru the CIIF and/or corporation owned or controlled by the farmers thru the CIIF . (Words in bracket added.)

Through the years, a part of the coconut levy funds went directly or indirectly to various projects and/or was converted into different assets or investments.40[25] Of particular relevance to this case was their use to acquire the First United Bank (FUB), later renamed UCPB, and the acquisition by UCPB, through the CIIF companies, of a large block of SMC shares. 41[26]

Apropos the intended acquisition of a commercial bank for the purpose stated earlier, it would appear that FUB was the bank of choice which the Pedro Cojuangco group (collectively, Pedro Cojuangco) had control of. The plan, then, was for PCA to buy all of Pedro Cojuangcos shares in FUB. However, as later events unfolded, a simple direct sale from the seller (Pedro) to PCA did not ensue

as it was made to appear that Cojuangco, Jr. had the exclusive option to acquire the formers FUB controlling interests. Emerging from this elaborate, circuitous arrangement were two deeds; the first, simply denominated as Agreement,42[27] dated May 1975,43[28] entered into by and between Cojuangco, Jr., for and in his behalf and in behalf of certain other buyers, and Pedro Cojuangco, purportedly accorded Cojuangco, Jr. the option to buy 72.2% of FUBs outstanding capital stock, or 137,866 shares (the option shares, for brevity), at PhP 200 per share.

The second but related contract, dated May 25, 1975, was denominated as Agreement for the Acquisition of a Commercial Bank for the Benefit of the Coconut Farmers of the Philippines.44[29] It had PCA,45[30] for itself and for the benefit of the coconut farmers, purchase from Cojuangco, Jr. the shares of stock subject of the First Agreement for PhP 200 per share. As additional consideration for PCAs buy-out of what Cojuangco, Jr. would later claim to be his exclusive and personal option,46[31] it was stipulated that, from PCA, Cojuangco, Jr. shall

receive equity in FUB amounting to 10%, or 7.22%, of the 72.2%, or fully paid shares.

Apart from the aforementioned 72.2%, PCA purchased from other FUB shareholders 6,534 shares.

While the 64.98% portion of the option shares (72.2% 7.22% = 64.98%) ostensibly pertained to the farmers, the corresponding stock certificates supposedly representing the farmers equity were in the name of and delivered to PCA.47[32] There were, however, shares forming part of the aforesaid 64.98% portion, which ended up in the hands of non-farmers.48[33] The remaining 27.8% of the FUB capital stock were not covered by any of the agreements.

Under paragraph 8 of the second agreement, PCA agreed to expeditiously distribute the FUB shares purchased to such coconut farmers holding registered COCOFUND receipts on equitable basis.

As found by the Sandiganbayan, the PCA appropriated, out of its own fund, an amount for the purchase of the said 72.2% equity, albeit it would later reimburse itself from the coconut levy fund.49[34]

As of June 30, 1975, the list of FUB stockholders shows PCA with 129,955 shares.50[35]

Shortly after the execution of the PCA Cojuangco, Jr. Agreement, President Marcos issued, on July 29, 1975, P.D. No. 755 directing, as earlier narrated, PCA to use the CCSF and CIDF to acquire a commercial bank to provide coco farmers with readily available credit facilities at preferential rate, and PCA to distribute, for free, the bank shares to coconut farmers.

Then came the 1986 EDSA event. One of the priorities of then President Corazon C. Aquinos revolutionary government was the recovery of ill-gotten wealth reportedly amassed by the Marcos family and close relatives, their

nominees and associates. Apropos thereto, she issued Executive Order Nos. (E.Os.) 1, 2 and 14, as amended by E.O. 14-A, all Series of 1986. E.O. 1 created the PCGG and provided it with the tools and processes it may avail of in the recovery efforts;51[36] E.O. No. 2 asserted that the ill-gotten assets and properties come in the form of shares of stocks, etc.; while E.O. No. 14 conferred on the Sandiganbayan exclusive and original jurisdiction over ill-gotten wealth cases, with the proviso that technical rules of procedure and evidence shall not be applied strictly to the civil cases filed under the E.O. Pursuant to these issuances, the PCGG issued numerous orders of sequestration, among which were those handed out, as earlier mentioned, against shares of stock in UCPB purportedly owned by or registered in the names of (a) more than a million coconut farmers and (b) the CIIF companies, including the SMC shares held by the CIIF companies. On July 31, 1987, the PCGG instituted before the Sandiganbayan a recovery suit docketed thereat as CC No. 0033.

After the filing and subsequent amendments of the complaint in CC 0033, Lobregat, COCOFED et al., and Ballares et al., purportedly representing over a million coconut farmers, sought and were allowed to intervene.52[37] Meanwhile, the following incidents/events transpired:

1. On the postulate, inter alia, that its coco-farmer members own at least 51% of the outstanding capital stock of UCPB, the CIIF companies, etc., COCOFED et al., on November 29, 1989, filed Class Action Omnibus Motion praying for the lifting of the orders of sequestration referred to above and for a chance to present evidence to prove the coconut farmers ownership of the UCPB and CIIF shares. The plea to present evidence was denied; 2. Later, the Republic moved for and secured approval of a motion for separate trial which paved the way for the subdivision of the causes of action in CC 0033, each detailing how the assets subject thereof were acquired and the key roles the principal played;

3. Civil Case 0033, pursuant to an order of the Sandiganbayan would be subdivided into eight complaints, docketed as CC 0033-A to CC 0033-H.53[38]

Lobregat, Ballares et al., COCOFED, et al., on the strength of their authority to intervene in CC 0033, continued to participate in CC 0033-A where one of the issues raised was the misuse of the names/identities of the over a million coconut farmers;54[39]

4. On February 23, 2001, Lobregat, COCOFED, Ballares et al., filed a Class Action Omnibus Motion to enjoin the PCGG from voting the sequestered UCPB shares and the SMC shares registered in the names of the CIIF companies. The Sandiganbayan, by Order of February 28, 2001, granted the motion, sending the Republic to come to this Court on certiorari, docketed as G.R. Nos. 147062-64, to annul said order; and

5. By Decision of December 14, 2001, in G.R. Nos. 147062-64 (Republic v. COCOFED), 55[40] the Court declared the coco levy funds as prima facie public funds. And purchased as the sequestered UCPB shares were by such funds, beneficial

ownership thereon and the corollary voting rights prima facie pertain, according to the Court, to the government.

The instant proceedings revolve around CC 0033-A (Re: Anomalous Purchase and Use of [FUB] now [UCPB])56[41] and CC 0033-F (Re: Acquisition of San Miguel Corporation Shares of Stock), the first case pivoting mainly on the series of transactions culminating in the alleged anomalous purchase of 72.2% of FUBs outstanding capital stock and the transfer by PCA of a portion thereof to private individuals. COCOFED, et al. and Ballares, et al. participated in CC No. 0033-A as class action movants.

Petitioners COCOFED et al.57[42] and Ursua58[43] narrate in their petitions how the farmers UCPB shares in question ended up in the possession of those as hereunder indicated:

1) The farmers UCPB shares were originally registered in the name of PCA for the eventual free distribution thereof to and registration in the individual names of the coconut farmers in accordance with PD 755 and the IRR that PCA shall issue;

2) Pursuant to the stock distribution procedures set out in PCA Administrative Order No. 1, s. of 1975, (PCA AO 1),59[44] farmers who had paid to the CIF under RA 6260 and registered their COCOFUND (CIF) receipts with PCA were given their corresponding UCPB stock certificates. As of June 1976, the cut-off date for the extended registration, only 16 million worth of COCOFUND receipts were registered, leaving over 50 million shares undistributed;

3) PCA would later pass Res. 074-78, s. of 1978, to allocate the 50 million undistributed shares to (a) farmers who were already recipients thereof and (b) qualified farmers to be identified by COCOFED after a national census.

4) As of May 1981, some 15.6 million shares were still held by and registered in the name of COCOFED in behalf of coconut farmers for distribution immediately after the completion of the national census, to all those determined by the PCA to be bonafide coconut farmers, but who have not received the bank shares;60[45] and

5) Prior to June 1986, a large number of coconut farmers opted to sell all/part of their UCPB shares below their par value. This prompted the UCPB Board to authorize the CIIF companies to buy these shares. Some 40.34 million common voting shares of UCPB ended up with these CIIF companies albeit initially registered in the name of UCPB.

On the other hand, the subject of CC 0033-F are two (2) blocks of SMC shares of stock, the first referring to shares purchased through and registered in the name of the CIIF holding companies. The purported ownership of the second block of SMC shares is for the nonce irrelevant to the disposition of this case. During the time material, the CIIF block of SMC shares represented 27% of the outstanding capital stock of SMC.

Civil Case No. 0033-A

After the pre-trial, but before the Republic, as plaintiff a quo, could present, as it committed to, a list of UCPB stockholders as of February 25, 1986,61[46] among other evidence, COCOFED, et al., on the premise that the sequestered farmers UCPB shares are not unlawfully acquired assets, filed in April 2001 their Class Action Motion for a Separate Summary Judgment. In it, they prayed for a judgment dismissing the complaint in CC 0033-A, for the reason that the over than a million unimpleaded coconut farmers own the UCPB shares. In March 2002, they filed Class Action Motion for Partial Separate Trial on the issue of whether said UCPB shares have legitimately become the private property of the million coconut farmers.

Correlatively, the Republic, on the strength of the December 14, 2001 ruling in Republic v. COCOFED62[47] and on the argument, among others, that the claim of COCOFED and Ballares et al. over the subject UCPB shares is based solely on the supposed COCOFUND receipts issued for payment of the R.A. 6260 CIF levy, filed a Motion for Partial Summary Judgment [RE: COCOFED, et al. and Ballares, et al.] dated April 22, 2002, praying that a summary judgment be rendered declaring:

a.

That Section 2 of [PD] 755, Section 5, Article III of P.D. 961 and Section 5, Article III of P.D. No. 1468 are unconstitutional;

b. That (CIF) payments under (R.A.) No. 6260 are not valid and legal bases for ownership claims over UCPB shares; and

c.

That COCOFED, et al., and Ballares, et al. have not legally and validly obtained title over the subject UCPB shares.

After an exchange of pleadings, the Republic filed its sur-rejoinder praying that it be conclusively held to be the true and absolute owner of the coconut levy funds and the UCPB shares acquired therefrom.63[48]

A joint hearing on the separate motions for summary judgment to determine what material facts exist with or without controversy followed.64[49] By Order65[50] of March 11, 2003, the Sandiganbayan detailed, based on this Courts ruling in related cases, the parties manifestations made in open court and the pleadings and evidence on record, the facts it found to be without substantial controversy, together with the admissions and/or extent of the admission made by the parties respecting relevant facts, as follows:

As culled from the exhaustive discussions and manifestations of the parties in open court of their respective pleadings and evidence on record, the facts which exist without any substantial controversy are set forth hereunder, together with the admissions and/or the extent or scope of the admissions made by the parties relating to the relevant facts:

1. The late President Ferdinand E. Marcos was President for two terms . . . and, during the second term, declared Martial Law through Proclamation No. 1081 dated September 21, 1972.

2. On January 17, 1973, [he] issued Proclamation No. 1102 announcing the ratification of the 1973 Constitution.

3. From January 17, 1973 to April 7, 1981, [he] . . .exercised the powers and prerogative of President under the 1935 Constitution and the powers and prerogative of President . . . the 1973 Constitution.

*He+ promulgated various [P.D.s], among which were P.D. No. 232, P.D. No. 276, P.D. No. 414, P.D. No. 755, P.D. No. 961 and P.D. No. 1468.

4. On April 17, 1981, amendments to the 1973 Constitution were effected and, on June 30, 1981, [he], after being elected President, reassumed the title and exercised the powers of the President until 25 February 1986. 5. Defendants Maria Clara Lobregat and Jose R. Eleazar, Jr. were *PCA+ Directors during the period 1970 to 1986.

6. Plaintiff admits the existence of the following agreements which are attached as Annexes A and B to the Opposition dated October 10, 2002 of defendant Eduardo M. Cojuangco, Jr. to the above-cited Motion for Partial Summary Judgment:

a) Agreement made and entered into this ______ day of May, 1975 at Makati, Rizal, Philippines, by and between:

PEDRO COJUANGCO, Filipino, x x x, for and in his own behalf and in behalf of certain other stockholders of First United Bank listed in Annex A attached hereto (hereinafter collectively called the SELLERS);

 and

EDUARDO COJUANGCO, JR., Filipino, x x x, represented in this act by his duly authorized attorney-in-fact, EDGARDO J. ANGARA, for and in his own behalf and in behalf of certain other buyers, (hereinafter collectively called the BUYERS);

WITNESSETH: That

WHEREAS, the SELLERS own of record and beneficially a total of 137,866 shares of stock, with a par value of P100.00 each, of the common stock of the First United Bank (the Bank), a commercial banking corporation existing under the laws of the Philippines;

WHEREAS, the BUYERS desire to purchase, and the SELLERS are willing to sell, the aforementioned shares of stock totaling 137,866 shares (hereinafter called the Contract Shares) owned by the SELLERS due to their special relationship to EDUARDO COJUANGCO, JR.;

NOW, THEREFORE, for and in consideration of the premises and the mutual covenants herein contained, the parties agree as follows:

1. Sale and Purchase of Contract Shares

Subject to the terms and conditions of this Agreement, the SELLERS hereby sell, assign, transfer and convey unto the BUYERS, and the BUYERS hereby purchase and acquire, the Contract Shares free and clear of all liens and encumbrances thereon.

2. Contract Price

The purchase price per share of the Contract Shares payable by the BUYERS is P200.00 or an aggregate price of P27,573,200.00 (the Contract Price).

3. Delivery of, and payment for, stock certificates

Upon the execution of this Agreement, (i) the SELLERS shall deliver to the BUYERS the stock certificates representing the Contract Shares, free and clear of all liens, encumbrances, obligations, liabilities and other burdens in favor of the Bank or third parties, duly endorsed in blank or with stock powers sufficient to transfer the shares to bearer; and (ii) BUYERS shall deliver to the SELLERS P27,511,295.50 representing the Contract Price less the amount of stock transfer taxes payable by the SELLERS, which the BUYERS undertake to remit to the appropriate authorities. (Emphasis added.)

4. Representation and Warranties of Sellers

The SELLERS respectively and independently of each other represent and warrant that:

(a) The SELLERS are the lawful owners of, with good marketable title to, the Contract Shares and that (i) the certificates to be delivered pursuant thereto have been validly issued and are fully paid and no-assessable; (ii) the Contract Shares are free and clear of all liens, encumbrances, obligations, liabilities and other burdens in favor of the Bank or third parties

This representation shall survive the execution and delivery of this Agreement and the consummation or transfer hereby contemplated.

(b) The execution, delivery and performance of this Agreement by the SELLERS does not conflict with or constitute any breach of any provision in any agreement to which they are a party or by which they may be bound.

(c) They have complied with the condition set forth in Article X of the Amended Articles of Incorporation of the Bank.

5. Representation of BUYERS .

6. Implementation

The parties hereto hereby agree to execute or cause to be executed such documents and instruments as may be required in order to carry out the intent and purpose of this Agreement.

7. Notices .

IN WITNESS WHEREOF, the parties hereto have hereunto set their hands at the place and on the date first above written.

PEDRO COJUANGCO (on his own behalf and in behalf of the other Sellers listed in Annex A hereof) (SELLERS)

EDUARDO COJUANGCO, JR. (on his own behalf and in behalf of the other Buyers) (BUYERS)

By:

EDGARDO J. ANGARA Attorney-in-Fact

b) Agreement for the Acquisition of a Commercial Bank for the Benefit th of the Coconut Farmers of the Philippines, made and entered into this 25 day of May 1975 at Makati, Rizal, Philippines, by and between:

EDUARDO M. COJUANGCO, JR., x x x, hereinafter referred to as the SELLER;

and

PHILIPPINE COCONUT AUTHORITY, a public corporation created by Presidential Decree No. 232, as amended, for itself and for the benefit of the coconut farmers of the Philippines, (hereinafter called the BUYER)

WITNESSETH: That

WHEREAS, on May 17, 1975, the Philippine Coconut Producers Federation (PCPF), through its Board of Directors, expressed the desire of the coconut farmers to own a commercial bank which will be an effective instrument to solve the perennial credit problems and, for that purpose, passed a resolution requesting the PCA to negotiate with the SELLER for the transfer to the coconut farmers of the SELLERs option to buy the First United Bank (the Bank) under such terms and conditions as BUYER may deem to be in the best interest of the coconut farmers and instructed Mrs. Maria Clara Lobregat to convey such request to the BUYER;

WHEREAS, the PCPF further instructed Mrs. Maria Clara Lobregat to make representations with the BUYER to utilize its funds to finance the purchase of the Bank;

WHEREAS, the SELLER has the exclusive and personal option to buy 144,400 shares (the Option Shares) of the Bank, constituting 72.2% of the

present outstanding shares of stock of the Bank, at the price of P200.00 per share, which option only the SELLER can validly exercise;

WHEREAS, in response to the representations made by the coconut farmers, the BUYER has requested the SELLER to exercise his personal option for the benefit of the coconut farmers;

WHEREAS, the SELLER is willing to transfer the Option Shares to the BUYER at a price equal to his option price of P200 per share;

WHEREAS, recognizing that ownership by the coconut farmers of a commercial bank is a permanent solution to their perennial credit problems, that it will accelerate the growth and development of the coconut industry and that the policy of the state which the BUYER is required to implement is to achieve vertical integration thereof so that coconut farmers will become participants in, and beneficiaries of, the request of PCPF that it acquire a commercial bank to be owned by the coconut farmers and, appropriated, for that purpose, the sum of P150 Million to enable the farmers to buy the Bank and capitalize the Bank to such an extension as to be in a position to adopt a credit policy for the coconut farmers at preferential rates;

WHEREAS, x x x the BUYER is willing to subscribe to additional shares (Subscribed Shares) and place the Bank in a more favorable financial position to extend loans and credit facilities to coconut farmers at preferential rates;

NOW, THEREFORE, for and in consideration of the foregoing premises and the other terms and conditions hereinafter contained, the parties hereby declare and affirm that their principal contractual intent is (1) to ensure that the coconut farmers own at least 60% of the outstanding capital stock of the Bank; and (2) that the SELLER shall receive compensation for exercising his personal and exclusive option to acquire the Option Shares, for transferring such shares to the coconut farmers at the option price of P200 per share, and for performing the management services required of him hereunder.

1. To ensure that the transfer to the coconut farmers of the Option Shares is effected with the least possible delay and to provide for the faithful performance of the obligations of the parties hereunder, the parties hereby

appoint the Philippine National Bank as their escrow agent (the Escrow Agent).

Upon execution of this Agreement, the BUYER shall deposit with the Escrow Agent such amount as may be necessary to implement the terms of this Agreement.

2. As promptly as practicable after execution of this Agreement, the SELLER shall exercise his option to acquire the Option Share and SELLER shall immediately thereafter deliver and turn over to the Escrow Agent such stock certificates as are herein provided to be received from the existing stockholders of the Bank by virtue of the exercise on the aforementioned option.

3. To ensure the stability of the Bank and continuity of management and credit policies to be adopted for the benefit of the coconut farmers, the parties undertake to cause the stockholders and the Board of Directors of the Bank to authorize and approve a management contract between the Bank and the SELLER under the following terms:

(a) The management contract shall be for a period of five (5) years, renewable for another five (5) years by mutual agreement of the SELLER and the Bank;

(b) The SELLER shall be elected President and shall hold office at the pleasure of the Board of Directors. While serving in such capacity, he shall be entitled to such salaries and emoluments as the Board of Directors may determine;

(c) The SELLER shall recruit and develop a professional management team to manage and operate the Bank under the control and supervision of the Board of Directors of the Bank;

(d) The BUYER undertakes to cause three (3) persons designated by the SELLER to be elected to the Board of Directors of the Bank;

(e) The SELLER shall receive no compensation for managing the Bank, other than such salaries or emoluments to which he may be entitled by virtue of the discharge of his function and duties as President, provided and

(f) The management contract may be assigned to a management company owned and controlled by the SELLER.

4. As compensation for exercising his personal and exclusive option to acquire the Option Shares and for transferring such shares to the coconut farmers, as well as for performing the management services required of him, SELLER shall receive equity in the Bank amounting, in the aggregate, to 95,304 fully paid shares in accordance with the procedure set forth in paragraph 6 below;

5. In order to comply with the Central Bank program for increased capitalization of banks and to ensure that the Bank will be in a more favorable financial position to attain its objective to extend to the coconut farmers loans and credit facilities, the BUYER undertakes to subscribe to shares with an aggregate par value of P80,864,000 (the Subscribed Shares). The obligation of the BUYER with respect to the Subscribed Shares shall be as follows:

(a) The BUYER undertakes to subscribe, for the benefit of the coconut farmers, to shares with an aggregate par value of P15,884,000 from the present authorized but unissued shares of the Bank; and

(b) The BUYER undertakes to subscribe, for the benefit of the coconut farmers, to shares with an aggregate par value of P64,980,000 from the increased capital stock of the Bank, which subscriptions shall be deemed made upon the approval by the stockholders of the increase of the authorized capital stock of the Bank from P50 Million to P140 Million.

The parties undertake to declare stock dividends of P8 Million out of the present authorized but unissued capital stock of P30 Million.

6. To carry into effect the agreement of the parties that the SELLER shall receive as his compensation 95,304 shares:

(a) .

(b) With respect to the Subscribed Shares, the BUYER undertakes, in order to prevent the dilution of SELLERs equity position, that it shall cede over to the SELLER 64,980 fully-paid shares out of the Subscribed Shares. Such undertaking shall be complied with in the following manner: .

7. The parties further undertake that the Board of Directors and management of the Bank shall establish and implement a loan policy for the Bank of making available for loans at preferential rates of interest to the coconut farmers .

8. The BUYER shall expeditiously distribute from time to time the shares of the Bank, that shall be held by it for the benefit of the coconut farmers of the Philippines under the provisions of this Agreement, to such, coconut farmers holding registered COCOFUND receipts on such equitable basis as may be determine by the BUYER in its sound discretion.

9. .

10. To ensure that not only existing but future coconut farmers shall be participants in and beneficiaries of the credit policies, and shall be entitled to the benefit of loans and credit facilities to be extended by the Bank to coconut farmers at preferential rates, the shares held by the coconut farmers shall not be entitled to pre-emptive rights with respect to the unissued portion of the authorized capital stock or any increase thereof.

11. After the parties shall have acquired two-thirds (2/3) of the outstanding shares of the Bank, the parties shall call a special stockholders meeting of the Bank:

(a) To classify the present authorized capital stock of P50,000,000 divided into 500,000 shares, with a par value of P100.00 per share into: 361,000 Class A shares, with an aggregate par value of P36,100,000 and 139,000 Class B shares, with an aggregate par value of P13,900,000. All of the Option Shares constituting 72.2% of the outstanding shares, shall be classified as Class A shares and the balance of the outstanding shares, constituting 27.8% of the outstanding shares, as Class B shares;

(b) To amend the articles of incorporation of the Bank to effect the following changes:

(i) change of corporate name to First United Coconut Bank;

(ii) replace the present provision restricting the transferability of the shares with a limitation on ownership by any individual or entity to not more than 10% of the outstanding shares of the Bank;

(iii) provide that the holders of Class A shares shall not be entitled to pre-emptive rights with respect to the unissued portion of the authorized capital stock or any increase thereof; and

(iv) provide that the holders of Class B shares shall be absolutely entitled to pre-emptive rights, with respect to the unissued portion of Class B shares comprising part of the authorized capital stock or any increase thereof, to subscribe to Class B shares in proportion t the subscriptions of Class A shares, and to pay for their subscriptions to Class B shares within a period of five (5) years from the call of the Board of Directors.

(c) To increase the authorized capital stock of the Bank from P50 Million to P140 Million.;

(d) To declare a stock dividend of P8 Million payable to the SELLER, the BUYER and other stockholders of the Bank out of the present authorized but unissued capital stock of P30 Million;

(e) To amend the by-laws of the Bank accordingly; and

(f) To authorize and approve the management contract provided in paragraph 2 above.

The parties agree that they shall vote their shares and take all the necessary corporate action in order to carry into effect the foregoing provisions of this paragraph 11 .

12. It is the contemplation of the parties that the Bank shall achieve a financial and equity position to be able to lend to the coconut farmers at preferential rates.

In order to achieve such objective, the parties shall cause the Bank to adopt a policy of reinvestment, by way of stock dividends, of such percentage of the profits of the Bank as may be necessary.

13. The parties agree to execute or cause to be executed such documents and instruments as may be required in order to carry out the intent and purpose of this Agreement.

IN WITNESS WHEREOF,

PHILIPPINE COCONUT AUTHORITY (BUYER)

By:

EDUARDO COJUANGCO, JR. (SELLER)

MARIA CLARA L. LOBREGAT

7. Defendants Lobregat, et al. and COCOFED, et al. and Ballares, et al. admit that the (PCA) was the other buyers represented by . Cojuangco, Jr. in the May 1975 Agreement entered into between Pedro Cojuangco (on his own behalf and in behalf of other sellers listed in Annex A of the agreement) and Cojuangco, Jr. (on his own behalf and in behalf of the other buyers). Defendant Cojuangco insists he was the only buyer under the aforesaid Agreement.

8.

..

9. Defendants Lobregat, et al., and COCOFED, et al., and Ballares, et al. admit that in addition to the 137,866 FUB shares of Pedro Cojuangco, et al. covered by the Agreement, other FUB stockholders sold their shares to PCA such that the total number of FUB shares purchased by PCA increased from 137,866 shares to 144,400 shares, the OPTION SHARES referred to in the Agreement of May 25, 1975. Defendant Cojuangco did not make said admission as to the said 6,534 shares in excess of the 137,866 shares covered by the Agreement with Pedro Cojuangco.

10. Defendants Lobregat, et al. and COCOFED, et al. and Ballares, et al. admit that the Agreement, described in Section 1 of Presidential Decree (P.D.) No. 755 dated July 29, 1975 as the Agreement for the Acquisition of a Commercial Bank for the Benefit of Coconut Farmers executed by the Philippine Coconut Authority and incorporated in Section 1 of P.D. No. 755 by reference, refers to the AGREEMENT FOR THE ACQUISITION OF A COMMERCIAL BANK FOR THE BENEFIT OF THE COCONUT FARMERS OF THE PHILIPPINES dated May 25, 1975 between defendant Eduardo M. Cojuangco, Jr. and the *PCA+ (Annex B for defendant Cojuangcos OPPOSITION TO PLAINTIFFS MOTION FOR PARTIAL SUMMARY JUDGMENT [RE: EDUARDO M. COJUANGCO, JR.] dated September 18, 2002).

Plaintiff refused to make the same admission.

11. the Court takes judicial notice that P.D. No. 755 was published *in+ volume 71 of the Official Gazette but the text of the agreement was not so published with P.D. No. 755.

12. Defendants Lobregat, et al. and COCOFED, et al. and Ballares, et al. admit that the PCA used public funds, in the total amount of P150 million, to purchase the FUB shares amounting to 72.2% of the authorized capital stock of the FUB, although the PCA was later reimbursed from the coconut levy funds and that the PCA subscription in the increased capitalization of the FUB, which was later renamed the (UCPB), came from the said coconut levy funds.

13. Pursuant to the May 25, 1975 Agreement, out of the 72.2% shares of the authorized and the increased capital stock of the FUB (later UCPB), entirely paid for by PCA, 64.98% of the shares were placed in the name of the PCA for the benefit of the coconut farmers and 7,22% were given to defendant Cojuangco. The remaining 27.8% shares of stock in the FUB which later became the UCPB were not covered by the two (2) agreements referred to in item no. 6, par. (a) and (b) above.
There were shares forming part of the aforementioned 64.98% which were later sold or transferred to non-coconut farmers. 14. Under the May 27, 1975 Agreement, defendant Cojuangcos equity in the FUB (now UCPB) was ten percent (10%) of the shares of stock acquired by the PCA for the benefit of the coconut farmers. 15. That the fully paid 95.304 shares of the FUB, later the UCPB, acquired by defendant Cojuangco, Jr. pursuant to the May 25, 1975 Agreement were paid for by the PCA in accordance with the terms and conditions provided in the said Agreement. 16. Defendants Lobregat, et al. and COCOFED, et al. and Ballares, et al. admit that the affidavits of the coconut farmers (specifically, Exhibit 1-Farmer to 70-Farmer) uniformly state that:

a.

they are coconut farmers who sold coconut products;

b.

in the sale thereof, they received COCOFUND receipts pursuant to R.A. No. 6260; they registered the said COCOFUND receipts; and by virtue thereof, and under R.A. No. 6260, P.D. Nos. 755, 961 and 1468, they are allegedly entitled to the subject UCPB shares.

c. d.

but subject to the following qualifications:

a.

there were other coconut farmers who received UCPB shares although they did not present said COCOFUND receipt because the PCA distributed the unclaimed UCPB shares not only to those who already received their UCPB shares in exchange for their COCOFUND receipts but also to the coconut farmers determined by a national census conducted pursuant to PCA administrative issuances;

b.

[t]here were other affidavits executed by Lobregat, Eleazar, Ballares and Aldeguer relative to the said distribution of the unclaimed UCPB shares; and

c.

the coconut farmers claim the UCPB shares by virtue of their compliance not only with the laws mentioned in item (d) above but also with the relevant issuances of the PCA such as, PCA Administrative Order No. 1, dated August 20, 1975 (Exh. 298-Farmer); PCA Resolution No. 033-78 dated February 16, 1978.

The plaintiff did not make any admission as to the foregoing qualifications.

17. Defendants Lobregat, et al. and COCOFED, et al. and Ballares, et al. claim that the UCPB shares in question have legitimately become the private properties of the 1,405,366 coconut farmers solely on the basis of their having acquired said shares in compliance with R.A. No. 6260, P.D. Nos. 755, 961 and 1468 and the administrative issuances of the PCA cited above.

18.

..

On July 11, 2003, the Sandiganbayan issued the assailed PSJ-A finding for the Republic, the judgment accentuated by (a) the observation that COCOFED has all along manifested as representing over a million coconut farmers and (b) a declaration on the issue of ownership of UCPB shares and the unconstitutionality of certain provisions of P.D. No. 755 and its implementing regulations. On the matter of ownership in particular, the anti-graft court declared that the 64.98% sequestered Farmers UCPB shares, plus other shares paid by PCA are conclusively owned by the Republic. In its pertinent parts, PSJ-A, resolving the separate motions for summary judgment in seriatim with separate dispositive portions for each, reads:

WHEREFORE, in view of the foregoing, we rule as follows:

A. Re: CLASS ACTION MOTION FOR A SEPARATE SUMMARY JUDGMENT dated April 11, 2001 filed by Defendant Maria Clara L. Lobregat, COCOFED, et al., and Ballares, et al.

The Class Action Motion for Separate Summary Judgment dated April 11, 2001 filed by defendant Maria Clara L. Lobregat, COCOFED, et al. and Ballares, et al., is hereby DENIED for lack of merit.

B.

Re: MOTION FOR PARTIAL SUMMARY JUDGMENT (RE: COCOFED, ET AL. AND BALLARES, ET AL.) dated April 22, 2002 filed by Plaintiff.

1.

a. Section 1 of P.D. No. 755, taken in relation to Section 2 of the same P.D., is unconstitutional: (i) for having allowed the use of the CCSF to benefit directly private interest by the outright and unconditional grant of absolute ownership of the FUB/UCPB shares paid for by PCA entirely with the CCSF to the undefined coconut farmers, which negated or circumvented the national policy or public purpose declared by P.D. No. 755 to accelerate the growth and development of the coconut industry and achieve its vertical integration; and (ii) for having unduly delegated legislative power to the PCA.

b. The implementing regulations issued by PCA, namely, Administrative Order No. 1, Series of 1975 and Resolution No. 074-78 are likewise invalid for their failure to see to it that the distribution of shares serve exclusively or at least primarily or directly the aforementioned public purpose or national policy declared by P.D. No. 755.

2. Section 2 of P.D. No. 755 which mandated that the coconut levy funds shall not be considered special and/or fiduciary funds nor part of the general funds of the national government and similar provisions of Sec. 5, Art. III, P.D. No. 961 and Sec. 5, Art. III, P.D. No. 1468 contravene the provisions of the Constitution, particularly, Art. IX (D), Sec. 2; and Article VI, Sec. 29 (3).

3.

Lobregat, COCOFED, et al. and Ballares, et al. have not legally and validly obtained title of ownership over the subject UCPB shares by virtue of P.D. No. 755, the Agreement dated May 25, 1975 between the PCA and defendant Cojuangco, and PCA implementing rules, namely, Adm. Order No. 1, s. 1975 and Resolution No. 074-78.

4. The so-called Farmers UCPB shares covered by 64.98% of the UCPB shares of stock, which formed part of the 72.2% of the shares of stock of the former FUB and now of the UCPB, the entire consideration of which was charged by PCA to

the CCSF, are hereby declared conclusively owned by, the Plaintiff Republic of the Philippines.

C. Re: MOTION FOR PARTIAL SUMMARY JUDGMENT (RE: EDUARDO M. COJUANGCO, JR.) dated September 18, 2002 filed by Plaintiff.

1.

Sec. 1 of P.D. No. 755 did not validate the Agreement between PCA and defendant Eduardo M. Cojuangco, Jr. dated May 25, 1975 nor did it give the Agreement the binding force of a law because of the non-publication of the said Agreement.

2. Regarding the questioned transfer of the shares of stock of FUB (later UCPB) by PCA to defendant Cojuangco or the so-called Cojuangco UCPB shares which cost the PCA more than Ten Million Pesos in CCSF in 1975, we declare, that the transfer of the following FUB/UCPB shares to defendant Eduardo M. Cojuangco, Jr. was not supported by valuable consideration, and therefore null and void:

a.

The 14,400 shares from the Option Shares;

b. Additional Bank Shares Subscribed and Paid by PCA, consisting of:

1.

Fifteen Thousand Eight Hundred Eighty-Four (15,884) shares out of the authorized but unissued shares of the bank, subscribed and paid by PCA;

2.

Sixty Four Thousand Nine Hundred Eighty (64,980) shares of the increased capital stock subscribed and paid by PCA; and

3. Stock dividends declared pursuant to paragraph 5 and paragraph 11 (iv) (d) of the Agreement.

3.

The above-mentioned shares of stock of the FUB/UCPB transferred to defendant Cojuangco are hereby declared conclusively owned by the Republic of the Philippines.

4.

The UCPB shares of stock of the alleged fronts, nominees and dummies of defendant Eduardo M. Cojuangco, Jr. which form part of the 72.2% shares of the FUB/UCPB paid for by the PCA with public funds later charged to the coconut levy funds, particularly the CCSF, belong to the plaintiff Republic of the Philippines as their true and beneficial owner.

Let trial of this Civil Case proceed with respect to the issues which have not been disposed of in this Partial Summary Judgment. For this purpose, the plaintiffs Motion Ad Cautelam to Present Additional Evidence dated March 28, 2001 is hereby GRANTED.

From PSJ-A, Lobregat moved for reconsideration which COCOFED, et al. and Ballares, et al. adopted. All these motions were denied in the extended assailed Resolution66[51] of December 28, 2004.

Civil Case No. 0033-F

Here, the Republic, after filing its pre-trial brief, interposed a Motion for Judgment on the Pleadings and/or for [PSJ] (Re: Defendants CIIF Companies, 14 Holding Companies and COCOFED, et al.) praying that, in light of the parties submissions and the supervening ruling in Republic v. COCOFED67[52] which left certain facts beyond question, a judgment issue:

1) Declaring Section 5 of Article III of P.D. No. 961 (Coconut Industry Code) and Section 5 of Article III of P.D. No. 1468 (Revised Coconut Industry Code) to be unconstitutional;

2) Declaring that CIF payments under RA No. 6260 are not valid and legal bases for ownership claims over the CIIF companies and, ultimately, the CIIF block of SMC shares; and

3) Ordering the reconveyance of the CIIF companies, the 14 holding companies, and the 27% CIIF block of San Miguel Corporation shares of stocks in favor of the government and declaring the ownership thereof to belong to the government in trust for all the coconut farmers.

At this juncture, it may be stated that, vis--vis CC 0033-F, Gabay Foundation, Inc. sought but was denied leave to intervene. But petitioners

COCOFED, et al. moved and were allowed to intervene68[53] on the basis of their claim that COCOFED members beneficially own the block of SMC shares held by the CIIF companies, at least 51% of whose capitol stock such members own. The claim, as the OSG explained, arose from the interplay of the following: (a) COCOFED et al.s alleged majority ownership of the CIIF companies under Sections 969[54] and 1070[55] of P.D. No. 1468, and (b) their alleged entitlement to shares in the CIIF companies by virtue of their supposed registration of COCOFUND receipts allegedly issued to COCOFED members upon payment of the R.A. 6260 CIF levy.71[56]

Just as in CC No. 0033-A, the Sandiganbayan also conducted a hearing in CC No. 0033-F to determine facts that appeared without substantial controversy as culled from the records and, by Order72[57] of February 23, 2004, outlined those facts.

On May 7, 2004, the Sandiganbayan, in light of its ruling in CC No. 0033-A and disposing of the issue on ownership of the CIIF oil and holding companies and their entire block of subject SMC shares, issued the assailed PSJ-F also finding for the Republic, the fallo of which pertinently reading:

WHEREFORE, in view of the foregoing, we hold that:

The Motion for Partial Summary Judgment (Re: Defendants CIIF Companies, 14 Holding Companies and Cocofed et al.) filed by Plaintiff is hereby GRANTED. ACCORDINGLY, THE CIIF COMPANIES, namely:

1. Southern Luzon Coconut Oil Mills (SOLCOM); 2. Cagayan de Oro Oil Co., Inc. (CAGOIL); 3. Iligan Coconut Industries, Inc. (ILICOCO); 4. San Pablo Manufacturing Corp. (SPMC); 5. Granexport Manufacturing Corp. (GRANEX); and 6. Legaspi Oil Co., Inc. (LEGOIL),

AS WELL AS THE 14 HOLDING COMPANIES, NAMELY:

1. Soriano Shares, Inc.; 2. ACS Investors, Inc.; 3. Roxas Shares, Inc.;

4. Arc Investors, Inc.; 5. Toda Holdings, Inc.; 6. AP Holdings, Inc.; 7. Fernandez Holdings, Inc.; 8. SMC Officers Corps, Inc.; 9. Te Deum Resources, Inc.; 10. Anglo Ventures, Inc.; 11. Randy Allied Ventures, Inc.; 12. Rock Steel Resources, Inc.; 13. Valhalla Properties Ltd., Inc.; and 14. First Meridian Development, Inc.

AND THE CIIF BLOCK OF SAN MIGUEL CORPORATION (SMC) SHARES OF STOCK TOTALLING 33,133,266 SHARES AS OF 1983 ARE DECLARED OWNED BY THE GOVERNMENT IN TRUST FOR ALL THE COCONUT FARMERS GOVERNMENT AND ORDERDED RECONVEYED TO THE GOVERNMENT.73[58] (Emphasis and capitalization in the original; underscoring added.)

Let the trial of this Civil Case proceed with respect to the issues which have not been disposed of in this Partial Summary Judgment, including the determination of whether the CIIF Block of SMC Shares adjudged to be owned by the Government represents 27% of the issued and outstanding capital stock of SMC according to plaintiff or to 31.3% of said capital stock according to COCOFED, et al and Ballares, et al.

SO ORDERED.

Expressly covered by the declaration and the reconveyance directive are all dividends declared, paid and issued thereon as well as any increments thereto arising from, but not limited to, exercise of pre-emptive rights.

On May 26, 2004, COCOFED et al., filed an omnibus motion (to dismiss for lack of subject matter jurisdiction or alternatively for reconsideration and to set case for trial), but this motion was denied per the Sandiganbayans Resolution74[59] of December 28, 2004.

On May 11, 2007, in CC 0033-A, the Sandiganbayan issued a Resolution75[60] denying Lobregats and COCOFEDs separate motions to set the case for trial/hearing, noting that there is no longer any point in proceeding to trial when the issue of their claim of ownership of the sequestered UCPB shares and related sub-issues have already been resolved in PSJ-A.

For ease of reference, PSJ-A and PSJ-F each originally decreed trial or further hearing on issues yet to be disposed of. However, the Resolution76[61] issued on June 5, 2007 in CC 0033-A and the Resolution77[62] of May 11, 2007 rendered in CC 0033-F effectively modified the underlying partial summary judgments by deleting that portions on the necessity of further trial on the issue of ownership of (1) the sequestered UCPB shares, (2) the CIIF block of SMC shares and (3) the CIIF companies. As the anti-graft court stressed in both resolutions, the said issue of ownership has been finally resolved in the corresponding PSJs.78[63]

Hence, the instant petitions.

The Issues

COCOFED et al., in G.R. Nos. 177857-58, impute reversible error on the Sandiganbayan for (a) assuming jurisdiction over CC Nos. 0033-A and 0033-F

despite the Republics failure to establish below the jurisdictional facts, i.e., that the sequestered assets sought to be recovered are ill-gotten in the context of E.O. Nos. 1, 2, 14 and 14-A; (b) declaring certain provisions of coco levy issuances unconstitutional; and (c) denying the petitioners plea to prove that the sequestered assets belong to coconut farmers. Specifically, petitioners aver:

I. The Sandiganbayan gravely erred when it refused to acknowledge that it did not have subject matter jurisdiction over the ill-gotten wealth cases because the respondent Republic failed to prove, and did not even attempt to prove, the jurisdictional fact that the sequestered assets constitute ill-gotten wealth of former President Marcos and Cojuangco. Being without subject matter jurisdiction over the ill-gotten wealth cases, a defect previously pointed out and repeatedly assailed by COCOFED, et al., the assailed PSJs and the assailed Resolutions are all null and void.

A. Insofar as the ill-gotten wealth cases are concerned, the Sandiganbayans subject matter jurisdiction is limited to the recovery of ill-gotten wealth as defined in Eos 1, 2, 14 and 14-A. Consistent with that jurisdiction, the subdivided complaints in the ill-gotten wealth cases expressly alleged that the sequestered assets constitutes ill-gotten wealth of former President Marcos and Cojuangco, having been filed pursuant to, and in connection with, Eos 1, 2, 14 and 14-A, the Sandiganbayan gravely erred, if not exceeded its jurisdiction, when it refused to require the respondent Republic to prove the aforesaid jurisdictional fact. B. . Having no evidence on record to prove the said jurisdictional fact, the Sandiganbayan gravely erred, if not grossly exceeded its statutory jurisdiction, when it rendered the assailed PSJs instead of dismissing the ill-gotten wealth cases. C. Under Section 1 of Rule 9 of the Rules of Court, lack of jurisdiction over the subject matter may be raised at any stage of the proceedings. In any event, in pursuing its intervention in the ill-gotten wealth cases, COCOFED, et al precisely questioned the Sandiganbayans subject matter jurisdiction, asserted that the jurisdictional fact does not exist, moved to dismiss the ill-gotten wealth cases and even prayed that the writs of sequestration over the sequestered assets be lifted. In concluding that those actions constitute an invocation of its jurisdiction, the

Sandiganbayan clearly acted whimsically, capriciously and in grave abuse of its discretion.

II. Through the assailed PSJs and the assailed Resolutions, the Sandiganbayan declared certain provisions of the coconut levy laws as well as certain administrative issuances of the PCA as unconstitutional. In doing so, the Sandiganbayan erroneously employed, if not grossly abused, its power of judicial review.

A. the Sandiganbayan gravely erred, if not brazenly exceeded its statutory jurisdiction and abused the judicial powers, when it concluded that the public purpose of certain coconut levy laws was not evident, when it thereupon formulated its own public policies and purposes for the coconut levy laws and at the same time disregarded the national policies specifically prescribed therein.

B. In ruling that it is not clear or evident how the means employed by the *coconut levy+ laws would serve the avowed purpose of the law or can serve a public purpose, the Sandiganbayan erroneously examined, determined and evaluated the wisdom of such laws, a constitutional power within the exclusive province of the legislative department.

C. The Sandiganbayan gravely erred in declaring Section 1 of PD 755, PCA [AO] 1 and PCA Resolution No. 074-78 constitutionally infirm by reason of alleged but unproven and unsubstantiated flaws in their implementation.

D. The Sandiganbayan gravely erred in concluding that Section 1 of PD 755 constitutes an undue delegation of legislative power insofar as it authorizes the PCA to promulgate rules and regulations governing the distribution of the UCPB shares to the coconut farmers. Rather, taken in their proper context, Section 1 of PD 755 was complete in itself, [and] prescribed sufficient standards that circumscribed the discretion of the PCA.

More importantly, this Honorable Court has, on three (3) separate occasions, rejected respondent Republics motion to declare the coconut levy laws unconstitutional. The Sandiganbayan gravely erred, if not acted in excess of its jurisdiction, when it ignored the settled doctrines of law of the case and/or stare decisis and granted respondent Republics fourth attempt to declare the coconut levy laws unconstitutional, despite fact that such declaration of unconstitutionality was not necessary to resolve the ultimate issue of ownership involved in the ill-gotten wealth cases.

III. In rendering the assailed PSJs and thereafter refusing to proceed to trial on the merits, on the mere say-so of the respondent Republic, the Sandiganbayan committed gross and irreversible error, gravely abused its judicial discretion and flagrantly exceeded its jurisdiction as it effectively sanctioned the taking of COCOFED, et al.s property by the respondent Republic without due process of law and through retroactive application of the declaration of unconstitutionality of the coconut levy laws, an act that is not only illegal and violative of the settled Operative Fact Doctrine but, more importantly, inequitable to the coconut farmers whose only possible mistake, offense or misfortune was to follow the law.

A. .

1. In the course of the almost twenty (20) years that the ill-gotten wealth cases were pending, COCOFED, et al. repeatedly asked to be allowed to present evidence to prove that the true, actual and beneficial owners of the sequestered assets are the coconut farmers and not Cojuangco, an alleged crony of former President Marcos. The Sandiganbayan grievously erred and clearly abused its judicial discretion when it repeatedly and continuously denied COCOFED, et al. the opportunity to present their evidence to disprove the baseless allegations of the Ill-Gotten Wealth Cases that the sequestered assets constitute ill-gotten wealth of Cojuangco and of former President Marcos, an error that undeniably and illegally deprived COCOFED, et al of their constitutional right to be heard.

2. The Sandiganbayan erroneously concluded that the Assailed PSJs and Assailed Resolutions settled the ultimate issue of ownership of the Sequestered Assets and, more importantly, resolved all factual and legal issues involved in the ill-gotten wealth cases. Rather, as there are triable issues still to be resolved, it was incumbent upon the Sandiganbayan to receive evidence thereon and conduct trial on the merits.

3. Having expressly ordered the parties to proceed to trial and thereafter decreeing that trial is unnecessary as the Assailed PSJs were final and appealable judgments, the Sandiganbayan acted whimsically, capriciously and contrary to the Rules of Court, treated the parties in the ill-gotten wealth cases unfairly, disobeyed the dictate of this Honorable Court and, worse, violated COCOFED, et als right to due process and equal protection of the laws.

B. The Sandiganbayan gravely erred if not grossly abused its discretion when it repeatedly disregarded, and outrightly refused to recognize, the operative facts that existed as well as the rights that vested from the time the coconut levy laws were enacted until their declaration of unconstitutionality in the assailed PSJs. As a result, the assailed PSJs constitute a proscribed retroactive application of the declaration of unconstitutionality, a taking of private property, and an impairment of vested rights of ownership, all without due process of law.79[64] Otherwise stated, the assailed PSJs and the assailed Resolutions effectively penalized the coconut farmers whose only possible mistake, offense or misfortune was to follow the laws that were then legal, valid and constitutional.

IV. The voluminous records of these ill-gotten wealth cases readily reveal the various dilatory tactics respondent Republic resorted to. As a result, despite the lapse of almost twenty (20) years of litigation, the respondent Republic has not been required to, and has not even attempted to prove, the bases of its perjurious claim that the sequestered assets constitute ill-gotten wealth of former President Marcos and his crony, Cojuangco. In tolerating respondent Republics antics for almost twenty (20)

years, the Sandiganbayan so glaringly departed from procedure and thereby flagrantly violated COCOFED, et al.s right to speedy trial.

In G.R. No. 178193, petitioner Ursua virtually imputes to the Sandiganbayan the same errors attributed to it by petitioners in G.R. Nos. 177857-58.80[65] He replicates as follows:

The Sandiganbayan decided in a manner not in accord with the Rules of Court and settled jurisprudence in rendering the questioned PSJ as final and appealable thereafter taking the sequestered assets from their owners or record without presentation of any evidence, thus, the questioned PSJ and the questioned Resolutions are all null and void.

A. The Sandiganbayans jurisdiction insofar as the ill-gotten wealth cases are concerned, is limited to the recovery of ill-gotten wealth as defined in Executive Orders No. 1, 2, 14 and 14-A. B. The Sandiganbayan should have decided to dismiss the case or continue to receive evidence instead of ruling against the constitutionality of some coconut levy laws and PCA issuances because it could decide on other grounds available to it.

II

The Sandiganbayan gravely erred when it declared PD. 755, Section 1 and 2, Section 5, Article 1 of PD 961, and Section 5 of Art. III of PD 1468 as well as administrative issuances of the PCA as unconstitutional in effect, it abused it power of judicial review.

A. The Sandiganbayan gravely erred in concluding that the purpose of PD 755 Section 1 and 2, Section 5, Article 1 of PD 961, and Section 5 of Art. III of PD 1468 is not evident. It then proceeded to formulated its own purpose thereby intruding into the wisdom of the legislature in enacting [t]he law. B. The Sandiganbayan gravely erred in declaring Section 1 of PD 755, PCA [AO] No. 1 and PCA Resolution No. 074-78 unconstitutional due to alleged flaws in their implementation. C. The Sandiganbayan gravely erred in concluding that Section 1 of PD No. 755 constitutes an undue delegation of legislative power insofar as it authorizes the PCA to promulgate rules and regulations governing the distribution of the UCPB shares to the coconut farmers. Section 1 of PD 755 was complete in itself, prescribed sufficient standards that circumscribed the discretion of the PCA and merely authorized the PCA to fill matters of detail an execution through promulgated rules and regulations.

III

The coconut levy laws, insofar as they allowed the PCA to promulgate rules and regulations governing the distribution of the UCPB to the coconut farmers, do not constitute an undue delegation of legislative power as they were complete in themselves and prescribed sufficient standards that circumscribed the discretion of the PCA.

IV

Assuming ex-gratia argumenti that the coconut levy laws are unconstitutional, still, the owners thereof cannot be deprived of their property without due process of law considering that they have in good faith acquired vested rights over the sequestered assets.

In sum, the instant petitions seek to question the decisions of the Sandiganbayan in both CC Nos. 0033-A and 0033-F, along with the preliminary issues of objection. We shall address at the outset, (1) the common preliminary questions, including jurisdictional issue, followed by (2) the common primary contentious issues (i.e. constitutional questions), and (3) the issues particular to each case.

The Courts Ruling

The Sandiganbayan has jurisdiction over the subject matter ofthe subdivided amended complaints.

The primary issue, as petitioners COCOFED, et al. and Ursua put forward, boils down to the Sandiganbayans alleged lack of jurisdiction over the subject matter of the amended complaints. Petitioners maintain that the jurisdictional facts necessary to acquire jurisdiction over the subject matter in CC No. 0033-A have yet to be established. In fine, the Republic, so petitioners claim, has failed to prove the ill-gotten nature of the sequestered coconut farmers UCPB shares. Accordingly, the controversy is removed from the subject matter jurisdiction of the Sandiganbayan and necessarily any decision rendered on the merits, such as PSJ-A and PSJ-F, is void.

To petitioners, it behooves the Republic to prove the jurisdictional facts warranting the Sandiganbayans continued exercise of jurisdiction over ill-gotten wealth cases. Citing Manila Electric Company [Meralco] v. Ortaez,81[66] petitioners argue that the jurisdiction of an adjudicatory tribunal exercising limited jurisdiction, like the Sandiganbayan, depends upon the facts of the case as proved at the trial and not merely upon the allegation in the complaint.82[67] Cited too is PCGG v. Nepumuceno,83[68] where the Court held:

The determinations made by the PCGG at the time of issuing sequestration orders cannot be considered as final determinations; that the properties or entities sequestered or taken-over in fact constitute ill-gotten wealth according to [E.O.] No. 1 is a question which can be finally determined only by a court the Sandiganbayan. The PCGG has the burden of proving before the Sandiganbayan that the assets it has sequestered or business entity it has provisionally taken-over constitutes ill-gotten wealth within the meaning of [E.O.] No. 1 and Article No. XVIII (26) of the 1987 Constitution.

Petitioners above posture is without merit.

Justice Florenz D. Regalado explicates subject matter jurisdiction:

16. Basic is the doctrine that the jurisdiction of a court over the subject-matter of an action is conferred only by the Constitution or the law and that the Rules of Court yield to substantive law, in this case, the Judiciary Act and B.P. Blg. 129, both as amended, and of which jurisdiction is only a part. Jurisdiction cannot be acquired through, or waived, enlarged or diminished by, any act or omission of the parties; neither can it be conferred by the acquiescence of the court. Jurisdiction must exist as a matter of law. Consequently, questions of jurisdiction may be raised for the first time on appeal even if such issue was not raised in the lower court.

17. Nevertheless, in some case, the principle of estoppel by laches has been availed to bar attacks on jurisdiction.84[69]

It is, therefore, clear that jurisdiction over the subject matter is conferred by law. In turn, the question on whether a given suit comes within the pale of a statutory conferment is determined by the allegations in the complaint, regardless of whether or not the plaintiff will be entitled at the end to recover upon all or some of the claims asserted therein.85[70] Estiandan:86[71] We said as much in Magay v.

[J]urisdiction over the subject matter is determined by the allegations of the complaint, irrespective of whether or not the plaintiff is entitled to recover upon all or some of the claims asserted therein-a matter that can be resolved only after and as a result of the trial. Nor may the jurisdiction of the court be made to depend upon the defenses set up in the answer or upon the motion to dismiss, for, were we to be governed by such rule, the question of jurisdiction could depend almost entirely upon the defendant.

Of the same tenor was what the Court wrote in Allied Domecq Philippines, Inc. v. Villon:87[72]

Jurisdiction over the subject matter is the power to hear and determine the general class to which the proceedings in question belong. Jurisdiction over the subject matter is conferred by law and not by the consent or acquiescence of any or all of the parties or by erroneous belief of the court that it exists. Basic is the rule that jurisdiction over the subject matter is determined by the cause or causes of action as alleged in the complaint.

The material averments in subdivided CC No. 0033-A and CC No. 0033-F included the following:

12. Defendant Eduardo Cojuangco, Jr served as a public officer during the Marcos administration.

13. Defendant Eduardo Cojuangco, Jr., taking advantage of his association, influence and connection, acting in unlawful concert with the [Marcoses] and the individual defendants, embarked upon devices, schemes and stratagems, including the use of defendant corporations as fronts, to unjustly enrich themselves as the expense of the Plaintiff and the Filipino people, such as when he

a) manipulated, beginning the year 1975 with the active collaboration of Defendants , Marai Clara Lobregat, Danilo Ursua [etc.], the purchase by the (PCA) of 72.2% of the outstanding capital stock of the (FUB) which was subsequently converted into a universal bank named (UCPB) through the use of (CCSF) in a manner contrary to law and to the specific purposes for which said coconut levy funds were imposed and collected under P.D. 276 and under anomalous and sinister designs and circumstances, to wit:

(i)

Defendant Eduardo Cojuangco, Jr. coveted the coconut levy funds as a cheap, lucrative and risk-free source of funds with which to exercise his private option to buy the controlling interest in FUB. (ii) to legitimize a posteriori his highly anomalous and irregular use and diversion of government funds to advance his own private and commercial interests Defendant Eduardo Cojuangco, Jr. caused the issuance of PD 755 (a) declaring that the coconut levy funds shall not be considered special and fiduciary and trust funds conveniently repealing for that purpose a series of previous decrees establishing the character of the coconut levy funds as special, fiduciary, trust and governments; (b) confirming the agreement between Cojuangco and PCA on the purchase of FUB by incorporating by reference said private commercial agreement in PD 755; (iii) . (iv) To perpetuate his opportunity to build his economic empire, Cojuangco caused the issuance of an unconstitutional decree (PD 1468) requiring the deposit of all coconut levy funds with UCPB interest free to the prejudice of the government and finally (v) Having fully established himself as the undisputed coconut king with unlimited powers to deal with the coconut levy funds, the stage was now set for Defendant Eduardo Cojuangco, Jr. to launch his predatory forays into almost all aspects of Philippine activity namely . oil mills. (vi) In gross violation of their fiduciary positions and in contravention of the goal to create a bank for coconut farmers of the country, the capital stock of UCPB as of February 25, 1986 was actually held by the defendants, their lawyers, factotum and business associates, thereby

finally gaining control of the UCPB by misusing the names and identities of the so-called more than one million coconut farmers.

(b) created and/or funded with the use of coconut levy funds various corporations, such as (COCOFED) with the active collaboration and participation of Defendants Juan Ponce Enrile, Maria Clara Lobregat most of whom comprised the interlocking officers and directors of said companies; dissipated, misused and/or misappropriated a substantial part of said coco levy funds FINALLY GAIN OWNERSHIP AND CONTROL OF THE UNITED COCONUT PLANTERS BANK BY MISUSING THE NAMES AND/OR IDENTIFIES OF THE SO-CALLLED MORE THAN ONE MILLION COCONUT FARNMERS;

(c) misappropriated, misused and dissipated P840 million of the (CIDF) levy funds deposited with the National Development Corporation (NIDC) as administrator trustee of said funds and later with UCPB, of which Defendant Eduardo Cojuangco, Jr. was the Chief Executive Officer.

(d) established and caused to be funded with coconut levy fundfs, with the active collaboration of Defendants Ferdinand E. Marcos through the issuance of LOI 926 and of [other] defendants the United Coconut Oil Mills, Inc., a corporation controlled by Defendant Eduardo Cojuangco, Jr. and bought sixteen (16) certain competing oil mills at exorbitant prices then mothballed them.

(i) misused coconut levy funds to buy majority of the outstanding shares of stock of San Miguel Corporation.

14. Defendants Eduardo Cojuangco, Jr. of the Angara Concepcion Cruz Regala and Abello law offices (ACCRA) plotted, devised, schemed, conspired and confederated with each other in setting up, through the use of the coconut levy funds the

financial and corporate structures that led to the establishment of UCPB UNICOM [etc.] and more than twenty other coconut levy funded corporations including the acquisition of [SMC] shares and its institutionalization through presidential directives of the coconut monopoly.

16. The acts of Defendants, singly or collectively, and /or in unlawful concert with one another, constitute gross abuse of official position and authority, flagrant breach of public trust and fiduciary obligations, brazen abuse of right and power, unjust enrichment, violation of the Constitution and laws to the grave and irreparable damage of the Plaintiff and the Filipino people.

CC No. 0033-F

12. Defendant Eduardo Cojuangco, Jr., served as a public officer during the Marcos administration.

13. Having fully established himself as the undisputed coconut king with unlimited powers to deal with the coconut levy funds, the stage was now set for Cojuangco, Jr. to launch his predatory forays into almost all aspects of Philippine economic activity namely oil mills .

14. Defendant Eduardo Cojuangco, Jr., taking undue advantage of his association, influence, and connection, acting in unlawful concert with Defendants Ferdinand E. Marcos and Imelda R. Marcos, and the individual defendants, embarked upon devices, schemes and stratagems, including the use of defendant corporations as fronts, to unjustly enrich themselves at the expense of Plaintiff and the Filipino people.

(a)

Having control over the coconut levy, Defendant Eduardo M. Cojuangco invested the funds in diverse activities, such as the various businesses SMC was engaged in.;

(c) Later that year [1983], Cojuangco also acquired the Soriano stocks through a series of complicated and secret agreements, a key feature of which was a voting trust agreement that stipulated that Andres, Jr. or his heir would proxy over the vote of the shares owned by Soriano and Cojuangco.

(g) All together, Cojuangco purchased 33 million shares of the SMC through the 14 holding companies

3.1. The same fourteen companies were in turn owned by the six (6) so-called CIIF Companies.

(h) Defendant Corporations are but shell corporations owned by interlocking shareholders who have previously admitted that they are just nominee stockholders who do not have any proprietary interest over the shares in their names. [L]awyers of the Angara Abello Concepcion Regala & Cruz (ACCRA) Law offices, the previous counsel who incorporated said corporations, prove that they were merely nominee stockholders thereof. (l) These companies, which ACCRA Law Offices organized for Defendant Cojuangco to be able to control more than 60% of SMC shares, were funded by institutions which depended upon the coconut levy such as the UCPB, UNICOM, (COCOLIFE), among others. Cojuangco and his ACCRA lawyers used the funds from 6 large coconut oil mills and 10 copra trading companies to borrow money from the UCPB and purchase these holding companies and the SMC stocks. Cojuangco used $ 150 million from the coconut levy, broken down as follows:

Amount (in million) $ 22.26

Source

Purpose

Oil Mills

equity in holding Companies loan to holding Companies loan to holding Companies [164]

$ 65.6

Oil Mills

$ 61.2

UCPB

The entire amount, therefore, came from the coconut levy, some passing through the Unicom Oil mills, others directly from the UCPB. (m) With his entry into the said Company, it began to get favors from the Marcos government, significantly the lowering of the excise taxes on beer, one of the main products of SMC.

15. Defendants plotted, devised, schemed, conspired and confederated with each other in setting up, through the use of coconut levy funds, the financial and corporate framework and structures that led to the establishment of UCPB, [etc.], and more than twenty other coconut levy-funded corporations, including the acquisition of [SMC] shares and its institutionalization through presidential directives of the coconut monopoly.

16. The acts of Defendants, singly or collectively, and/or in unlawful concert with one another, constitute gross abuse of official position and authority, flagrant breach of public trust and fiduciary obligations, brazen abuse of right and power, unjust enrichment, violation of the constitution and laws of the Republic of the Philippines, to the grave and irreparable damage of Plaintiff and the Filipino people.88[73]

Judging from the allegations of the defendants illegal acts thereat made, it is fairly obvious that both CC Nos. 0033-A and CC 0033-F partake, in the context of EO Nos. 1, 2 and 14, series of 1986, the nature of ill-gotten wealth suits. Both deal with the recovery of sequestered shares, property or business enterprises claimed, as alleged in the corresponding basic complaints, to be ill-gotten assets of President Marcos, his cronies and nominees and acquired by taking undue advantage of relationships or influence and/or through or as a result of improper use, conversion or diversion of government funds or property. Recovery of these assets determined as shall hereinafter be discussed as prima facie ill-gottenfalls within the unquestionable jurisdiction of the Sandiganbayan.89[74]

P.D. No. 1606, as amended by R.A. 7975 and E.O. No. 14, Series of 1986, vests the Sandiganbayan with, among others, original jurisdiction over civil and criminal cases instituted pursuant to and in connection with E.O. Nos. 1, 2, 14 and 14-A. Correlatively, the PCGG Rules and Regulations defines the term Ill-Gotten Wealth as any asset, property, business enterprise or material possession of persons within the purview of [E.O.] Nos. 1 and 2, acquired by them directly, or indirectly thru dummies, nominees, agents, subordinates and/or business associates by any of the following means or similar schemes:

(1) Through misappropriation, conversion, misuse or malversation of public funds or raids on the public treasury;

(2) .; (3) By the illegal or fraudulent conveyance or disposition of assets belonging to the government or any of its subdivisions, agencies or instrumentalities or government-owned or controlled corporations; (4) By obtaining, receiving or accepting directly or indirectly any shares of stock, equity or any other form of interest or participation in any business enterprise or undertaking; (5) Through the establishment of agricultural, industrial or commercial monopolies or other combination and/or by the issuance, promulgation and/or implementation of decrees and orders intended to benefit particular persons or special interests; and (6) By taking undue advantage of official position, authority, relationship or influence for personal gain or benefit.90[75] (Emphasis supplied)

Section 2(a) of E.O. No. 1 charged the PCGG with the task of assisting the President in [T]he recovery of all ill-gotten wealth accumulated by former [President] Marcos, his immediate family, relatives, subordinates and close associates including the takeover or sequestration of all business enterprises and entities owned or controlled by them, during his administration, directly or through nominees, by taking undue advantage of their public office and/or using their powers, authority, influence, connections or relationship. Complementing the aforesaid Section 2(a) is Section 1 of E.O. No. 2 decreeing the freezing of all assets in which the [Marcoses] their close relatives, subordinates, business associates, dummies, agents or nominees have any interest or participation.

The Republics averments in the amended complaints, particularly those detailing the alleged wrongful acts of the defendants, sufficiently reveal that the subject matter thereof comprises the recovery by the Government of ill-gotten wealth acquired by then President Marcos, his cronies or their associates and dummies through the unlawful, improper utilization or diversion of coconut levy funds aided by P.D. No. 755 and other sister decrees. President Marcos himself issued these decrees in a brazen bid to legalize what amounts to private taking of the said public funds.

Petitioners COCOFED et al. and Ursua, however, would insist that the Republic has failed to prove the jurisdiction facts: that the sequestered assets indeed constitute ill-gotten wealth as averred in the amended subdivided complaints.

This contention is incorrect.

There was no actual need for Republic, as plaintiff a quo, to adduce evidence to show that the Sandiganbayan has jurisdiction over the subject matter of the complaints as it leaned on the averments in the initiatory pleadings to make visible the jurisdiction of the Sandiganbayan over the ill-gotten wealth complaints. As previously discussed, a perusal of the allegations easily reveals the sufficiency of the statement of matters disclosing the claim of the government against the coco levy funds and the assets acquired directly or indirectly through said funds as ill-

gotten wealth. Moreover, the Court finds no rule that directs the plaintiff to first prove the subject matter jurisdiction of the court before which the complaint is filed. Rather, such burden falls on the shoulders of defendant in the hearing of a motion to dismiss anchored on said ground or a preliminary hearing thereon when such ground is alleged in the answer.

COCOFED et al. and Ursuas reliance on Manila Electric Company [Meralco] v. Ortanez91[76] is misplaced, there being a total factual dissimilarity between that and the case at bar. Meralco involved a labor dispute before the Court of Industrial Relations (CIR) requiring the interpretation of a collective bargaining agreement to determine which between a regular court and CIR has jurisdiction. There, it was held that in case of doubt, the case may not be dismissed for failure to state a cause of action as jurisdiction of CIR is not merely based on the allegations of the complaint but must be proved during the trial of the case. The factual milieu of Meralco shows that the said procedural holding is peculiar to the CIR. Thus, it is not and could not be a precedent to the cases at bar.

Even PCGG v. Nepomuceno92[77] is not on all fours with the cases at bench, the issue therein being whether the regional trial court has jurisdiction over the PCGG and sequestered properties, vis--vis the present cases, which involve an

issue concerning the Sandiganbayans jurisdiction. Like in Meralco, the holding in Nepomuceno is not determinative of the outcome of the cases at bar.

While the 1964 Meralco and the Nepomuceno cases are inapplicable, the Courts ruling in Tijam v. Sibonhonoy93[78] is the leading case on estoppel relating to jurisdiction. In Tijam, the Court expressed displeasure on the

undesirable practice of a party submitting his case for decision and then accepting judgment, only if favorable, and then attacking it for lack of jurisdiction, when adverse.

Considering the antecedents of CC Nos. 0033-A and 0033-F, COCOFED, Lobregat, Ballares, et al. and Ursua are already precluded from assailing the jurisdiction of the Sandiganbayan. Remember that the COCOFED and the

Lobregat group were not originally impleaded as defendants in CC No. 0033. They later asked and were allowed by the Sandiganbayan to intervene. If they really believe then that the Sandiganbayan is without jurisdiction over the subject matter of the complaint in question, then why intervene in the first place? They could have sat idly by and let the proceedings continue and would not have been affected by the outcome of the case as they can challenge the jurisdiction of the Sandiganbayan when the time for implementation of the flawed decision comes. More importantly, the decision in the case will have no effect on them since they were not impleaded as indispensable parties. After all, the joinder of all

indispensable parties to a suit is not only mandatory, but jurisdictional as well.94[79] By their intervention, which the Sandiganbayan allowed per its

resolution dated September 30, 1991, COCOFED and Ursua have clearly manifested their desire to submit to the jurisdiction of the Sandiganbayan and seek relief from said court. Thereafter, they filed numerous pleadings in the subdivided complaints seeking relief and actively participated in numerous proceedings. Among the pleadings thus filed are the Oppositions to the Motion for Intervention interposed by the Pambansang Koalisyon ng mga Samahang Magsasaka at Manggagawa sa Niyogan and Gabay ng Mundo sa Kaunlaran Foundation, Inc., a Class Action Omnibus Motion to enjoin the PCGG from voting the SMC shares dated February 23, 2001 (granted by Sandiganbayan) and the Class Action Motion for a Separate Summary Judgment dated April 11, 2001. By these acts, COCOFED et al. are now legally estopped from asserting the Sandiganbayns want of jurisdiction, if that be the case, over the subject matter of the complaint as they have voluntarily yielded to the jurisdiction of the Sandiganbayan. Estoppel has now barred the challenge on Sandiganbayans jurisdiction.

The ensuing excerpts from Macahilig v. Heirs of Magalit95[80] are instructive:

We cannot allow her to attack its jurisdiction simply because it rendered a Decision prejudicial to her position. Participation in all stages of a case before a trial court effectively estops a party from challenging its jurisdiction. One cannot belatedly reject or repudiate its decision after voluntarily submitting to its jurisdiction, just to secure affirmative relief against ones opponent or after failing to obtain such relief. If, by deed or conduct, a party has induced another to act in a particular manner, estoppel effectively bars the former from adopting an inconsistent position, attitude or course of conduct that thereby causes loss or injury to the latter.

Lest it be overlooked, this Court has already decided that the sequestered shares are prima facie ill-gotten wealth rendering the issue of the validity of their sequestration and of the jurisdiction of the Sandiganbayan over the case beyond doubt. In the case of COCOFED v. PCGG,96[81] We stated that:

It is of course not for this Court to pass upon the factual issues thus raised. That function pertains to the Sandiganbayan in the first instance. For purposes of this proceeding, all that the Court needs to determine is whether or not there is prima facie justification for the sequestration ordered by the PCGG. The Court is satisfied that there is. The cited incidents, given the public character of the coconut levy funds, place petitioners COCOFED and its leaders and officials, at least prima facie, squarely within the purview of Executive Orders Nos. 1, 2 and 14, as construed and applied in BASECO, to wit:

1. that ill-gotten properties (were) amassed by the leaders and supporters of the previous regime;

a. more particularly, that (i)ll-gotten wealth was accumulated by Marcos, his immediate family, relatives, subordinates and close associates, . (and) business enterprises and entities (came to be) owned or controlled by them, during (the Marcos)

administration, directly or through nominees, by taking undue advantage of their public office and using their powers, authority, influence, connections or relationships;

b. otherwise stated, that there are assets and properties purportedly pertaining to [the Marcoses], their close relatives, subordinates, business associates, dummies, agents or nominees which had been or were acquired by them directly or indirectly, through or as a result of the improper or illegal use of funds or properties owned by the Government or any of its branches, instrumentalities, enterprises, banks or financial institutions, or by taking undue advantage of their office, authority, influence, connections or relationship, resulting in their unjust enrichment .;

2. The petitioners claim that the assets acquired with the coconut levy funds are privately owned by the coconut farmers is founded on certain provisions of law, to wit [Sec. 7, RA 6260 and Sec. 5, Art. III, PD 1468] (Words in bracket added; italics in the original).

In their attempt to dismiss the amended complaints in question, petitioners asseverate that (1) the coconut farmers cannot be considered as subordinates, close and/or business associates, dummies, agents and nominees of Cojuangco, Jr. or the Marcoses, and (2) the sequestered shares were not illegally acquired nor acquired through or as result of improper or illegal use or conversion of funds belonging to the Government. While not saying so explicitly, petitioners are doubtless conveying the idea that wealth, however acquired, would not be considered ill-gotten in the context of EO 1, 2 and 14, s. of 1986, absent proof that the recipient or end possessor thereof is outside the Marcos circle of friends, associates, cronies or nominees.

We are not convinced.

As may be noted, E.O. 1 and 2 advert to President Marcos, or his associates nominees. In its most common signification, the term nominee refers to one who is designated to act for another usually in a limited way; 97[82] a person in whose name a stock or bond certificate is registered but who is not the actual owner thereof is considered a nominee.98[83] nominee as one: Corpus Juris Secundum describes a

designated to act for another as his representative in a rather limited sense. It has no connotation, however, other than that of acting for another, in representation of another or as the grantee of another. In its commonly accepted meaning the term connoted the delegation of authority to the nominee in a representative or nominal capacity only, and does not connote the transfer or assignment to the nominee of any property in, or ownership of, the rights of the person nominating him.99[84]

So, the next question that comes to the fore is: would the term nominee include the more than one million coconut farmers alleged to be the recipients of the UCPB shares?

Guided by the foregoing definitions, the query must be answered in the affirmative if only to give life to those executive issuances aimed at ensuring the recovery of ill-gotten wealth. It is basic, almost elementary, that:
Laws must receive a sensible interpretation to promote the ends for which they are enacted. They should be so given reasonable and practical construction as will give life to them, if it can be done without doing violence to reason. Conversely, a law should not be so construed as to allow the doing of an act which is prohibited by law, not so interpreted as to afford an opportunity to defeat compliance with its terms, create an inconsistency, or contravene the plain words of the law. Interpretatio fienda est ut res magis valeat quam pereat or that interpretation as will give the thing efficacy is to be adopted.100[85]

E.O. 1, 2, 14 and 14-A, it bears to stress, were issued precisely to effect the recovery of ill-gotten assets amassed by the Marcoses, their associates, subordinates and cronies, or through their nominees. Be that as it may, it stands to reason that persons listed as associated with the Marcoses101[86] refer to those in possession of such ill-gotten wealth but holding the same in behalf of the actual, albeit undisclosed owner, to prevent discovery and consequently recovery. Certainly, it is well-nigh inconceivable that ill-gotten assets would be distributed to and left in the hands of individuals or entities with obvious traceable connections to Mr. Marcos and his cronies. The Court can take, as it has in fact taken, judicial notice of schemes and machinations that have been put in place to keep ill-gotten

assets under wraps. These would include the setting up of layers after layers of shell or dummy, but controlled, corporations102[87] or manipulated instruments calculated to confuse if not altogether mislead would-be investigators from recovering wealth deceitfully amassed at the expense of the people or simply the fruits thereof. Transferring the illegal assets to third parties not readily perceived as Marcos cronies would be another. So it was that in PCGG v. Pena, the Court, describing the rule of Marcos as a well entrenched plundering regime of twenty years, noted the magnitude of the past regimes organized pillage and the ingenuity of the plunderers and pillagers with the assistance of experts and the best legal minds in the market.103[88]

Hence, to give full effect to E.O. 1, 2 and 14, s. of 1986, the term nominee, as used in the above issuances, must be taken to mean to include any person or group of persons, natural or juridical, in whose name government funds or assets were transferred to by Pres. Marcos, his cronies or his associates. To this characterization must include what the Sandiganbayan considered the unidentified coconut farmers, more than a million of faceless and nameless coconut farmers, the alleged beneficiaries of the distributed UCPB shares, who, under the terms of Sec. 10 of PCA A.O. No. 1, s. of 1975, were required, upon the delivery of their respective stock certificates, to execute an irrevocable proxy in favor of the Banks manager. There is thus ample truth to

the observations - [That] the PCA provided this condition only indicates that the PCA had no intention to constitute the coconut farmer UCPB stockholder as a bona fide stockholder; that the 1.5 million registered farmer-stockholders were mere nominal stockholders.104[89]

From the foregoing, the challenge on the Sandiganbayans subject matter jurisdiction at bar must fail.

II

Petitioners COCOFED et al. were not deprived of their right to be heard.

As a procedural issue, COCOFED, et al. and Ursua next contend that in the course of almost 20 years that the cases have been with the anti-graft court, they have repeatedly sought leave to adduce evidence (prior to respondents complete presentation of evidence) to prove the coco farmers actual and beneficial

ownership of the sequestered shares. The Sandiganbayan, however, had repeatedly

and continuously disallowed such requests, thus depriving them of their constitutional right to be heard.

This contention is untenable, their demand to adduce evidence being disallowable on the ground of prematurity.

The records reveal that the Republic, after adducing its evidence in CC No. 0033-A, subsequently filed a Motion Ad Cautelam for Leave to Present Additional Evidence dated March 28, 2001. This motion remained unresolved at the time the Republic interposed its Motion for Partial Summary Judgment. The

Sandiganbayan granted the later motion and accordingly rendered the Partial Summary Judgment, effectively preempting the presentation of evidence by the defendants in said case (herein petitioners COCOFED and Ursua).

Section 5, Rule 30 the Rules of Court clearly sets out the order of presenting evidence:

SEC. 5. Order of trial.Subject to the provisions of section 2 of Rule 31, and unless the court for special reasons otherwise directs, the trial shall be limited to the issues stated in the pre-trial order and shall proceed as follows:

(a) The plaintiff shall adduce evidence in support of his complaint;

(b) The defendant shall then adduce evidence in support of his defense, counterclaim, cross-claim and third-party complaint;

(g) Upon admission of the evidence, the case shall be deemed submitted for decision, unless the court directs the parties to argue or to submit their respective memoranda or any further pleadings.

If several defendants or third-party defendants, and so forth. having separate defenses appear by different counsel, the court shall determine the relative order of presentation of their evidence. (Emphasis supplied.)

Evidently, for the orderly administration of justice, the plaintiff shall first adduce evidence in support of his complaint and after the formal offer of evidence and the ruling thereon, then comes the turn of defendant under Section 3 (b) to adduce evidence in support of his defense, counterclaim, cross-claim and third party complaint, if any. Deviation from such order of trial is purely discretionary upon the trial court, in this case, the Sandiganbayan, which cannot be questioned by the parties unless the vitiating element of grave abuse of discretion supervenes. Thus, the right of COCOFED to present evidence on the main case had not yet ripened. And the rendition of the partial summary judgments overtook their right to present evidence on their defenses.

It cannot be stressed enough that the Republic as well as herein petitioners were well within their rights to move, as they in fact separately did, for a partial summary judgment. Summary judgment may be allowed where, save for the amount of damages, there is, as shown by affidavits and like evidentiary documents, no genuine issue as to any material fact and the moving party is entitled to a judgment as a matter of law. A genuine issue, as distinguished from one that is fictitious, contrived and set up in bad faith, means an issue of fact that calls for the presentation of evidence.105[90] Summary or accelerated judgment, therefore, is a procedural technique aimed at weeding out sham claims or defenses at an early stage of the litigation.106[91] Sections 1, 2 and 4 of Rule 35 of the Rules of Court on Summary Judgment, respectively provide:

SECTION 1. Summary judgment for claimant.A party seeking to recover upon a claim, counterclaim, or cross-claim may, at any time after the pleading in answer thereto has been served, move with supporting affidavits, depositions or admissions for a summary judgment in his favor upon all or any part thereof.

SEC. 2. Summary judgment for defending party.A party against whom a claim, counterclaim or cross-claim is asserted is sought may, at any time, move with supporting affidavits, depositions or admissions for a summary judgment in his favor as to all or any part thereof.

SEC. 4. Case not fully adjudicated on motion.If on motion under this Rule, judgment is not rendered upon the whole case or for all the reliefs sought and a trial is necessary, the court at the hearing of the motion, by examining the pleadings and the evidence before it and by interrogating counsel shall ascertain what material facts exist without substantial controversy and what are actually and in good faith controverted. It shall thereupon make an order specifying the facts that appear without substantial controversy, including the extent to which the amount of damages or other relief is not in controversy, and directing such further proceedings in the action as are just. The facts so specified shall be deemed established, and the trial shall be conducted on the controverted facts accordingly.

Clearly, petitioner COCOFEDs right to be heard had not been violated by the mere issuance of PSJ-A and PSJ-F before they can adduce their evidence.

As it were, petitioners COCOFED et al. were able to present documentary evidence in conjunction with its Class Action Omnibus Motion dated February 23, 2001 where they appended around four hundred (400) documents including affidavits of alleged farmers. These petitioners manifested that said documents comprise their evidence to prove the farmers ownership of the UCPB shares, which were distributed in accordance with valid and existing laws.107[92]

Lastly, COCOFED et al. even filed their own Motion for Separate Summary Judgment, an event reflective of their admission that there are no more factual issues left to be determined at the level of the Sandiganbayan. This act of filing a motion for summary judgment is a judicial admission against COCOFED under

Section 26, Rule 130 which declares that the act, declaration or omission of a party as to a relevant fact may be given in evidence against him.

Viewed in this light, the Court has to reject petitioners self-serving allegations about being deprived the right to adduce evidence.

III

The right to speedy trial was not violated.

This brings to the fore the alleged violation of petitioners right to a speedy trial and speedy disposition of the case. In support of their contention, petitioners cite Licaros v. Sandiganbayan,108[93] where the Court dismissed the case pending before the Sandiganbayan for violation of the accuseds right to a speedy trial.

It must be clarified right off that the right to a speedy disposition of case and the accuseds right to a speedy trial are distinct, albeit kindred, guarantees, the most obvious difference being that a speedy disposition of cases, as provided in

Article III, Section 16 of the Constitution, obtains regardless of the nature of the case:

Section 16. All persons shall have the right to a speedy disposition of their cases before all judicial, quasi-judicial, or administrative bodies.

In fine, the right to a speedy trial is available only to an accused and is a peculiarly criminal law concept, while the broader right to a speedy disposition of cases may be tapped in any proceedings conducted by state agencies. Thus, in Licaros the Court dismissed the criminal case against the accused due to the palpable transgression of his right to a speedy trial.

In the instant case, the appropriate right involved is the right to a speedy disposition of cases, the recovery of ill-gotten wealth being a civil suit.

Nonetheless, the Court has had the occasion to dismiss several cases owing to the infringement of a partys right to a speedy disposition of cases.109[94] Dismissal of the case for violation of this right is the general rule. Bernat v. The

Honorable Sandiganbayan (5th Division)110[95] expounds on the extent of the right to a speedy disposition of cases as follows:

Section 16 of Article III of the Constitution guarantees the right of all persons to a speedy disposition of their cases. Nevertheless, this right is deemed violated only when the proceedings are attended by vexatious, capricious and oppressive delays. Moreover, the determination of whether the delays are of said nature is relative and cannot be based on a mere mathematical reckoning of time. Particular regard must be taken of the facts and circumstances peculiar to each case. As a guideline, the Court in Dela Pea v. Sandiganbayan mentioned certain factors that should be considered and balanced, namely: 1) length of delay; 2) reasons for the delay; 3) assertion or failure to assert such right by the accused; and 4) prejudice caused by the delay.

While this Court recognizes the right to speedy disposition quite distinctly from the right to a speedy trial, and although this Court has always zealously espoused protection from oppressive and vexatious delays not attributable to the party involved, at the same time, we hold that a partys individual rights should not work against and preclude the peoples equally important right to public justice. In the instant case, three people died as a result of the crash of the airplane that the accused was flying. It appears to us that the delay in the disposition of the case prejudiced not just the accused but the people as well. Since the accused has completely failed to assert his right seasonably and inasmuch as the respondent judge was not in a position to dispose of the case on the merits we hold it proper and equitable to give the parties fair opportunity to obtain substantial justice in the premises.

The more recent case of Tello v. People111[96] laid stress to the restrictive dimension to the right to speedy disposition of cases, i.e., it is lost unless seasonably invoked:

In Bernat , the Court denied petitioners claim of denial of his right to a speedy disposition of cases considering that [he] chose to remain silent for eight years before complaining of the delay in the disposition of his case. The Court ruled that petitioner failed to seasonably assert his right and he merely sat and waited from the time his case was submitted for resolution. In this case, petitioner similarly failed to assert his right to a speedy disposition of his case. He only invoked his right to a speedy disposition of cases after [his conviction]. Petitioners silence may be considered as a waiver of his right.

An examination of the petitioners arguments and the cited indicia of delay would reveal the absence of any allegation that petitioners moved before the Sandiganbayan for the dismissal of the case on account of vexatious, capricious and oppressive delays that attended the proceedings. Following Tello, petitioners are deemed to have waived their right to a speedy disposition of the case. Moreover, delays, if any, prejudiced the Republic as well. What is more, the alleged breach of the right in question was not raised below. As a matter of settled jurisprudence, but subject to equally settled exception, an issue not raised before the trial court cannot be raised for the first time on appeal.112[97] The sporting idea forbidding one from pulling surprises underpins this rule. For these reasons,

the instant case cannot be dismissed for the alleged violation of petitioners right to a speedy disposition of the case.

IV Sections 1 and 2 of P.D. No. 755, Article III, Section 5 of P.D. No. 961 and Article III, Section 5 of P.D. No. 1468, are unconstitutional.

The Court may pass upon the constitutionality of P.D. Nos. 755, 961 and 1468.

Petitioners COCOFED et al. and Ursua uniformly scored the Sandiganbayan for abusing its power of judicial review and wrongly encroaching into the exclusive domain of Congress when it declared certain provisions of the coconut levy laws and PCA administrative issuances as unconstitutional.

We are not persuaded.

It is basic that courts will not delve into matters of constitutionality unless unavoidable, when the question of constitutionality is the very lis mota of the case, meaning, that the case cannot be legally resolved unless the constitutional issue raised is determined. This rule finds anchorage on the presumptive constitutionality

of every enactment. Withal, to justify the nullification of a statute, there must be a clear and unequivocal breach of the Constitution. A doubtful or speculative infringement would simply not suffice.113[98]

Just as basic is the precept that lower courts are not precluded from resolving, whenever warranted, constitutional questions, subject only to review by this Court.

To Us, the present controversy cannot be peremptorily resolved without going into the constitutionality of P.D. Nos. 755, 961 and 1468 in particular. For petitioners COCOFED et al. and Ballares et al. predicate their claim over the sequestered shares and necessarily their cause on laws and martial law issuances assailed by the Republic on constitutional grounds. Indeed, as aptly observed by the Solicitor General, this case is for the recovery of shares grounded on the invalidity of certain enactments, which in turn is rooted in the shares being public in character, purchased as they were by funds raised by the taxing and/or a mix of taxing and police powers of the state.114[99] As may be recalled, P.D. No. 755, under the policy-declaring provision, authorized the distribution of UCPB shares of stock free to coconut farmers. On the other hand, Section 2 of P.D. No. 755, hereunder quoted below, effectively authorized the PCA to utilize portions of the

CCSF to pay the financial commitment of the farmers to acquire UCPB and to deposit portions of the CCSF levies with UCPB interest free. And as there also provided, the CCSF, CIDF and like levies that PCA is authorized to collect shall be considered as non-special or fiduciary funds to be transferred to the general fund of the Government, meaning they shall be deemed private funds.

Section 2 of P.D. No. 755 reads:

Section 2. Financial Assistance. To enable the coconut farmers to comply with their contractual obligations under the aforesaid Agreement, the [PCA] is hereby directed to draw and utilize the collections under the [CCSF] authorized to be levied by [PD] No. 232, as amended, to pay for the financial commitments of the coconut farmers under the said agreement and, except for *PCAs+ budgetary requirements , all collections under the [CCSF] Levy and (50%) of the collections under the [CIDF] shall be deposited, interest free, with the said bank of the coconut farmers and such deposits shall not be withdrawn until the the bank has sufficient equity capital ; and since the operations, and activities of the [PCA] are all in accord with the present social economic plans and programs of the Government, all collections and levies which the [PCA] is authorized to levy and collect such as but not limited to the [CCS Levy] and the [CIDF] shall not be considered or construed, under any law or regulation, special and/or fiduciary funds and do not form part of the general funds of the national government within the contemplation of [P.D.] No. 711. (Emphasis supplied)

A similar provision can also be found in Article III, Section 5 of P.D. No. 961 and Article III, Section 5 of P.D. No. 1468, which We shall later discuss in turn:

P.D. No. 961

Section 5. Exemptions. The Coconut Consumers Stabilization Fund and the Coconut Industry Development Fund as well as all disbursements of said funds for the benefit of the coconut farmers as herein authorized shall not be construed or interpreted, under any law or regulation, as special and/or fiduciary funds, or as part of the general funds of the national government within the contemplation of P.D. No. 711; nor as a subsidy, donation, levy, government funded investment, or government share within the contemplation of P.D. 898, the intention being that said Fund and the disbursements thereof as herein authorized for the benefit of the coconut farmers shall be owned by them in their own private capacities.115[100] (Emphasis Ours)

P.D. No. 1468

Section 5. Exemptions. The [CCSF] and the [CIDF] as well as all disbursement as herein authorized, shall not be construed or interpreted, under nay law or regulation, as special and/or fiduciary funds, or as part of the general funds of the national government within the contemplation of PD 711; nor as subsidy, donation, levy government funded investment, or government share within the contemplation of PD 898, the intention being that said Fund and the disbursements thereof as herein authorized for the benefit of the coconut farmers shall be owned by them in their private capacities.116[101] (Emphasis Ours.)

In other words, the relevant provisions of P.D. Nos. 755, as well as those of P.D. Nos. 961 and 1468, could have been the only plausible means by which close to a purported million and a half coconut farmers could have acquired the said shares of stock. It has, therefore, become necessary to determine the validity of the authorizing law, which made the stock transfer and acquisitions possible.

To reiterate, it is of crucial importance to determine the validity of P.D. Nos. 755, 961 and 1468 in light of the constitutional proscription against the use of special funds save for the purpose it was established. Otherwise, petitioners claim of legitimate private ownership over UCPB shares and indirectly over SMC shares held by UCPBs subsidiaries will have no leg to stand on, P.D. No. 755 being the only law authorizing the distribution of the SMC and UCPB shares of stock to coconut farmers, and with the aforementioned provisions actually stating and holding that the coco levy fund shall not be considered as a special not even general fund, but shall be owned by the farmers in their private capacities.117[102]

The Sandiganbayans ensuing ratiocination on the need to pass upon constitutional issues the Republic raised below commends itself for concurrence:

This Court is convinced of the imperative need to pass upon the issues of constitutionality raised by Plaintiff. The issue of constitutionality of the provisions of P.D. No. 755 and the laws related thereto goes to the very core of Plaintiffs causes of action and defenses thereto. It will serve the best interest of justice to define this early the legal framework within which this case shall be heard and tried, taking into account the admission of the parties and the established facts, particularly those relating to the main substance of the defense of Lobregat, COCOFED, et al. and Ballares, et al., which is anchored on the laws being assailed by Plaintiff on constitutional grounds.

The Court is also mindful that lower courts are admonished to observe a becoming modesty in examining constitutional questions, but that they are nonetheless not prevented from resolving the same whenever warranted, subject only to review by the highest tribunal (Ynot v. Intermediate Appellate Court).

It is true that, as a general rule, the question of constitutionality must be raised at the earliest opportunity. The Honorable Supreme Court has clearly stated that the general rule admits of exceptions, thus:

For courts will pass upon a constitutional question only when presented before it in bona fide cases for determination, and the fact that the question has not been raised before is not a valid reason for refusing to allow it to be raised later. It has been held that the determination of a constitutional question is necessary whenever it is essential to the decision of the case as where the right of a party is founded solely on a statute, the validity of which is attacked.

In the case now before us, the allegations of the Subdivided Complaint are consistent with those in the subject Motion, and they sufficiently raise the issue of constitutionality of the provisions of laws in question. The Third Amended Complaint (Subdivided) states:

(ii) to legitimize a posteriori his highly anomalous and irregular use and diversion of government funds to advance his own private and commercial interests, Cojuangco, Jr. caused the issuance of PD 755 (a) declaring that the coconut levy funds shall not be considered special and fiduciary and trusts funds and do not form part of the general funds of the National Government, conveniently repealing for that purpose a series of coconut levy funds as special, fiduciary, trust and government funds.

(iv) To perpetuate his opportunity to deal with and make use the coconut levy funds to build his economic empire, Cojuangco, Jr. caused the issuance by Defendant Ferdinand E. Marcos of an unconstitutional decree (PD 1468) requiring the deposit of all coconut levy funds with UCPB, interest free, to the prejudice of the government.

The above-quoted allegations in the Third Amended Complaint (Subdivided) already question the legitimacy of the exercise by former President Marcos of his legislative authority when he issued P.D. Nos. 755 and 1468. The provision of Sec. 5, Art. III of P.D. 961 is substantially similar to the provisions of the aforesaid two [PDs]. P.D. No. 755 allegedly legitimized the highly anomalous and irregular use and diversion of government funds to advance his [defendant Cojuangcos] own private and commercial interest. The issuance of the said [PD] which has the force and effect of a law can only be assailed on constitutional grounds. The merits of the grounds adverted to in the allegations of the Third Amended Complaint (Subdivided) can only be resolved by this Court by testing the questioned [PDs], which are considered part of the laws of the land.

As early as June 20, 1989, this Court in its Resolution expressed this Courts understanding of the import of the allegations of the complaint, as follows:

It is likewise alleged in the Complaint that in order to legitimize the diversion of funds, defendant Ferdinand E. Marcos issued the Presidential Decrees referred to by the movants. This is then the core of Plaintiffs complaint: that, insofar as the coconut levy is concerned, these decrees had been enacted as tools for the acquisition of ill-gotten wealth for specific favored individuals. Even if Plaintiff may not have said so effectively, the complaint in fact disputes the legitimacy, and, if one pleases, the constitutionality of such enactments. The issue is validly raised on the face of the complaint and defendants must respond to it. Since the question of constitutionality may be raised even on appeal if the determination of such a question is essential to the decision of the case, we find more reason to resolve this constitutional question at this stage of the proceedings, where the defense is grounded solely on the very laws the constitutionality of which are being questioned and where the evidence of the defendants would seek mainly to prove their faithful and good faith compliance with the said laws and their implementing rules and regulations.118[103] (Emphasis added.)

The Courts rulings in COCOFED v. PCGG and Republic v. Sandiganbayan, as law of the case, are speciously invoked.

To thwart the ruling on the constitutionality of P.D. Nos. 755, 961 and 1468, petitioners would sneak in the argument that the Court has, in three separate

instances, upheld the validity, and thumbed down the Republics challenge to the constitutionality, of said laws imposing the different coconut levies and prescribing the uses of the fund collected. The separate actions of the Court, petitioners add, would conclude the Sandiganbayan on the issue of constitutionality of said issuances, following the law-of-the-case principle. Petitioners allege:

Otherwise stated, the decision of this Honorable Court in the COCOFED Case overruling the strict public fund theory espoused by the Respondent Republic, upholding the propriety of the laws imposing the collections of the different Coconut Levies and expressly allowing COCOFED, et al., to prove that the Sequestered Assets have legitimately become their private properties had become final and immutable.119[104]

Petitioners are mistaken.

Yu v. Yu,120[105] as effectively reiterated in Vios v. Pantangco,121[106] defines and explains the ramifications of the law of the case principle as follows:

Law of the case has been defined as the opinion delivered on a former appeal. It is a term applied to an established rule that when an appellate court passes on a question and remands the case to the lower court for further proceedings, the question there settled becomes the law of the case upon subsequent appeal. It means that whatever is once irrevocably established as the controlling legal rule or decision between the same parties in the same case continues to be the law of the case, so long as the facts on which such decision was predicated continue to be the facts of the case before the court.

Otherwise put, the principle means that questions of law that have been previously raised and disposed of in the proceedings shall be controlling in succeeding instances where the same legal question is raised, provided that the facts on which the legal issue was predicated continue to be the facts of the case before the court. Guided by this definition, the law of the case principle cannot provide petitioners any comfort. We shall explain why.

In the first instance, petitioners cite COCOFED v. PCGG.122[107] There, respondent PCGG questioned the validity of the coconut levy laws based on the limits of the states taxing and police power, as may be deduced from the ensuing observations of the Court:

. Indeed, the Solicitor General suggests quite strongly that the laws operating or purporting to convert the coconut levy funds into private funds, are a transgression of the basic limitations for the licit exercise of the state's taxing and police powers, and that certain provisions of said laws are merely clever stratagems to keep away government audit in order to facilitate misappropriation of the funds in question.

The utilization and proper management of the coconut levy funds, [to acquire shares of stocks for coconut farmers and workers] raised as they were by the States police and taxing power are certainly the concern of the Government. The coconut levy funds are clearly affected with public interest. Until it is demonstrated satisfactorily that they have legitimately become private funds, they must prima facie be accounted subject to measures prescribed in EO Nos. 1, 2, and 14 to prevent their concealment, dissipation, etc.123[108] [Words in bracket added.]

The issue, therefore, in COCOFED v. PCGG turns on the legality of the transfer of the shares of stock bought with the coconut levy funds to coconut farmers. This must be distinguished with the issues in the instant case of whether P.D. No. 755 violated Section 29, paragraph 3 of Article VI of the 1987 Constitution as well as to whether P.D. No. 755 constitutes undue delegation of legislative power. Clearly, the issues in both sets of cases are so different as to preclude the application of the law of the case rule.

The second and third instances that petitioners draw attention to refer to the rulings in Republic v. Sandiganbayan, where the Court by Resolution of

December 13, 1994, as reiterated in another resolution dated March 26, 1996, resolved to deny the separate motions of the Republic to resolve legal questions on the character of the coconut levy funds, more particularly to declare as unconstitutional (a) coconut levies collected pursuant to various issuances as public funds and (b) Article III, Section 5 of P.D. No. 1468.

Prescinding from the foregoing considerations, petitioners would state: Having filed at least three (3) motions seeking, among others, to declare certain provisions of the Coconut Levy Laws unconstitutional and having been rebuffed all three times by this Court, the Republic - and necessarily Sandiganbayan should have followed as [they were] legally bound by this Courts prior determination on that above issue of constitutionality under the doctrine of Law of the Case.

Petitioners are wrong.

The Court merely declined to pass upon the

constitutionality of the coconut levy laws or some of their provisions. It did not declare that the UCPB shares acquired with the use of coconut levy funds have legitimately become private.

The coconut levy funds are in the nature of taxes and can only be used for public purpose. Consequently, they cannot be used to purchase shares of stocks to be given for free to private individuals.

Indeed, We have hitherto discussed, the coconut levy was imposed in the exercise of the States inherent power of taxation. As We wrote in Republic v. COCOFED:124[109]

Indeed, coconut levy funds partake of the nature of taxes, which, in general, are enforced proportional contributions from persons and properties, exacted by the State by virtue of its sovereignty for the support of government and for all public needs. Based on its definition, a tax has three elements, namely: a) it is an enforced proportional contribution from persons and properties; b) it is imposed by the State by virtue of its sovereignty; and c) it is levied for the support of the government. The coconut levy funds fall squarely into these elements for the following reasons: (a) They were generated by virtue of statutory enactments imposed on the coconut farmers requiring the payment of prescribed amounts. Thus, PD No. 276, which created the Coconut Consumer[s] Stabilization Fund (CCSF), mandated the following:
a. A levy, initially, of P15.00 per 100 kilograms of copra resecada or its equivalent in other coconut products, shall be imposed on every first sale, in accordance with the mechanics established under RA 6260, effective at the start of business hours on August 10, 1973. The proceeds from the levy shall be deposited with the Philippine National Bank or any other government bank to the account of the Coconut Consumers Stabilization Fund, as a separate trust fund which shall not form part of the general fund of the government.

The coco levies were further clarified in amendatory laws, specifically PD No. 961 and PD No. 1468 in this wise:
The Authority (PCA) is hereby empowered to impose and collect a levy, to be known as the Coconut Consumers Stabilization Fund Levy, on every one hundred kilos of copra resecada, or its equivalent delivered to, and/or purchased by, copra exporters, oil millers, desiccators and other end-users of copra or its equivalent in other coconut products. The levy shall be paid by such copra exporters, oil millers, desiccators and other end-users of copra or

its equivalent in other coconut products under such rules and regulations as the Authority may prescribe. Until otherwise prescribed by the Authority, the current levy being collected shall be continued.

Like other tax measures, they were not voluntary payments or donations by the people. They were enforced contributions exacted on pain of penal sanctions, as provided under PD No. 276:
3. Any person or firm who violates any provision of this Decree or the rules and regulations promulgated thereunder, shall, in addition to penalties already prescribed under existing administrative and special law, pay a fine of not less than P2,500 or more than P10,000, or suffer cancellation of licenses to operate, or both, at the discretion of the Court.

Such penalties were later amended thus: .

(b) The coconut levies were imposed pursuant to the laws enacted by the proper legislative authorities of the State. Indeed, the CCSF was collected under PD No. 276. (c) They were clearly imposed for a public purpose. There is absolutely no question that they were collected to advance the governments avowed policy of protecting the coconut industry. This Court takes judicial notice of the fact that the coconut industry is one of the great economic pillars of our nation, and coconuts and their byproducts occupy a leading position among the countrys export products. Taxation is done not merely to raise revenues to support the government, but also to provide means for the rehabilitation and the stabilization of a threatened industry, which is so affected with public interest as to be within the police power of the State. Even if the money is allocated for a special purpose and raised by special means, it is still public in character. In Cocofed v. PCGG, the Court observed that certain agencies or enterprises were organized and financed with revenues derived from coconut levies imposed under a succession of law of the late dictatorship with deposed Ferdinand Marcos and his cronies as the suspected authors and chief beneficiaries of the resulting coconut industry monopoly. The Court continued: . It cannot be denied that the coconut industry is one of the major industries supporting the national economy. It is, therefore, the States concern to make it a strong and secure source not only of the livelihood of a significant segment of the population, but also of export earnings the sustained growth of which is one of the imperatives of economic stability.125[110] (Emphasis Ours)

We have ruled time and again that taxes are imposed only for a public purpose.126[111] They cannot be used for purely private purposes or for the exclusive benefit of private persons.127[112] When a law imposes taxes or levies from the public, with the intent to give undue benefit or advantage to private persons, or the promotion of private enterprises, that law cannot be said to satisfy the requirement of public purpose.128[113] In Gaston v. Republic Planters Bank, the petitioning sugar producers, sugarcane planters and millers sought the distribution of the shares of stock of the Republic Planters Bank, alleging that they are the true beneficial owners thereof.129[114] In that case, the investment, i.e., the purchase of the said bank, was funded by the deduction of PhP 1.00 per picul from the sugar proceeds of the sugar producers pursuant to P.D. No. 388.130[115]

In ruling against the petitioners, the Court held that to rule in their favor would contravene the general principle that revenues received from the imposition of taxes or levies cannot be used for purely private purposes or for the exclusive benefit of private persons.131[116] The Court amply reasoned that the Stabilization Fund must be utilized for the benefit of the entire sugar industry, and all its components, stabilization of the domestic market including foreign market, the industry being of vital importance to the countrys economy and to national interest.132[117]

Similarly in this case, the coconut levy funds were sourced from forced exactions decreed under P.D. Nos. 232, 276 and 582, among others,133[118] with the end-goal of developing the entire coconut industry.134[119] Clearly, to hold therefore, even by law, that the revenues received from the imposition of the coconut levies be used purely for private purposes to be owned by private individuals in their private capacity and for their benefit, would contravene the rationale behind the imposition of taxes or levies.

Needless to stress, courts do not, as they cannot, allow by judicial fiat the conversion of special funds into a private fund for the benefit of private individuals. In the same vein, We cannot subscribe to the idea of what appears to be an indirect if not exactly direct conversion of special funds into private funds, i.e., by using special funds to purchase shares of stocks, which in turn would be distributed for free to private individuals. Even if these private individuals belong to, or are a part of the coconut industry, the free distribution of shares of stocks purchased with special public funds to them, nevertheless cannot be justified. The ratio in Gaston,135[120] as expressed below, applies mutatis

mutandis to this case:

The stabilization fees in question are levied by the State 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 as state funds even though they are held for a special purpose.

That the fees were collected from sugar producers,[etc.], and that the funds were channeled to the purchase of shares of stock in respondent Bank do not convert the funds into a trust fund for their benefit nor make them the beneficial owners of the shares so purchased. It is but rational that the fees be collected from them since it is also they who are benefited from the expenditure of the funds derived from it. .136[121] (Emphasis Ours.)

In this case, the coconut levy funds were being exacted from copra exporters, oil millers, desiccators and other end-users of copra or its equivalent in other coconut products.137[122] Likewise so, the funds here were channeled to the purchase of the shares of stock in UCPB. Drawing a clear parallelism between Gaston and this case, the fact that the coconut levy funds were collected from the persons or entities in the coconut industry, among others, does not and cannot entitle them to be beneficial owners of the subject funds or more bluntly, owners thereof in their private capacity. Parenthetically, the said private individuals

cannot own the UCPB shares of stocks so purchased using the said special funds of the government.138[123]

Coconut levy funds are special public funds of the government.

Plainly enough, the coconut levy funds are public funds. We have ruled in Republic v. COCOFED that the coconut levy funds are not only affected with public interest; they are prima facie public funds.139[124] In fact, this

pronouncement that the levies are government funds was admitted and recognized by respondents, COCOFED, et al., in G.R. No. 147062-64.140[125] And more importantly, in the same decision, We clearly explained exactly what kind of government fund the coconut levies are. We were categorical in saying that

coconut levies are treated as special funds by the very laws which created them:

Finally and tellingly, the very laws governing the coconut levies recognize their public character. Thus, the third Whereas clause of PD No. 276 treats them as special funds for a specific public purpose. Furthermore, PD No. 711 transferred to the general funds of the State all existing special and fiduciary funds including the CCSF. On the other hand, PD No. 1234 specifically declared the CCSF as a special fund for a special purpose, which should be treated as a special account in the National Treasury.141[126] (Emphasis Ours.)

If only to stress the point, P.D. No. 1234 expressly stated that coconut levies are special funds to be remitted to the Treasury in the General Fund of the State, but treated as Special Accounts:

Section 1. All income and collections for Special or Fiduciary Funds authorized by law shall be remitted to the Treasury and treated as Special Accounts in the General Fund, including the following:

(a) [PCA] Development Fund, including all income derived therefrom under Sections 13 and 14 of [RA] No. 1145; Coconut Investments Fund under Section 8 of [RA] No. 6260, including earnings, profits, proceeds and interests derived therefrom; Coconut Consumers Stabilization Funds under Section 3-A of PD No. 232, as inserted by Section 3 of P.D. No. 232, as inserted by Section 2 of P.D. No. 583; and all other fees accruing to the [PCA] under the provisions of Section 19 of [RA] No. 1365, in accordance with Section 2 of P.D. No. 755 and all other income accruing to the [PCA] under existing laws.142[127] (Emphasis Ours)

Moreover, the Court, in Gaston, stated the observation that the character of a stabilization fund as a special fund is emphasized by the fact that the funds are deposited in the Philippine National Bank [PNB] and not in the Philippine Treasury, moneys from which may be paid out only in pursuance of an appropriation made by law.143[128] Similarly in this case, Sec.1 (a) of P.D. No. 276 states that the proceeds from the coconut levy shall be deposited with the PNB, then a government bank, or any other government bank under the account of the CCSF, as a separate trust fund, which shall not form part of the governments general fund.144[129] And even assuming arguendo that the coconut levy funds were transferred to the general fund pursuant to P.D. No. 1234, it was with the specific directive that the same be treated as special accounts in the general fund.145[130]

The coconut levy funds can only be used for the special purpose and the balance thereof should revert back to the general fund. Consequently, their subsequent reclassification as a private fund to be owned by private individuals in their private capacities under P.D. Nos. 755, 961 and 1468 are unconstitutional.

To recapitulate, Article VI, Section 29 (3) of the 1987 Constitution, restating a general principle on taxation, enjoins the disbursement of a special fund in accordance with the special purpose for which it was collected, the balance, if there be any, after the purpose has been fulfilled or is no longer forthcoming, to be transferred to the general funds of the government, thus:

Section 29(3).

(3) All money collected on any tax levied for a special purpose shall be treated as a special fund and paid out for such purpose 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. (Emphasis Ours)

Correlatively, Section 2 of P.D. No. 755 clearly states that:

Section 2. Financial Assistance. To enable the coconut farmers to comply with their contractual obligations under the aforesaid Agreement, the [PCA] is hereby directed to draw and utilize the collections under the Coconut Consumers Stabilization Fund [CCSF] authorized to be levied by [P.D.] 232, as amended, to pay for the financial commitments of the coconut farmers under the said agreement. and the Coconut Industry Development Fund as prescribed by Presidential Decree No. 582 shall not be considered or construed, under any law or regulation, special and/or fiduciary funds and do not form part of the general funds of the national government within the contemplation of Presidential Decree No. 711. (Emphasis Ours)

Likewise, as discussed supra, Article III, Section 5 of both P.D. Nos. 961 and 1468 provides that the CCSF shall not be construed by any law as a special and/or trust fund, the stated intention being that actual ownership of the said fund shall pertain to coconut farmers in their private capacities.146[131] Thus, in order to determine whether the relevant provisions of P.D. Nos. 755, 961 and 1468 complied with Article VI, Section 29 (3) of the 1987 Constitution, a look at the public policy or the purpose for which the CCSF levy was imposed is necessary.

The CCSF was established by virtue of P.D. No. 276 wherein it is stated that:

WHEREAS, an escalating crisis brought about by an abnormal situation in the world market for fats and oils has resulted in supply and price dislocations in the domestic market for coconut-based goods, and has created hardships for consumers thereof;

WHEREAS, the representatives of the coconut industry have proposed the implementation of an industry-financed stabilization scheme which will permit socialized pricing of coconut-based commodities;

WHEREAS, it is the policy of the State to promote the welfare and economic well-being of the consuming public;

1. In addition to its powers granted under [P.D.] No. 232, the [PCA] is hereby authorized to formulate and immediately implement a stabilization scheme for coconutbased consumer goods, along the following general guidelines:

(a) .The proceeds of the levy shall be deposited with the Philippine National Bank or any other government bank to the account of the CCSF as a separate trust fund.

(b) The Fund shall be utilized to subsidize the sale of coconutbased products at prices set by the Price Control Council.:

As couched, P.D. No. 276 created and exacted the CCSF to advance the governments avowed policy of protecting the coconut industry.147[132] Evidently, the CCSF was originally set up as a special fund to support consumer purchases of coconut products. To put it a bit differently, the protection of the entire coconut industry, and even more importantly, for the consuming public provides the rationale for the creation of the coconut levy fund. There can be no quibbling then that the foregoing provisions of P.D. No. 276 intended the fund created and set up therein not especially for the coconut farmers but for the entire coconut industry, albeit the improvement of the industry would doubtless redound to the benefit of the farmers. Upon the foregoing perspective, the following

provisions of P.D. Nos. 755, 961 and 1468 insofar as they declared, as the case may be, that: [the coconut levy] fund and the disbursements thereof [shall be] authorized for the benefit of the coconut farmers and shall be owned by them in their private capacities;148[133] or the coconut levy fund shall not be construed by any law to be a special and/or fiduciary fund, and do not therefore form part of the general fund of the national government later on;149[134] or the UCPB shares acquired using the coconut levy fund shall be distributed to the coconut farmers for

free,150[135] violated the special public established.

purpose for which the CCSF was

In

sum,

not

only

were

the

challenged

presidential

issuances

unconstitutional for decreeing the distribution of the shares of stock for free to the coconut farmers and, therefore, negating the public purpose declared by P.D. No. 276, i.e., to stabilize the price of edible oil151[136] and to protect the coconut industry.152[137] They likewise reclassified, nay treated, the coconut levy fund as private fund to be disbursed and/or invested for the benefit of private individuals in their private capacities, contrary to the original purpose for which the fund was created. To compound the situation, the offending provisions effectively removed the coconut levy fund away from the cavil of public funds which normally can be paid out only pursuant to an appropriation made by law.153[138] The conversion of public funds into private assets was illegally allowed, in fact mandated, by these provisions. Clearly therefore, the pertinent provisions of P.D. Nos. 755, 961 and 1468 are unconstitutional for violating Article

VI, Section 29 (3) of the Constitution. In this context, the distribution by PCA of the UCPB shares purchased by means of the coconut levy fund a special fund of the government to the coconut farmers, is therefore void.

We quote with approval the Sandiganbayans reasons for declaring the provisions of P.D. Nos. 755, 961 and 1468 as unconstitutional:

It is now settled, in view of the ruling in Republic v. COCOFED, et al., supra, that Coconut levy funds are raised with the use of the police and taxing powers of the State; that they are levies imposed by the State for the benefit of the coconut industry and its farmers and that they were clearly imposed for a public purpose. This public purpose is explained in the said case, as follows:

. c) They were clearly imposed for a public purpose. There is absolutely no question that they were colleted to advance the governments avowed policy of protecting the coconut industry. Taxation is done not merely to raise revenues to support the government, but also to provide means for the rehabilitation and the stabilization of a threatened industry, which is so affected with public interest as to be within the police power of the State, as held in Caltex Philippines v. COA and Osmea v. Orbos.

The avowed public purpose for the disbursement of the CCSF is contained in the perambulatory clauses and Section 1 of P.D. No. 755. The imperativeness of enunciating the public purpose of the expenditure of funds raised through taxation is underscored in the case of Pascual v. The Secretary of Public Works and Communications, et al, supra, which held:

As regards the legal feasibility of appropriating public funds for a private purpose the principle according to Ruling Case Law, is this: It is a general rule that the legislature is without power to appropriate public revenue for anything but a public purpose it is the essential character of the direct object of the expenditure which must determine its validity as justifying a tax, and not the magnitude of the interests to be affected nor the degree to which the general advantage of the community, and thus the public welfare may be ultimately benefited by their promotion. Incidental advantage to the public or to the state, which results from the promotion of private interests and the prosperity of private enterprises or business, does not justify their aid by the use of public money. 25 R.L.C. pp. 398-400) The rule is set forth in Corpus Juris Secundum in the following language:

The test of the constitutionality of a statute requiring the use of public funds is whether the statute is designed to promote the public interests, as opposed to the furtherance of the advantage of individuals, although each advantage to individuals might incidentally serve the public. (81 C.J.S. p. 1147) Needless to say, this Court is fully in accord with the foregoing views. Besides, reflecting as they do, the established jurisprudence in the United States, after whose constitutional system ours has been patterned, said views and jurisprudence are, likewise, part and parcel of our own constitutional law.

The gift of funds raised by the exercise of the taxing powers of the State which were converted into shares of stock in a private corporation, slated for free distribution to the coconut farmers, can only be accorded constitutional sanction if it will directly serve the public purpose declared by law.154[139]

Section 1 of P.D. No. 755, as well as PCA Administrative Order No. 1, Series of 1975 (PCA AO 1), and Resolution No. 074-75, are invalid delegations of legislative power.

Petitioners argue that the anti-graft court erred in declaring Section 1 of PD 755, PCA Administrative Order No. 1 and PCA Resolution No. 074-78 constitutionally infirm by reason of alleged but unproven and unsubstantiated flaws in their implementation. Additionally, they explain that said court erred in concluding that Section 1 of PD No. 755 constitutes an undue delegation of legislative power insofar as it authorizes the PCA to promulgate rules and regulations governing the distribution of the UCPB shares to the farmers.

These propositions are meritless.

The assailed PSJ-A noted the operational distribution nightmare faced by PCA and the mode of distribution of UCPB shares set in motion by that agency left much room for diversion. Wrote the Sandiganbayan:

The actual distribution of the bank shares was admittedly an enormous operational problem which resulted in the failure of the intended beneficiaries to receive their shares of stocks in the bank, as shown by the rules and regulations, issued by the

PCA, without adequate guidelines being provided to it by P.D. No. 755. PCA Administrative Order No. 1, Series of 1975 (August 20, 1975), Rules and Regulations Governing the Distribution of Shares of Stock of the Bank Authorized to be Acquired Pursuant to PCA Board Resolution No. 246-75, quoted hereunder discloses how the undistributed shares of stocks due to anonymous coconut farmers or payors of the coconut levy fees were authorized to be distributed to existing shareholders of the Bank: Section 9. Fractional and Undistributed Shares Fractional shares and shares which remain undistributed shall be distributed to all the coconut farmers who have qualified and received equity in the Bank and shall be apportioned among them, as far as practicable, in proportion to their equity in relation to the number of undistributed equity and such further rules and regulations as may hereafter be promulgated.

The foregoing PCA issuance was further amended by Resolution No. 074-78, still citing the same problem of distribution of the bank shares.:

Thus, when 51,200,806 shares in the bank remained undistributed, the PCA deemed it proper to give a bonanza to coconut farmers who already got their bank shares, by giving them an additional share for each share owned by them and by converting their fractional shares into full shares. The rest of the shares were then transferred to a private organization, the COCOFED, for distribution to those determined to be bona fide coconut farmers who had not received shares of stock of the Bank. .

The PCA thus assumed, due to lack of adequate guidelines set by P.D. No. 755, that it had complete authority to define who are the coconut farmers and to decide as to who among the coconut farmers shall be given the gift of bank shares; how many shares shall be given to them, and what basis it shall use to determine the amount of shares to be distributed for free to the coconut farmers. In other words, P.D. No. 755 fails the completeness test which renders it constitutionally infirm.

Regarding the second requisite of standard, it is settled that legislative standard need not be expressed.

We observed, however, that the PCA [AO] No. 1, Series of 1975 and PCA Rules and Regulations 074-78, did not take into consideration the accomplishment of the public purpose or the national standard/policy of P.D. No. 755 which is directly to accelerate the development and growth of the coconut industry and as a consequence thereof, to make the coconut farmers participants in and beneficiaries of such growth and development. The said PCA issuances did nothing more than provide guidelines as to whom the UCPB shares were to be distributed and how many bank shares shall be allotted to the beneficiaries. There was no mention of how the distributed shares shall be used to achieve exclusively or at least directly or primarily the aim or public purpose enunciated by P.D. No. 755. The numerical or quantitative distribution of shares contemplated by the PCA regulations which is a condition for the validly of said administrative issuances. There was a reversal of priorities. The narrow private interests prevailed over the laudable objectives of the law. However, under the May 25, 1975 agreement implemented by the PCA issuances, the PCA acquired only 64.98% of the shares of the bank and even the shares covering the said 64.98% were later on transferred to noncoconut farmers.

The distribution for free of the shares of stock of the CIIF Companies is tainted with the above-mentioned constitutional infirmities of the PCA administrative issuances. In view of the foregoing, we cannot consider the provision of P.D. No. 961 and P.D. No. 1468 and the implementing regulations issued by the PCA as valid legal basis to hold that assets acquired with public funds have legitimately become private properties. 155[140] (Emphasis added.)

P.D. No. 755 involves an invalid delegation of legislative power, a concept discussed in Soriano v. Laguardia,156[141] citing the following excerpts from Edu v. Ericta:
It is a fundamental that Congress may not delegate its legislative power. What cannot be delegated is the authority to make laws and to alter and repeal them; the test is the completeness of the statute in all its term and provisions when it leaves the hands of the legislature. To determine whether or not there is an undue delegation of legislative power, the inquiry must be directed to the scope and definiteness of the measure enacted. The legislature does not abdicate its functions when it describes what job must be done, who is to do it, and what is the scope of his authority.

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 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.157[142] (Emphasis supplied)

Jurisprudence is consistent as regards the two tests, which must be complied with to determine the existence of a valid delegation of legislative power. In Abakada Guro Party List, et al. v. Purisima,158[143] We reiterated the discussion, to wit:

Two tests determine the validity of delegation of legislative power: (1) the completeness test and (2) the sufficient standard test. A law is complete when it sets forth therein the policy to be executed, carried out or implemented by the delegate. It lays down a sufficient standard when it provides adequate guidelines or limitations in the law to map out the boundaries of the delegates authority and prevent the delegation from running riot. To be sufficient, the standard must specify the limits of the delegates authority, announce the legislative policy and identify the conditions under which it is to be implemented.

In the instant case, the requisite standards or criteria are absent in P.D. No. 755. As may be noted, the decree authorizes the PCA to distribute to coconut farmers, for free, the shares of stocks of UCPB and to pay from the CCSF levy the financial commitments of the coconut farmers under the Agreement for the acquisition of such bank. Yet, the decree does not even state who are to be considered as coconut farmers. Would, say, one who plants a single coconut tree be already considered a coconut farmer and, therefore, entitled to own UCPB shares? If so, how many shares shall be given to him? The definition of a coconut farmer and the basis as to the number of shares a farmer is entitled to receive for free are important variables to be determined by law and cannot be left to the discretion of the implementing agency.

Moreover, P.D. No. 755 did not identify or delineate any clear condition as to how the disposition of the UCPB shares or their conversion into private ownership will redound to the advancement of the national policy declared under it. To recall, P.D. No. 755 seeks to accelerate the growth and development of the

coconut industry and achieve a vertical integration thereof so that coconut farmers will become participants in, and beneficiaries of, such growth and development.159[144] The Sandiganbayan is correct in its observation and ruling that the said law gratuitously gave away public funds to private individuals, and converted them exclusively into private property without any restriction as to its use that would reflect the avowed national policy or public purpose. Conversely, the private individuals to whom the UCPB shares were transferred are free to dispose of them by sale or any other mode from the moment of their acquisition. In fact and true enough, the Sandiganbayan categorically stated in its Order dated March 11, 2003,160[145] that out of the 72.2% shares and increased capital stock of the FUB (later UCPB) allegedly covered by the May 25, 1975 Agreement,161[146] entirely paid for by PCA, 7.22% were given to Cojuangco and the remaining 64.98%, which were originally held by PCA for the benefit of the coconut farmers, were later sold or transferred to non-coconut

farmers.162[147]

Even the proposed rewording of the factual allegations of

Lobregat, COCOFED, et al. and Ballares, et al., reveals that indeed, P.D. No. 755 did not provide for any guideline, standard, condition or restriction by which the said shares shall be distributed to the coconut farmers that would ensure that the

same will be undertaken to accelerate the growth and development of the coconut industry pursuant to its national policy. The proposed rewording of admissions reads:

There were shares forming part of the aforementioned 64.98% which were, after their distribution, for free, to the coconut farmers as required by P.D. No. 755, sold or transferred respectively by individual coconut farmers who were then the registered stockholders of those UCPB shares to non-coconut farmers.163[148]

Clearly, P.D. No. 755, insofar as it grants PCA a veritable carte blanche to distribute to coconut farmers UCPB shares at the level it may determine, as well as the full disposition of such shares to private individuals in their private capacity without any conditions or restrictions that would advance the laws national policy or public purpose, present a case of undue delegation of legislative power. As such, there is even no need to discuss the validity of the administrative orders and resolutions of PCA implementing P.D. No. 755. Water cannot rise higher than its source.

Even so, PCA AO 1 and PCA Resolution No. 078-74, are in themselves, infirm under the undue delegation of legislative powers. Particularly, Section 9 of PCA AO I provides:

SECTION 9. Fractional and Undistributed Shares Fractional shares and shares which remain undistributed as a consequence of the failure of the coconut farmers to register their COCOFUND receipts or the destruction of the COCOFUND receipts or the registration of COCOFUND receipts in the name of an unqualified individual, after the final distribution is made on the basis of the consolidated IBM registration Report as of March 31, 1976 shall be distributed to all the coconut farmers who have qualified and received equity in the Bank and shall be appointed among them, as far as practicable, in proportion to their equity in relation to the number of undistributed equity and such further rules and regulations as may hereafter be promulgated.

The foregoing provision directs and authorizes the distribution of fractional and undistributed shares as a consequence of the failure of the coconut farmers with Coco Fund receipts to register them, even without a clear mandate or instruction on the same in any pertinent existing law. PCA Resolution No. 078-74 had a similar provision, albeit providing more detailed information. The said Resolution identified 51,200,806 shares of the bank that remained undistributed and PCA devised its own rules as to how these undistributed and fractional shares shall be disposed of, notwithstanding the dearth as to the standards or parameters in the laws which it sought to implement.

Eventually, what happened was that, as correctly pointed out by the Sandiganbayan, the PCA gave a bonanza to supposed coconut farmers who already got their bank shares, by giving them extra shares according to the rules established on its own by the PCA under PCA AO 1 and Resolution No. 07874. Because of the lack of adequate guidelines under P.D. No. 755 as to how the shares were supposed to be distributed to the coconut farmers, the PCA thus

assumed that it could decide for itself how these shares will be distributed. This obviously paved the way to playing favorites, if not allowing outright shenanigans. In this regard, this poser raised in the Courts February 16, 1993 Resolution in G.R. No. 96073 is as relevant then as it is now: How is it that shares of stocks in such entities which was organized and financed by revenues derived from coconut levy funds which were imbued with public interest ended up in private hands who are not farmers or beneficiaries; and whether or not the holders of said stock, who in one way or another had had some part in the collection, administration, disbursement or other disposition of the coconut levy funds were qualified to acquire stock in the corporations formed and operated from these funds. 164[149]

Likewise, the said PCA issuances did not take note of the national policy or public purpose for which the coconut levy funds were imposed under P.D. No. 755, i.e. the acceleration of the growth and development of the entire coconut industry, and the achievement of a vertical integration thereof that could make the coconut farmers participants in, and beneficiaries of, such growth and development.165[150] Instead, the PCA prioritized the coconut farmers

themselves by fully disposing of the bank shares, totally disregarding the national policy for which the funds were created. This is clearly an undue delegation of legislative powers.

With this pronouncement, there is hardly any need to establish that the sequestered assets are ill-gotten wealth. The documentary evidence, the P.D.s and Agreements, prove that the transfer of the shares to the more than one million of supposed coconut farmers was tainted with illegality.

Article III, Section 5 of P.D. No. 961 and Article III, Section 5 of P.D. No. 1468 violate Article IX (D) (2) of the 1987 Constitution.

Article III, Section 5 of P.D. No. 961 explicitly takes away the coconut levy funds from the coffer of the public funds, or, to be precise, privatized revenues derived from the coco levy. Particularly, the aforesaid Section 5 provides:

Section 5. Exemptions. The Coconut Consumers Stabilization Fund and the Coconut Industry Development fund as well as all disbursements of said funds for the benefit of the coconut farmers as herein authorized shall not be construed or interpreted, under any law or regulation, as special and/or fiduciary funds, or as part of the general funds of the national government within the contemplation of P.D. No. 711; nor as a subsidy, donation, levy, government funded investment, or government share within the contemplation of P.D. 898 the intention being that said Fund and the disbursements thereof as herein authorized for the benefit of the coconut farmers shall be owned in their own private capacity.166[151] (Emphasis Ours)

The same provision is carried over in Article III, Section 5 of P.D. No. 1468, the Revised Coconut Industry Code:

These identical provisions of P.D. Nos. 961 and 1468 likewise violate Article IX (D), Section 2(1) of the Constitution, defining the powers and functions of the Commission on Audit (COA) as a constitutional commission:

Sec. 2. (1) The Commission on Audit shall have the power, authority, and duty to examine, audit, and settle all accounts pertaining to the revenue and receipts of, and expenditures or uses of funds and property, owned or held in trust by, or pertaining to, the Government, or any of its subdivisions, agencies, or instrumentalities, including government-owned and controlled corporations with original charters, and on a post-audit basis: (a) constitutional bodies, commissions and offices that have been granted fiscal autonomy under this Constitution; (b) autonomous state colleges and universities; (c) other government-owned or controlled corporations and their subsidiaries;.167[152] (Emphasis Ours)

A similar provision was likewise previously found in Article XII (D), Section 2 (1) of the 1973 Constitution, thus:

Section 2. The Commission on Audit shall have the following powers and functions:

(1) Examine, audit, and settle, in accordance with law and regulations, all accounts pertaining to the revenues and receipts of, and expenditures or uses of funds and property, owned or held in trust by, or pertaining to, the Government, or any of its subdivisions, agencies, or instrumentalities, including government-owned and controlled corporations; keep the general accounts of the government and, for such period as may be provided by law, preserve the vouchers pertaining thereto; and promulgate accounting and auditing rules and regulations including those for the prevention of irregular, unnecessary, excessive, or extravagant expenditures or use of funds and property.168[153] (Emphasis Ours)

The Constitution, by express provision, vests the COA with the responsibility for State audit.169[154] As an independent supreme State auditor, its audit jurisdiction cannot be undermined by any law. Indeed, under Article IX (D), Section 3 of the 1987 Constitution, [n]o law shall be passed exempting any entity of the Government or its subsidiary in any guise whatever, or any investment of public funds, from the jurisdiction of the Commission on Audit.170[155] Following the mandate of the COA and the parameters set forth by the foregoing provisions, it is clear that it has jurisdiction over the coconut levy funds, being special public funds. Conversely, the COA has the power, authority and duty to examine, audit and settle all accounts pertaining to the coconut levy funds and, consequently, to the UCPB shares purchased using the said funds.

However, declaring the said funds as partaking the nature of private funds, ergo subject to private appropriation, removes them from the coffer of the public funds of the government, and consequently renders them impervious to the COA audit jurisdiction. Clearly, the pertinent provisions of P.D. Nos. 961 and 1468 divest the COA of its constitutionally-mandated function and undermine its constitutional independence.

The assailed purchase of UCPB shares of stocks using the coconut levy funds presents a classic example of an investment of public funds. The conversion of these special public funds into private funds by allowing private individuals to own them in their private capacities is something else. It effectively deprives the COA of its constitutionally-invested power to audit and settle such accounts. The conversion of the said shares purchased using special public funds into pure and exclusive private ownership has taken, or will completely take away the said funds from the boundaries with which the COA has jurisdiction. Obviously, the COA is without audit jurisdiction over the receipt or disbursement of private property. Accordingly, Article III, Section 5 of both P.D. Nos. 961 and 1468 must be struck down for being unconstitutional, be they assayed against Section 2(1), Article XII (D) of the 1973 Constitution or its counterpart provision in the 1987 Constitution.

The Court, however, takes note of the dispositive portion of PSJ-A, which states that:171[156]

2. Section 2 of P.D. No. 755 which mandated that the coconut levy funds shall not be considered special and/or fiduciary funds nor part of the general funds of the national government and similar provisions of Sec. 3, Art. III, P.D. 961 and Sec. 5, Art. III, P.D. 1468 contravene the provisions of the Constitution, particularly, Art. IX (D), Sec. 2; and Article VI, Sec. 29 (3). (Emphasis Ours)

However, a careful reading of the discussion in PSJ-A reveals that it is Section 5 of Article III of P.D. No. 961 and not Section 3 of said decree, which is at issue, and which was therefore held to be contrary to the Constitution. The dispositive portion of the said PSJ should therefore be corrected to reflect the proper provision that was declared as unconstitutional, which is Section 5 of Article III of P.D. No. 961 and not Section 3 thereof.

The CIIF Companies and the CIIF Block of SMC shares are public funds/assets

From the foregoing discussions, it is fairly established that the coconut levy funds are special public funds. Consequently, any property purchased by means of the coconut levy funds should likewise be treated as public funds or public property, subject to burdens and restrictions attached by law to such property.

In this case, the 6 CIIF Oil Mills were acquired by the UCPB using coconut levy funds.172[157] On the other hand, the 14 CIIF holding companies are wholly owned subsidiaries of the CIIF Oil Mills.173[158] Conversely, these companies were acquired using or whose capitalization comes from the coconut levy funds. However, as in the case of UCPB, UCPB itself distributed a part of its investments in the CIIF oil mills to coconut farmers, and retained a part thereof as administrator.174[159] The portion distributed to the supposed coconut farmers followed the procedure outlined in PCA Resolution No. 033-78.175[160] And as the administrator of the CIIF holding companies, the UCPB authorized the

acquisition of the SMC shares.176[161] In fact, these companies were formed or organized solely for the purpose of holding the SMC shares.177[162] As found by the Sandiganbayan, the 14 CIIF holding companies used borrowed funds from the UCPB to acquire the SMC shares in the aggregate amount of P1.656 Billion.178[163]

Since the CIIF companies and the CIIF block of SMC shares were acquired using coconut levy funds funds, which have been established to be public in character it goes without saying that these acquired corporations and assets ought to be regarded and treated as government assets. Being government properties, they are accordingly owned by the Government, for the coconut industry pursuant to currently existing laws.179[164]

It may be conceded hypothetically, as COCOFED et al. urge, that the 14 CIIF holding companies acquired the SMC shares in question using advances from

the CIIF companies and from UCPB loans. But there can be no gainsaying that the same advances and UCPB loans are public in character, constituting as they do assets of the 14 holding companies, which in turn are wholly-owned subsidiaries of the 6 CIIF Oil Mills. And these oil mills were organized, capitalized and/or financed using coconut levy funds. In net effect, the CIIF block of SMC shares are simply the fruits of the coconut levy funds acquired at the expense of the coconut industry. In Republic v. COCOFED,180[165] the en banc Court, speaking through Justice (later Chief Justice) Artemio Panganiban, stated: Because the subject UCPB shares were acquired with government funds, the government becomes their prima facie beneficial and true owner. By parity of reasoning, the adverted block of SMC shares, acquired as they were with government funds, belong to the government as, at the very least, their beneficial and true owner.

We thus affirm the decision of the Sandiganbayan on this point. But as We have earlier discussed, reiterating our holding in Republic v. COCOFED, the States avowed policy or purpose in creating the coconut levy fund is for the development of the entire coconut industry, which is one of the major industries that promotes sustained economic stability, and not merely the livelihood of a significant segment of the population.181[166] Accordingly, We sustain the ruling of the Sandiganbayan in CC No. 0033-F that the CIIF companies and the CIIF block of SMC shares are public funds necessary owned by the Government. We,

however, modify the same in the following wise: These shares shall belong to the Government, which shall be used only for the benefit of the coconut farmers and for the development of the coconut industry.

Sandiganbayan did not err in ruling that PCA (AO) No. 1, Series of 1975 and PCA rules and regulations 074-78 did not comply with the national standard or policy of P.D. No. 755.

According to the petitioners, the Sandiganbayan has identified the national policy sought to be enhanced by and expressed under Section 1 in relation to Section 2 of P.D. No. 755. Yet, so petitioners argue, that court, with grave abuse of discretion, disregarded such policy and thereafter, ruled that Section 1 in relation to Section 2 of P.D. No. 755 is unconstitutional as the decree failed to promote the purpose for which it was enacted in the first place.

We are not persuaded. The relevant assailed portion of PSJ-A states:

We observe, however, that the PCA [AO] No. 1, Series of 1975 and PCA Rules and Regulations 074-78, did not take into consideration the accomplishment of the public purpose or the national standard/policy of P.D. No. 755 which is directly to accelerate the development and growth of the coconut industry and as a consequence thereof, to make the coconut farmers participants in and beneficiaries of such growth and development.

It is a basic legal precept that courts do not look into the wisdom of the laws passed. The principle of separation of powers demands this hands-off attitude from the judiciary. Saguiguit v. People182[167] teaches why:

[W]hat the petitioner asks is for the Court to delve into the policy behind or wisdom of a statute, which, under the doctrine of separation of powers, it cannot do,. Even with the best of motives, the Court can only interpret and apply the law and cannot, despite doubts about its wisdom, amend or repeal it. Courts of justice have no right to encroach on the prerogatives of lawmakers, as long as it has not been shown that they have acted with grave abuse of discretion. And while the judiciary may interpret laws and evaluate them for constitutional soundness and to strike them down if they are proven to be infirm, this solemn power and duty do not include the discretion to correct by reading into the law what is not written therein.

We reproduce the policy-declaring provision of P.D. No. 755, thus:

Section 1. Declaration of National Policy. It is hereby declared that the policy of the State is to provide readily available credit facilities to the coconut farmers at

preferential rates; that this policy can be efficiently realized by the implementation of the Agreement for the Acquisition of a Commercial Bank for the benefit of the Coconut Farmers executed by the [PCA], the terms of which Agreement are hereby incorporated by reference; and that the [PCA] is hereby authorized to distribute, for free, the shares of stock of the bank it acquired to the coconut farmers under such rules and regulations it may promulgate.

P.D. No. 755 having stated in no uncertain terms that the national policy of providing cheap credit facilities to coconut farmers shall be achieved with the acquisition of a commercial bank, the Court is without discretion to rule on the wisdom of such an undertaking. It is abundantly clear, however, that the Sandiganbayan did not look into the policy behind, or the wisdom of, P.D. No. 755. In context, it did no more than to inquire whether the purpose defined in P.D. No. 755 and for which the coco levy fund was established would be carried out, obviously having in mind the (a) dictum that the power to tax should only be exercised for a public purpose and (b) command of Section 29, paragraph 3 of Article VI of the 1987 Constitution that:

(3) All money collected on any tax levied for a special purpose shall be treated as a special fund and paid out for such purpose 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. (Emphasis supplied)

For the above reason, the above-assailed action of the Sandiganbayan was well within the scope of its sound discretion and mandate.

Moreover, petitioners impute on the anti-graft court the commission of grave abuse of discretion for going into the validity of and in declaring the coco levy laws as unconstitutional, when there were still factual issues to be resolved in a full blown trial as directed by this Court.183[168]

Petitioners COCOFED and the farmer representatives miss the point. They acknowledged that their alleged ownership of the sequestered shares in UCPB and SMC is predicated on the coco levy decrees. Thus, the legality and propriety of their ownership of these valuable assets are directly related to and must be assayed against the constitutionality of those presidential decrees. This is a primordial issue, which must be determined to address the validity of the rest of petitioners claims of ownership. Verily, the Sandiganbayan did not commit grave abuse of discretion, a phrase which, in the abstract, denotes the idea of capricious or whimsical exercise of judgment or the exercise of power in an arbitrary or despotic manner by reason of passion or personal hostility as to be equivalent to having acted without jurisdiction.184[169]

The Operative Fact Doctrine does not apply

Petitioners assert that the Sandiganbayans refusal to recognize the vested rights purportedly created under the coconut levy laws constitutes taking of private property without due process of law. They reason out that to accord retroactive application to a declaration of unconstitutionality would be unfair inasmuch as such approach would penalize the farmers who merely obeyed then valid laws.

This contention is specious.

In Yap v. Thenamaris Ships Management,185[170] the Operative Fact Doctrine was discussed in that:

As a general rule, an unconstitutional act is not a law; it confers no rights; it imposes no duties; it affords no protection; it creates no office; it is inoperative as if it has not been passed at all. The general rule is supported by Article 7 of the Civil Code, which provides:

Art. 7. Laws are repealed only by subsequent ones, and their violation or nonobservance shall not be excused by disuse or custom or practice to the contrary.

The doctrine of operative fact serves as an exception to the aforementioned general rule. In Planters Products, Inc. v. Fertiphil Corporation, we held:

The doctrine of operative fact, as an exception to the general rule, only applies as a matter of equity and fair play. It nullifies the effects of an unconstitutional law by recognizing that the existence of a statute prior to a determination of unconstitutionality is an operative fact and may have consequences which cannot always be ignored. The past cannot always be erased by a new judicial declaration.

The doctrine is applicable when a declaration of unconstitutionality will impose an undue burden on those who have relied on the invalid law. Thus, it was applied to a criminal case when a declaration of unconstitutionality would put the accused in double jeopardy or would put in limbo the acts done by a municipality in reliance upon a law creating it.186[171]

In that case, this Court further held that the Operative Fact Doctrine will not be applied as an exception when to rule otherwise would be iniquitous and would send a wrong signal that an act may be justified when based on an unconstitutional provision of law.187[172]

The Court had the following disquisition on the concept of the Operative Fact Doctrine in the case of Chavez v. National Housing Authority:188[173]

The operative fact doctrine is embodied in De Agbayani v. Court of Appeals, wherein it is stated that a legislative or executive act, prior to its being declared as unconstitutional by the courts, is valid and must be complied with, thus:

As the new Civil Code puts it: When the courts declare a law to be inconsistent with the Constitution, the former shall be void and the latter shall govern. Administrative or executive acts, orders and regulations shall be valid only when they are not contrary to the laws of the Constitution. It is understandable why it should be so, the Constitution being supreme and paramount. Any legislative or executive act contrary to its terms cannot survive.

Such a view has support in logic and possesses the merit of simplicity. It may not however be sufficiently realistic. It does not admit of doubt that prior to the declaration of nullity such challenged legislative or executive act must have been in force and had to be complied with. This is so as until after the judiciary, in an appropriate case, declares its invalidity, it is entitled to obedience and respect. Parties may have acted under it and may have changed their positions. What could be more fitting than that in a subsequent litigation regard be had to what has been done while such legislative or executive act was in operation and presumed to be valid in all respects. It is now accepted as a doctrine that prior to its being nullified, its existence as a fact must be reckoned with. This is merely to reflect awareness that precisely because the judiciary is the governmental organ which has the final say on whether or not a legislative or executive measure is valid, a period of time may have elapsed before it can exercise the power of judicial review that may lead to a declaration of nullity. It would be to deprive the law of its quality of fairness and justice then, if there be no recognition of what had transpired prior to such adjudication.

In the language of an American Supreme Court decision: The actual existence of a statute, prior to such a determination [of unconstitutionality], is an operative fact and may have consequences which cannot justly be ignored. The past cannot always be erased by a new judicial declaration. The effect of the subsequent ruling as to invalidity may have to be considered in various aspects, with respect to particular relations, individual and corporate, and particular conduct, private and official. This language has been quoted with approval in a resolution in Araneta v. Hill and the decision in Manila Motor Co., Inc. v. Flores. An even more recent instance is the opinion of Justice Zaldivar speaking for the Court in Fernandez v. Cuerva and Co. (Emphasis supplied.)

The principle was further explicated in the case of Rieta v. People of the Philippines, thus:

In similar situations in the past this Court had taken the pragmatic and realistic course set forth in Chicot County Drainage District vs. Baxter Bank to wit:

The courts below have proceeded on the theory that the Act of Congress, having been found to be unconstitutional, was not a law; that it was inoperative, conferring no rights and imposing no duties, and hence affording no basis for the challenged decree. It is quite clear, however, that such broad statements as to the effect of a determination of unconstitutionality must be taken with qualifications. The actual existence of a statute, prior to [the determination of its invalidity], is an operative fact and may have consequences which cannot justly be ignored. The past cannot always be erased by a new judicial declaration. The effect of the subsequent ruling as to invalidity may have to be considered in various aspects with respect to particular conduct, private and official. Questions of rights claimed to have become vested, of status, of prior determinations deemed to have

finality and acted upon accordingly, of public policy in the light of the nature both of the statute and of its previous application, demand examination. These questions are among the most difficult of those which have engaged the attention of courts, state and federal, and it is manifest from numerous decisions that an all-inclusive statement of a principle of absolute retroactive invalidity cannot be justified.

Moreover, the Court ruled in Chavez that:

Furthermore, when petitioner filed the instant case against respondents on August 5, 2004, the JVAs were already terminated by virtue of the MOA between the NHA and RBI. The respondents had no reason to think that their agreements were unconstitutional or even questionable, as in fact, the concurrent acts of the executive department lent validity to the implementation of the Project. The SMDRP agreements have produced vested rights in favor of the slum dwellers, the buyers of reclaimed land who were issued titles over said land, and the agencies and investors who made investments in the project or who bought SMPPCs. These properties and rights cannot be disturbed or questioned after the passage of around ten (10) years from the start of the SMDRP implementation. Evidently, the operative fact principle has set in. The titles to the lands in the hands of the buyers can no longer be invalidated.189[174]

In the case at bar, the Court rules that the dictates of justice, fairness and equity do not support the claim of the alleged farmer-owners that their ownership of the UCPB shares should be respected. Our reasons:

1. Said farmers or alleged claimants do not have any legal right to own the UCPB shares distributed to them. It was not successfully refuted that said

claimants were issued receipts under R.A. 6260 for the payment of the levy that went into the Coconut Investment Fund (CIF) upon which shares in the Coconut Investment Company will be issued. The Court upholds the finding of the

Sandiganbayan that said investment company is a different corporate entity from the United Coconut Planters Bank. This was in fact admitted by petitioners during the April 17, 2001 oral arguments in G.R. Nos. 147062-64.190[175]

The payments under R.A. 6260 cannot be equated with the payments under P.D. No. 276, the first having been made as contributions to the Coconut Investment Fund while the payments under P.D. No. 276 constituted the Coconut Consumers Stabilization Fund (CCSF). R.A. 6260 reads:

Section 2. Declaration of Policy. It is hereby declared to be the national policy to accelerate the development of the coconut industry through the provision of adequate medium and long-term financing for capital investment in the industry, by instituting a Coconut Investment fund capitalized and administered by coconut farmers through a Coconut Investment Company.191[176]

P.D. No. 276 provides:

1. In addition to its powers granted under Presidential Decree No. 232, the Philippine Coconut Authority is hereby authorized to formulate and immediately implement a stabilization scheme for coconut-based consumer goods, along the following general guidelines: (a) . The proceeds from the levy shall be deposited with the Philippine National Bank or any other government bank to the account of the Coconut Consumers Stabilization Fund, as a separate trust fund which shall not form part of the general fund of the government. (b) The Fund shall be utilized to subsidize the sale of coconut-based products at prices set by the Price Control Council, under rules and regulations to be promulgated by the Philippine Consumers Stabilization Committee.192[177]

The PCA, via Resolution No. 045-75 dated May 21, 1975, clarified the distinction between the CIF levy payments under R.A. 6260 and the CCSF levy paid pursuant to P.D. 276, thusly:

It must be remembered that the receipts issued under R.A. No. 6260 were to be registered in exchange for shares of stock in the Coconut Investment Company (CIC), which obviously is a different corporate entity from UCPB. This fact was admitted by petitioners during the April 17, 2001 oral arguments in G.R. Nos. 147062-64.

In fact, while the CIF levy payments claimed to have been paid by petitioners were meant for the CIC, the distribution of UCPB stock certificates to the coconut farmers, if at all, were meant for the payors of the CCSF in proportion to the coconut farmers CCSF contributions pursuant to PCA Resolution No. 045-75 dated May 21, 1975:

RESOLVED, FURTHER, That the amount of ONE HUNDRED FIFTY MILLION (P150,000,000.00) PESOS be appropriated and set aside from available funds of the PCA to be utilized in payment for the shares of stock of such existing commercial bank and that the Treasurer be instructed to disburse the said amount accordingly.

RESOLVED, FINALLY, That be directed to organize a team which shall prepare a list of coconut farmers who have paid the levy and contributed to the [CCSF] and to prepare a stock distribution plan to the end that the aforesaid coconut farmers shall receive certificates of stock of such commercial bank in proportion to their contributions to the Fund.

Unfortunately, the said resolution was never complied with in the distribution of the so-called farmers UCPB shares.

The payments therefore under R.A. 6260 are not the same as those under P.D. No. 276. The amounts of CIF contributions under R.A. 6260 which were collected starting 1971 are undeniably different from the CCSF levy under P.D. No. 276, which were collected starting 1973. The two (2) groups of claimants differ not only in identity but also in the levy paid, the amount of produce and the time the government started the collection.

Thus, petitioners and the alleged farmers claiming them pursuant to R.A. 6260 do not have any legal basis to own the UCPB shares distributed to them, assuming for a moment the legal feasibility of transferring these shares paid from the R.A. 6260 levy to private individuals.

2. To grant all the UCPB shares to petitioners and its alleged members would be iniquitous and prejudicial to the remaining 4.6 million farmers who have not received any UCPB shares when in fact they also made payments to either the CIF or the CCSF but did not receive any receipt or who was not able to register their receipts or misplaced them.

Section 1 of P.D. No. 755 which was declared unconstitutional cannot be considered to be the legal basis for the transfer of the supposed private ownership of the UCPB shares to petitioners who allegedly paid the same under R.A. 6260. The Solicitor General is correct in concluding that such unauthorized grant to petitioners constitutes illegal deprivation of property without due process of law. Due process of law would mean that the distribution of the UCPB shares should be made only to farmers who have paid the contribution to the CCSF pursuant to P.D. No. 276, and not to those who paid pursuant to R.A. 6260. What would have been the appropriate distribution scheme was violated by Section 1 of P.D. No. 755 when it required that the UCPB shares should be distributed to coconut farmers without distinction in fact, giving the PCA limitless power and free hand, to determine who these farmers are, or would be.

We cannot sanction the award of the UCPB shares to petitioners who appear to represent only 1.4 million members without any legal basis to the extreme prejudice of the other 4.6 million coconut farmers (Executive Order No. 747 fixed the number of coconut farmers at 6 million in 1981). Indeed, petitioners constitute only a small percentage of the coconut farmers in the Philippines. Thus, the Sandiganbayan correctly declared that the UCPB shares are government assets in trust for the coconut farmers, which would be more beneficial to all the coconut farmers instead of a very few dubious claimants;

3. The Sandiganbayan made the finding that due to enormous operational problems and administrative complications, the intended beneficiaries of the UCPB shares were not able to receive the shares due to them. To reiterate what the anti-graft court said:

The actual distribution of the bank shares was admittedly an enormous operational problem which resulted in the failure of the intended beneficiaries to receive their shares of stocks in the bank, as shown by the rules and regulations, issued by the PCA, without adequate guidelines being provided to it by P.D. No. 755. PCA Administrative Order No. 1, Series of 1975 (August 20, 1975), Rules and Regulations Governing the Distribution of Shares of Stock of the Bank Authorized to be Acquired Pursuant to PCA Board Resolution No. 246-75, quoted hereunder discloses how the undistributed shares of stocks due to anonymous coconut farmers or payors of the coconut levy fees were authorized to be distributed to existing shareholders of the Bank: Section 9. Fractional and Undistributed Shares Fractional shares and shares which remain undistributed as a consequence of the failure of the coconut farmers to

register their COCOFUND receipts or the destruction of the COCOFUND receipts or the registration of the COCOFUND receipts in the name of an unqualified individual, after the final distribution is made on the basis of the consolidated IBM registration Report as of March 31, 1976 shall be distributed to all the coconut farmers who have qualified and received equity in the Bank and shall be apportioned among them, as far as practicable, in proportion to their equity in relation to the number of undistributed equity and such further rules and regulations as may hereafter be promulgated. The foregoing PCA issuance was further amended by Resolution No. 074-78, still citing the same problem of distribution of the bank shares. This latter Resolution is quoted as follows: RESOLUTION NO. 074-78 AMENDMENT OF ADMINISTRATIVE ORDER NO. 1, SERIES OF 1975, GOVERNING THE DISTRIBUTION OF SHARES WHEREAS, pursuant to PCA Board Resolution No. 24675, the total par value of the shares of stock of the Bank purchased by the PCA for the benefit of the coconut farmers is P85,773,600.00 with a par value of P1.00 per share or equivalent to 85,773.600 shares; WHEREAS, out of the 85,773,600 shares, a total of 34,572,794 shares have already been distributed in accordance with Administrative Order No. 1, Series of 1975, to wit: First Distribution Second Distribution Third Distribution 12,573,059 10,841,409 11,158,326 34,572,794

WHEREAS, there is, therefore, a total of 51,200,806 shares still available for distribution among the coconut farmers; WHEREAS, it was determined by the PCA Board, in consonance with the policy of the state on the integration of the coconut industry, that the Bank shares must be widely distributed as possible among the coconut farmers, for which purpose a national census of coconut farmers was made through the Philippine Coconut Producers Federation (COCOFED);

WHEREAS, to implement such determination of the PCA Board, there is a need to accordingly amend Administrative Order No. 1, Series of 1975; NOW, THEREFORE, BE IT RESOLVED, AS IT IS HEREBY RESOLVED, that the remaining 51,200,806 shares of stock of the Bank authorized to be acquired pursuant to the PCA Board Resolution No. 246-75 dated July 25, 1975 be distributed as follows: (1) All the coconut farmers who have received their shares in the equity of the Bank on the basis of Section 8 of Administrative Order No. 1, Series of 1975, shall receive additional share for each share presently owned by them; (2) Fractional shares shall be completed into full shares, and such full shares shall be distributed among the coconut farmers who qualified for the corresponding fractional shares; (3) The balance of the shares, after deducting those to be distributed in accordance with (1) and (2) above, shall be transferred to COCOFED for distribution, immediately after completion of the national census of coconut farmers prescribed under Resolution No. 033-78 of the PCA Board, to all those who are determined by the PCA Board to be bona fide coconut farmers and have not received shares of stock of the Bank. The shares shall be equally determined among them on the basis of per capita. RESOLVED, FURTHER, That the rules and regulations under Administrative Order No. 1, Series of 1975, which are inconsistent with this Administrative Order be, as they are hereby, repealed and/or amended accordingly.

Thus, when 51,200,806 shares in the bank remained undistributed, the PCA deemed it proper to give a bonanza to coconut farmers who already got their bank shares, by giving them an additional share for each share owned by them and by converting their fractional shares into full shares. The rest of the shares were then transferred to a private organization, the COCOFED, for distribution to those determined to be bona fide coconut farmers who had not received shares of stock of the Bank. The distribution to the latter was made on the basis of per capita, meaning without regard to the COCOFUND receipts. The PCA considered itself free to disregard the said receipts in the distribution of the shares although they were considered by the May 25, 1975 Agreement between the PCA and defendant Cojuangco (par. [8] of said Agreement)

and by Sections 1, 3, 4, 6 and 9, PCA Administrative Order No. 1, Series of 1975 as the basis for the distribution of shares.

The PCA thus assumed, due to lack of adequate guidelines set by P.D. No. 755, that it had complete authority to define who are the coconut farmers and to decide as to who among the coconut farmers shall be given the gift of bank shares; how many shares shall be given to them, and what basis it shall use to determine the amount of shares to be distributed for free to the coconut farmers. In other words, P.D. No. 755 fails the completeness test which renders it constitutionally infirm.

Due to numerous flaws in the distribution of the UCPB shares by PCA, it would be best for the interest of all coconut farmers to revert the ownership of the UCBP shares to the government for the entire coconut industry, which includes the farmers;

4. The Court also takes judicial cognizance of the fact that a number, if not all, of the coconut farmers who sold copra did not get the receipts for the payment of the coconut levy for the reason that the copra they produced were bought by traders or middlemen who in turn sold the same to the coconut mills. The reality on the ground is that it was these traders who got the receipts and the corresponding UCPB shares. In addition, some uninformed coconut farmers who actually got the COCOFUND receipts, not appreciating the importance and value of said receipts, have already sold said receipts to non-coconut farmers, thereby depriving them of the benefits under the coconut levy laws. Ergo, the coconut farmers are the ones who will not be benefited by the distribution of the UCPB

shares contrary to the policy behind the coconut levy laws. The nullification of the distribution of the UCPB shares and their transfer to the government for the coconut industry will, therefore, ensure that the benefits to be deprived from the UCPB shares will actually accrue to the intended beneficiaries the genuine coconut farmers.

From the foregoing, it is highly inappropriate to apply the operative fact doctrine to the UCPB shares. Public funds, which were supposedly given utmost safeguard, were haphazardly distributed to private individuals based on statutory provisions that are found to be constitutionally infirm on not only one but on a variety of grounds. Worse still, the recipients of the UCPB shares may not actually be the intended beneficiaries of said benefit. Clearly, applying the Operative Fact Doctrine would not only be iniquitous but would also serve injustice to the Government, to the coconut industry, and to the people, who, whether willingly or unwillingly, contributed to the public funds, and therefore expect that their Government would take utmost care of them and that they would be used no less, than for public purpose.

We clarify that PSJ-A is subject of another petition for review interposed by Eduardo Cojuangco, Jr., in G.R. No. 180705 entitled, Eduardo M. Cojuangco, Jr. v. Republic of the Philippines, which shall be decided separately by this Court. Said petition should accordingly not be affected by this Decision save for determinatively legal issues directly addressed herein.

WHEREFORE, the petitions in G.R. Nos. 177857-58 and 178793 are hereby DENIED. The Partial Summary Judgment dated July 11, 2003 in Civil Case No. 0033-A as reiterated with modification in Resolution dated June 5, 2007, as well as the Partial Summary Judgment dated May 7, 2004 in Civil Case No. 0033-F, which was effectively amended in Resolution dated May 11, 2007, are AFFIRMED with MODIFICATION, only with respect to those issues subject of the petitions in G.R. Nos. 177857-58 and 178193. However, the issues raised in G.R. No. 180705 in relation to Partial Summary Judgment dated July 11, 2003 and Resolution dated June 5, 2007 in Civil Case No. 0033-A, shall be decided by this Court in a separate decision.

The Partial Summary Judgment in Civil Case No. 0033-A dated July 11, 2003, is hereby MODIFIED, and shall read as follows:

WHEREFORE, in view of the foregoing, We rule as follows:

SUMMARY OF THE COURTS RULING.

A.

Re: CLASS ACTION MOTION FOR A SEPARATE SUMMARY JUDGMENT dated April 11, 2001 filed by Defendant Maria Clara L. Lobregat, COCOFED, et al., and Ballares, et al.

The Class Action Motion for Separate Summary Judgment dated April 11, 2001 filed by defendant Maria Clara L. Lobregat, COCOFED, et al. and Ballares, et al., is hereby DENIED for lack of merit.

B. Re: MOTION FOR PARTIAL SUMMARY JUDGMENT (RE: COCOFED, ET AL. AND BALLARES, ET AL.) dated April 22, 2002 filed by Plaintiff.

1. a. The portion of Section 1 of P.D. No. 755, which reads:

and that the Philippine Coconut Authority is hereby authorized to distribute, for free, the shares of stock of the bank it acquired to the coconut farmers under such rules and regulations it may promulgate.

taken in relation to Section 2 of the same P.D., is unconstitutional: (i) for having allowed the use of the CCSF to benefit directly private interest by the outright and unconditional grant of absolute ownership of the FUB/UCPB shares paid for by PCA entirely with the CCSF to the undefined coconut farmers, which negated or circumvented the national policy or public purpose declared by P.D. No. 755 to accelerate the growth and development of the coconut industry and achieve its vertical integration; and (ii) for having unduly delegated legislative power to the PCA.

b. The implementing regulations issued by PCA, namely, Administrative Order No. 1, Series of 1975 and Resolution No. 074-78 are likewise invalid for their failure to see to it that the distribution of shares serve exclusively or at least primarily or directly the aforementioned public purpose or national policy declared by P.D. No. 755.

2.

Section 2 of P.D. No. 755 which mandated that the coconut levy funds shall not be considered special and/or fiduciary funds nor part of the

general funds of the national government and similar provisions of Sec. 5, Art. III, P.D. No. 961 and Sec. 5, Art. III, P.D. No. 1468 contravene the provisions of the Constitution, particularly, Art. IX (D), Sec. 2; and Article VI, Sec. 29 (3).

3.

Lobregat, COCOFED, et al. and Ballares, et al. have not legally and validly obtained title of ownership over the subject UCPB shares by virtue of P.D. No. 755, the Agreement dated May 25, 1975 between the PCA and defendant Cojuangco, and PCA implementing rules, namely, Adm. Order No. 1, s. 1975 and Resolution No. 074-78.

4. The so-called Farmers UCPB shares covered by 64.98% of the UCPB shares of stock, which formed part of the 72.2% of the shares of stock of the former FUB and now of the UCPB, the entire consideration of which was charged by PCA to the CCSF, are hereby declared conclusively owned by, the Plaintiff Republic of the Philippines.

SO ORDERED.

The Partial Summary Judgment in Civil Case No. 0033-F dated May 7, 2004, is hereby MODIFIED, and shall read as follows:

WHEREFORE,

the

MOTION

FOR

EXECUTION

OF

PARTIAL

SUMMARY JUDGMENT (RE: CIIF BLOCK OF SMC SHARES OF STOCK)

dated August 8, 2005 of the plaintiff is hereby denied for lack of merit. However, this Court orders the severance of this particular claim of Plaintiff. The Partial Summary Judgment dated May 7, 2004 is now considered a separate final and appealable judgment with respect to the said CIIF Block of SMC shares of stock.

The Partial Summary Judgment rendered on May 7, 2004 is modified by deleting the last paragraph of the dispositive portion, which will now read, as follows:

WHEREFORE, in view of the foregoing, we hold that:

The Motion for Partial Summary Judgment (Re: Defendants CIIF Companies, 14 Holding Companies and Cocofed, et al) filed by Plaintiff is hereby GRANTED. NAMELY: ACCORDINGLY, THE CIIF COMPANIES,

1. 2. 3. 4. 5. 6.

Southern Luzon Coconut Oil Mills (SOLCOM); Cagayan de Oro Oil Co., Inc. (CAGOIL); Iligan Coconut Industries, Inc. (ILICOCO); San Pablo Manufacturing Corp. (SPMC); Granexport Manufacturing Corp. (GRANEX); and Legaspi Oil Co., Inc. (LEGOIL),

AS WELL AS THE 14 HOLDING COMPANIES, NAMELY:

1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14.

Soriano Shares, Inc.; ACS Investors, Inc.; Roxas Shares, Inc.; Arc Investors; Inc.; Toda Holdings, Inc.; AP Holdings, Inc.; Fernandez Holdings, Inc.; SMC Officers Corps, Inc.; Te Deum Resources, Inc.; Anglo Ventures, Inc.; Randy Allied Ventures, Inc.; Rock Steel Resources, Inc.; Valhalla Properties Ltd., Inc.; and First Meridian Development, Inc.

AND THE CIIF BLOCK OF SAN MIGUEL CORPORATION (SMC) SHARES OF STOCK TOTALING 33,133,266 SHARES AS OF 1983 TOGETHER WITH ALL DIVIDENDS DECLARED, PAID AND ISSUED THEREON AS WELL AS ANY INCREMENTS THERETO ARISING FROM, BUT NOT LIMITED TO, EXERCISE OF PRE-EMPTIVE RIGHTS ARE DECLARED OWNED BY THE GOVERNMENT TO BE USED ONLY FOR THE BENEFIT OF ALL COCONUT FARMERS AND FOR THE DEVELOPMENT OF THE COCONUT INDUSTRY, AND ORDERED RECONVEYED TO THE GOVERNMENT.

THE COURT AFFIRMS THE RESOLUTIONS ISSUED BY THE SANDIGANBAYAN ON JUNE 5, 2007 IN CIVIL CASE NO. 0033-A AND ON MAY 11, 2007 IN CIVIL CASE NO. 0033-F, THAT THERE IS NO MORE NECESSITY OF FURTHER TRIAL WITH RESPECT TO THE ISSUE OF OWNERSHIP OF (1) THE SEQUESTERED UCPB SHARES, (2) THE CIIF BLOCK OF SMC SHARES, AND (3) THE CIIF COMPANIES. AS THEY HAVE FINALLY BEEN ADJUDICATED IN THE AFOREMENTIONED PARTIAL SUMMARY JUDGMENTS

DATED JULY 11, 2003 AND MAY 7, 2004.

SO ORDERED.
.R. No. 99886 March 31, 1993 JOHN H. OSMEA, 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, 1 prohibitive and coercive remedies provided by Rule 65 of the Rules of Court, 2 upon the following posited grounds, viz.: 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, 6 because it contravenes 8, paragraph 2 (2) of 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, 7 and 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; 8 that to abate the worsening deficit, "the Energy Regulatory 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." 10 Petitioner further points out that since "a 'special fund' consists of monies collected 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." 13 The petitioner's perceptions are, in the Court's view, not quite correct.

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 15 products." Under P.D. No. 1956, as amended by Executive 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, 16 this Court upheld the legality 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 17 the 1935 Constitution, Article VI, Sec. 23(1). 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 18 expressly authorizes the ERB to impose additional amounts to augment the resources of the Fund. What petitioner would wish is the fixing of some definite, quantitative restriction, or "a specific limit on how much to tax." 19 The Court is cited to this requirement by the petitioner on the premise that what 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 21 considered as a whole.

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 23 the Court finds for the petitioner. 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,'" 24 and since these items are reimbursements for which the OPSF should not have responded, the amount of the P12.877 billion deficit "should be reduced by P5,277.2 million." 25 It is argued "that under the principle of ejusdem generis . . . the term 'other 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., 27 passed 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 28 of the same kind or class as those specifically mentioned." A reading of subparagraphs (i) and (ii) easily discloses that they do not have a common characteristic. The first relates to price reduction as directed by the Board of Energy while the second refers to reduction in internal ad 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 29 and which have been pointed to by the Solicitor General. At any rate, 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. 92585 May 8, 1992 CALTEX PHILIPPINES, INC., petitioner, vs. THE HONORABLE COMMISSION ON AUDIT, HONORABLE COMMISSIONER BARTOLOME C. FERNANDEZ and HONORABLE COMMISSIONER ALBERTO P. CRUZ, respondents.

DAVIDE, JR., J.: This is a petition erroneously brought under Rule 44 of the Rules of Court 1 questioning the authority of the Commission on Audit (COA) in disallowing petitioner's claims for reimbursement from the Oil Price Stabilization Fund (OPSF) and seeking the reversal of said Commission's decision denying its claims for recovery of financing charges from the Fund and reimbursement of underrecovery arising from sales to the National Power Corporation, Atlas Consolidated Mining and Development Corporation (ATLAS) and Marcopper Mining Corporation (MAR-COPPER), preventing it from exercising the right to offset its remittances against its reimbursement vis-a-vis the OPSF and disallowing its claims which are still pending resolution before the Office of Energy Affairs (OEA) and the Department of Finance (DOF). Pursuant to the 1987 Constitution, 2 any decision, order or ruling of the Constitutional Commissions 3 may be brought to this Court on certiorari by the aggrieved party within thirty (30) days from receipt of a copy thereof. The certiorari referred to is the special civil action for certiorari under Rule 65 of the Rules of Court. 4 Considering, however, that the allegations that the COA acted with: (a) total lack of jurisdiction in completely ignoring and showing absolutely no respect for the findings and rulings of the administrator of the fund itself and in disallowing a claim which is still pending resolution at the OEA level, and (b) "grave abuse of discretion and completely without jurisdiction" 5 in declaring that petitioner cannot avail of the right to offset any amount that it may be required under the law to remit to the OPSF against any amount that it may receive by way of reimbursement therefrom are sufficient to bring this petition within Rule 65 of the Rules of Court, and, considering further the importance of the issues raised, the error in the designation of the remedy pursued will, in this instance, be excused. The issues raised revolve around the OPSF created under Section 8 of Presidential Decree (P.D.) No. 1956, as amended by Executive Order (E.O.) No. 137. As amended, said Section 8 reads as follows:
Sec. 8 . There is hereby created a Trust Account in the books of accounts of the Ministry of Energy to be designated as Oil Price Stabilization Fund (OPSF) for the purpose of minimizing frequent price changes brought about by exchange rate adjustments and/or changes in world market prices of crude oil and imported petroleum products. The Oil Price Stabilization Fund may be sourced from any of the following: a) Any increase in the tax collection from ad valorem tax or customs duty imposed on petroleum products subject to tax under this Decree arising from exchange rate adjustment, as may be determined by the Minister of Finance in consultation with the Board of Energy; b) Any increase in the tax collection as a result of the lifting of tax exemptions of government corporations, as may be determined by the Minister of Finance in consultation with the Board of Energy;

c) Any additional amount to be imposed on petroleum products to augment the resources of the Fund through an appropriate Order that may be issued by the Board of Energy requiring payment by persons or companies engaged in the business of importing, manufacturing and/or marketing petroleum products; d) Any resulting peso cost differentials in case the actual peso costs paid by oil companies in the importation of crude oil and petroleum products is less than the peso costs computed using the reference foreign exchange rate as fixed by the Board of Energy. The Fund herein created shall be used for the following: 1) To reimburse the oil companies for cost increases in crude oil and imported petroleum products resulting from exchange rate adjustment and/or increase in world market prices of crude oil; 2) To reimburse the oil companies for possible cost under-recovery incurred as a result of the reduction of domestic prices of petroleum products. The magnitude of the underrecovery, if any, shall be determined by the Ministry of Finance. "Cost underrecovery" shall include the following: i. Reduction in oil company take as directed by the Board of Energy without the corresponding reduction in the landed cost of oil inventories in the possession of the oil companies at the time of the price change; ii. Reduction in internal ad valorem taxes as a result of foregoing government mandated price reductions; iii. Other factors as may be determined by the Ministry of Finance to result in cost underrecovery. The Oil Price Stabilization Fund (OPSF) shall be administered by the Ministry of Energy.

The material operative facts of this case, as gathered from the pleadings of the parties, are not disputed. On 2 February 1989, the COA sent a letter to Caltex Philippines, Inc. (CPI), hereinafter referred to as Petitioner, directing the latter to remit to the OPSF its collection, excluding that unremitted for the years 1986 and 1988, of the additional tax on petroleum products authorized under the aforesaid Section 8 of P.D. No. 1956 which, as of 31 December 1987, amounted to P335,037,649.00 and informing it that, pending such remittance, all of its claims for reimbursement from the OPSF shall be held in abeyance. 6 On 9 March 1989, the COA sent another letter to petitioner informing it that partial verification with the OEA showed that the grand total of its unremitted collections of the above tax is P1,287,668,820.00, broken down as follows:

1986 P233,190,916.00 1987 335,065,650.00 1988 719,412,254.00;

directing it to remit the same, with interest and surcharges thereon, within sixty (60) days from receipt of the letter; advising it that the COA will hold in abeyance the audit of all its claims for reimbursement from the OPSF; and directing it to desist from further offsetting the taxes collected against outstanding claims in 1989 and subsequent periods. 7 In its letter of 3 May 1989, petitioner requested the COA for an early release of its reimbursement certificates from the OPSF covering claims with the Office of Energy Affairs since June 1987 up to March 1989, invoking in support thereof COA Circular No. 89-299 on the lifting of pre-audit of government transactions of national government agencies and government-owned or controlled corporations. 8 In its Answer dated 8 May 1989, the COA denied petitioner's request for the early release of the reimbursement certificates from the OPSF and repeated its earlier directive to petitioner to forward payment of the latter's unremitted collections to the OPSF to facilitate COA's audit action on the reimbursement claims. 9 By way of a reply, petitioner, in a letter dated 31 May 1989, submitted to the COA a proposal for the payment of the collections and the recovery of claims, since the outright payment of the sum of P1.287 billion to the OEA as a prerequisite for the processing of said claims against the OPSF will cause a very serious impairment of its cash position. 10 The proposal reads:
We, therefore, very respectfully propose the following: (1) Any procedural arrangement acceptable to COA to facilitate monitoring of payments and reimbursements will be administered by the ERB/Finance Dept./OEA, as agencies designated by law to administer/regulate OPSF. (2) For the retroactive period, Caltex will deliver to OEA, P1.287 billion as payment to OPSF, similarly OEA will deliver to Caltex the same amount in cash reimbursement from OPSF. (3) The COA audit will commence immediately and will be conducted expeditiously. (4) The review of current claims (1989) will be conducted expeditiously to preclude further accumulation of reimbursement from OPSF.

On 7 June 1989, the COA, with the Chairman taking no part, handed down Decision No. 921 accepting the above-stated proposal but prohibiting petitioner from further offsetting remittances and reimbursements for the current and ensuing years. 11 Decision No. 921 reads:

This pertains to the within separate requests of Mr. Manuel A. Estrella, President, Petron Corporation, and Mr. Francis Ablan, President and Managing Director, Caltex (Philippines) Inc., for reconsideration of this Commission's adverse action embodied in its letters dated February 2, 1989 and March 9, 1989, the former directing immediate remittance to the Oil Price Stabilization Fund of collections made by the firms pursuant to P.D. 1956, as amended by E.O. No. 137, S. 1987, and the latter reiterating the same directive but further advising the firms to desist from offsetting collections against their claims with the notice that "this Commission will hold in abeyance the audit of all . . . claims for reimbursement from the OPSF." It appears that under letters of authority issued by the Chairman, Energy Regulatory Board, the aforenamed oil companies were allowed to offset the amounts due to the Oil Price Stabilization Fund against their outstanding claims from the said Fund for the calendar years 1987 and 1988, pending with the then Ministry of Energy, the government entity charged with administering the OPSF. This Commission, however, expressing serious doubts as to the propriety of the offsetting of all types of reimbursements from the OPSF against all categories of remittances, advised these oil companies that such offsetting was bereft of legal basis. Aggrieved thereby, these companies now seek reconsideration and in support thereof clearly manifest their intent to make arrangements for the remittance to the Office of Energy Affairs of the amount of collections equivalent to what has been previously offset, provided that this Commission authorizes the Office of Energy Affairs to prepare the corresponding checks representing reimbursement from the OPSF. It is alleged that the implementation of such an arrangement, whereby the remittance of collections due to the OPSF and the reimbursement of claims from the Fund shall be made within a period of not more than one week from each other, will benefit the Fund and not unduly jeopardize the continuing daily cash requirements of these firms. Upon a circumspect evaluation of the circumstances herein obtaining, this Commission perceives no further objectionable feature in the proposed arrangement, provided that 15% of whatever amount is due from the Fund is retained by the Office of Energy Affairs, the same to be answerable for suspensions or disallowances, errors or discrepancies which may be noted in the course of audit and surcharges for late remittances without prejudice to similar future retentions to answer for any deficiency in such surcharges, and provided further that no offsetting of remittances and reimbursements for the current and ensuing years shall be allowed.

Pursuant to this decision, the COA, on 18 August 1989, sent the following letter to Executive Director Wenceslao R. De la Paz of the Office of Energy Affairs: 12
Dear Atty. dela Paz: Pursuant to the Commission on Audit Decision No. 921 dated June 7, 1989, and based on our initial verification of documents submitted to us by your Office in support of Caltex (Philippines), Inc. offsets (sic) for the year 1986 to May 31, 1989, as well as its outstanding claims against the Oil Price Stabilization Fund (OPSF) as of May 31, 1989, we are pleased to inform your Office that Caltex (Philippines), Inc. shall be required to remit to OPSF an amount of P1,505,668,906, representing remittances to the OPSF which were offset against its claims reimbursements (net of unsubmitted claims). In addition, the Commission hereby authorize (sic) the Office of Energy Affairs (OEA) to cause payment of P1,959,182,612 to Caltex, representing claims initially allowed in audit, the details of which are presented hereunder: . . .

As presented in the foregoing computation the disallowances totalled P387,683,535, which included P130,420,235 representing those claims disallowed by OEA, details of which is (sic) shown in Schedule 1 as summarized as follows: Disallowance of COA Particulars Amount Recovery of financing charges P162,728,475 /a Product sales 48,402,398 /b Inventory losses Borrow loan arrangement 14,034,786 /c Sales to Atlas/Marcopper 32,097,083 /d Sales to NPC 558 P257,263,300 Disallowances of OEA 130,420,235 Total P387,683,535 The reasons for the disallowances are discussed hereunder: a. Recovery of Financing Charges Review of the provisions of P.D. 1596 as amended by E.O. 137 seems to indicate that recovery of financing charges by oil companies is not among the items for which the OPSF may be utilized. Therefore, it is our view that recovery of financing charges has no legal basis. The mechanism for such claims is provided in DOF Circular 1-87. b. Product Sales Sales to International Vessels/Airlines BOE Resolution No. 87-01 dated February 7, 1987 as implemented by OEA Order No. 87-03-095 indicating that (sic) February 7, 1987 as the effectivity date that (sic) oil companies should pay OPSF impost on export sales of petroleum products. Effective February 7, 1987 sales to international vessels/airlines should not be included as part of its domestic sales. Changing the effectivity date of the resolution from February 7, 1987 to October 20, 1987 as covered by subsequent ERB Resolution No. 88-12 dated November 18, 1988 has allowed Caltex to include in their domestic sales volumes to international vessels/airlines and claim the corresponding reimbursements from OPSF during the period. It is our opinion that the effectivity of the said resolution should be February 7, 1987. c. Inventory losses Settlement of Ad Valorem We reviewed the system of handling Borrow and Loan (BLA) transactions including the related BLA agreement, as they affect the claims for reimbursements of ad valorem taxes. We observed that oil companies immediately settle ad valorem taxes for BLA transaction (sic). Loan balances therefore are not tax paid inventories of Caltex subject to reimbursements but those of the borrower. Hence, we recommend reduction of the claim for July, August, and November, 1987 amounting to P14,034,786. d. Sales to Atlas/Marcopper

LOI No. 1416 dated July 17, 1984 provides that "I hereby order and direct the suspension of payment of all taxes, duties, fees, imposts and other charges whether direct or indirect due and payable by the copper mining companies in distress to the national and local governments." It is our opinion that LOI 1416 which implements the exemption from payment of OPSF imposts as effected by OEA has no legal basis. Furthermore, we wish to emphasize that payment to Caltex (Phil.) Inc., of the amount as herein authorized shall be subject to availability of funds of OPSF as of May 31, 1989 and applicable auditing rules and regulations. With regard to the disallowances, it is further informed that the aggrieved party has 30 days within which to appeal the decision of the Commission in accordance with law.

On 8 September 1989, petitioner filed an Omnibus Request for the Reconsideration of the decision based on the following grounds: 13
A) COA-DISALLOWED CLAIMS ARE AUTHORIZED UNDER EXISTING RULES, ORDERS, RESOLUTIONS, CIRCULARS ISSUED BY THE DEPARTMENT OF FINANCE AND THE ENERGY REGULATORY BOARD PURSUANT TO EXECUTIVE ORDER NO. 137. xxx xxx xxx B) ADMINISTRATIVE INTERPRETATIONS IN THE COURSE OF EXERCISE OF EXECUTIVE POWER BY DEPARTMENT OF FINANCE AND ENERGY REGULATORY BOARD ARE LEGAL AND SHOULD BE RESPECTED AND APPLIED UNLESS DECLARED NULL AND VOID BY COURTS OR REPEALED BY LEGISLATION. xxx xxx xxx C) LEGAL BASIS FOR RETENTION OF OFFSET ARRANGEMENT, AS AUTHORIZED BY THE EXECUTIVE BRANCH OF GOVERNMENT, REMAINS VALID. xxx xxx xxx

On 6 November 1989, petitioner filed with the COA a Supplemental Omnibus Request for Reconsideration. 14 On 16 February 1990, the COA, with Chairman Domingo taking no part and with Commissioner Fernandez dissenting in part, handed down Decision No. 1171 affirming the disallowance for recovery of financing charges, inventory losses, and sales to MARCOPPER and ATLAS, while allowing the recovery of product sales or those arising from export sales. 15 Decision No. 1171 reads as follows:
Anent the recovery of financing charges you contend that Caltex Phil. Inc. has the .authority to recover financing charges from the OPSF on the basis of Department of Finance (DOF) Circular 1-87, dated February 18, 1987, which allowed oil companies to "recover cost of financing working capital associated with crude oil shipments," and provided a schedule of reimbursement in terms of peso per barrel. It appears that on November 6, 1989, the DOF issued a memorandum to the President of the Philippines explaining the nature of these financing charges and justifying their reimbursement as follows:

As part of your program to promote economic recovery, . . . oil companies (were authorized) to refinance their imports of crude oil and petroleum products from the normal trade credit of 30 days up to 360 days from date of loading . . . Conformably . . ., the oil companies deferred their foreign exchange remittances for purchases by refinancing their import bills from the normal 30-day payment term up to the desired 360 days. This refinancing of importations carried additional costs (financing charges) which then became, due to government mandate, an inherent part of the cost of the purchases of our country's oil requirement. We beg to disagree with such contention. The justification that financing charges increased oil costs and the schedule of reimbursement rate in peso per barrel (Exhibit 1) used to support alleged increase (sic) were not validated in our independent inquiry. As manifested in Exhibit 2, using the same formula which the DOF used in arriving at the reimbursement rate but using comparable percentages instead of pesos, the ineluctable conclusion is that the oil companies are actually gaining rather than losing from the extension of credit because such extension enables them to invest the collections in marketable securities which have much higher rates than those they incur due to the extension. The Data we used were obtained from CPI (CALTEX) Management and can easily be verified from our records. With respect to product sales or those arising from sales to international vessels or airlines, . . ., it is believed that export sales (product sales) are entitled to claim refund from the OPSF. As regard your claim for underrecovery arising from inventory losses, . . . It is the considered view of this Commission that the OPSF is not liable to refund such surtax on inventory losses because these are paid to BIR and not OPSF, in view of which CPI (CALTEX) should seek refund from BIR. . . . Finally, as regards the sales to Atlas and Marcopper, it is represented that you are entitled to claim recovery from the OPSF pursuant to LOI 1416 issued on July 17, 1984, since these copper mining companies did not pay CPI (CALTEX) and OPSF imposts which were added to the selling price. Upon a circumspect evaluation, this Commission believes and so holds that the CPI (CALTEX) has no authority to claim reimbursement for this uncollected OPSF impost because LOI 1416 dated July 17, 1984, which exempts distressed mining companies from "all taxes, duties, import fees and other charges" was issued when OPSF was not yet in existence and could not have contemplated OPSF imposts at the time of its formulation. Moreover, it is evident that OPSF was not created to aid distressed mining companies but rather to help the domestic oil industry by stabilizing oil prices.

Unsatisfied with the decision, petitioner filed on 28 March 1990 the present petition wherein it imputes to the COA the commission of the following errors: 16
I RESPONDENT COMMISSION ERRED IN DISALLOWING RECOVERY OF FINANCING CHARGES FROM THE OPSF. II

RESPONDENT COMMISSION ERRED IN DISALLOWING 17 CPI's CLAIM FOR REIMBURSEMENT OF UNDERRECOVERY ARISING FROM SALES TO NPC. III RESPONDENT COMMISSION ERRED IN DENYING CPI's CLAIMS FOR REIMBURSEMENT ON SALES TO ATLAS AND MARCOPPER. IV RESPONDENT COMMISSION ERRED IN PREVENTING CPI FROM EXERCISING ITS LEGAL RIGHT TO OFFSET ITS REMITTANCES AGAINST ITS REIMBURSEMENT VISA-VIS THE OPSF. V RESPONDENT COMMISSION ERRED IN DISALLOWING CPI's CLAIMS WHICH ARE STILL PENDING RESOLUTION BY (SIC) THE OEA AND THE DOF.

In the Resolution of 5 April 1990, this Court required the respondents to comment on the petition within ten (10) days from notice. 18 On 6 September 1990, respondents COA and Commissioners Fernandez and Cruz, assisted by the Office of the Solicitor General, filed their Comment. 19 This Court resolved to give due course to this petition on 30 May 1991 and required the parties to file their respective Memoranda within twenty (20) days from notice. 20 In a Manifestation dated 18 July 1991, the Office of the Solicitor General prays that the Comment filed on 6 September 1990 be considered as the Memorandum for respondents. 21 Upon the other hand, petitioner filed its Memorandum on 14 August 1991. I. Petitioner dwells lengthily on its first assigned error contending, in support thereof, that: (1) In view of the expanded role of the OPSF pursuant to Executive Order No. 137, which added a second purpose, to wit:
2) To reimburse the oil companies for possible cost underrecovery incurred as a result of the reduction of domestic prices of petroleum products. The magnitude of the underrecovery, if any, shall be determined by the Ministry of Finance. "Cost underrecovery" shall include the following: i. Reduction in oil company take as directed by the Board of Energy without the corresponding reduction in the landed cost of oil inventories in the possession of the oil companies at the time of the price change;

ii. Reduction in internal ad valorem taxes as a result of foregoing government mandated price reductions; iii. Other factors as may be determined by the Ministry of Finance to result in cost underrecovery.

the "other factors" mentioned therein that may be determined by the Ministry (now Department) of Finance may include financing charges for "in essence, financing charges constitute unrecovered cost of acquisition of crude oil incurred by the oil companies," as explained in the 6 November 1989 Memorandum to the President of the Department of Finance; they "directly translate to cost underrecovery in cases where the money market placement rates decline and at the same time the tax on interest income increases. The relationship is such that the presence of underrecovery or overrecovery is directly dependent on the amount and extent of financing charges." (2) The claim for recovery of financing charges has clear legal and factual basis; it was filed on the basis of Department of Finance Circular No. 1-87, dated 18 February 1987, which provides:
To allow oil companies to recover the costs of financing working capital associated with crude oil shipments, the following guidelines on the utilization of the Oil Price Stabilization Fund pertaining to the payment of the foregoing (sic) exchange risk premium and recovery of financing charges will be implemented: 1. The OPSF foreign exchange premium shall be reduced to a flat rate of one (1) percent for the first (6) months and 1/32 of one percent per month thereafter up to a maximum period of one year, to be applied on crude oil' shipments from January 1, 1987. Shipments with outstanding financing as of January 1, 1987 shall be charged on the basis of the fee applicable to the remaining period of financing. 2. In addition, for shipments loaded after January 1987, oil companies shall be allowed to recover financing charges directly from the OPSF per barrel of crude oil based on the following schedule: Financing Period Reimbursement Rate Pesos per BarrelLess than 180 days None 180 days to 239 days 1.90 241 (sic) days to 299 4.02 300 days to 369 (sic) days 6.16 360 days or more 8.28 The above rates shall be subject to review every sixty 22 days.

Pursuant to this circular, the Department of Finance, in its letter of 18 February 1987, advised the Office of Energy Affairs as follows:
HON. VICENTE T. PATERNO Deputy Executive Secretary For Energy Affairs

Office of the President Makati, Metro Manila Dear Sir: This refers to the letters of the Oil Industry dated December 4, 1986 and February 5, 1987 and subsequent discussions held by the Price Review committee on February 6, 1987. On the basis of the representations made, the Department of Finance recognizes the necessity to reduce the foreign exchange risk premium accruing to the Oil Price Stabilization Fund (OPSF). Such a reduction would allow the industry to recover partly associated financing charges on crude oil imports. Accordingly, the OPSF foreign exchange risk fee shall be reduced to a flat charge of 1% for the first six (6) months plus 1/32% of 1% per month thereafter up to a maximum period of one year, effective January 1, 1987. In addition, since the prevailing company take would still leave unrecovered financing charges, reimbursement may be secured from the OPSF in accordance with 23 the provisions of the attached Department of Finance circular.

Acting on this letter, the OEA issued on 4 May 1987 Order No. 87-05-096 which contains the guidelines for the computation of the foreign exchange risk fee and the recovery of financing charges from the OPSF, to wit:
B. FINANCE CHARGES 1. Oil companies shall be allowed to recover financing charges directly from the OPSF for both crude and product shipments loaded after January 1, 1987 based on the following rates: F i n a n c i n g P e r i o d R e i m b u r s

e m e n t R a t e ( P B b l . ) Less than 180 days None 180 days to 239 days 1.90 240 days to 229 (sic) days 4.02 300 days to 359 days 6.16 360 days to more 8.28 2. The above rates shall be subject to review every sixty days.
24

Then on 22 November 1988, the Department of Finance issued Circular No. 4-88 imposing further guidelines on the recoverability of financing charges, to wit:
Following are the supplemental rules to Department of Finance Circular No. 1-87 dated February 18, 1987 which allowed the recovery of financing charges directly from the Oil Price Stabilization Fund. (OPSF): 1. The Claim for reimbursement shall be on a per shipment basis. 2. The claim shall be filed with the Office of Energy Affairs together with the claim on peso cost differential for a particular shipment and duly certified supporting documents provided for under Ministry of Finance No. 11-85. 3. The reimbursement shall be on the form of reimbursement certificate (Annex A) to be issued by the Office of Energy Affairs. The said certificate may be used to offset against amounts payable to the OPSF. The oil companies may also redeem said certificates in cash if not 25 utilized, subject to availability of funds.

The OEA disseminated this Circular to all oil companies in its Memorandum Circular No. 88-12-017. 26 The COA can neither ignore these issuances nor formulate its own interpretation of the laws in the light of the determination of executive agencies. The determination by the

Department of Finance and the OEA that financing charges are recoverable from the OPSF is entitled to great weight and consideration. 27 The function of the COA, particularly in the matter of allowing or disallowing certain expenditures, is limited to the promulgation of accounting and auditing rules for, among others, the disallowance of irregular, unnecessary, excessive, extravagant, or unconscionable expenditures, or uses of government funds and properties. 28 (3) Denial of petitioner's claim for reimbursement would be inequitable. Additionally, COA's claim that petitioner is gaining, instead of losing, from the extension of credit, is belatedly raised and not supported by expert analysis. In impeaching the validity of petitioner's assertions, the respondents argue that: 1. The Constitution gives the COA discretionary power to disapprove irregular or unnecessary government expenditures and as the monetary 9claims of petitioner are not allowed by law, the COA acted within its jurisdiction in denying them; 2. P.D. No. 1956 and E.O. No. 137 do not allow reimbursement of financing charges from the OPSF; 3. Under the principle of ejusdem generis, the "other factors" mentioned in the second purpose of the OPSF pursuant to E.O. No. 137 can only include "factors which are of the same nature or analogous to those enumerated;" 4. In allowing reimbursement of financing charges from OPSF, Circular No. 1-87 of the Department of Finance violates P.D. No. 1956 and E.O. No. 137; and 5. Department of Finance rules and regulations implementing P.D. No. 1956 do not likewise allow reimbursement of financing charges. 29 We find no merit in the first assigned error. As to the power of the COA, which must first be resolved in view of its primacy, We find the theory of petitioner that such does not extend to the disallowance of irregular, unnecessary, excessive, extravagant, or unconscionable expenditures, or use of government funds and properties, but only to the promulgation of accounting and auditing rules for, among others, such disallowance to be untenable in the light of the provisions of the 1987 Constitution and related laws. Section 2, Subdivision D, Article IX of the 1987 Constitution expressly provides:
Sec. 2(l). The Commission on Audit shall have the power, authority, and duty to examine, audit, and settle all accounts pertaining to the revenue and receipts of, and expenditures

or uses of funds and property, owned or held in trust by, or pertaining to, the Government, or any of its subdivisions, agencies, or instrumentalities, including government-owned and controlled corporations with original charters, and on a post-audit basis: (a) constitutional bodies, commissions and offices that have been granted fiscal autonomy under this Constitution; (b) autonomous state colleges and universities; (c) other government-owned or controlled corporations and their subsidiaries; and (d) such non-governmental entities receiving subsidy or equity, directly or indirectly, from or through the government, which are required by law or the granting institution to submit to such audit as a condition of subsidy or equity. However, where the internal control system of the audited agencies is inadequate, the Commission may adopt such measures, including temporary or special pre-audit, as are necessary and appropriate to correct the deficiencies. It shall keep the general accounts, of the Government and, for such period as may be provided by law, preserve the vouchers and other supporting papers pertaining thereto. (2) The Commission shall have exclusive authority, subject to the limitations in this Article, to define the scope of its audit and examination, establish the techniques and methods required therefor, and promulgate accounting and auditing rules and regulations, including those for the prevention and disallowance of irregular, unnecessary, excessive, extravagant, or, unconscionable expenditures, or uses of government funds and properties.

These present powers, consistent with the declared independence of the Commission, 30 are broader and more extensive than that conferred by the 1973 Constitution. Under the latter, the Commission was empowered to:
Examine, audit, and settle, in accordance with law and regulations, all accounts pertaining to the revenues, and receipts of, and expenditures or uses of funds and property, owned or held in trust by, or pertaining to, the Government, or any of its subdivisions, agencies, or instrumentalities including government-owned or controlled corporations, keep the general accounts of the Government and, for such period as may be provided by law, preserve the vouchers pertaining thereto; and promulgate accounting and auditing rules and regulations including those for the prevention of irregular, 31 unnecessary, excessive, or extravagant expenditures or uses of funds and property.

Upon the other hand, under the 1935 Constitution, the power and authority of the COA's precursor, the General Auditing Office, were, unfortunately, limited; its very role was markedly passive. Section 2 of Article XI thereof provided:
Sec. 2. The Auditor General shall examine, audit, and settle all accounts pertaining to the revenues and receipts from whatever source, including trust funds derived from bond issues; and audit, in accordance with law and administrative regulations, all expenditures of funds or property pertaining to or held in trust by the Government or the provinces or municipalities thereof. He shall keep the general accounts of the Government and the preserve the vouchers pertaining thereto. It shall be the duty of the Auditor General to bring to the attention of the proper administrative officer expenditures of funds or property which, in his opinion, are irregular, unnecessary, excessive, or extravagant. He shall also perform such other functions as may be prescribed by law.

As clearly shown above, in respect to irregular, unnecessary, excessive or extravagant expenditures or uses of funds, the 1935 Constitution did not grant the Auditor General the power to issue rules and regulations to prevent the same. His was merely to bring that matter to the attention of the proper administrative officer.

The ruling on this particular point, quoted by petitioner from the cases of Guevarra vs. Gimenez 32 and Ramos vs. Aquino, 33 are no longer controlling as the two (2) were decided in the light of the 1935 Constitution. There can be no doubt, however, that the audit power of the Auditor General under the 1935 Constitution and the Commission on Audit under the 1973 Constitution authorized them to disallow illegal expenditures of funds or uses of funds and property. Our present Constitution retains that same power and authority, further strengthened by the definition of the COA's general jurisdiction in Section 26 of the Government Auditing Code of the Philippines 34 and Administrative Code of 1987. 35 Pursuant to its power to promulgate accounting and auditing rules and regulations for the prevention of irregular, unnecessary, excessive or extravagant expenditures or uses of funds, 36 the COA promulgated on 29 March 1977 COA Circular No. 77-55. Since the COA is responsible for the enforcement of the rules and regulations, it goes without saying that failure to comply with them is a ground for disapproving the payment of the proposed expenditure. As observed by one of the Commissioners of the 1986 Constitutional Commission, Fr. Joaquin G. Bernas: 37
It should be noted, however, that whereas under Article XI, Section 2, of the 1935 Constitution the Auditor General could not correct "irregular, unnecessary, excessive or extravagant" expenditures of public funds but could only "bring [the matter] to the attention of the proper administrative officer," under the 1987 Constitution, as also under the 1973 Constitution, the Commission on Audit can "promulgate accounting and auditing rules and regulations including those for the prevention and disallowance of irregular, unnecessary, excessive, extravagant, or unconscionable expenditures or uses of government funds and properties." Hence, since the Commission on Audit must ultimately be responsible for the enforcement of these rules and regulations, the failure to comply with these regulations can be a ground for disapproving the payment of a proposed expenditure.

Indeed, when the framers of the last two (2) Constitutions conferred upon the COA a more active role and invested it with broader and more extensive powers, they did not intend merely to make the COA a toothless tiger, but rather envisioned a dynamic, effective, efficient and independent watchdog of the Government. The issue of the financing charges boils down to the validity of Department of Finance Circular No. 1-87, Department of Finance Circular No. 4-88 and the implementing circulars of the OEA, issued pursuant to Section 8, P.D. No. 1956, as amended by E.O. No. 137, authorizing it to determine "other factors" which may result in cost underrecovery and a consequent reimbursement from the OPSF. The Solicitor General maintains that, following the doctrine of ejusdem generis, financing charges are not included in "cost underrecovery" and, therefore, cannot be considered as one of the "other factors." Section 8 of P.D. No. 1956, as amended by E.O. No. 137, does not explicitly define what "cost underrecovery" is. It merely states what it includes. Thus:
. . . "Cost underrecovery" shall include the following:

i. Reduction in oil company takes as directed by the Board of Energy without the corresponding reduction in the landed cost of oil inventories in the possession of the oil companies at the time of the price change; ii. Reduction in internal ad valorem taxes as a result of foregoing government mandated price reductions; iii. Other factors as may be determined by the Ministry of Finance to result in cost underrecovery.

These "other factors" can include only those which are of the same class or nature as the two specifically enumerated in subparagraphs (i) and (ii). A common characteristic of both is that they are in the nature of government mandated price reductions. Hence, any other factor which seeks to be a part of the enumeration, or which could qualify as a cost underrecovery, must be of the same class or nature as those specifically enumerated. Petitioner, however, suggests that E.O. No. 137 intended to grant the Department of Finance broad and unrestricted authority to determine or define "other factors." Both views are unacceptable to this Court. The rule of ejusdem generis states that "[w]here general words follow an enumeration of persons or things, by words of a particular and specific meaning, such general words are not to be construed in their widest extent, but are held to be as applying only to persons or things of the same kind or class as those specifically mentioned. 38 A reading of subparagraphs (i) and (ii) easily discloses that they do not have a common characteristic. The first relates to price reduction as directed by the Board of Energy while the second refers to reduction in internal ad 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 cost underrecovery only if such were incurred as a result of the reduction of domestic prices of petroleum products. Although petitioner's financing losses, if indeed incurred, may constitute cost underrecovery in the sense that such were incurred as a result of the inability to fully offset financing expenses from yields in money market placements, they do not, however, fall under the foregoing provision of P.D. No. 1956, as amended, because the same did not result from the reduction of the domestic price of petroleum products. Until paragraph (2), Section 8 of the decree, as amended, is further amended by Congress, this Court can do nothing. The duty of this Court is not to legislate, but to apply or interpret the law. Be that as it may, this Court wishes to emphasize that as the facts in this case have shown, it was at the behest of the Government that petitioner refinanced its oil import payments from the normal 30-day trade credit to a maximum of 360 days. Petitioner could be correct in its assertion that owing to the extended period for payment, the financial institution which refinanced said payments charged a higher interest, thereby resulting in higher financing expenses for the petitioner. It would

appear then that equity considerations dictate that petitioner should somehow be allowed to recover its financing losses, if any, which may have been sustained because it accommodated the request of the Government. Although under Section 29 of the National Internal Revenue Code such losses may be deducted from gross income, the effect of that loss would be merely to reduce its taxable income, but not to actually wipe out such losses. The Government then may consider some positive measures to help petitioner and others similarly situated to obtain substantial relief. An amendment, as aforestated, may then be in order. Upon the other hand, to accept petitioner's theory of "unrestricted authority" on the part of the Department of Finance to determine or define "other factors" is to uphold an undue delegation of legislative power, it clearly appearing that the subject provision does not provide any standard for the exercise of the authority. It is a fundamental rule that delegation of legislative power may be sustained only upon the ground that some standard for its exercise is provided and that the legislature, in making the delegation, has prescribed the manner of the exercise of the delegated authority. 39 Finally, whether petitioner gained or lost by reason of the extensive credit is rendered irrelevant by reason of the foregoing disquisitions. It may nevertheless be stated that petitioner failed to disprove COA's claim that it had in fact gained in the process. Otherwise stated, petitioner failed to sufficiently show that it incurred a loss. Such being the case, how can petitioner claim for reimbursement? It cannot have its cake and eat it too. II. Anent the claims arising from sales to the National Power Corporation, We find for the petitioner. The respondents themselves admit in their Comment that underrecovery arising from sales to NPC are reimbursable because NPC was granted full exemption from the payment of taxes; to prove this, respondents trace the laws providing for such exemption. 40 The last law cited is the Fiscal Incentives Regulatory Board's Resolution No. 17-87 of 24 June 1987 which provides, in part, "that the tax and duty exemption privileges of the National Power Corporation, including those pertaining to its domestic purchases of petroleum and petroleum products . . . are restored effective March 10, 1987." In a Memorandum issued on 5 October 1987 by the Office of the President, NPC's tax exemption was confirmed and approved. Furthermore, as pointed out by respondents, the intention to exempt sales of petroleum products to the NPC is evident in the recently passed Republic Act No. 6952 establishing the Petroleum Price Standby Fund to support the OPSF. 41 The pertinent part of Section 2, Republic Act No. 6952 provides:
Sec. 2. Application of the Fund shall be subject to the following conditions: (1) That the Fund shall be used to reimburse the oil companies for (a) cost increases of imported crude oil and finished petroleum products resulting from foreign exchange rate adjustments and/or increases in world market prices of crude oil; (b) cost underrecovery incurred as a result of fuel oil sales to the National Power Corporation (NPC); and (c) other cost underrecoveries incurred as may be finally decided by the

Supreme Court; . . .

Hence, petitioner can recover its claim arising from sales of petroleum products to the National Power Corporation. III. With respect to its claim for reimbursement on sales to ATLAS and MARCOPPER, petitioner relies on Letter of Instruction (LOI) 1416, dated 17 July 1984, which ordered the suspension of payments of all taxes, duties, fees and other charges, whether direct or indirect, due and payable by the copper mining companies in distress to the national government. Pursuant to this LOI, then Minister of Energy, Hon. Geronimo Velasco, issued Memorandum Circular No. 84-11-22 advising the oil companies that Atlas Consolidated Mining Corporation and Marcopper Mining Corporation are among those declared to be in distress. In denying the claims arising from sales to ATLAS and MARCOPPER, the COA, in its 18 August 1989 letter to Executive Director Wenceslao R. de la Paz, states that "it is our opinion that LOI 1416 which implements the exemption from payment of OPSF imposts as effected by OEA has no legal basis;" 42 in its Decision No. 1171, it ruled that "the CPI (CALTEX) (Caltex) has no authority to claim reimbursement for this uncollected impost because LOI 1416 dated July 17, 1984, . . . was issued when OPSF was not yet in existence and could not have contemplated OPSF imposts at the time of its formulation." 43 It is further stated that: "Moreover, it is evident that OPSF was not created to aid distressed mining companies but rather to help the domestic oil industry by stabilizing oil prices." In sustaining COA's stand, respondents vigorously maintain that LOI 1416 could not have intended to exempt said distressed mining companies from the payment of OPSF dues for the following reasons:
a. LOI 1416 granting the alleged exemption was issued on July 17, 1984. P.D. 1956 creating the OPSF was promulgated on October 10, 1984, while E.O. 137, amending P.D. 1956, was issued on February 25, 1987. b. LOI 1416 was issued in 1984 to assist distressed copper mining companies in line with the government's effort to prevent the collapse of the copper industry. P.D No. 1956, as amended, was issued for the purpose of minimizing frequent price changes brought about by exchange rate adjustments and/or changes in world market prices of crude oil and imported petroleum product's; and c. LOI 1416 caused the "suspension of all taxes, duties, fees, imposts and other charges, whether direct or indirect, due and payable by the copper mining companies in distress to the Notional and Local Governments . . ." On the other hand, OPSF dues are not payable by (sic) distressed copper companies but by oil companies. It is to be noted that the copper mining companies do not pay OPSF dues. Rather, such imposts are built in or 44 already incorporated in the prices of oil products.

Lastly, respondents allege that while LOI 1416 suspends the payment of taxes by distressed mining companies, it does not accord petitioner the same privilege with respect to its obligation to pay OPSF dues. We concur with the disquisitions of the respondents. Aside from such reasons, however, it is apparent that LOI 1416 was never published in the Official Gazette 45 as required by Article 2 of the Civil Code, which reads:
Laws shall take effect after fifteen days following the completion of their publication in the Official Gazette, unless it is otherwise provided. . . .

In applying said provision, this Court ruled in the case of Taada vs. Tuvera: 46
WHEREFORE, the Court hereby orders respondents to publish in the Official Gazette all unpublished presidential issuances which are of general application, and unless so published they shall have no binding force and effect.

Resolving the motion for reconsideration of said decision, this Court, in its Resolution promulgated on 29 December 1986, 47 ruled:
We hold therefore that all statutes, including those of local application and private laws, shall be published as a condition for their effectivity, which shall begin fifteen days after publication unless a different effectivity date is fixed by the legislature. Covered by this rule are presidential decrees and executive orders promulgated by the President in the exercise of legislative powers whenever the same are validly delegated by the legislature or, at present, directly conferred by the Constitution. Administrative rules and regulations must also be published if their purpose is to enforce or implement existing laws pursuant also to a valid delegation. xxx xxx xxx WHEREFORE, it is hereby declared that all laws as above defined shall immediately upon their approval, or as soon thereafter as possible, be published in full in the Official Gazette, to become effective only after fifteen days from their publication, or on another date specified by the legislature, in accordance with Article 2 of the Civil Code.

LOI 1416 has, therefore, no binding force or effect as it was never published in the Official Gazette after its issuance or at any time after the decision in the abovementioned cases. Article 2 of the Civil Code was, however, later amended by Executive Order No. 200, issued on 18 June 1987. As amended, the said provision now reads:
Laws shall take effect after fifteen days following the completion of their publication either in the Official Gazette or in a newspaper of general circulation in the Philippines, unless it is otherwise provided.

We are not aware of the publication of LOI 1416 in any newspaper of general circulation pursuant to Executive Order No. 200.

Furthermore, even granting arguendo that LOI 1416 has force and effect, petitioner's claim must still fail. Tax exemptions as a general rule are construed strictly against the grantee and liberally in favor of the taxing authority. 48 The burden of proof rests upon the party claiming exemption to prove that it is in fact covered by the exemption so claimed. The party claiming exemption must therefore be expressly mentioned in the exempting law or at least be within its purview by clear legislative intent. In the case at bar, petitioner failed to prove that it is entitled, as a consequence of its sales to ATLAS and MARCOPPER, to claim reimbursement from the OPSF under LOI 1416. Though LOI 1416 may suspend the payment of taxes by copper mining companies, it does not give petitioner the same privilege with respect to the payment of OPSF dues. IV. As to COA's disallowance of the amount of P130,420,235.00, petitioner maintains that the Department of Finance has still to issue a final and definitive ruling thereon; accordingly, it was premature for COA to disallow it. By doing so, the latter acted beyond its jurisdiction. 49 Respondents, on the other hand, contend that said amount was already disallowed by the OEA for failure to substantiate it. 50 In fact, when OEA submitted the claims of petitioner for pre-audit, the abovementioned amount was already excluded. An examination of the records of this case shows that petitioner failed to prove or substantiate its contention that the amount of P130,420,235.00 is still pending before the OEA and the DOF. Additionally, We find no reason to doubt the submission of respondents that said amount has already been passed upon by the OEA. Hence, the ruling of respondent COA disapproving said claim must be upheld. V. The last issue to be resolved in this case is whether or not the amounts due to the OPSF from petitioner may be offset against petitioner's outstanding claims from said fund. Petitioner contends that it should be allowed to offset its claims from the OPSF against its contributions to the fund as this has been allowed in the past, particularly in the years 1987 and 1988. 51 Furthermore, petitioner cites, as bases for offsetting, the provisions of the New Civil Code on compensation and Section 21, Book V, Title I-B of the Revised Administrative Code which provides for "Retention of Money for Satisfaction of Indebtedness to Government." 52 Petitioner also mentions communications from the Board of Energy and the Department of Finance that supposedly authorize compensation. Respondents, on the other hand, citing Francia vs. IAC and Fernandez, 53 contend that there can be no offsetting of taxes against the claims that a taxpayer may have against the government, as taxes do not arise from contracts or depend upon the will of the taxpayer, but are imposed by law. Respondents also allege that petitioner's reliance on Section 21, Book V, Title I-B of the Revised Administrative Code, is misplaced because "while this provision empowers the COA to withhold payment of a government indebtedness to a person who is also indebted to the government and apply the

government indebtedness to the satisfaction of the obligation of the person to the government, like authority or right to make compensation is not given to the private person." 54 The reason for this, as stated in Commissioner of Internal Revenue vs. Algue, Inc., 55 is that money due the government, either in the form of taxes or other dues, is its lifeblood and should be collected without hindrance. Thus, instead of giving petitioner a reason for compensation or set-off, the Revised Administrative Code makes it the respondents' duty to collect petitioner's indebtedness to the OPSF. Refuting respondents' contention, petitioner claims that the amounts due from it do not arise as a result of taxation because "P.D. 1956, amended, did not create a source of taxation; it instead established a special fund . . .," 56 and that the OPSF contributions do not go to the general fund of the state and are not used for public purpose, i.e., not for the support of the government, the administration of law, or the payment of public expenses. This alleged lack of a public purpose behind OPSF exactions distinguishes such from a tax. Hence, the ruling in the Francia case is inapplicable. Lastly, petitioner cites R.A. No. 6952 creating the Petroleum Price Standby Fund to support the OPSF; the said law provides in part that:
Sec. 2. Application of the fund shall be subject to the following conditions: xxx xxx xxx (3) That no amount of the Petroleum Price Standby Fund shall be used to pay any oil company which has an outstanding obligation to the Government without said obligation being offset first, subject to the requirements of compensation or offset under the Civil Code.

We find no merit in petitioner's contention that the OPSF contributions are not for a public purpose because they go to a special fund of the government. Taxation is no longer envisioned as a measure merely to raise revenue to support the existence of the government; taxes may be levied with a regulatory purpose to provide means for the rehabilitation and stabilization of a threatened industry which is affected with public interest as to be within the police power of the state. 57 There can be no doubt that the oil industry is greatly imbued with public interest as it vitally affects the general welfare. Any unregulated increase in oil prices could hurt the lives of a majority of the people and cause economic crisis of untold proportions. It would have a chain reaction in terms of, among others, demands for wage increases and upward spiralling of the cost of basic commodities. The stabilization then of oil prices is of prime concern which the state, via its police power, may properly address. Also, P.D. No. 1956, as amended by E.O. No. 137, explicitly provides that the source of OPSF is taxation. No amount of semantical juggleries could dim this fact. It is settled that a taxpayer may not offset taxes due from the claims that he may have against the government. 58 Taxes cannot be the subject of compensation because the government and taxpayer are not mutually creditors and debtors of each other and a

claim for taxes is not such a debt, demand, contract or judgment as is allowed to be setoff. 59 We may even further state that technically, in respect to the taxes for the OPSF, the oil companies merely act as agents for the Government in the latter's collection since the taxes are, in reality, passed unto the end-users the consuming public. In that capacity, the petitioner, as one of such companies, has the primary obligation to account for and remit the taxes collected to the administrator of the OPSF. This duty stems from the fiduciary relationship between the two; petitioner certainly cannot be considered merely as a debtor. In respect, therefore, to its collection for the OPSF vis-avis its claims for reimbursement, no compensation is likewise legally feasible. Firstly, the Government and the petitioner cannot be said to be mutually debtors and creditors of each other. Secondly, there is no proof that petitioner's claim is already due and liquidated. Under Article 1279 of the Civil Code, in order that compensation may be proper, it is necessary that: (1) each one of the obligors be bound principally, and that he be at the same time a principal creditor of the other; (2) both debts consist in a sum of :money, or if the things due are consumable, they be of the same kind, and also of the same quality if the latter has been stated; (3) the two (2) debts be due; (4) they be liquidated and demandable; (5) over neither of them there be any retention or controversy, commenced by third persons and communicated in due time to the debtor. That compensation had been the practice in the past can set no valid precedent. Such a practice has no legal basis. Lastly, R.A. No. 6952 does not authorize oil companies to offset their claims against their OPSF contributions. Instead, it prohibits the government from paying any amount from the Petroleum Price Standby Fund to oil companies which have outstanding obligations with the government, without said obligation being offset first subject to the rules on compensation in the Civil Code. WHEREFORE, in view of the foregoing, judgment is hereby rendered AFFIRMING the challenged decision of the Commission on Audit, except that portion thereof disallowing petitioner's claim for reimbursement of underrecovery arising from sales to the National Power Corporation, which is hereby allowed. With costs against petitioner. SO ORDERED. G.R. No. L-21841 October 28, 1966

ESSO STANDARD EASTERN, INC., petitioner-appellant, vs. ACTING COMMISSIONER OF CUSTOMS, respondent-appellee. Ross, Selph and Carrascoso for petitioners. Office of the Solicitor General for respondents. SANCHEZ, J.: Claim for the refund of P722.84 paid in 1956 as special import tax on pump parts imported by petitioner. Petitioner's ground: The imported articles "consist of equipment and spare parts for its own exclusive use and therefore were exempt from special import tax", by the terms of Section 6, Republic Act 1394.1 The Collector of Customs of Manila rejected the claim. Respondent Acting Commissioner of Customs, on appeal, affirmed the rejection. Petitioner's case suffered the same fate in the Court of Tax Appeals.2 We are asked to review the Court on Tax Appeals' judgment. The interrelated errors assigned in petitioner's brief funnel down to one controlling legal issue: Are the imported pump parts exempt from the payment of special import tax? By Section 1 of Republic Act 1394, a special import tax is imposed "on all goods, articles or products imported or brought into the Philippines" during the period from 1956 up to and including 1965 in accordance with the schedule of rates therein provided. Exempt from this tax, by express mandate of Section 6 of the same law, inter alia, are "machinery, equipment, accessories, and spare parts, for the use of industries, miners, mining enterprises, planters and farmers". Petitioner is engaged in the industry of processing gasoline, and manufacturing lubricating oil, grease and tin containers. Petitioner owns gasoline stations with pumps, which are leased to and operated by gasoline dealers. It sells gasoline to these dealers. The pump parts imported by petitioner in 1956 were intended, installed and actually used by gasoline dealers in pumping gasoline from under around tanks into customers' motor vehicles. These pump parts, in other words, are used in the sale at retail of gasoline not by petitioner but by lessees of gasoline stations. In this factual environment, it is quite evident that the pump parts are not used in petitioner's industry of processing gasoline, or manufacturing lubricating oil, grease and tin containers. The drive of petitioner's argument is that marketing of its gasoline product "is corollary to or incidental to its industrial operations."3 But this contention runs smack against the familiar rules that exemption from taxation is not favored,4 and that exemptions in tax statutes are never presumed.5 Which are but statements in adherence to the ancient rule that exemptions from taxation are construed in strictissimi juris against the taxpayer and liberally in favor of the taxing authority.6 Tested by this precept, we cannot indulge in expansive construction and write into the law an exemption not therein set forth. Rather, we go by the reasonable assumption that where the State has granted in express terms certain exemptions, those are the exemptions to be considered, and no more. Since the law states that, to be tax exempt, equipment and spare parts

should be "for the use of industries", the coverage herein should not be enlarged to include equipment and spare parts for use in dispensing gasoline at retail. In comparable factual backdrop, this Court has held that tax exemption in connection with the manufacture of asbestos roof does not extend to the installation thereof.7 Upon the facts and the law, we vote to affirm the decision of the Court of Tax Appeals under review. Costs against petitioner. So ordered.

.R. No. L-31092 February 27, 1987 COMMISSIONER OF INTERNAL REVENUE, petitioner, vs. JOHN GOTAMCO & SONS, INC. and THE COURT OF TAX APPEALS, respondents.

YAP, J.: The question involved in this petition is whether respondent John Gotamco & Sons, Inc. should pay the 3% contractor's tax under Section 191 of the National Internal Revenue Code on the gross receipts it realized from the construction of the World Health Organization office building in Manila. The World Health Organization (WHO for short) is an international organization which has a regional office in Manila. As an international organization, it enjoys privileges and immunities which are defined more specifically in the Host Agreement entered into between the Republic of the Philippines and the said Organization on July 22, 1951. Section 11 of that Agreement provides, inter alia, that "the Organization, its assets, income and other properties shall be: (a) exempt from all direct and indirect taxes. It is understood, however, that the Organization will not claim exemption from taxes which are, in fact, no more than charges for public utility services; . . . When the WHO decided to construct a building to house its own offices, as well as the other United Nations offices stationed in Manila, it entered into a further agreement with the Govermment of the Republic of the Philippines on November 26, 1957. This agreement contained the following provision (Article III, paragraph 2):
The Organization may import into the country materials and fixtures required for the construction free from all duties and taxes and agrees not to utilize any portion of the international reserves of the Government.

Article VIII of the above-mentioned agreement referred to the Host Agreement concluded on July 22, 1951 which granted the Organization exemption from all direct and indirect taxes.

In inviting bids for the construction of the building, the WHO informed the bidders that the building to be constructed belonged to an international organization with diplomatic status and thus exempt from the payment of all fees, licenses, and taxes, and that therefore their bids "must take this into account and should not include items for such taxes, licenses and other payments to Government agencies." The construction contract was awarded to respondent John Gotamco & Sons, Inc. (Gotamco for short) on February 10, 1958 for the stipulated price of P370,000.00, but when the building was completed the price reached a total of P452,544.00. Sometime in May 1958, the WHO received an opinion from the Commissioner of the Bureau of Internal Revenue stating that "as the 3% contractor's tax is an indirect tax on the assets and income of the Organization, the gross receipts derived by contractors from their contracts with the WHO for the construction of its new building, are exempt from tax in accordance with . . . the Host Agreement." Subsequently, however, on June 3, 1958, the Commissioner of Internal Revenue reversed his opinion and stated that "as the 3% contractor's tax is not a direct nor an indirect tax on the WHO, but a tax that is primarily due from the contractor, the same is not covered by . . . the Host Agreement." On January 2, 1960, the WHO issued a certification state 91 inter alia,:
When the request for bids for the construction of the World Health Organization office building was called for, contractors were informed that there would be no taxes or fees levied upon them for their work in connection with the construction of the building as this will be considered an indirect tax to the Organization caused by the increase of the contractor's bid in order to cover these taxes. This was upheld by the Bureau of Internal Revenue and it can be stated that the contractors submitted their bids in good faith with the exemption in mind. The undersigned, therefore, certifies that the bid of John Gotamco & Sons, made under the condition stated above, should be exempted from any taxes in connection with the construction of the World Health Organization office building.

On January 17, 1961, the Commissioner of Internal Revenue sent a letter of demand to Gotamco demanding payment of P 16,970.40, representing the 3% contractor's tax plus surcharges on the gross receipts it received from the WHO in the construction of the latter's building. Respondent Gotamco appealed the Commissioner's decision to the Court of Tax Appeals, which after trial rendered a decision, in favor of Gotamco and reversed the Commissioner's decision. The Court of Tax Appeal's decision is now before us for review on certiorari. In his first assignment of error, petitioner questions the entitlement of the WHO to tax exemption, contending that the Host Agreement is null and void, not having been ratified by the Philippine Senate as required by the Constitution. We find no merit in this contention. While treaties are required to be ratified by the Senate under the Constitution, less formal types of international agreements may be entered into by the

Chief Executive and become binding without the concurrence of the legislative body. The Host Agreement comes within the latter category; it is a valid and binding international agreement even without the concurrence of the Philippine Senate. The privileges and immunities granted to the WHO under the Host Agreement have been recognized by this Court as legally binding on Philippine authorities. 2

Petitioner maintains that even assuming that the Host Agreement granting tax exemption to the WHO is valid and enforceable, the 3% contractor's tax assessed on Gotamco is not an "indirect tax" within its purview. Petitioner's position is that the contractor's tax "is in the nature of an excise tax which is a charge imposed upon the performance of an act, the enjoyment of a privilege or the engaging in an occupation. . . It is a tax due primarily and directly on the contractor, not on the owner of the building. Since this tax has no bearing upon the WHO, it cannot be deemed an indirect taxation upon it." We agree with the Court of Tax Appeals in rejecting this contention of the petitioner. Said the respondent court:
In context, direct taxes are those that are demanded from the very person who, it is intended or desired, should pay them; while indirect taxes are those that are demanded in the first instance from one person in the expectation and intention that he can shift the burden to someone else. (Pollock vs. Farmers, L & T Co., 1957 US 429, 15 S. Ct. 673, 39 Law. Ed. 759.) The contractor's tax is of course payable by the contractor but in the last analysis it is the owner of the building that shoulders the burden of the tax because the same is shifted by the contractor to the owner as a matter of self-preservation. Thus, it is an indirect tax. And it is an indirect tax on the WHO because, although it is payable by the petitioner, the latter can shift its burden on the WHO. In the last analysis it is the WHO that will pay the tax indirectly through the contractor and it certainly cannot be said that 'this tax has no bearing upon the World Health Organization.

Petitioner claims that under the authority of the Philippine Acetylene Company versus Commissioner of Internal Revenue, et al., 3 the 3% contractor's tax fans directly on Gotamco and cannot be shifted to the WHO. The Court of Tax Appeals, however, held that the said case is not controlling in this case, since the Host Agreement specifically exempts the WHO from "indirect taxes." We agree. The Philippine Acetylene case involved a tax on sales of goods which under the law had to be paid by the manufacturer or producer; the fact that the manufacturer or producer might have added the amount of the tax to the price of the goods did not make the sales tax "a tax on the purchaser." The Court held that the sales tax must be paid by the manufacturer or producer even if the sale is made to tax-exempt entities like the National Power Corporation, an agency of the Philippine Government, and to the Voice of America, an agency of the United States Government. The Host Agreement, in specifically exempting the WHO from "indirect taxes," contemplates taxes which, although not imposed upon or paid by the Organization directly, form part of the price paid or to be paid by it. This is made clear in Section 12 of the Host Agreement which provides:

While the Organization will not, as a general rule, in the case of minor purchases, claim exemption from excise duties, and from taxes on the sale of movable and immovable property which form part of the price to be paid, nevertheless, when the Organization is making important purchases for official use of property on which such duties and taxes have been charged or are chargeable the Government of the Republic of the Philippines shall make appropriate administrative arrangements for the remission or return of the amount of duty or tax. (Emphasis supplied).

The above-quoted provision, although referring only to purchases made by the WHO, elucidates the clear intention of the Agreement to exempt the WHO from "indirect" taxation. The certification issued by the WHO, dated January 20, 1960, sought exemption of the contractor, Gotamco, from any taxes in connection with the construction of the WHO office building. The 3% contractor's tax would be within this category and should be viewed as a form of an "indirect tax" On the Organization, as the payment thereof or its inclusion in the bid price would have meant an increase in the construction cost of the building. Accordingly, finding no reversible error committed by the respondent Court of Tax Appeals, the appealed decision is hereby affirmed. SO ORDERED. G.R. No. 173594 February 6, 2008

SILKAIR (SINGAPORE) PTE, LTD., petitioner, vs. COMMISSIONER OF INTERNAL REVENUE, respondent. DECISION CARPIO MORALES, J.: Petitioner, Silkair (Singapore) Pte. Ltd. (Silkair), a corporation organized under the laws of Singapore which has a Philippine representative office, is an online international air carrier operating the Singapore-Cebu-Davao-Singapore, Singapore-Davao-Cebu-Singapore, and Singapore-Cebu-Singapore routes. On December 19, 2001, Silkair filed with the Bureau of Internal Revenue (BIR) a written application for the refund of P4,567,450.79 excise taxes it claimed to have paid on its purchases of jet fuel from Petron Corporation from January to June 2000.1 As the BIR had not yet acted on the application as of December 26, 2001, Silkair filed a Petition for Review2 before the CTA following Commissioner of Internal Revenue v. Victorias Milling Co., Inc., et al.3

Opposing the petition, respondent Commissioner on Internal Revenue (CIR) alleged in his Answer that, among other things, Petitioner failed to prove that the sale of the petroleum products was directly made from a domestic oil company to the international carrier. The excise tax on petroleum products is the direct liability of the manufacturer/producer, and when added to the cost of the goods sold to the buyer, it is no longer a tax but part of the price which the buyer has to pay to obtain the article.4 (Emphasis and underscoring supplied) By Decision of May 27, 2005, the Second Division of the CTA denied Silkairs petition on the ground that as the excise tax was imposed on Petron Corporation as the manufacturer of petroleum products, any claim for refund should be filed by the latter; and where the burden of tax is shifted to the purchaser, the amount passed on to it is no longer a tax but becomes an added cost of the goods purchased. Thus the CTA discoursed: The liability for excise tax on petroleum products that are being removed from its refinery is imposed on the manufacturer/producer (Section 130 of the NIRC of 1997). x x x xxxx While it is true that in the case of excise tax imposed on petroleum products, the seller thereof may shift the tax burden to the buyer, the latter is the proper party to claim for the refund in the case of exemption from excise tax. Since the excise tax was imposed upon Petron Corporation as the manufacturer of petroleum products, pursuant to Section 130(A)(2), and that the corresponding excise taxes were indeed, paid by it, . . . any claim for refund of the subject excise taxes should be filed by Petron Corporation as the taxpayer contemplated under the law. Petitioner cannot be considered as the taxpayer because it merely shouldered the burden of the excise tax and not the excise tax itself. Therefore, the right to claim for the refund of excise taxes paid on petroleum products lies with Petron Corporation who paid and remitted the excise tax to the BIR. Respondent, on the other hand, may only claim from Petron Corporation the reimbursement of the tax burden shifted to the former by the latter. The excise tax partaking the nature of an indirect tax, is clearly the liability of the manufacturer or seller who has the option whether or not to shift the burden of the tax to the purchaser. Where the burden of the tax is shifted to the [purchaser], the amount passed on to it is no longer a tax but becomes an added cost on the goods purchased which constitutes a part of the purchase price. The incidence of taxation or the person statutorily liable to pay the tax falls on Petron Corporation though the impact of taxation or the burden of taxation falls on another person, which in this case is petitioner Silkair.5 (Italics in the original; emphasis and underscoring supplied) Silkair filed a Motion for Reconsideration6 during the pendency of which or on September 12, 2005 the Bengzon Law Firm entered its appearance as counsel,7 without Silkairs then-counsel of

record (Jimenez Gonzales Liwanag Bello Valdez Caluya & Fernandez or "JGLaw") having withdrawn as such. By Resolution8 of September 22, 2005, the CTA Second Division denied Silkairs motion for reconsideration. A copy of the Resolution was furnished Silkairs counsel JGLaw which received it on October 3, 2005.9 On October 13, 2005, JGLaw, with the conformity of Silkair, filed its Notice of Withdrawal of Appearance.10 On even date, Silkair, through the Bengzon Law Firm, filed a Manifestation/Motion11 stating: Petitioner was formerly represented xxx by JIMENEZ GONZALES LIWANAG BELLO VALDEZ CALUYA & FERNANDEZ (JGLaw). 1. On 24 August 2005, petitioner served notice to JGLaw of its decision to cease all legal representation handled by the latter on behalf of the petitioner. Petitioner also requested JGLaw to make arrangements for the transfer of all files relating to its legal representation on behalf of petitioner to the undersigned counsel. x x x 2. The undersigned counsel was engaged to act as counsel for the petitioner in the above-entitled case; and thus, filed its entry of appearance on 12 September 2005. xxx 3. The undersigned counsel, through petitioner, has received information that the Honorable Court promulgated a Resolution on petitioners Motion for Reconsideration. To date, the undersigned counsel has yet to receive an official copy of the above-mentioned Resolution. In light of the foregoing, undersigned counsel hereby respectfully requests for an official copy of the Honorable Courts Resolution on petitioners Motion for Reconsideration x x x.12 (Underscoring supplied) On October 14, 2005, the Bengzon Law Firm received its requested copy of the September 22, 200513 CTA Second Division Resolution. Thirty-seven days later or on October 28, 2005, Silkair, through said counsel, filed a Motion for Extension of Time to File Petition for Review14 before the CTA En Banc which gave it until November 14, 2005 to file a petition for review. On November 11, 2005, Silkair filed another Motion for Extension of Time.15 On even date, the Bengzon Law Firm informed the CTA of its withdrawal of appearance as counsel for Silkair with the information, that Silkair would continue to be represented by Atty. Teodoro A. Pastrana, who used to be with the firm but who had become a partner of the Pastrana and Fallar Law Offices.16 The CTA En Banc granted Silkairs second Motion for Extension of Time, giving Silkair until November 24, 2005 to file its petition for review. On November 17, 2005, Silkair filed its Petition for Review17 before the CTA En Banc.

By Resolution of May 19,2006, the CTA En Banc dismissed18 Silkairs petition for review for having been filed out of time in this wise: A petitioner is given a period of fifteen (15) days from notice of award, judgment, final order or resolution, or denial of motion for new trial or reconsideration to appeal to the proper forum, in this case, the CTA En Banc. This is clear from both Section 11 and Section 9 of Republic Act No. 9282 x x x. xxxx The petitioner, through its counsel of record Jimenez, Gonzalez, L[iwanag], Bello, Valdez, Caluya & Fernandez Law Offices, received the Resolution dated September 22, 2005 on October 3, 2005. At that time, the petitioner had two counsels of record, namely, Jimenez, Gonzales, L[iwanag], Bello, Valdez, Caluya & Fernandez Law Offices and The Bengzon Law Firm which filed its Entry of Appearance on September 12, 2005. However, as of said date, Atty. Mary Jane B. Austria-Delgado of Jimenez, Gonzales, L[iwanag], Bello, Valdez, Caluya & Fernandez Law Offices was still the counsel of record considering that the Notice of Withdrawal of Appearance signed by Atty. Mary Jane B. Austria-Delgado was filed only on October 13, 2005 or ten (10) days after receipt of the September 22, 2005 Resolution of the Courts Second Division. This notwithstanding, Section 2 of Rule 13 of the Rules of Court provides that if any party has appeared by counsel, service upon him shall be made upon his counsel or one of them, unless service upon the party himself is ordered by the Court. Where a party is represented by more than one counsel of record, "notice to any one of the several counsel on record is equivalent to notice to all the counsel (Damasco vs. Arrieta, et. al., 7 SCRA 224)." Considering that petitioner, through its counsel of record, had received the September 22, 2005 Resolution as early as October 3, 2005, it had only until October 18, 2005 within which to file its Petition for Review. Petitioner only managed to file the Petition for Review with the Court En Banc on November 17, 2005 or [after] thirty (30) days had lapsed from the final date of October 18, 2005 to appeal. The argument that it requested Motions for Extension of Time on October 28, 2005 or ten (10) days from the appeal period and the second Motion for Extension of Time to file its Petition for Review on November 11, 2005 and its allowance by the CTA En Banc notwithstanding, the questioned Decision is no longer appealable for failure to timely file the necessary Petition for Review.19 (Emphasis in the original) In a Separate Concurring Opinion,20 CTA Associate Justice Juanito C. Castaeda, Jr. posited that Silkair is not the proper party to claim the tax refund. Silkair filed a Motion for Reconsideration21 which the CTA En Banc denied.22 Hence, the present Petition for Review23 which raises the following issues: I. WHETHER OR NOT THE PETITION FOR REVIEW FILED WITH THE HONORABLE COURT OF TAX APPEALS EN BANC WAS TIMELY FILED.

II. APPEAL BEING AN ESSENTIAL PART OF OUR JUDICIAL SYSTEM, WHETHER OR NOT PETITIONER SHOULD BE DEPRIVED OF ITS RIGHT TO APPEAL ON THE BASIS OF TECHNICALITY. III. ASSUMING THE HONORABLE SUPREME COURT WOULD HOLD THAT THE FILING OF THE PETITITON FOR REVIEW WITH THE HONORABLE COURT OF TAX APPEALS EN BANC WAS TIMELY, WHETHER OR NOT THE PETITIONER IS THE PROPER PARTY TO CLAIM FOR REFUND OR TAX CREDIT.24 (Underscoring supplied) Silkair posits that "the instant case does not involve a situation where the petitioner was represented by two (2) counsels on record, such that notice to the former counsel would be held binding on the petitioner, as in the case of Damasco v. Arrieta, etc., et al.25 x x x heavily relied upon by the respondent";26 and that "the case of Dolores De Mesa Abad v. Court of Appeals27 has more appropriate application to the present case."28 In Dolores De Mesa Abad, the trial court issued an order of November 19, 1974 granting the therein private respondents Motion for Annulment of documents and titles. The order was received by the therein petitioners counsel of record, Atty. Escolastico R. Viola, on November 22, 1974 prior to which or on July 17, 1974, Atty. Vicente Millora of the Millora, Tobias and Calimlim Law Office had filed an "Appearance and Manifestation." Atty. Millora received a copy of the trial courts order on December 9, 1974. On January 4, 1975, the therein petitioners, through Atty. Ernesto D. Tobias also of the Millora, Tobias and Calimlim Law Office, filed their Notice of Appeal and Cash Appeal Bond as well as a Motion for Extension of the period to file a Record on Appeal. They filed the Record on Appeal on January 24, 1975. The trial court dismissed the appeal for having been filed out of time, which was upheld by the Court of Appeals on the ground that the period within which to appeal should be counted from November 22, 1974, the date Atty. Viola received a copy of the November 19, 1974 order. The appellate court held that Atty. Viola was still the counsel of record, he not having yet withdrawn his appearance as counsel for the therein petitioners. On petition for certiorari,29 this Court held x x x [R]espondent Court reckoned the period of appeal from the time petitioners original counsel, Atty. Escolastico R. Viola, received the Order granting the Motion for Annulment of documents and titles on November 22, 1974. But as petitioners stress, Atty. Vicente Millora of the Millora, Tobias and Calimlim Law Office had filed an "Appearance and Manifestation" on July 16, 1974. Where there may have been no specific withdrawal by Atty. Escolastico R. Viola, for which he should be admonished, by the appearance of a new counsel, it can be said that Atty. Viola had ceased as counsel for petitioners. In fact, Orders subsequent to the aforesaid date were already sent by the trial Court to the Millora, Tobias and Calimlim Law Office and not to Atty. Viola. Under the circumstances, December 9, 1974 is the controlling date of receipt by petitioners counsel and from which the period of appeal from the Order of November 19, 1974 should be reckoned. That being the case, petitioners x x x appeal filed on January 4, 1975 was timely filed.30 (Underscoring supplied)

The facts of Dolores De Mesa Abad are not on all fours with those of the present case. In any event, more recent jurisprudence holds that in case of failure to comply with the procedure established by Section 26, Rule 13831 of the Rules of Court re the withdrawal of a lawyer as a counsel in a case, the attorney of record is regarded as the counsel who should be served with copies of the judgments, orders and pleadings.32 Thus, where no notice of withdrawal or substitution of counsel has been shown, notice to counsel of record is, for all purposes, notice to the client.33 The court cannot be expected to itself ascertain whether the counsel of record has been changed.34 In the case at bar, JGLaw filed its Notice of Withdrawal of Appearance on October 13, 200535 after the Bengzon Law Firm had entered its appearance. While Silkair claims it dismissed JGLaw as its counsel as early as August 24, 2005, the same was communicated to the CTA only on October 13, 2005.36 Thus, JGLaw was still Silkairs counsel of record as of October 3, 2005 when a copy of the September 22, 2005 resolution of the CTA Second Division was served on it. The service upon JGLaw on October 3, 2005 of the September 22, 2005 resolution of CTA Second Division was, therefore, for all legal intents and purposes, service to Silkair, and the CTA correctly reckoned the period of appeal from such date. TECHNICALITY ASIDE, on the merits, the petition just the same fails. Silkair bases its claim for refund or tax credit on Section 135 (b) of the NIRC of 1997 which reads Sec. 135. Petroleum Products sold to International Carriers and Exempt Entities of Agencies. Petroleum products sold to the following are exempt from excise tax: xxxx (b) Exempt entities or agencies covered by tax treaties, conventions, and other international agreements for their use and consumption: Provided, however, That the country of said foreign international carrier or exempt entities or agencies exempts from similar taxes petroleum products sold to Philippine carriers, entities or agencies; x x x x x x x, and Article 4(2) of the Air Transport Agreement between the Government of the Republic of the Philippines and the Government of the Republic of Singapore (Air Transport Agreement between RP and Singapore) which reads Fuel, lubricants, spare parts, regular equipment and aircraft stores introduced into, or taken on board aircraft in the territory of one Contracting party by, or on behalf of, a designated airline of the other Contracting Party and intended solely for use in the operation of the agreed services shall, with the exception of charges corresponding to the service performed, be exempt from the same customs duties, inspection fees and other duties or taxes imposed in the territories of the first Contracting Party , even when these supplies are to be used on the parts of the journey performed over the territory of the

Contracting Party in which they are introduced into or taken on board. The materials referred to above may be required to be kept under customs supervision and control. The proper party to question, or seek a refund of, an indirect tax is the statutory taxpayer, the person on whom the tax is imposed by law and who paid the same even if he shifts the burden thereof to another.37 Section 130 (A) (2) of the NIRC provides that "[u]nless otherwise specifically allowed, the return shall be filed and the excise tax paid by the manufacturer or producer before removal of domestic products from place of production." Thus, Petron Corporation, not Silkair, is the statutory taxpayer which is entitled to claim a refund based on Section 135 of the NIRC of 1997 and Article 4(2) of the Air Transport Agreement between RP and Singapore. Even if Petron Corporation passed on to Silkair the burden of the tax, the additional amount billed to Silkair for jet fuel is not a tax but part of the price which Silkair had to pay as a purchaser.38 Silkair nevertheless argues that it is exempt from indirect taxes because the Air Transport Agreement between RP and Singapore grants exemption "from the same customs duties, inspection fees and other duties or taxes imposed in the territory of the first Contracting Party."39 It invokes Maceda v. Macaraig, Jr.40 which upheld the claim for tax credit or refund by the National Power Corporation (NPC) on the ground that the NPC is exempt even from the payment of indirect taxes. Silkairss argument does not persuade. In Commissioner of Internal Revenue v. Philippine Long Distance Telephone Company,41 this Court clarified the ruling in Maceda v. Macaraig, Jr., viz: It may be so that in Maceda vs. Macaraig, Jr., the Court held that an exemption from "all taxes" granted to the National Power Corporation (NPC) under its charter includes both direct and indirect taxes. But far from providing PLDT comfort, Maceda in fact supports the case of herein petitioner, the correct lesson of Maceda being that an exemption from "all taxes" excludes indirect taxes, unless the exempting statute, like NPCs charter, is so couched as to include indirect tax from the exemption. Wrote the Court: x x x However, the amendment under Republic Act No. 6395 enumerated the details covered by the exemption. Subsequently, P.D. 380, made even more specific the details of the exemption of NPC to cover, among others, both direct and indirect taxes on all petroleum products used in its operation. Presidential Decree No. 938 [NPCs amended charter] amended the tax exemption by simplifying the same law in general terms. It succinctly exempts NPC from "all forms of taxes, duties[,] fees" The use of the phrase "all forms" of taxes demonstrates the intention of the law to give NPC all the tax exemptions it has been enjoying before xxxx

It is evident from the provisions of P.D. No. 938 that its purpose is to maintain the tax exemption of NPC from all forms of taxes including indirect taxes as provided under R.A. No. 6395 and P.D. 380 if it is to attain its goals. (Italics in the original; emphasis supplied)42 The exemption granted under Section 135 (b) of the NIRC of 1997 and Article 4(2) of the Air Transport Agreement between RP and Singapore cannot, without a clear showing of legislative intent, be construed as including indirect taxes. Statutes granting tax exemptions must be construed in strictissimi juris against the taxpayer and liberally in favor of the taxing authority, 43 and if an exemption is found to exist, it must not be enlarged by construction.44 WHEREFORE, the petition is DENIED. Costs against petitioner. SO ORDERED. .R. No. 104151 March 10, 1995 COMMISSIONER OF INTERNAL REVENUE, petitioner, vs. COURT OF APPEALS, ATLAS CONSOLIDATED MINING AND DEVELOPMENT CORPORATION and COURT OF TAX APPEALS, respondents. G.R No. 105563 March 10, 1995 ATLAS CONSOLIDATED MINING AND DEVELOPMENT CORPORATION, petitioner, vs. COURT OF APPEALS COMMISSIONER OF INTERNAL REVENUE and COURT OF TAX APPEALS, respondents.

REGALADO, J.:

Before us for joint adjudication are two petitions for review on certiorari separately filed by the Commissioner of Internal Revenue in G.R. No. 104151, and by Atlas Consolidated Mining and Development Corporation in G.R. No. 105563, which respectively seek the aside of the judgments of respondent Court of Appeals in CA-G.R. SP No. 25945 promulgated on February 12, 1992 1 and in CA-G.R. SP No. 26087 promulgated on May 22, 1992. 2 Atlas Consolidated Mining and Development Corporation (herein also referred to as ACMDC) is a domestic corporation which owns and

operates a mining concession at Toledo City, Cebu, the products of which are exported to Japan and other foreign countries. On April 9, 1980, the Commissioner of Internal Revenue (also Commissioner, for brevity), acting on the basis of the report of the examiners of the Bureau of Internal Revenue (BIR), caused the service of an assessment notice and demand for payment of the amount of P12,391,070.51 representing deficiency ad valorem percentage and fixed taxes, including increments, for the taxable year 1975 against ACMDC. 3 Likewise, on the basis. of the BIR examiner's report in another investigation separately conducted, the Commissioner had another assessment notice, with a demand for payment of the amount of P13,531,466.80 representing the 1976 deficiency ad valorem and business taxes with P5,000.00 compromise penalty, served on ACMDC on September 23, 1980. 4 ACMDC protested both assessments but the. same were denied, hence it filed two separate petitions for review in the Court of Tax Appeals (also, tax court) where they were docketed as C.T.A. Cases Nos. 3467 and 3825. These two cases, being substantially identical in most respects except for the taxable periods and the amounts involved, were eventually consolidated. On May 31, 1991, the Court of Tax Appeals rendered a consolidated decision holding, inter alia, that ACMDC was not liable for deficiency ad valorem taxes on copper and silver for 1975 and 1976 in the respective amounts of P11,276,540.79 and P12,882,760.80 thereby effectively sustaining the theory of ACMDC that in computing the ad valorem tax on copper mineral, the refining and smelting charges should be deducted, in addition to freight and insurance charges, from the London Metal Exchange (LME) price of manufactured copper. However, the tax court held ACMDC liable for the amount of P1,572,637.48, exclusive of interest, consisting of 25% surcharge for late payment of the ad valorem tax and late filing of notice of removal of silver, gold and pyrite extracted during certain periods, and for alleged deficiency manufacturer's sales tax and contractor's tax. The particulars of the reduced amount of said tax obligation is enumerated in detail in the dispositive portion of the questioned judgment of the tax court, thus:

WHEREFORE, petitioner should and is hereby ORDERED to pay the total amount of the following: a) P297,900.39 as 25% surcharge on silver extracted during the period November 1, 1974 to December 31, 1975. b) P161,027.53 as 25% surcharge on silver extracted for the taxable year 1976. c) P315,027.30 as 25% surcharge on gold extracted during the period November 1, 1974 to December 31, 1975. d) P260,180.55 as 25% surcharge on gold during the taxable year 1976. e) P53,585.30 as 25% surcharge on pyrite extracted during the period November 1, 1974 to December 31, 1975. f) P53,283.69 as 25% surcharge on pyrite extracted during the taxable year 1976. g) P316,117.53 as deficiency manufacturer's sales tax and surcharge during the taxable year 1975; plus 14% interest from January 21, 1976 until fully paid as provided under Section 183 of P.D. No. 69. h) P23,631.44 as deficiency contractor's tax and surcharge on the lease of personal property during the taxable year 1975; plus 14% interest from January 21, 1976 until fully paid as provided under Section 183 of P.D. 69. i) P91,883.75 as deficiency contractor's tax and surcharge on the lease of personal property during the taxable year 1976, plus 14% interest from April 21, 1976 until fully paid as provided under. Section 183 of P.D. No. 69. With costs against petitioner. 5

As a consequence, both parties elevated their respective contentions to respondent Court of Appeals in two separate petitions for review. The petition filed by the Commissioner, which was docketed as CA-G.R. SP

No. 25945, questioned the portion of the judgment of the tax court deleting the ad valorem tax on copper and silver, while the appeal filed by ACMDC and docketed as CA-G.R. SP No. 26087 assailed that part of the decision ordering it to pay P1,572,637.48 representing alleged deficiency assessment. On February 12, 1992, judgment was rendered by respondent Court of Appeals in CA-G.R. SP No. 25945, dismissing the petition and affirming the tax court's decision on the manner of computing the ad valorem tax. 6 Hence, the Commissioner of Internal Revenue filed a petition beforeus in G.R. No. 104151, raising the sole issue of whether or not, in computing the ad valorem tax on copper, charges for smelting and refining should also be deducted, in addition to freight and insurance costs, from the price of copper concentrates. On May 22, 1992, judgment was likewise rendered by the same respondent court in CA-G.R. SP No. 26087, modifying the judgment of the tax court and further reducing the tax liability of ACMDC by deleting therefrom the following items:
(1) the award under paragraph (a) of P297,900.39 as 25% surcharge on silver extracted during the period November 1, 1974 to December 31, 1975; (2) the award under paragraph (c) thereof of P315,027.30 as 25% surcharge on gold extracted during the period November 1, 1974 to December 31, 1975; and (3) the award under paragraph (e) thereof of P53,585.30 as 24% (sic, 25%) surcharge on pyrite extracted during the period November 1, 1974 to December 31, 1975. 7

Still not satisfied with the said judgment which had reduced its tax liability to P906,124.49, as a final recourse ACMDC came to this Court on a petition for review on certiorari in G.R. No. 105563, claiming that it is not liable at all for any deficiency. tax assessments for 1975 and 1976. In our resolution of September 1, 1993, G.R. No. 104151 was ordered consolidated with G.R. No. 105563. 8 I. G.R No. 104151 The Commissioner of Internal Revenue claims that the Court of Appeals and the tax court erred in allowing the deduction of refining and

smelting charges from the price of copper concentrates. It is the contention of the Commissioner that the actual market value of the mineral products should be the gross sales realized from copper concentrates, deducting therefrom mining, milling, refining, transporting, handling, marketing or any other expenses. He submits that the phrase "or any other expenses" includes smelting and refining charges and that the law allows deductions for actual cost of ocean freight and insurance only in instances where the minerals or mineral products are sold or consigned abroad by the lessees or owner of the mine under C.I.F. terms, hence it is error to allow smelting and refining charges as deductions. We are not persuaded by his postulation and find the arguments adduced in support thereof untenable. The pertinent provisions of the National Internal Revenue Code (tax code, for facility) at the time material to this controversy, read as follows:
Sec. 243. Ad valorem taxes on output of mineral lands not covered by lease. There is hereby imposed on the actual market value of the annual gross output of the minerals mineral products extracted or produced from all mineral lands not covered by lease, an ad valorem tax in the amount of two per centum of the value of the output except gold which shall pay one and one-half per centum. Before the minerals or mineral products are removed from the mines, the Commissioner of Internal Revenue or his representatives shall first be notified of such removal on a form prescribed for the purpose. (As amended by Rep. Act No. 6110.) Sec. 246. Definitions of the terms "gross output," "minerals" and "mineral products." Disposition of royalties and ad valorem taxes. The term "gross output" shall be interpreted as the actual market value of minerals or mineral products, or of bullion from each mine or mineral lands operated as a separate entity without any deduction from mining, milling, refining, transporting, handling, marketing, or any other expenses: Provided, however, That if the minerals or mineral products are sold or consigned. abroad by the lessee or owner of the mine under C.I.F. terms, the actual cost of ocean freight and insurance shall be deducted. The output of any group of contiguous mining claim shall not be subdivided. The word "minerals" shall mean all inorganic substances found in nature whether in solid, liquid, gaseous, or any intermediate state. The term

"mineral products" shall mean things produced by the lessee, concessionaire or owner of mineral lands, at least eighty per cent of which things must be minerals extracted by such lessee, concessionaire, or owner of mineral lands. Ten per centum of the royalties and ad valorem taxes herein provided shall accrue to the municipality and ten per centum to the province where the-mines are situated, and eighty per centum to the National Treasury. (As amended by Rep. Acts Nos. 834, 1299, and by Rep. Act No. 1510, approved June 16, 1956)."

To rephrase, under the aforequoted provisions, the ad valorem tax of 2% is imposed on the actual market value of the annual gross output of the minerals or mineral products extracted or produced from all mineral lands not covered by lease. In computing the tax, the term "gross output" shall be the actual market value of minerals or mineral products, or of bullion from each mine or mineral lands operated as a separate entity, without any deduction for mining, milling, refining, transporting, handling, marketing or any other expenses. If the minerals or mineral products are sold or consigned abroad by the lessee or owner of the mine under C.I.F. terms, the actual cost of ocean freight and insurance shall be deducted. In other words, the assessment shall be based, not upon the cost of production or extraction of said minerals or mineral products, but on the price which the same before or without undergoing a process of manufacture would command in the ordinary course of business. 9 In the instant case, the allowance by the tax court of smelting and refining charges as deductions is not contrary to the above-mentioned provisions of the tax code which ostensibly prohibit any form of deduction except freight and insurance charges. A review of the records will show that it was the London Metal Exchange price on wire bar which was used as tax base by ACMDC for purposes of the 2% ad valorem tax on copper concentrates since there was no available market price quotation in the commodity exchange or markets of the world for copper concentrates nor was there any market quotation locally obtainable. 10 Hence, the charges for smelting and refining were assessed not on the basis of the price of the copper extracted at the mine site which is prohibited by law, but on the basis of the actual market value of the manufactured copper which in this case is the price quoted for copper wire bar by the London Metal Exchange.

The issue of whether the ad valorem tax should be based upon the value of the finished product, or the value upon extraction of the raw materials or minerals used in the manufacture of said finished products, has been passed upon by us in several cases wherein we held that the ad valorem tax is to be computed on the basis of the market value of the mineral in its condition at the time of such removal and before it undergoes a chemical change through manufacturing process, as distinguished from a purely physical process which does not necessarily involve the change or transformation of the raw material into a composite distinct product. 11 Thus, in the case of Cebu Portland Cement Co. vs. Commissioner of Internal Revenue, 12 this Court ruled:
. . . ad valorem tax is a tax not on the minerals, but upon the privilege of severing or extracting the same from the earth, the government's right to exact the said impost springing from the Regalian theory of State ownership of its natural resources. . . . While cement is composed of 80% minerals, it is not merely an admixture or blending of raw materials, as lime, silica, shale and others. It is the result of a definite the crushing of minerals, grinding, mixing, calcining, cooling, adding of retarder or raw gypsum. In short, before cement reaches its saleable form, the minerals had already undergone a chemical change through manufacturing process, This could not have been the state of mineral products' that the law contemplates for purposes of imposing the ad valorem tax. . . . this tax is imposed on the privilege of extracting or severing the minerals from the mines. To our minds, therefore the inclusion of the term mineral products is intended to comprehend cases where the mined or quarried elements may not be usable in its original state without application of simple treatments . . . which process does not necessarily involve the change or transformation of the raw materials into a composite, distinct product. . . . While the selling price of cement may reflect the actual market value of cement, said selling price cannot be taken as the market value also of the minerals composing the cement. And it was not the cement that was mined, only the minerals composing the finished product.

This view was subsequently affirmed in the resolution of the Court denying the motion for reconsideration of its aforesaid decision, 13 reiterated that the pertinent part of which reiterated that
. . . the ad valorem tax in question should be based on the actual market value of the quarried minerals used in producing cement, . . .

the law intended to impose the ad valorem tax upon the market value of the component mineral products in their original state before processing into cement. . . . the law does not impose a tax on cement qua cement, but on mineral products at least 80% of which must be minerals extracted by the lessee, concessionaire or owner of mineral lands. The Court did not, and could not, rule that cement is a manufactured product subject to sales tax, for the reason that such liability had never been litigated by the parties. What it did declare is that, while cement is a mineral product, it is no longer in the state or condition contemplated by the law; hence the market value of the cement could not be the basis for computing the ad valorem tax, since the ad valorem tax is a severance tax i.e., a charge upon the privilege of severing or extracting minerals from the earth, (Dec. p. 4) and is due and payable upon removal of the mineral product from its bed or mine (Tax Code s. 245).

Therefore, the imposable ad valorem tax should be based on the selling price of the quarried minerals, which is its actual market value, and not on the price of the manufactured product. If the market value chosen for the reckoning is the value of the manufactured. or finished product, as in the case at bar, then all expenses of processing or manufacturing should be deducted in order to approximate as closely as is humanly possible the actual market value of the raw mineral at the mine site. It was copper ore that was extracted by ACMDC from its mine site which, through a simple physical process of removing impurities therefrom, was converted into copper concentrate In turn, this copper concentrate underwent the process of smelting and refining, and the finished product is called copper cathode or copper wire bar. The copper wire bar is the manufactured copper. It is not the mineral extracted from the mine site nor can it be considered a mineral product since it has undergone a manufacturing process, to wit:
I. The physical process involved in the production of copper concentrate are the following (p. 19, BIR records; Exh. H, p. 43, Folder I of Exhibits.) A Mining Process (1) Blasting The ore body is broken up by blasting.

(2) Loading The ore averaging about 1/2 percent copper is loaded into ore trucks by electric shovels. (3) Hauling The trucks of ore are hauled to the mill. B Milling Process (1) Crushing The ore is crushed to pieces the size of peanuts. (2) Grinding The crushed ore is ground to powder form. (3) Concentrating The mineral bearing particles in the powdered ore are concentrated. The ores or rocks, transported by conveyors, are crushed repeatedly by steel balls into size of peanuts, when they are ground and pulverized. The powder is fed into concentrators where it is mixed with water and other reagents. This is known in the industry as a flotation phase. The copper-bearing materials float while the noncopper materials in the rock sink. The material that floats is scooped and dried and piled. This is known as copper concentrate. The material at the bottom is waste, and is known in the industry as tailings. In Toledo City, tailings are disposed of through metal pipes from the flotation mills to the open sea. Copper concentrate of petitioner contains 28-31% copper. The concentrate is loaded in ocean vessels and shipped to Mitsubishi Metal Corporation mills in Japan, where the smelting, refining and fabricating processes are done. (Memorandum of petitioner, p. 71, CTA records.)
II. The

chemical or manufacturing process in the production of wire bar is as follows: (Exh. 'H', p. 43, Folder I of exhibits.) A. Smelting (1) Drying The copper concentrates (averaging about 30 percent copper) are dried. 1. Flash Furnace The dried concentrate is smelted autogenously and a matte containing 65 percent is produced.

2. Converter The matte is converted to blister copper with a purity of about 99 per cent. B. Refining (1) Casting Wheel Blister copper is treated in an anode furnace where. copper requiring further treatment is sent to the casting wheel to produce cathode copper. (2) Electrolytic Refining Anode copper is further refined by electrolytic refining to produce cathode copper. C. Fabricating (1) Rolling Fire refined or electroly-tic copper-and/or brass (a mixture Of copper and zinc) is made into tubes, sheets, rods and wire. (2) Extruding Sheet tubes, rods and wire are further fabricated into the copper articles in everyday use. The records show that cathodes, with purity of 99.985% are cast or fabricated into various shapes, depending on their industrial destination. Cathodes are metal sheets of copper 1 meter x 1 meter x 16-16 millimeter thick and 160 kilograms in weight, although this thickness is not uniform for all the sheets. Cathodes sheets are not suitable for direct fabrication, hence, are further fabricated into the desired shape, like wire bar, billets and cakes. (p. 1, deposition, London,) Wire bars are rectangular pieces, 100 millimeter x 100 millimeter x 1.37 meters long and weigh some 125 kilos. They are suited for copper wires and copper rods. Billets are fabricated into tubes and heavy electric sections. Cakes are in the form of thick sheets and strips. (pp. 13, 18-21, deposition, Japan, Exhs. "C" & "G", Japan, pp. 1-2, deposition, London, see pp. 70-72, CTA records.) 14

Significantly, the finding that copper wire bar is a product of a manufacturing process finds support in the definition of a "manufacturer" in Section 194 (x) of the aforesaid tax code which provides:
"Manufacturer" includes every person who by physical or chemical process alters the exterior texture or form or inner substance of any raw material or manufactured or partially manufactured product in such a manner as to prepare it for a special use or uses to which it could not have been put in its original condition, or who by any such

process alters the quality of any such raw material or manufactured or partially manufactured product so as to reduce it to marketable shape or prepare it for any of the uses of industry, or who by any such process combines any such raw material or manufactured or partially manufactured products with other materials: or products of the same or different kinds and in such manner that the finished product of such process or manufacture can be put to a special use or uses to which such raw material or manufactured or partially manufactured products, or combines the same to produce such finished products for the purpose of their sale or distribution to others and not for his own use or consumption.

Moreover, it is also worth noting at this point that the decision of the tax court was based on its previous ruling in the case of Atlas Consolidated Mining and Development Corporation vs. Commissioner of Internal Revenue, 15 dated January 23, 1981, which we quote with approval:
. . . The controlling law is clear and specific; it should therefore be applied as Since the mineral or mineral product removed from its bed or mine at Toledo City by petitioner is copper concentrate as admitted by respondent himself, not copper wire bar, the actual market value of such copper concentrate in its condition at the time of such removal without any deduction from mining, milling, refining, transporting, handling, marketing, or any other expenses should be the basis of the 2% ad valorem tax. The conclusion reached is rendered clearer when it is taken into consideration that the ad valorem tax is a severance tax, a charge upon the privilege of severing or extracting minerals from the earth, and is due and payable upon removal of the mineral product from its bed or mine, the tax being computed on the basis of the market value of the mineral in its condition at the time of such removal and before its being substantially changed by chemical or manufacturing (as distinguished from purely physical) processing. (Cebu Portland Cement Co. vs. Commissioner of Internal Revenue, supra.) Copper wire bars, as discussed above,, have already undergone chemical or manufacturing processing in Japan, they are not extracted or produced from the earth by petitioner in its mine site at Toledo City. Since the ad valorem tax is computed on the basis of the actual market value of the mineral in its condition at the time of its removal from the earth, which in this case is copper concentrate, there is no basis therefore for an assertion that such tax should be measured on the basis of the London Metal Exchange price quotation of the manufactured wire bars without any deduction of smelting and refining charges.

In resume: 1. The mineral or mineral product of petitioner the extraction or severance from the soil. of which the ad valorem tax is directed is copper concentrate. 2. The ad valorem tax is computed on the basis of the actual market value of the copper concentrate in its condition at the time of removal from the earth and before substantially changed by chemical or manufacturing process without any deduction milling, refining, from mining, transporting, handling, marketing, or any other expenses. However, since the copper concentrate is sold abroad by petitioner under C.I.F. terms, the actual cost of ocean freight and insurance is deductible. 3. There being no market price quotation of copper concentrate locally or in the commodity exchanges or markets of the world, the London Metal Exchange price quotation of copper wire bar, which is used by petitioner and Mitsubishi Metal Corporation as reference to determine the selling price of copper concentrate, may likewise be employed in this case as reference point in ascertaining the actual market value of copper concentrate for ad valorem tax purposes. By deducting from the London Metal Exchange price quotation of copper wire bar all charges and costs incurred after the copper concentrate has been shipped from Toledo City to the time the same has been manufactured into wire bar, namely, smelting, electrolytic refining and fabricating, the remainder represents to a reasonable degree the actual market value of the copper concentrate in its condition at the time of extraction or removal from its bed in Toledo City for the purposes of the ad valorem tax.

The Commissioner of Internal Revenue argues that the ruling in the case above stated is not binding, considering that the incumbent Commissioner of Internal Revenue is not bound by decisions or rulings of his predecessor when he finds that a different construction of the law should be adopted, invoking therefor the doctrine enunciated in Hilado vs. Collector of internal Revenue, et a1, 16 This trenches on specious reasoning. What was involved in the Hilado case was a previous ruling of a former Commissioner of Internal Revenue. In the case at bar, the

Commissioner based his findings on a previous decision rendered by the Court of Tax Appeals itself. The Court of Tax Appeals is not a mere superior administrative agency or tribunal but is a part of the judicial system of the Philippines. 17 It was created by Congress pursuant to Republic Act No. 1125, effective June 16, 1954, as a centralized court specializing in tax cases. It is a regular court vested with exclusive appellate jurisdiction over cases arising under the National Internal Revenue Code, the Tariff and Customs Code, and the Assessment Law. 18 Although only the decisions of the Supreme Court establish jurisprudence or doctrines in this jurisdiction, nonetheless the decisions of subordinate courts have a persuasive effect and may serve as judicial guides. It is even possible that such a conclusion or pronouncement can be raised to the status of a doctrine if, after it has been subjected to test in the crucible of analysis and revision the Supreme Court should find that it has merits and qualities sufficient for its consecration as a rule of jurisprudence. 19 Furthermore, as a matter of practice and principle, the Supreme Court will not set aside the conclusion reached by an agency such as the Court of Tax Appeals, which is, by the very nature of its function, 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 authority on its part. 20 II. G.R. No. 105563
The petition herein raises the following issues for resolution: A. Whether or not petitioner is liable for payment, of the 25% surcharge for alleged late filing of notice of removal/late payment of the ad valorem tax on silver, gold and pyrite extracted during the taxable year 1976. B. Whether or not petitioner is liable for payment of the manufacturer' s sales tax and surcharge during the taxable year 1975, plus interest, on grinding steel balls borrowed by its competitor; and C. 'Whether or not petitioner is liable for payment of the contractor's tax and surcharge on the alleged lease of

personal property during the taxable years 1975 and 1976 plus interest. 21

A. Surcharge on Silver, Gold and Pyrite ACMDC argues that the Court of Appeals erred in holding it liable to pay 25% surcharge on silver, gold and pyrite extracted by it during tax year 1976. Sec. 245 of the then tax code states:
Sec. 245. Time and manner of payment of royalties or ad valorem taxes. The royalties or ad valorem taxes as the case may be, shall be due and payable upon the removal of the mineral products from the locality where mined. However, the output of the mine may be removed from such locality without the pre-payment of such royalties or ad valorem taxes if the lessee, owner, or operator shall file a bond in the form and amount and with such sureties as the Commissioner of Internal Revenue may require,. conditioned upon the payment of such royalties or ad valorem taxes, in which case it shall be the duty of every lessee, owner, or operator of a mine to make a true and complete return in duplicate under oath setting forth the quantity and the actual market value of the output of his mine removed during each calendar quarter and pay the royalties or ad valorem taxes due thereon within twenty days after the close of said quarter. In case the royalties or ad valorem taxes are not paid within the period prescribed above, there shall be added thereto a surcharge of twenty-five per centum. Where a false or fraudulent return is made, there shall be added to the royalties or ad valorem taxes a surcharge of fifty per centum of their amount. The surcharge So, added: shall be collected in the same manner and as part of the royalties or ad valorem taxes, as the case may be.

Under the aforesaid provision, the payment of the ad valorem tax shall be made upon removal of the mineral products from the mine site or if payment cannot be made, by filing a bond in the form and amount to be approved by the Commissioner conditioned upon the payment of the said tax. In the instant case, the records show that the payment of the ad valorem tax on gold, silver and pyrite was belatedly made. ACMDC, however, maintains that it should not be required to pay the 25% surcharge because the correct quantity of gold and silver could be determined only

after the copper concentrates had gone through the process of smelting and refining in Japan while the amount of pyrite cannot be determined until after the flotation process separating the copper mineral from the waste material was finished. Prefatorily, it must not be lost sight of that bad faith is ; not essential for the imposition of the 25% surcharge for late payment of the ad valorem tax. Hence,

MISSING PAGE 19
Q. Now, what do you do with the result of your analysis? A. These are tabulated and then averaged out to represent one shipment. Q. Will you tell this Honorable Court whether in that laboratory testing you physically separate the gold, you physically separate the silver and you physically separate the copper content of that 40 to 50 kilos? A. No, no, we analyze this in one sample. This sample is analyzed for gold, silver, and copper, but there is no recovery made. Q. You mean there is no physical separation? A. No, no physical separation. Q. So these three minerals copper, gold and silver are in that same powder that you have tested? A Yes, it is in the same powder. Q. Now how do you reflect the results of the testing? A. You mean in analysis? Q. In the analysis, yes. A. Copper is reported in percent. Q. Percentage?

A. Yes. Q. How about gold? A. Gold and silver part is represented as grams per dmt or parts per million. Q. Based on the results of your data gathered in the laboratory? A. Yes. Q. Now where do you submit the results of the laboratory testing? A When a shipment is made we prepare a certificate of analysis signed by me and then which (sic) is sent to Manila. Q. Now, as far as you know in connection with your duty do you know what Manila what do you say, Manila, ACMDC? A. Makati. Q. Makati. What does Makati ACMDC do with your assay report? A. As far as I know it is used as the basis for the payment of ad valorem tax. 24

The above-quoted testimony accordingly supports these findings of the tax court in its decision in this case:
We see it (sic) that even if the silver and gold cannot as yet be physically separated from the copper concentrate until the process of smelting and refining was completed, the estimated commercial quantity of the silver and gold could have been determined in much the same way that petitioner is able to estimate the commercial quantity of copper during the assay. If, as stated by petitioner, it is able to estimate the grade of the copper ore, and it has determined the grade not only of the copper but also those of the gold and silver during the assay (Petitioner's Memorandum, p. 207, Record), ergo, the estimated commercial quantity of the silver and gold subject to ad valorem tax could have also been determined and provisionally paid as for copper. 25

The other allegation of ACMDC is that there was no removal of pyrite from the mine site because the pyrite was delivered to its sister company, Atlas Fertilizer Corporation, whose plant is located inside the mineral concession of ACMDC in Sangi, Toledo City. ACMDC, however, is already barred by estoppel in pais from putting that matter in issue. An ad valorem tax on pyrite for the same tax year was already declared and paid by ACMDC. In fact, that payment was used as the basis for computing the 25% surcharge. It was only when ACMDC was assessed for the 25% surcharge that said issue was raised by it. Also, the evidence shows that deliveries of pyrite were not exclusively made to its sister company, Atlas Fertilizer Corporation. There were shipments of pyrite to other companies located outside of its mine site, in addition to those delivered to its aforesaid sister company. 26 B. Manufacturer's Tax and Contractor's Tax The manufacturer's tax is imposed under Section 186 of the tax code then in force which provides:
Sec. 186. Percentage tax on sales of other articles. There shall be levied, assessed and collected once only on every original sale, barter, exchange, or similar transaction either for nominal or valuable consideration, intended to transfer ownership of, or title to, the articles not enumerated in sections one hundred and eighty-fourA, one hundred and eighty five, one hundred and eighty-five-A, one hundred eighty-five-B, and one hundred eighty-six-B, a tax equivalent to seven per centum of the gross selling price or gross value in money of the articles so sold, bartered, exchanged, or transferred, such tax to be paid by the manufacturer or producer: Provided, That where the articles subject to tax under this Section are manufactured out of materials likewise subject to tax under this section and section one hundred eighty-nine, the total cost of such materials, as duly established, shall be deductible from the gross selling price or gross value in money of such manufactured articles. (As amended by Rep. Act No. 6110 and by Pres. Decree No. 69.)

On the other hand, the contractor's tax is provided for under Section 191 of the same code, paragraph 17 of which declares that lessors of personal property shall be subject to a contractor's tax of 3% of the gross receipts. Sections 186 and 191 fall under Title V of the tax code, entitled "Privilege Taxes on Business and Occupation." These "privilege taxes on

business" are taxes imposed upon the privilege of engaging in business. They are essentially excise taxes. 27 To be held liable for the payment of a privilege tax, the person or entity must be engaged in business, as shown by the fact that the drafters of the tax code had purposely grouped said provisions under the general heading adverted to above. "To engage" is to embark on a business or to employ oneself therein. The word "engaged" connotes more than a single act or a single transaction; it involves some continuity of action. "To engage in business" is uniformly construed as signifying an employment or occupation which occupies one's time, attention, and labor for the purpose of a livelihood or profit. The expressions "engage in business," "carrying on business" or "doing business" do not have different meanings, but separately or connectedly convey the idea of progression, continuity, or sustained activity. "Engaged in business" means occupied or employed in business; carrying on business" does not mean the performance of a single disconnected act, but means conducting, prosecuting, and continuing business by performing progressively all the acts normally incident thereto; while "doing business" conveys the idea of business being done, not from time to time, but all the time. 28 The foregoing notwithstanding, it has likewise been ruled that one act may be sufficient to constitute carrying on a business according to the intent with which the act is done. A single sale of liquor by one who intends to continue selling is sufficient to render him liable for "engaging in or carrying on" the business of a liquor dealer. 29 There may be a business without any sequence of acts, for if an isolated transaction, which if repeated would be a transaction in a business, is proved to have been undertaken with the intent that it should be the first of several transactions, that is, with the intent of carrying on a business, then it is a first transaction in an existing business. 30 Thus, where the end sought is to make a profit, the act constitutes "doing- business." This is not without basis. The term "business," as used in the law imposing a license tax on business, trades, and so forth, ordinarily means business in the trade or commercial sense only, carried on with a view to profit or livelihood; 31 It is thus restricted to activities or affairs where profit is the purpose, or livelihood is the motive. Since the term "business" is being used without any

qualification in our aforesaid tax code, it should therefore be therefore be construed in its plain and ordinary meaning, restricted to activities for profit or livelihood. 32 In the case at bar, ACMDC claims exemptions from the payment of manufacturer's tax. It asserts that it is not engaged in the business of selling grinding steel balls, but it only produces grinding steel balls solely for its own use or consumption, However, it admits having lent its grinding steel balls to other entities but only in very isolated cases. After a careful review of the records and on the basis of the legal concept of "engaging in business" hereinbefore discussed, we are inclined to agree with ACMDC that it should not and cannot be held liable for the payment of the manufacturer's tax. First, under the tax code then in force, the 7% manufacturer's sales tax is imposed on the manufacturer for every original sale, barter, exchange and other similar transaction intended to transfer ownership of articles. As hereinbefore quoted, and we repeat the same for facility of reference, the term "manufacturer" is defined in the tax code as including "every person who by physical or chemical process alters the exterior texture or form or inner substance of any raw material or manufactured or partially manufactured product in such manner as to prepare it for a special use or uses to which it could not have been put in its original condition, or who by any such process alters the quality of any such raw material or manufactured or partially manufactured product so as to reduce it to marketable shape or prepare it for any of the uses of industry, or who by any such process combines any such raw material or manufactured or partially manufactured products with other materials or products of the same or of different kinds and in such manner that the finished product of such process or manufacture can be put to a special use or uses to which such raw materials or manufactured or partially manufactured products in their original condition could not have been put, and who in addition alters such raw material or manufactured or partially manufactured products, or combines the same to produce such finished products for the purpose of their sale or distribution to others and not for his own use or consumption. 33 Thus, a manufacturer, in order to be subjected to the necessity of paying the percentage tax imposed by Section 186 of the tax code, must be 'engaged' in the sale, barter or exchange of; personal property. Under a statute which imposes a tax on persons engaged in the sale, barter or

exchange of merchandise, a person must be occupied or employed in the sale, barter or exchange of personal property. A person can hardly be considered as occupied or employed in the sale, barter or exchange of personal property when he has made one purchase and sale only. 34 Second, it cannot be legally asserted, for purposes of this particular assessment only, that ACMDC was engaged in the business of selling grinding steel balls on the basis of the isolated transaction entered into by it in 1975. There is no showing that said transaction was undertaken by ACMDC with a view to gaining profit. therefrom and with the intent of carrying on a business therein. On the contrary, what is clear for us is that the sale was more of an accommodation to the other mining companies, and that ACMDC was subsequently replaced by other suppliers shortly thereafter. This finding is strengthened by the investigation report, dated March 11, 1980, of the B.I.R. Investigation Team itself which found that
ACMDC has a foundry shop located at Sangi, Toledo City, and manufactures grinding steel balls for use in its ball mills in pulverizing the minerals before they go to the concentrators, For the grinding steel balls manufactured by ACMDC and used in its operation, we found it not subject to any business tax. But there were times in 1975 when other mining companies were short of grinding steel balls and ACMDC supplied them with these materials manufactured in its foundry shop. According to the informant, these were merely accommodations and they were replaced by the other suppliers. 35

At most, whatever profit ACMDC may have realized from that single transaction was just incidental to its primordial purpose of accommodating other mining companies. Well-settled is the rule that anything done as a mere incident to, or as a necessary consequence of, the principal business is not ordinarily taxed as an independent business in itself. 36 Where a person or corporation is engaged in a distinct business and, as a feature thereof, in an activity merely incidental which serves no other person or business, the incidental and restricted activity is not considered as intended to be separately taxed.
37

In fine, on this particular aspect, we are consequently of the considered opinion and so hold that ACMDC was not a manufacturer subject to the percentage tax imposed by Section 186 of the tax code.

The same conclusion; however, cannot be made with respect to the contractor's tax being imposed on ACMDC. It cannot validly claim that the leasing out of its personal properties was merely an isolated transaction. Its book of accounts shows that several distinct payments were made for the use of its personal properties such as its plane, motor boat and dump truck. 38 The series of transactions engaged in by ACMDC for the lease of its aforesaid properties could also be deduced from the fact that for the tax years 1975 and 1976 there were profits earned and reported therefor. It received a rental income of P630,171.56 for tax year 39 and P2,450,218.62 for tax year 1976. 40 Considering that there was a series of transactions involved, plus the fact that there was an apparent and protracted intention to profit from such activities, it can be safely concluded that ACMDC was habitually engaged in the leasing out of its plane, motor boat and dump truck, and is perforce subject to the contractor's tax. The allegation of ACMDC that it did not realize any profit from the leasing out of its said personal properties, since its income therefrom covered only the costs of operation such as salaries and fuel, is not supported by any documentary or substantial evidence. We are not, therefore, convinced by such disavowal. Assessments are prima facie presumed correct and made in good faith. Contrary to the theory of ACMDC, it is the taxpayer and not the Bureau of Internal Revenue who has the duty of proving otherwise. It is an elementary rule that in the absence of proof of any irregularities in the performance of official duties, an assessment will not be disturbed. All presumptions are in favor of tax assessments. 41 Verily, failure to present proof of error in assessments will justify judicial affirmance of said assessment. 42 Finally, we deem it opportune to emphasize the oft-repeated rule that tax statutes are to receive a reasonable construction with a view to carrying out their purposes and intent. 43 They should not be construed as to permit the taxpayer to easily evade the payment of the tax. 44 On this note, and under the confluence of the weighty. considerations and authorities earlier discussed, the challenged assessment against ACMDC for contractor's tax must be upheld. WHEREFORE, the impugned judgment of respondent Court of Appeals in CA-G.R. SP No. 25945, subject of the present petition in G.R. No.

104151 is hereby AFFIRMED; and its assailed judgment in CA-G.R SP No. 26087 is hereby MODIFIED by exempting Atlas Consolidated Mining and Development Corporation, petitioner in G.R. No. 105563 of this Court, from the payment of manufacturer's sales tax, surcharge and interest during the taxable year 1975. SO ORDERED.
G.R. No. L-26521 December 28, 1968

EUSEBIO VILLANUEVA, ET AL., plaintiff-appellee, vs. CITY OF ILOILO, defendants-appellants. Pelaez, Jalandoni and Jamir for plaintiff-appellees. Assistant City Fiscal Vicente P. Gengos for defendant-appellant. CASTRO, J.: Appeal by the defendant City of Iloilo from the decision of the Court of First Instance of Iloilo declaring illegal Ordinance 11, series of 1960, entitled, "An Ordinance Imposing Municipal License Tax On Persons Engaged In The Business Of Operating Tenement Houses," and ordering the City to refund to the plaintiffs-appellees the sums of collected from them under the said ordinance. On September 30, 1946 the municipal board of Iloilo City enacted Ordinance 86, imposing license tax fees as follows: (1) tenement house (casa de vecindad), P25.00 annually; (2) tenement house, partly or wholly engaged in or dedicated to business in the streets of J.M. Basa, Iznart and Aldeguer, P24.00 per apartment; (3) tenement house, partly or wholly engaged in business in any other streets, P12.00 per apartment. The validity and constitutionality of this ordinance were challenged by the spouses Eusebio Villanueva and Remedies Sian Villanueva, owners of four tenement houses containing 34 apartments. This Court, in City of Iloilo vs. Remedios Sian Villanueva and Eusebio Villanueva, L-12695, March 23, 1959, declared the ordinance ultra vires, "it not appearing that the power to tax owners of tenement houses is one among those clearly and expressly granted to the City of Iloilo by its Charter." On January 15, 1960 the municipal board of Iloilo City, believing, obviously, that with the passage of Republic Act 2264, otherwise known as the Local Autonomy Act, it had acquired the authority or power to enact an ordinance similar to that previously declared by this Court as ultra vires, enacted Ordinance 11, series of 1960, hereunder quoted in full: AN ORDINANCE IMPOSING MUNICIPAL LICENSE TAX ON PERSONS ENGAGED IN THE BUSINESS OF OPERATING TENEMENT HOUSES

Be it ordained by the Municipal Board of the City of Iloilo, pursuant to the provisions of Republic Act No. 2264, otherwise known as the Autonomy Law of Local Government, that: Section 1. A municipal license tax is hereby imposed on tenement houses in accordance with the schedule of payment herein provided. Section 2. Tenement house as contemplated in this ordinance shall mean any building or dwelling for renting space divided into separate apartments or accessorias. Section 3. The municipal license tax provided in Section 1 hereof shall be as follows: I. Tenement houses: (a) Apartment house made of strong materials (b) Apartment house made of mixed materials II Rooming house of strong materials Rooming house of mixed materials III. Tenement house partly or wholly engaged in or dedicated to business in the following streets: J.M. Basa, Iznart, Aldeguer, Guanco and Ledesma from Plazoleto Gay to Valeria. St. IV. Tenement house partly or wholly engaged in or dedicated to business in any other street V. Tenement houses at the streets surrounding the super market as soon as said place is declared commercial P20.00 per door p.a.
P10.00 per door p.a.

P10.00 per door p.a. P5.00 per door p.a.

P30.00 per door p.a. P12.00 per door p.a. P24.00 per door p.a.

Section 4. All ordinances or parts thereof inconsistent herewith are hereby amended. Section 5. Any person found violating this ordinance shall be punished with a fine note exceeding Two Hundred Pesos (P200.00) or an imprisonment of not more than six (6) months or both at the discretion of the Court. Section 6 This ordinance shall take effect upon approval. ENACTED, January 15, 1960. In Iloilo City, the appellees Eusebio Villanueva and Remedios S. Villanueva are owners of five tenement houses, aggregately containing 43 apartments, while the other appellees and the same Remedios S. Villanueva are owners of ten apartments. Each of the appellees' apartments has a door leading to a street and is rented by either a Filipino or Chinese merchant. The first floor is utilized as a store, while the second floor is used as a dwelling of the owner of the store. Eusebio Villanueva owns, likewise, apartment buildings for rent in Bacolod, Dumaguete City, Baguio

City and Quezon City, which cities, according to him, do not impose tenement or apartment taxes. By virtue of the ordinance in question, the appellant City collected from spouses Eusebio Villanueva and Remedios S. Villanueva, for the years 1960-1964, the sum of P5,824.30, and from the appellees Pio Sian Melliza, Teresita S. Topacio, and Remedios S. Villanueva, for the years 1960-1964, the sum of P1,317.00. Eusebio Villanueva has likewise been paying real estate taxes on his property. On July 11, 1962 and April 24, 1964, the plaintiffs-appellees filed a complaint, and an amended complaint, respectively, against the City of Iloilo, in the aforementioned court, praying that Ordinance 11, series of 1960, be declared "invalid for being beyond the powers of the Municipal Council of the City of Iloilo to enact, and unconstitutional for being violative of the rule as to uniformity of taxation and for depriving said plaintiffs of the equal protection clause of the Constitution," and that the City be ordered to refund the amounts collected from them under the said ordinance. On March 30, 1966,1 the lower court rendered judgment declaring the ordinance illegal on the grounds that (a) "Republic Act 2264 does not empower cities to impose apartment taxes," (b) the same is "oppressive and unreasonable," for the reason that it penalizes owners of tenement houses who fail to pay the tax, (c) it constitutes not only double taxation, but treble at that and (d) it violates the rule of uniformity of taxation. The issues posed in this appeal are: 1. Is Ordinance 11, series of 1960, of the City of Iloilo, illegal because it imposes double taxation? 2. Is the City of Iloilo empowered by the Local Autonomy Act to impose tenement taxes? 3. Is Ordinance 11, series of 1960, oppressive and unreasonable because it carries a penal clause? 4. Does Ordinance 11, series of 1960, violate the rule of uniformity of taxation? 1. The pertinent provisions of the Local Autonomy Act are hereunder quoted: SEC. 2. Any provision of law to the contrary notwithstanding, all chartered cities, municipalities and municipal districts shall have authority to impose municipal license taxes or fees upon persons engaged in any occupation or business, or exercising privileges in chartered cities, municipalities or municipal districts by requiring them to secure licences at rates fixed by the municipal board or city council of the city, the municipal council of the municipality, or the municipal district council of the municipal district; to collect fees and charges for services rendered by the city, municipality or municipal district; to regulate and impose reasonable fees for services rendered in connection with any business, profession or occupation being conducted within the city,

municipality or municipal district and otherwise to levy for public purposes, just and uniform taxes, licenses or fees; Provided, That municipalities and municipal districts shall, in no case, impose any percentage tax on sales or other taxes in any form based thereon nor impose taxes on articles subject to specific tax, except gasoline, under the provisions of the National Internal Revenue Code; Provided, however, That no city, municipality or municipal district may levy or impose any of the following: (a) Residence tax; (b) Documentary stamp tax; (c) Taxes on the business of persons engaged in the printing and publication of any newspaper, magazine, review or bulletin appearing at regular intervals and having fixed prices for for subscription and sale, and which is not published primarily for the purpose of publishing advertisements; (d) Taxes on persons operating waterworks, irrigation and other public utilities except electric light, heat and power; (e) Taxes on forest products and forest concessions; (f) Taxes on estates, inheritance, gifts, legacies, and other acquisitions mortis causa; (g) Taxes on income of any kind whatsoever; (h) Taxes or fees for the registration of motor vehicles and for the issuance of all kinds of licenses or permits for the driving thereof; (i) Customs duties registration, wharfage dues on wharves owned by the national government, tonnage, and all other kinds of customs fees, charges and duties; (j) Taxes of any kind on banks, insurance companies, and persons paying franchise tax; and (k) Taxes on premiums paid by owners of property who obtain insurance directly with foreign insurance companies. A tax ordinance shall go into effect on the fifteenth day after its passage, unless the ordinance shall provide otherwise: Provided, however, That the Secretary of Finance shall have authority to suspend the effectivity of any ordinance within one hundred and twenty days after its passage, if, in his opinion, the tax or fee therein levied or imposed is unjust, excessive, oppressive, or confiscatory, and when the said Secretary exercises this authority the effectivity of such ordinance shall be suspended. In such event, the municipal board or city council in the case of cities and the municipal council or municipal district council in the case of municipalities or municipal districts

may appeal the decision of the Secretary of Finance to the court during the pendency of which case the tax levied shall be considered as paid under protest. It is now settled that the aforequoted provisions of Republic Act 2264 confer on local governments broad taxing authority which extends to almost "everything, excepting those which are mentioned therein," provided that the tax so levied is "for public purposes, just and uniform," and does not transgress any constitutional provision or is not repugnant to a controlling statute.2 Thus, when a tax, levied under the authority of a city or municipal ordinance, is not within the exceptions and limitations aforementioned, the same comes within the ambit of the general rule, pursuant to the rules of expressio unius est exclusio alterius, and exceptio firmat regulum in casibus non excepti. Does the tax imposed by the ordinance in question fall within any of the exceptions provided for in section 2 of the Local Autonomy Act? For this purpose, it is necessary to determine the true nature of the tax. The appellees strongly maintain that it is a "property tax" or "real estate tax,"3 and not a "tax on persons engaged in any occupation or business or exercising privileges," or a license tax, or a privilege tax, or an excise tax.4 Indeed, the title of the ordinance designates it as a "municipal license tax on persons engaged in the business of operating tenement houses," while section 1 thereof states that a "municipal license tax is hereby imposed on tenement houses." It is the phraseology of section 1 on which the appellees base their contention that the tax involved is a real estate tax which, according to them, makes the ordinance ultra vires as it imposes a levy "in excess of the one per centum real estate tax allowable under Sec. 38 of the Iloilo City Charter, Com. Act 158."5. It is our view, contrary to the appellees' contention, that the tax in question is not a real estate tax. Obviously, the appellees confuse the tax with the real estate tax within the meaning of the Assessment Law,6 which, although not applicable to the City of Iloilo, has counterpart provisions in the Iloilo City Charter.7 A real estate tax is a direct tax on the ownership of lands and buildings or other improvements thereon, not specially exempted,8 and is payable regardless of whether the property is used or not, although the value may vary in accordance with such factor.9 The tax is usually single or indivisible, although the land and building or improvements erected thereon are assessed separately, except when the land and building or improvements belong to separate owners.10 It is a fixed proportion11 of the assessed value of the property taxed, and requires, therefore, the intervention of assessors.12 It is collected or payable at appointed times,13 and it constitutes a superior lien on and is enforceable against the property14 subject to such taxation, and not by imprisonment of the owner. The tax imposed by the ordinance in question does not possess the aforestated attributes. It is not a tax on the land on which the tenement houses are erected, although both land and tenement houses may belong to the same owner. The tax is not a fixed proportion of the assessed value of the tenement houses, and does not require the intervention of assessors or appraisers. It is not payable at a designated time or date, and is not enforceable against the tenement houses either by sale or distraint. Clearly, therefore, the tax in question is not a real estate tax. "The spirit, rather than the letter, or an ordinance determines the construction thereof, and the court looks less to its words and more to the context, subject-matter, consequence and effect.

Accordingly, what is within the spirit is within the ordinance although it is not within the letter thereof, while that which is in the letter, although not within the spirit, is not within the ordinance."15 It is within neither the letter nor the spirit of the ordinance that an additional real estate tax is being imposed, otherwise the subject-matter would have been not merely tenement houses. On the contrary, it is plain from the context of the ordinance that the intention is to impose a license tax on the operation of tenement houses, which is a form of business or calling. The ordinance, in both its title and body, particularly sections 1 and 3 thereof, designates the tax imposed as a "municipal license tax" which, by itself, means an "imposition or exaction on the right to use or dispose of property, to pursue a business, occupation, or calling, or to exercise a privilege."16. "The character of a tax is not to be fixed by any isolated words that may beemployed in the statute creating it, but such words must be taken in the connection in which they are used and the true character is to be deduced from the nature and essence of the subject."17 The subject-matter of the ordinance is tenement houses whose nature and essence are expressly set forth in section 2 which defines a tenement house as "any building or dwelling for renting space divided into separate apartments or accessorias." The Supreme Court, in City of Iloilo vs. Remedios Sian Villanueva, et al., L-12695, March 23, 1959, adopted the definition of a tenement house18 as "any house or building, or portion thereof, which is rented, leased, or hired out to be occupied, or is occupied, as the home or residence of three families or more living independently of each other and doing their cooking in the premises or by more than two families upon any floor, so living and cooking, but having a common right in the halls, stairways, yards, water-closets, or privies, or some of them." Tenement houses, being necessarily offered for rent or lease by their very nature and essence, therefore constitute a distinct form of business or calling, similar to the hotel or motel business, or the operation of lodging houses or boarding houses. This is precisely one of the reasons why this Court, in the said case of City of Iloilo vs. Remedios Sian Villanueva, et al., supra, declared Ordinance 86 ultra vires, because, although the municipal board of Iloilo City is empowered, under sec. 21, par. j of its Charter, "to tax, fix the license fee for, and regulate hotels, restaurants, refreshment parlors, cafes, lodging houses, boarding houses, livery garages, public warehouses, pawnshops, theaters, cinematographs," tenement houses, which constitute a different business enterprise,19 are not mentioned in the aforestated section of the City Charter of Iloilo. Thus, in the aforesaid case, this Court explicitly said:. "And it not appearing that the power to tax owners of tenement houses is one among those clearly and expressly granted to the City of Iloilo by its Charter, the exercise of such power cannot be assumed and hence the ordinance in question is ultra vires insofar as it taxes a tenement house such as those belonging to defendants." . The lower court has interchangeably denominated the tax in question as a tenement tax or an apartment tax. Called by either name, it is not among the exceptions listed in section 2 of the Local Autonomy Act. On the other hand, the imposition by the ordinance of a license tax on persons engaged in the business of operating tenement houses finds authority in section 2 of the Local Autonomy Act which provides that chartered cities have the authority to impose municipal license taxes or fees upon persons engaged in any occupation or business, or exercising

privileges within their respective territories, and "otherwise to levy for public purposes, just and uniform taxes, licenses, or fees." . 2. The trial court condemned the ordinance as constituting "not only double taxation but treble at that," because "buildings pay real estate taxes and also income taxes as provided for in Sec. 182 (A) (3) (s) of the National Internal Revenue Code, besides the tenement tax under the said ordinance." Obviously, what the trial court refers to as "income taxes" are the fixed taxes on business and occupation provided for in section 182, Title V, of the National Internal Revenue Code, by virtue of which persons engaged in "leasing or renting property, whether on their account as principals or as owners of rental property or properties," are considered "real estate dealers" and are taxed according to the amount of their annual income.20. While it is true that the plaintiffs-appellees are taxable under the aforesaid provisions of the National Internal Revenue Code as real estate dealers, and still taxable under the ordinance in question, the argument against double taxation may not be invoked. The same tax may be imposed by the national government as well as by the local government. There is nothing inherently obnoxious in the exaction of license fees or taxes with respect to the same occupation, calling or activity by both the State and a political subdivision thereof.21. The contention that the plaintiffs-appellees are doubly taxed because they are paying the real estate taxes and the tenement tax imposed by the ordinance in question, is also devoid of merit. It is a well-settled rule that a license tax may be levied upon a business or occupation although the land or property used in connection therewith is subject to property tax. The State may collect an ad valorem tax on property used in a calling, and at the same time impose a license tax on that calling, the imposition of the latter kind of tax being in no sensea double tax.22. "In order to constitute double taxation in the objectionable or prohibited sense the same property must be taxed twice when it should be taxed but once; both taxes must be imposed on the same property or subject-matter, for the same purpose, by the same State, Government, or taxing authority, within the same jurisdiction or taxing district, during the same taxing period, and they must be the same kind or character of tax."23 It has been shown that a real estate tax and the tenement tax imposed by the ordinance, although imposed by the sametaxing authority, are not of the same kind or character. At all events, there is no constitutional prohibition against double taxation in the Philippines.24 It is something not favored, but is permissible, provided some other constitutional requirement is not thereby violated, such as the requirement that taxes must be uniform."25. 3. The appellant City takes exception to the conclusion of the lower court that the ordinance is not only oppressive because it "carries a penal clause of a fine of P200.00 or imprisonment of 6 months or both, if the owner or owners of the tenement buildings divided into apartments do not pay the tenement or apartment tax fixed in said ordinance," but also unconstitutional as it subjects the owners of tenement houses to criminal prosecution for non-payment of an obligation which is purely sum of money." The lower court apparently had in mind, when it made the above ruling, the provision of the Constitution that "no person shall be imprisoned for a debt or nonpayment of a poll tax."26 It is elementary, however, that "a tax is not a debt in the sense of an

obligation incurred by contract, express or implied, and therefore is not within the meaning of constitutional or statutory provisions abolishing or prohibiting imprisonment for debt, and a statute or ordinance which punishes the non-payment thereof by fine or imprisonment is not, in conflict with that prohibition."27 Nor is the tax in question a poll tax, for the latter is a tax of a fixed amount upon all persons, or upon all persons of a certain class, resident within a specified territory, without regard to their property or the occupations in which they may be engaged.28 Therefore, the tax in question is not oppressive in the manner the lower court puts it. On the other hand, the charter of Iloilo City29 empowers its municipal board to "fix penalties for violations of ordinances, which shall not exceed a fine of two hundred pesos or six months' imprisonment, or both such fine and imprisonment for each offense." In Punsalan, et al. vs. Mun. Board of Manila, supra, this Court overruled the pronouncement of the lower court declaring illegal and void an ordinance imposing an occupation tax on persons exercising various professions in the City of Manilabecause it imposed a penalty of fine and imprisonment for its violation.30. 4. The trial court brands the ordinance as violative of the rule of uniformity of taxation. "... because while the owners of the other buildings only pay real estate tax and income taxes the ordinance imposes aside from these two taxes an apartment or tenement tax. It should be noted that in the assessment of real estate tax all parts of the building or buildings are included so that the corresponding real estate tax could be properly imposed. If aside from the real estate tax the owner or owners of the tenement buildings should pay apartment taxes as required in the ordinance then it will violate the rule of uniformity of taxation.". Complementing the above ruling of the lower court, the appellees argue that there is "lack of uniformity" and "relative inequality," because "only the taxpayers of the City of Iloilo are singled out to pay taxes on their tenement houses, while citizens of other cities, where their councils do not enact a similar tax ordinance, are permitted to escape such imposition." . It is our view that both assertions are undeserving of extended attention. This Court has already ruled that tenement houses constitute a distinct class of property. It has likewise ruled that "taxes are uniform and equal when imposed upon all property of the same class or character within the taxing authority."31 The fact, therefore, that the owners of other classes of buildings in the City of Iloilo do not pay the taxes imposed by the ordinance in question is no argument at all against uniformity and equality of the tax imposition. Neither is the rule of equality and uniformity violated by the fact that tenement taxesare not imposed in other cities, for the same rule does not require that taxes for the same purpose should be imposed in different territorial subdivisions at the same time.32 So long as the burden of the tax falls equally and impartially on all owners or operators of tenement houses similarly classified or situated, equality and uniformity of taxation is accomplished.33 The plaintiffs-appellees, as owners of tenement houses in the City of Iloilo, have not shown that the tax burden is not equally or uniformly distributed among them, to overthrow the presumption that tax statutes are intended to operate uniformly and equally.34. 5. The last important issue posed by the appellees is that since the ordinance in the case at bar is a mere reproduction of Ordinance 86 of the City of Iloilo which was declared by this Court in L-

12695, supra, as ultra vires, the decision in that case should be accorded the effect of res judicata in the present case or should constitute estoppel by judgment. To dispose of this contention, it suffices to say that there is no identity of subject-matter in that case andthis case because the subject-matter in L-12695 was an ordinance which dealt not only with tenement houses but also warehouses, and the said ordinance was enacted pursuant to the provisions of the City charter, while the ordinance in the case at bar was enacted pursuant to the provisions of the Local Autonomy Act. There is likewise no identity of cause of action in the two cases because the main issue in L-12695 was whether the City of Iloilo had the power under its charter to impose the tax levied by Ordinance 11, series of 1960, under the Local Autonomy Act which took effect on June 19, 1959, and therefore was not available for consideration in the decision in L-12695 which was promulgated on March 23, 1959. Moreover, under the provisions of section 2 of the Local Autonomy Act, local governments may now tax any taxable subject-matter or object not included in the enumeration of matters removed from the taxing power of local governments.Prior to the enactment of the Local Autonomy Act the taxes that could be legally levied by local governments were only those specifically authorized by law, and their power to tax was construed in strictissimi juris. 35. ACCORDINGLY, the judgment a quo is reversed, and, the ordinance in questionbeing valid, the complaint is hereby dismissed. No pronouncement as to costs.. ALLIED BANKING CORPORATION AS TRUSTEE FOR THE TRUST FUND OF COLLEGE ASSURANCE PLAN PHILIPPINES, INC. (CAP),

G.R. No. 154126

Petitioner,

Present:

DAVIDE, JR., C.J., -versusPUNO, PANGANIBAN, QUISUMBING,

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

YNARES-SANTIAGO, SANDOVAL- GUTIERREZ, CARPIO, AUSTRIA-MARTINEZ,

Respondents.

CORONA, CARPIO MORALES, CALLEJO, SR., AZCUNA, TINGA, CHICO-NAZARIO, and GARCIA, JJ.

Promulgated:

October 11, 2005

x---------------------------------------------- ------------------x

DECISION

CARPIO MORALES, J.:

From the Resolution[1] of April 10, 2002 issued by Branch 225 of the Regional Trial Court (RTC) of Quezon City dismissing the petition for prohibition and declaratory relief[2] of Allied Banking Corporation (petitioner), the present appeal by certiorari was lodged.

On December 19, 1995, the Quezon City government enacted City Ordinance No. 357, Series of 1995 (the ordinance),[3] Section 3 of which reads:

Section 3. The City Assessor shall undertake a general revision of real property assessments using as basis the newly approved schedule specified in Sections 1 and 2 hereof. He shall apply the new assessment level of 15% for residential and 40% for commercial and industrial classification, respectively as prescribed in Section 8 (a) of the 1993 Quezon City Revenue Code to determine the assessed value of the land. Provided; however, that parcels of land sold, ceded, transferred and conveyed for remuneratory consideration after the effectivity of this revision shall be subject to real estate tax based on the actual amount reflected in the deed of conveyance or the current approved zonal valuation of the Bureau of Internal Revenue prevailing at the time of sale, cession, transfer and conveyance, whichever is higher, as evidenced by the certificate of payment of the capital gains tax issued therefor.[4] (Emphasis and underscoring supplied)

On July 1, 1998, petitioner, as trustee for College Assurance Plan of the Philippines, Inc., purchased from Liwanag C. Natividad et al. a 1,000 square meter parcel of land located along Aurora Boulevard, Quezon City in the amount of P38,000,000.00.[5]

Prior to the sale, Natividad et al. had been paying the total amount of P85,050.00[6] as annual real property tax based on the propertys fair market value of P4,500,000.00 and assessed value of P1,800,000.00 under Tax Declaration No. D-102-03778.[7] After its acquisition of the property, petitioner was, in accordance with Section 3 of the ordinance, required to pay P102,600.00 as quarterly real estate tax (or P410,400.00 annually) under Tax Declaration No. D-102-03780 which pegged the market value of the property at P38,000,000.00 the consideration appearing in the Deed of Absolute Sale, and its assessed value at P15,200,000.00.[8] Petitioner paid the quarterly real estate tax for the property from the 1st quarter of 1999 up to the 3rd quarter of 2000. Its tax payments for the 2nd, 3rd, and 4th quarter of 1999, and 1st and 2nd quarter of 2000 were, however, made under protest.[9]

In its written protest[10] with the City Treasurer, petitioner assailed Section 3 of the ordinance as null and void, it contending that it is violative of the equal protection and uniformity of taxation clauses of the Constitution.[11] Petitioner, moreover, contended that the proviso is unjust, excessive, oppressive, unreasonable, confiscatory and contrary to Section 130 of the Local Government Code which provides: SECTION 130. Fundamental Principles. The following fundamental principles shall govern the exercise of the taxing and revenue-raising powers of local government units: (a) (b) Taxation shall be uniform in each local government unit; Taxes, fees, charges and other impositions shall:

(1) be equitable and based as far as practicable on the taxpayers ability to pay; (2) be levied and collected only for public purposes; (3) not be unjust, excessive, oppressive, or confiscatory; (4) not be contrary to law, public policy, national economic policy, or in restraint of trade; xxx

Petitioner, through its counsel, later sent a March 24, 2000 demand letter to the Quezon City Treasurers Office seeking a refund of the real estate taxes it erroneously collected from it.[12] The letter was referred for appropriate action[13] to the City Assessor who, by letter dated May 7, 2000, denied the demand for refund on the ground that the ordinance is presumed valid and legal unless otherwise declared by a court of competent jurisdiction.[14]

Petitioner thereupon filed on August 11, 2000 a petition for prohibition and declaratory relief before the Quezon City RTC for the declaration of nullity of Section 3 of the ordinance; the enjoining of respondents Quezon City Treasurer, Quezon City Assessor, and City Mayor of Quezon City from further implementing the ordinance; for the Quezon City Treasurer to be ordered to refund

the amount of P633,150.00 representing the real property tax erroneously collected and paid under protest; and for respondents to pay attorneys fees in the amount of P1,000,000.00 and costs of the suit.[15]

In support of its thesis, petitioner contended that the re-assessment under the third sentence of Section 3 of the ordinance for purposes of real estate taxation of a propertys fair market value where it is sold, ceded, transferred or conveyed for remuneratory consideration is null and void as it is an invalid classification of real properties which are transferred, ceded or conveyed and those which are not, the latter remaining to be valued and assessed in accordance with the general revisions of assessments of real properties under the first sentence of Section 3.[16]

Petitioner additionally contended that the proviso of Section 3 of the ordinance which allows re-assessment every time the property is transferred, ceded or conveyed violates Sections 219[17] and 220[18] of the Local Government Code which provide that the assessment of real property shall not be increased oftener than once every three (3) years except in case of new improvements substantially increasing the value of said property or of any change in its actual use.[19]

Before respondents could file any responsive pleading or on March 6, 2001, respondent Quezon City Government enacted Ordinance No. SP-1032, S-2001[20] which repealed the assailed proviso in Section 3 of the 1995 Ordinance. The repealing ordinance which took effect upon its approval on March 28, 2001 reads in part:
WHEREAS, the implementation of the second (2nd) sentence of Section 3 of the Ordinance creates a situation whereby owners of newly acquired land for remuneratory consideration beginning January 1, 1996 and forward will have to pay higher taxes than its adjoining/adjacent lot or lots in the adjoining blocks, or nearby lots within its immediate vicinity which have remained undisturbed, not having been sold, ceded, transferred, and/or conveyed;

WHEREAS, the owners of the newly acquired property are complaining/protesting the validity/legality of the second (2nd) sentence of Section 3 of the ordinance for being either arbitrary, unjust, excessive, oppressive, and/or contrary to law;

WHEREAS, Section 5 Article X of the Philippine Constitution provides that: Each local government unit shall have the power to create its own sources of revenue 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 government (Underscoring supplied);

WHEREAS, the guidelines and limitations imposed on the local government units in the exercise of their taxing powers have been expressly stipulated by Congress when it enacted Section 130 of Republic Act No. 7160, otherwise known as the Local Government Code of 1991 xxx;

WHEREAS, these fundamental principles of taxation find support and affirmation in the following applicable cases decided by the Court of Tax Appeals (sic), on similar cases which held that:

1.

An increase in the valuation of land due to sale and transfer of such property was arbitrary. Uniformity in taxation means that all kinds of property of the same class shall be taxed at the same rate. (Churchhill vs. Concepcion, 34 Phi. 969; Eastern Theatrical Co. vs. Alfonso, 83 Phil. 852) xxx.

2. The law requires the real property shall be assessed at its true and full value, or cash value, or fair market value. But in determining or fixing the fair market value of property for tax purposes it is essential that the rules of uniformity be observed. More important tha[n] the obligation to seek the fair market value of property is the obligation of the assessor to see to it that the rule of taxation shall be uniform, for this a (sic) rule which is guaranteed by the Constitution. A taxpayer should not be made to pay more taxes on his property while owners of surrounding properties, under the same circumstance pay less. WHEREAS, it is clear from the foregoing premises that the second (2nd) sentence of the Ordinance, fixing the realty tax based on the actual amount reflected in the deed of conveyance or the current approved zonal valuation x x x is violative of, and repugnant to, the uniformity rule of taxation;

WHEREAS, in view of the above considerations there appear to be merit and validity to the complaints/protests of tax payers, a re-examination and repeal of the entire second sentence of Section 3 of the Ordinance is in order.

Petitioner subsequently moved to declare respondents in default[21] for failure to file a responsive pleading within the period, as extended. Before the motion could be heard,[22] however, respondents moved to dismiss the petition,[23] averring that the passage of the repealing ordinance had rendered the petition moot and academic.

Petitioner opposed the motion, it alleging that while its action for the declaration of nullity of the proviso was rendered moot and academic by its repeal, its claim for refund and attorneys fees had not been mooted, and the trial court still had to determine if Section 3 of the ordinance is null and void ab initio and perforce, may not be enforced during the intervening period from the time of its enactment until the time of its repeal.[24]

Respondents maintained, however, that the assailed proviso remained in full force and effect until the date of its repeal, based on the rule that a statute is construed prospectively unless the legislative intent was to give it retrospective application.[25] And they called attention to the provision in Section 2 of the repealing ordinance that [it] shall take effect upon its approval, hence, clearly showing that the local legislative body was to grant it prospective application.[26]

As to the claim for refund, respondents averred that it was premature for the trial court to take cognizance thereof as petitioner had an administrative remedy.[27] By Resolution of April 10, 2002, the trial court granted respondents motion to dismiss in this wise:

There is no need for this Court to resolve whether the subject Ordinance is null and void as the same was already declared to be violative of, and repugnant to the uniformity rule on taxation by the Quezon City Council itself thru its pronouncements in Quezon City Ordinance No. 1032, Series of 2001. x x x

xxx

As to petitioners claim for refund, since an administrative remedy is available for refund of taxes illegally and erroneously collected and petitioner has not yet availed of it, the Court shall not take cognizance of this issue considering the rule on Exhaustion of Administrative Remedy.[28] (Underscoring supplied)

Its Motion for Reconsideration[29] having been denied,[30] petitioner comes before this Court on appeal by certiorari under Rule 45 on the following issues:

WHETHER OR NOT THE TRIAL COURT ERRED IN DISMISSING THE INSTANT CASE FOR FAILURE OF THE PETITIONER TO EXHAUST ADMINISTRATIVE REMEDIES.

WHETHER OR NOT SECTION 3, QUEZON CITY ORDINANCE NO. 357, SERIES OF 1995, WHICH WAS ABROGATED FOR BEING UNCONSTITUTIONAL CAN BE THE BASIS OF COLLECTING REAL ESTATE TAXES PRIOR TO ITS REPEAL.[31]

Although as a rule, administrative remedies must first be exhausted before resort to judicial action can prosper, there is a well-settled exception in cases where the controversy does not involve questions of fact but only of law.[32]

Nevertheless, while cases raising purely legal questions are excepted from the rule requiring exhaustion of administrative remedies before a party may resort to the courts, petitioner, in the case at bar, does not raise just pure questions of law. Its cause of action requires the determination of the amount of real property tax paid under protest and the amount of attorneys fees. These issues are essentially questions of fact which preclude this Court from reviewing the same.[33]

Since the procedure for obtaining a refund of real property taxes is provided under Sections 252,[34] 226,[35] 229,[36] 230[37] and 231[38] of the Local Government Code, petitioners action for prohibition in the RTC was premature as it had a plain, speedy and adequate remedy of appeal in the ordinary course of law.[39] As such, the trial court correctly dismissed its action on the ground that it failed to exhaust the administrative remedies stated above.[40]

Raising questions of fact is moreover inappropriate in an appeal by certiorari under Rule 45 of the Rules of Court where only questions of law may be reviewed.[41] It is axiomatic that the Supreme Court is not a trier of facts[42] and the factual findings of the court a quo are conclusive upon it, except: (1) where the conclusion is a finding grounded entirely on speculation, surmise and conjectures; (2) where the inference made is manifestly mistaken; (3) where there is grave abuse of discretion; and (4) where the judgment is based on a misapprehension of facts, and the findings of fact of the trial court are premised on the absence of evidence and are contradicted by evidence on record.[43]

From a considered scrutiny of the records of the case, this Court finds that petitioner has shown no cause for this Court to apply any of the foregoing exceptions.

Petitioner has not put squarely in issue the constitutionality of the proviso in Section 3 of the ordinance. It merely alleges that the said proviso can not be the basis for collecting real estate taxes at any given time, the Sangguniang Panlungsod of Quezon City not having intended to impose such taxes in the first place. As such the repealing ordinance should be given retroactive effect.

As a rule, the courts will not resolve the constitutionality of a law, if the controversy can be settled on other grounds.[44]

Where questions of constitutional significance are raised, the Court can exercise its power of judicial review only if the following requisites are complied: First, there must be before the Court an actual case calling for the exercise of judicial review. Second, the question before the Court must be ripe for adjudication. Third, the person challenging the validity of the act must have standing to challenge. Fourth, the question of constitutionality must have been raised at the earliest opportunity, and lastly, the issue of constitutionality must be the very lis mota of the case.[45]

Considering that there are factual issues still waiting to be threshed out at the level of the administrative agency, there is no actual case calling for the exercise of judicial review. In addition, the requisite that the constitutionality of the assailed proviso in question be the very lis mota of the case is absent. Thus, this Court refrains from passing on the constitutionality of the proviso in Section 3 of the 1995 Ordinance.

The factual issues which petitioner interjected in its petition aside, the only crucial legal query in this case is the validity of the proviso fixing the appraised value of property at the stated consideration at which the property was last sold.

This Court holds that the proviso in question is invalid as it adopts a method of assessment or appraisal of real property contrary to the Local Government Code, its Implementing Rules and Regulations and the Local Assessment Regulations No. 1-92[46] issued by the Department of Finance.[47]

Under these immediately stated authorities, real properties shall be appraised at the current and fair market value prevailing in the locality where the property is situated[48] and classified for assessment purposes on the basis of its actual use.[49]

Fair market value is the price at which a property may be sold by a seller who is not compelled to sell and bought by a buyer who is not compelled to buy,[50] taking into consideration all uses to which the property is adapted and might in reason be applied. The criterion established by the statute contemplates a hypothetical sale. Hence, the buyers need not be actual and existing purchasers.[51]

As this Court stressed in Reyes v. Almanzor,[52] assessors, in fixing the value of real property, have to consider all the circumstances and elements of value, and must exercise prudent discretion in reaching conclusions.[53] In this regard, Local Assessment Regulations No. 1-92[54] establishes the guidelines to assist assessors in classifying, appraising and assessing real property.

Local Assessment Regulations No. 1-92 suggests three approaches in estimating the fair market value, namely: (1) the sales analysis or market data approach; (2) the income capitalization approach; and (3) the replacement or reproduction cost approach.[55] Under the sales analysis approach, the price paid in actual market transactions is considered by taking into account valid sales data accumulated from among the various sources stated in Sections 202, 203, 208, 209, 210, 211 and 213 of the Code.[56] In the income capitalization approach, the value of an income-producing property is no more than the return derived from it. An analysis of the income produced is necessary in order to estimate the sum which might be invested in the purchase of the property.

The reproduction cost approach, on the other hand, is a factual approach used exclusively in appraising man-made improvements such as buildings and other structures, based on such data as materials and labor costs to reproduce a new replica of the improvement.

The assessor uses any or all of these approaches in analyzing the data gathered to arrive at the estimated fair market value to be included in the ordinance containing the schedule of fair market values.

Given these different approaches to guide the assessor, it can readily be seen that the Code did not intend to have a rigid rule for the valuation of property, which is affected by a multitude of circumstances which no rule could foresee or provide for. Thus, what a thing has cost is no singular and infallible criterion of its market value.[57]

Accordingly, this Court holds that the proviso directing that the real property tax be based on the actual amount reflected in the deed of conveyance or the prevailing BIR zonal value is invalid not only because it mandates an exclusive rule in determining the fair market value but more so because it departs from the established procedures stated in the Local Assessment Regulations No. 1-92 and unduly interferes with the duties statutorily placed upon the local assessor[58] by completely dispensing with his analysis and discretion which the Code and the regulations require to be exercised. An ordinance that contravenes any statute is ultra vires and void.[59]

Further, it is noted that there is nothing in the Charter of Quezon City[60] and the Quezon City Revenue Code of 1993[61] that authorize public respondents to appraise property at the consideration stated in the deed of conveyance.

Using the consideration appearing in the deed of conveyance to assess or appraise real properties is not only illegal since the appraisal, assessment, levy and collection of real property tax shall not be let to any private person,[62] but it

will completely destroy the fundamental principle in real property taxation that real property shall be classified, valued and assessed on the basis of its actual use regardless of where located, whoever owns it, and whoever uses it.[63] Necessarily, allowing the parties to a private sale to dictate the fair market value of the property will dispense with the distinctions of actual use stated in the Code and in the regulations.

The invalidity of the assessment or appraisal system adopted by the proviso is not cured even if the proviso mandates the comparison of the stated consideration as against the prevailing BIR zonal value, whichever is higher, because an integral part of that system still permits valuing real property in disregard of its actual use.

In the same vein, there is also nothing in the Code or the regulations showing the congressional intent to require an immediate adjustment of taxes on the basis of the latest market developments as, in fact, real property assessments may be revised and/or increased only once every three (3) years.[64] Consequently, the real property tax burden should not be interpreted to include those beyond what the Code or the regulations expressly and clearly state.

Still another consequence of the proviso is to provide a chilling effect on real property owners or administrators to enter freely into contracts reflecting the increasing value of real properties in accordance with prevailing market

conditions. While the Local Government Code provides that the assessment of real property shall not be increased oftener than once every three (3) years,[65] the questioned part of the proviso subjects the real property to a tax based on the actual amount appearing on the deed of conveyance or the current approved zonal valuation of the Bureau of Internal Revenue prevailing at the time of sale, cession, transfer and conveyance, whichever is higher. As such, any subsequent sale during the three-year period will result in a real property tax higher than the tax assessed at the last prior conveyance within the same period. To save on taxes, real property owners or administrators are forced to hold on to the property until after the said three-year period has lapsed. Should they nonetheless decide to sell within the said three-year period, they are compelled to dispose the property at a price not exceeding that obtained from the last prior conveyance in order to avoid a higher tax assessment. In these two scenarios, real property owners are effectively prevented from obtaining the best price possible for their properties and unduly hampers the equitable distribution of wealth.

While the state may legitimately decide to structure its tax system to discourage rapid turnover in ownership of real properties, such state interest must be expressly stated in the executing statute or it can at least be gleaned from its provisions.

In the case at bar, there is nothing in the Local Government Code, the implementing rules and regulations, the local assessment regulations, the Quezon City Charter, the Quezon City Revenue Code of 1993 and the Whereas clauses of the 1995 Ordinance from which this Court can draw, at the very least, an intimation of this state interest. As such, the proviso must be stricken down for being contrary to public policy and for restraining trade.[66]

In fine, public respondent Quezon City Government exceeded its statutory authority when it enacted the proviso in question. The provision is thus null and void ab initio for being ultra vires and for contravening the provisions of the Local Government Code, its implementing regulations and the Local Assessment Regulations No. 1-92. As such, it acquired no legal effect and conferred no rights from its inception.

A word on the applicability of the doctrine in this decision. It applies only in the determination of real estate tax payable by owners or administrators of real property.

In light of the foregoing disquisitions, addressing the issue of retroactivity of the repealing ordinance is rendered unnecessary.

WHEREFORE, the petition is hereby GRANTED. The assailed portion of the provisions of Section 3 of Quezon City Ordinance No. 357, Series of 1995 is hereby declared invalid. Petitioners claim for refund, however, must be lodged with the Local Board of Assessment Appeals, if it is not barred by the statute of limitations.

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 Pias, 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, 1 is a taxpayer and an owner of three parcels of land. He alleges 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 2 is even more oppressive and unconstitutional as it 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. G.R. No. L-25043 April 26, 1968

ANTONIO ROXAS, EDUARDO ROXAS and ROXAS Y CIA., in their own respective behalf and as judicial co-guardians of JOSE ROXAS, petitioners, vs. COURT OF TAX APPEALS and COMMISSIONER OF INTERNAL REVENUE, respondents. Leido, Andrada, Perez and Associates for petitioners. Office of the Solicitor General for respondents. BENGZON, J.P., J.: Don Pedro Roxas and Dona Carmen Ayala, Spanish subjects, transmitted to their grandchildren by hereditary succession the following properties: (1) Agricultural lands with a total area of 19,000 hectares, situated in the municipality of Nasugbu, Batangas province;

(2) A residential house and lot located at Wright St., Malate, Manila; and (3) Shares of stocks in different corporations. To manage the above-mentioned properties, said children, namely, Antonio Roxas, Eduardo Roxas and Jose Roxas, formed a partnership called Roxas y Compania. AGRICULTURAL LANDS At the conclusion of the Second World War, the tenants who have all been tilling the lands in Nasugbu for generations expressed their desire to purchase from Roxas y Cia. the parcels which they actually occupied. For its part, the Government, in consonance with the constitutional mandate to acquire big landed estates and apportion them among landless tenants-farmers, persuaded the Roxas brothers to part with their landholdings. Conferences were held with the farmers in the early part of 1948 and finally the Roxas brothers agreed to sell 13,500 hectares to the Government for distribution to actual occupants for a price of P2,079,048.47 plus P300,000.00 for survey and subdivision expenses. It turned out however that the Government did not have funds to cover the purchase price, and so a special arrangement was made for the Rehabilitation Finance Corporation to advance to Roxas y Cia. the amount of P1,500,000.00 as loan. Collateral for such loan were the lands proposed to be sold to the farmers. Under the arrangement, Roxas y Cia. allowed the farmers to buy the lands for the same price but by installment, and contracted with the Rehabilitation Finance Corporation to pay its loan from the proceeds of the yearly amortizations paid by the farmers. In 1953 and 1955 Roxas y Cia. derived from said installment payments a net gain of P42,480.83 and P29,500.71. Fifty percent of said net gain was reported for income tax purposes as gain on the sale of capital asset held for more than one year pursuant to Section 34 of the Tax Code. RESIDENTIAL HOUSE During their bachelor days the Roxas brothers lived in the residential house at Wright St., Malate, Manila, which they inherited from their grandparents. After Antonio and Eduardo got married, they resided somewhere else leaving only Jose in the old house. In fairness to his brothers, Jose paid to Roxas y Cia. rentals for the house in the sum of P8,000.00 a year. ASSESSMENTS On June 17, 1958, the Commissioner of Internal Revenue demanded from Roxas y Cia the payment of real estate dealer's tax for 1952 in the amount of P150.00 plus P10.00 compromise penalty for late payment, and P150.00 tax for dealers of securities for 1952 plus P10.00 compromise penalty for late payment. The assessment for real estate dealer's tax was based on the fact that Roxas y Cia. received house rentals from Jose Roxas in the amount of P8,000.00. Pursuant to Sec. 194 of the Tax Code, an owner of a real estate who derives a yearly rental income therefrom in the amount of P3,000.00 or more is considered a real estate dealer and is liable to pay the corresponding fixed tax.

The Commissioner of Internal Revenue justified his demand for the fixed tax on dealers of securities against Roxas y Cia., on the fact that said partnership made profits from the purchase and sale of securities. In the same assessment, the Commissioner assessed deficiency income taxes against the Roxas Brothers for the years 1953 and 1955, as follows: 1953 P7,010.00 7,281.00 6,323.00 1955 P5,813.00 5,828.00 5,588.00

Antonio Roxas Eduardo Roxas Jose Roxas

The deficiency income taxes resulted from the inclusion as income of Roxas y Cia. of the unreported 50% of the net profits for 1953 and 1955 derived from the sale of the Nasugbu farm lands to the tenants, and the disallowance of deductions from gross income of various business expenses and contributions claimed by Roxas y Cia. and the Roxas brothers. For the reason that Roxas y Cia. subdivided its Nasugbu farm lands and sold them to the farmers on installment, the Commissioner considered the partnership as engaged in the business of real estate, hence, 100% of the profits derived therefrom was taxed. The following deductions were disallowed: ROXAS Y CIA.: 1953 Tickets for Banquet in honor of S. Osmea Gifts of San Miguel beer Contributions to Philippine Air Force Chapel Manila Police Trust Fund Philippines Herald's fund for Manila's neediest families 1955 Contributions to Contribution to Our Lady of Fatima Chapel, FEU ANTONIO ROXAS: 1953 Contributions to 100.00 150.00 P 40.00 28.00

100.00

50.00

Pasay City Firemen Christmas Fund Pasay City Police Dept. X'mas fund 1955 Contributions to Baguio City Police Christmas fund Pasay City Firemen Christmas fund Pasay City Police Christmas fund EDUARDO ROXAS: 1953 Contributions to Hijas de Jesus' Retiro de Manresa Philippines Herald's fund for Manila's neediest families 1955 Contributions to Philippines Herald's fund for Manila's neediest families JOSE ROXAS: 1955 Contributions to Philippines Herald's fund for Manila's neediest families

25.00 50.00

25.00 25.00 50.00

450.00

100.00

120.00

120.00

The Roxas brothers protested the assessment but inasmuch as said protest was denied, they instituted an appeal in the Court of Tax Appeals on January 9, 1961. The Tax Court heard the appeal and rendered judgment on July 31, 1965 sustaining the assessment except the demand for the payment of the fixed tax on dealer of securities and the disallowance of the deductions for contributions to the Philippine Air Force Chapel and Hijas de Jesus' Retiro de Manresa. The Tax Court's judgment reads: WHEREFORE, the decision appealed from is hereby affirmed with respect to petitioners Antonio Roxas, Eduardo Roxas, and Jose Roxas who are hereby ordered to pay the respondent Commissioner of Internal Revenue the amounts of P12,808.00, P12,887.00 and P11,857.00, respectively, as deficiency income taxes for the years 1953 and 1955, plus 5% surcharge and 1% monthly interest as provided for in Sec. 51(a) of the Revenue Code; and modified with respect to the partnership Roxas y Cia. in the sense that it should pay only P150.00, as real estate dealer's tax. With costs against petitioners.

Not satisfied, Roxas y Cia. and the Roxas brothers appealed to this Court. The Commissioner of Internal Revenue did not appeal. The issues: (1) Is the gain derived from the sale of the Nasugbu farm lands an ordinary gain, hence 100% taxable? (2) Are the deductions for business expenses and contributions deductible? (3) Is Roxas y Cia. liable for the payment of the fixed tax on real estate dealers? The Commissioner of Internal Revenue contends that Roxas y Cia. could be considered a real estate dealer because it engaged in the business of selling real estate. The business activity alluded to was the act of subdividing the Nasugbu farm lands and selling them to the farmersoccupants on installment. To bolster his stand on the point, he cites one of the purposes of Roxas y Cia. as contained in its articles of partnership, quoted below: 4. (a) La explotacion de fincas urbanes pertenecientes a la misma o que pueden pertenecer a ella en el futuro, alquilandoles por los plazos y demas condiciones, estime convenientes y vendiendo aquellas que a juicio de sus gerentes no deben conservarse; The above-quoted purpose notwithstanding, the proposition of the Commissioner of Internal Revenue cannot be favorably accepted by Us in this isolated transaction with its peculiar circumstances in spite of the fact that there were hundreds of vendees. Although they paid for their respective holdings in installment for a period of ten years, it would nevertheless not make the vendor Roxas y Cia. a real estate dealer during the ten-year amortization period. It should be borne in mind that the sale of the Nasugbu farm lands to the very farmers who tilled them for generations was not only in consonance with, but more in obedience to the request and pursuant to the policy of our Government to allocate lands to the landless. It was the bounden duty of the Government to pay the agreed compensation after it had persuaded Roxas y Cia. to sell its haciendas, and to subsequently subdivide them among the farmers at very reasonable terms and prices. However, the Government could not comply with its duty for lack of funds. Obligingly, Roxas y Cia. shouldered the Government's burden, went out of its way and sold lands directly to the farmers in the same way and under the same terms as would have been the case had the Government done it itself. For this magnanimous act, the municipal council of Nasugbu passed a resolution expressing the people's gratitude. The power of taxation is sometimes called also the power to destroy. Therefore it should be exercised with caution to minimize injury to the proprietary rights of a taxpayer. It must be exercised fairly, equally and uniformly, lest the tax collector kill the "hen that lays the golden egg". And, in order to maintain the general public's trust and confidence in the Government this power must be used justly and not treacherously. It does not conform with Our sense of justice in the instant case for the Government to persuade the taxpayer to lend it a helping hand and later on to penalize him for duly answering the urgent call.

In fine, Roxas y Cia. cannot be considered a real estate dealer for the sale in question. Hence, pursuant to Section 34 of the Tax Code the lands sold to the farmers are capital assets, and the gain derived from the sale thereof is capital gain, taxable only to the extent of 50%. DISALLOWED DEDUCTIONS Roxas y Cia. deducted from its gross income the amount of P40.00 for tickets to a banquet given in honor of Sergio Osmena and P28.00 for San Miguel beer given as gifts to various persons. The deduction were claimed as representation expenses. Representation expenses are deductible from gross income as expenditures incurred in carrying on a trade or business under Section 30(a) of the Tax Code provided the taxpayer proves that they are reasonable in amount, ordinary and necessary, and incurred in connection with his business. In the case at bar, the evidence does not show such link between the expenses and the business of Roxas y Cia. The findings of the Court of Tax Appeals must therefore be sustained. The petitioners also claim deductions for contributions to the Pasay City Police, Pasay City Firemen, and Baguio City Police Christmas funds, Manila Police Trust Fund, Philippines Herald's fund for Manila's neediest families and Our Lady of Fatima chapel at Far Eastern University. The contributions to the Christmas funds of the Pasay City Police, Pasay City Firemen and Baguio City Police are not deductible for the reason that the Christmas funds were not spent for public purposes but as Christmas gifts to the families of the members of said entities. Under Section 39(h), a contribution to a government entity is deductible when used exclusively for public purposes. For this reason, the disallowance must be sustained. On the other hand, the contribution to the Manila Police trust fund is an allowable deduction for said trust fund belongs to the Manila Police, a government entity, intended to be used exclusively for its public functions. The contributions to the Philippines Herald's fund for Manila's neediest families were disallowed on the ground that the Philippines Herald is not a corporation or an association contemplated in Section 30 (h) of the Tax Code. It should be noted however that the contributions were not made to the Philippines Herald but to a group of civic spirited citizens organized by the Philippines Herald solely for charitable purposes. There is no question that the members of this group of citizens do not receive profits, for all the funds they raised were for Manila's neediest families. Such a group of citizens may be classified as an association organized exclusively for charitable purposes mentioned in Section 30(h) of the Tax Code. Rightly, the Commissioner of Internal Revenue disallowed the contribution to Our Lady of Fatima chapel at the Far Eastern University on the ground that the said university gives dividends to its stockholders. Located within the premises of the university, the chapel in question has not been shown to belong to the Catholic Church or any religious organization. On the other hand, the lower court found that it belongs to the Far Eastern University, contributions to which are not deductible under Section 30(h) of the Tax Code for the reason that the net income of said university injures to the benefit of its stockholders. The disallowance should be sustained.

Lastly, Roxas y Cia. questions the imposition of the real estate dealer's fixed tax upon it, because although it earned a rental income of P8,000.00 per annum in 1952, said rental income came from Jose Roxas, one of the partners. Section 194 of the Tax Code, in considering as real estate dealers owners of real estate receiving rentals of at least P3,000.00 a year, does not provide any qualification as to the persons paying the rentals. The law, which states: 1wph1.t . . . "Real estate dealer" includes any person engaged in the business of buying, selling, exchanging, leasing or renting property on his own account as principal and holding himself out as a full or part-time dealer in real estate or as an owner of rental property or properties rented or offered to rent for an aggregate amount of three thousand pesos or more a year: . . . (Emphasis supplied) . is too clear and explicit to admit construction. The findings of the Court of Tax Appeals or, this point is sustained.1wph1.t To Summarize, no deficiency income tax is due for 1953 from Antonio Roxas, Eduardo Roxas and Jose Roxas. For 1955 they are liable to pay deficiency income tax in the sum of P109.00, P91.00 and P49.00, respectively, computed as follows: * ANTONIO ROXAS Net income per return Add: 1/3 share, profits in Roxas y Cia. Less amount declared Amount understated Contributions disallowed P 153,249.15 146,135.46 P 7,113.69 115.00 P 7,228.69 Less 1/3 share of contributions amounting to P21,126.06 disallowed from partnership but allowed to partners Net income per review Less: Exemptions Net taxable income Tax due 154,169.00 P315,476.59

7,042.02

186.67 P315,663.26 4,200.00 P311,463.26

Tax paid Deficiency

154,060.00 P 109.00 ========== EDUARDO ROXAS

Net income per return Add: 1/3 share, profits in Roxas y Cia Less profits declared Amount understated Less 1/3 share in contributions amounting to P21,126.06 disallowed from partnership but allowed to partners Net income per review Less: Exemptions Net taxable income Tax Due Tax paid Deficiency P147,250.00 147,159.00 P91.00 =========== JOSE ROXAS Net income per return Add: 1/3 share, profits in Roxas y Cia. Less amount reported Amount understated P153,429.15 146,135.46 7,113.69 P 153,249.15 146,052.58 P 7,196.57

P 304,166.92

7,042.02

155.55 P304,322.47 4,800.00 P299,592.47

P222,681.76

Less 1/3 share of contributions disallowed from partnership but allowed as deductions to partners Net income per review Less: Exemption Net income subject to tax Tax due Tax paid Deficiency

7,042.02

71.67 P222,753.43 1,800.00 P220,953.43

P102,763.00 102,714.00 P 49.00 ===========

WHEREFORE, the decision appealed from is modified. Roxas y Cia. is hereby ordered to pay the sum of P150.00 as real estate dealer's fixed tax for 1952, and Antonio Roxas, Eduardo Roxas and Jose Roxas are ordered to pay the respective sums of P109.00, P91.00 and P49.00 as their individual deficiency income tax all corresponding for the year 1955. No costs. So ordered. G.R. No. 118295 May 2, 1997 WIGBERTO E. TAADA and ANNA DOMINIQUE COSETENG, as members of the Philippine Senate and as taxpayers; GREGORIO ANDOLANA and JOKER ARROYO as members of the House of Representatives and as taxpayers; NICANOR P. PERLAS and HORACIO R. MORALES, both as taxpayers; CIVIL LIBERTIES UNION, NATIONAL ECONOMIC PROTECTIONISM ASSOCIATION, CENTER FOR ALTERNATIVE DEVELOPMENT INITIATIVES, LIKAS-KAYANG KAUNLARAN FOUNDATION, INC., PHILIPPINE RURAL RECONSTRUCTION MOVEMENT, DEMOKRATIKONG KILUSAN NG MAGBUBUKID NG PILIPINAS, INC., and PHILIPPINE PEASANT INSTITUTE, in representation of various taxpayers and as non-governmental organizations, petitioners, vs. EDGARDO ANGARA, ALBERTO ROMULO, LETICIA RAMOS-SHAHANI, HEHERSON ALVAREZ, AGAPITO AQUINO, RODOLFO BIAZON, NEPTALI GONZALES, ERNESTO HERRERA, JOSE LINA, GLORIA. MACAPAGAL-ARROYO, ORLANDO MERCADO, BLAS OPLE, JOHN OSMEA, SANTANINA RASUL, RAMON REVILLA, RAUL ROCO, FRANCISCO TATAD and FREDDIE WEBB, in their respective capacities as members of the Philippine Senate who concurred in the ratification by the President of the Philippines of the Agreement Establishing the World Trade Organization; SALVADOR ENRIQUEZ, in his capacity as Secretary of Budget and Management; CARIDAD VALDEHUESA, in her capacity as National Treasurer; RIZALINO NAVARRO, in his capacity as Secretary of Trade

and Industry; ROBERTO SEBASTIAN, in his capacity as Secretary of Agriculture; ROBERTO DE OCAMPO, in his capacity as Secretary of Finance; ROBERTO ROMULO, in his capacity as Secretary of Foreign Affairs; and TEOFISTO T. GUINGONA, in his capacity as Executive Secretary, respondents.

PANGANIBAN, J.: The emergence on January 1, 1995 of the World Trade Organization, abetted by the membership thereto of the vast majority of countries has revolutionized international business and economic relations amongst states. It has irreversibly propelled the world towards trade liberalization and economic globalization. Liberalization, globalization, deregulation and privatization, the third-millennium buzz words, are ushering in a new borderless world of business by sweeping away as mere historical relics the heretofore traditional modes of promoting and protecting national economies like tariffs, export subsidies, import quotas, quantitative restrictions, tax exemptions and currency controls. Finding market niches and becoming the best in specific industries in a market-driven and export-oriented global scenario are replacing age-old "beggar-thy-neighbor" policies that unilaterally protect weak and inefficient domestic producers of goods and services. In the words of Peter Drucker, the well-known management guru, "Increased participation in the world economy has become the key to domestic economic growth and prosperity." Brief Historical Background To hasten worldwide recovery from the devastation wrought by the Second World War, plans for the establishment of three multilateral institutions inspired by that grand political body, the United Nations were discussed at Dumbarton Oaks and Bretton Woods. The first was the World Bank (WB) which was to address the rehabilitation and reconstruction of war-ravaged and later developing countries; the second, the International Monetary Fund (IMF) which was to deal with currency problems; and the third, the International Trade Organization (ITO), which was to foster order and predictability in world trade and to minimize unilateral protectionist policies that invite challenge, even retaliation, from other states. However, for a variety of reasons, including its non-ratification by the United States, the ITO, unlike the IMF and WB, never took off. What remained was only GATT the General Agreement on Tariffs and Trade. GATT was a collection of treaties governing access to the economies of treaty adherents with no institutionalized body administering the agreements or dependable system of dispute settlement. After half a century and several dizzying rounds of negotiations, principally the Kennedy Round, the Tokyo Round and the Uruguay Round, the world finally gave birth to that administering body the World Trade Organization with the signing of the "Final Act" in Marrakesh, Morocco and the ratification of the WTO Agreement by its members.
1

Like many other developing countries, the Philippines joined WTO as a founding member with the goal, as articulated by President Fidel V. Ramos in two letters to the Senate (infra), of improving "Philippine access to foreign markets, especially its major trading partners, through the reduction of tariffs on its exports, particularly agricultural and industrial products." The President also saw in the WTO the opening of "new opportunities for the services sector . . . , (the reduction of) costs and uncertainty associated with exporting . . . , and (the attraction of) more investments into the country." Although the Chief Executive did not expressly mention it in his letter, the Philippines and this is of special interest to the legal profession will benefit from the WTO system of dispute settlement by judicial adjudication through the independent WTO settlement bodies called (1) Dispute Settlement Panels and (2) Appellate Tribunal. Heretofore, trade disputes were settled mainly through negotiations where solutions were arrived at frequently on the basis of relative bargaining strengths, and where naturally, weak and underdeveloped countries were at a disadvantage. The Petition in Brief Arguing mainly (1) that the WTO requires the Philippines "to place nationals and products of member-countries on the same footing as Filipinos and local products" and (2) that the WTO "intrudes, limits and/or impairs" the constitutional powers of both Congress and the Supreme Court, the instant petition before this Court assails the WTO Agreement for violating the mandate of the 1987 Constitution to "develop a self-reliant and independent national economy effectively controlled by Filipinos . . . (to) give preference to qualified Filipinos (and to) promote the preferential use of Filipino labor, domestic materials and locally produced goods." Simply stated, does the Philippine Constitution prohibit Philippine participation in worldwide trade liberalization and economic globalization? Does it proscribe Philippine integration into a global economy that is liberalized, deregulated and privatized? These are the main questions raised in this petition for certiorari, prohibition and mandamus under Rule 65 of the Rules of Court praying (1) for the nullification, on constitutional grounds, of the concurrence of the Philippine Senate in the ratification by the President of the Philippines of the Agreement Establishing the World Trade Organization (WTO Agreement, for brevity) and (2) for the prohibition of its implementation and enforcement through the release and utilization of public funds, the assignment of public officials and employees, as well as the use of government properties and resources by respondentheads of various executive offices concerned therewith. This concurrence is embodied in Senate Resolution No. 97, dated December 14, 1994. The Facts On April 15, 1994, Respondent Rizalino Navarro, then Secretary of The Department of Trade and Industry (Secretary Navarro, for brevity), representing the Government of the Republic of the Philippines, signed in Marrakesh, Morocco, the Final Act Embodying the Results of the Uruguay Round of Multilateral Negotiations (Final Act, for brevity).

By signing the Final Act, 2 Secretary Navarro on behalf of the Republic of the Philippines, agreed:
(a) to submit, as appropriate, the WTO Agreement for the consideration of their respective competent authorities, with a view to seeking approval of the Agreement in accordance with their procedures; and (b) to adopt the Ministerial Declarations and Decisions.

On August 12, 1994, the members of the Philippine Senate received a letter dated August 11, 1994 from the President of the Philippines, 3 stating among others that "the Uruguay Round Final Act is hereby submitted to the Senate for its concurrence pursuant to Section 21, Article VII of the Constitution." On August 13, 1994, the members of the Philippine Senate received another letter from the President of the Philippines 4 likewise dated August 11, 1994, which stated among others that "the Uruguay Round Final Act, the Agreement Establishing the World Trade Organization, the Ministerial Declarations and Decisions, and the Understanding on Commitments in Financial Services are hereby submitted to the Senate for its concurrence pursuant to Section 21, Article VII of the Constitution." On December 9, 1994, the President of the Philippines certified the necessity of the immediate adoption of P.S. 1083, a resolution entitled "Concurring in the Ratification of the Agreement Establishing the World Trade Organization." 5 On December 14, 1994, the Philippine Senate adopted Resolution No. 97 which "Resolved, as it is hereby resolved, that the Senate concur, as it hereby concurs, in the ratification by the President of the Philippines of the Agreement Establishing the World Trade Organization." 6 The text of the WTO Agreement is written on pages 137 et seq. of Volume I of the 36-volume Uruguay Round of Multilateral Trade Negotiations and includes various agreements and associated legal instruments (identified in the said Agreement as Annexes 1, 2 and 3 thereto and collectively referred to as Multilateral Trade Agreements, for brevity) as follows:
ANNEX 1 Annex 1A: Multilateral Agreement on Trade in Goods General Agreement on Tariffs and Trade 1994 Agreement on Agriculture Agreement on the Application of Sanitary and Phytosanitary Measures Agreement on Textiles and Clothing Agreement on Technical Barriers to Trade Agreement on Trade-Related Investment Measures Agreement on Implementation of Article VI of he General Agreement on Tariffs and Trade 1994 Agreement on Implementation of Article VII of the General on Tariffs and Trade 1994 Agreement on Pre-Shipment Inspection

Agreement on Rules of Origin Agreement on Imports Licensing Procedures Agreement on Subsidies and Coordinating Measures Agreement on Safeguards Annex 1B: General Agreement on Trade in Services and Annexes Annex 1C: Agreement on Trade-Related Aspects of Intellectual Property Rights ANNEX 2 Understanding on Rules and Procedures Governing the Settlement of Disputes ANNEX 3 Trade Policy Review Mechanism

On December 16, 1994, the President of the Philippines signed 7 the Instrument of Ratification, declaring:
NOW THEREFORE, be it known that I, FIDEL V. RAMOS, President of the Republic of the Philippines, after having seen and considered the aforementioned Agreement Establishing the World Trade Organization and the agreements and associated legal instruments included in Annexes one (1), two (2) and three (3) of that Agreement which are integral parts thereof, signed at Marrakesh, Morocco on 15 April 1994, do hereby ratify and confirm the same and every Article and Clause thereof.

To emphasize, the WTO Agreement ratified by the President of the Philippines is composed of the Agreement Proper and "the associated legal instruments included in Annexes one (1), two (2) and three (3) of that Agreement which are integral parts thereof." On the other hand, the Final Act signed by Secretary Navarro embodies not only the WTO Agreement (and its integral annexes aforementioned) but also (1) the Ministerial Declarations and Decisions and (2) the Understanding on Commitments in Financial Services. In his Memorandum dated May 13, 1996, 8 the Solicitor General describes these two latter documents as follows:
The Ministerial Decisions and Declarations are twenty-five declarations and decisions on a wide range of matters, such as measures in favor of least developed countries, notification procedures, relationship of WTO with the International Monetary Fund (IMF), and agreements on technical barriers to trade and on dispute settlement. The Understanding on Commitments in Financial Services dwell on, among other things, standstill or limitations and qualifications of commitments to existing non-conforming measures, market access, national treatment, and definitions of non-resident supplier of financial services, commercial presence and new financial service.

On December 29, 1994, the present petition was filed. After careful deliberation on respondents' comment and petitioners' reply thereto, the Court resolved on December 12, 1995, to give due course to the petition, and the parties thereafter filed their respective memoranda. The court also requested the Honorable Lilia R. Bautista, the Philippine Ambassador to the United Nations stationed in Geneva, Switzerland, to submit a paper, hereafter referred to as "Bautista Paper," 9 for brevity, (1) providing a historical background of and (2) summarizing the said agreements. During the Oral Argument held on August 27, 1996, the Court directed:
(a) the petitioners to submit the (1) Senate Committee Report on the matter in controversy and (2) the transcript of proceedings/hearings in the Senate; and (b) the Solicitor General, as counsel for respondents, to file (1) a list of Philippine treaties signed prior to the Philippine adherence to the WTO Agreement, which derogate from Philippine sovereignty and (2) copies of the multi-volume WTO Agreement and other documents mentioned in the Final Act, as soon as possible.

After receipt of the foregoing documents, the Court said it would consider the case submitted for resolution. In a Compliance dated September 16, 1996, the Solicitor General submitted a printed copy of the 36-volume Uruguay Round of Multilateral Trade Negotiations, and in another Compliance dated October 24, 1996, he listed the various "bilateral or multilateral treaties or international instruments involving derogation of Philippine sovereignty." Petitioners, on the other hand, submitted their Compliance dated January 28, 1997, on January 30, 1997. The Issues In their Memorandum dated March 11, 1996, petitioners summarized the issues as follows:
A. Whether the petition presents a political question or is otherwise not justiciable. B. Whether the petitioner members of the Senate who participated in the deliberations and voting leading to the concurrence are estopped from impugning the validity of the Agreement Establishing the World Trade Organization or of the validity of the concurrence. C. Whether the provisions of the Agreement Establishing the World Trade Organization contravene the provisions of Sec. 19, Article II, and Secs. 10 and 12, Article XII, all of the 1987 Philippine Constitution. D. Whether provisions of the Agreement Establishing the World Trade Organization unduly limit, restrict and impair Philippine sovereignty specifically the legislative power which, under Sec. 2, Article VI, 1987 Philippine Constitution is "vested in the Congress of the Philippines"; E. Whether provisions of the Agreement Establishing the World Trade Organization interfere with the exercise of judicial power.

F. Whether the respondent members of the Senate acted in grave abuse of discretion amounting to lack or excess of jurisdiction when they voted for concurrence in the ratification of the constitutionally-infirm Agreement Establishing the World Trade Organization. G. Whether the respondent members of the Senate acted in grave abuse of discretion amounting to lack or excess of jurisdiction when they concurred only in the ratification of the Agreement Establishing the World Trade Organization, and not with the Presidential submission which included the Final Act, Ministerial Declaration and Decisions, and the Understanding on Commitments in Financial Services.

On the other hand, the Solicitor General as counsel for respondents "synthesized the several issues raised by petitioners into the following": 10
1. Whether or not the provisions of the "Agreement Establishing the World Trade Organization and the Agreements and Associated Legal Instruments included in Annexes one (1), two (2) and three (3) of that agreement" cited by petitioners directly contravene or undermine the letter, spirit and intent of Section 19, Article II and Sections 10 and 12, Article XII of the 1987 Constitution. 2. Whether or not certain provisions of the Agreement unduly limit, restrict or impair the exercise of legislative power by Congress. 3. Whether or not certain provisions of the Agreement impair the exercise of judicial power by this Honorable Court in promulgating the rules of evidence. 4. Whether or not the concurrence of the Senate "in the ratification by the President of the Philippines of the Agreement establishing the World Trade Organization" implied rejection of the treaty embodied in the Final Act.

By raising and arguing only four issues against the seven presented by petitioners, the Solicitor General has effectively ignored three, namely: (1) whether the petition presents a political question or is otherwise not justiciable; (2) whether petitioner-members of the Senate (Wigberto E. Taada and Anna Dominique Coseteng) are estopped from joining this suit; and (3) whether the respondent-members of the Senate acted in grave abuse of discretion when they voted for concurrence in the ratification of the WTO Agreement. The foregoing notwithstanding, this Court resolved to deal with these three issues thus: (1) The "political question" issue being very fundamental and vital, and being a matter that probes into the very jurisdiction of this Court to hear and decide this case was deliberated upon by the Court and will thus be ruled upon as the first issue; (2) The matter of estoppel will not be taken up because this defense is waivable and the respondents have effectively waived it by not pursuing it in any of their pleadings; in any event, this issue, even if ruled in respondents' favor, will not cause the petition's dismissal as there are petitioners other than the two senators, who are not vulnerable to the defense of estoppel; and

(3) The issue of alleged grave abuse of discretion on the part of the respondent senators will be taken up as an integral part of the disposition of the four issues raised by the Solicitor General. During its deliberations on the case, the Court noted that the respondents did not question the locus standi of petitioners. Hence, they are also deemed to have waived the benefit of such issue. They probably realized that grave constitutional issues, expenditures of public funds and serious international commitments of the nation are involved here, and that transcendental public interest requires that the substantive issues be met head on and decided on the merits, rather than skirted or deflected by procedural matters. 11 To recapitulate, the issues that will be ruled upon shortly are:
(1) DOES THE PETITION PRESENT A JUSTICIABLE CONTROVERSY? OTHERWISE STATED, DOES THE PETITION INVOLVE A POLITICAL QUESTION OVER WHICH THIS COURT HAS NO JURISDICTION? (2) DO THE PROVISIONS OF THE WTO AGREEMENT AND ITS THREE ANNEXES CONTRAVENE SEC. 19, ARTICLE II, AND SECS. 10 AND 12, ARTICLE XII, OF THE PHILIPPINE CONSTITUTION? (3) DO THE PROVISIONS OF SAID AGREEMENT AND ITS ANNEXES LIMIT, RESTRICT, OR IMPAIR THE EXERCISE OF LEGISLATIVE POWER BY CONGRESS? (4) DO SAID PROVISIONS UNDULY IMPAIR OR INTERFERE WITH THE EXERCISE OF JUDICIAL POWER BY THIS COURT IN PROMULGATING RULES ON EVIDENCE? (5) WAS THE CONCURRENCE OF THE SENATE IN THE WTO AGREEMENT AND ITS ANNEXES SUFFICIENT AND/OR VALID, CONSIDERING THAT IT DID NOT INCLUDE THE FINAL ACT, MINISTERIAL DECLARATIONS AND DECISIONS, AND THE UNDERSTANDING ON COMMITMENTS IN FINANCIAL SERVICES?

The First Issue: Does the Court Have Jurisdiction Over the Controversy? In seeking to nullify an act of the Philippine Senate on the ground that it contravenes the Constitution, the petition no doubt raises a justiciable controversy. Where an action of the legislative branch is seriously alleged to have infringed the Constitution, it becomes not only the right but in fact the duty of the judiciary to settle the dispute. "The question thus posed is judicial rather than political. The duty (to adjudicate) remains to assure that the supremacy of the Constitution is upheld." 12 Once a "controversy as to the application or interpretation of a constitutional provision is raised before this Court (as in the instant case), it becomes a legal issue which the Court is bound by constitutional mandate to decide." 13 The jurisdiction of this Court to adjudicate the matters 14 raised in the petition is clearly set out in the 1987 Constitution, 15 as follows:

Judicial power includes the duty of the courts of justice to settle actual controversies involving rights which are legally demandable and enforceable, and to determine whether or not there has been a grave abuse of discretion amounting to lack or excess of jurisdiction on the part of any branch or instrumentality of the government.

The foregoing text emphasizes the judicial department's duty and power to strike down grave abuse of discretion on the part of any branch or instrumentality of government including Congress. It is an innovation in our political law. 16 As explained by former Chief Justice Roberto Concepcion, 17 "the judiciary is the final arbiter on the question of whether or not a branch of government or any of its officials has acted without jurisdiction or in excess of jurisdiction or so capriciously as to constitute an abuse of discretion amounting to excess of jurisdiction. This is not only a judicial power but a duty to pass judgment on matters of this nature." As this Court has repeatedly and firmly emphasized in many cases, 18 it will not shirk, digress from or abandon its sacred duty and authority to uphold the Constitution in matters that involve grave abuse of discretion brought before it in appropriate cases, committed by any officer, agency, instrumentality or department of the government. As the petition alleges grave abuse of discretion and as there is no other plain, speedy or adequate remedy in the ordinary course of law, we have no hesitation at all in holding that this petition should be given due course and the vital questions raised therein ruled upon under Rule 65 of the Rules of Court. Indeed, certiorari, prohibition and mandamus are appropriate remedies to raise constitutional issues and to review and/or prohibit/nullify, when proper, acts of legislative and executive officials. On this, we have no equivocation. We should stress that, in deciding to take jurisdiction over this petition, this Court will not review the wisdom of the decision of the President and the Senate in enlisting the country into the WTO, or pass upon the merits of trade liberalization as a policy espoused by said international body. Neither will it rule on the propriety of the government's economic policy of reducing/removing tariffs, taxes, subsidies, quantitative restrictions, and other import/trade barriers. Rather, it will only exercise its constitutional duty "to determine whether or not there had been a grave abuse of discretion amounting to lack or excess of jurisdiction" on the part of the Senate in ratifying the WTO Agreement and its three annexes. Second Issue: The WTO Agreement and Economic Nationalism This is the lis mota, the main issue, raised by the petition. Petitioners vigorously argue that the "letter, spirit and intent" of the Constitution mandating "economic nationalism" are violated by the so-called "parity provisions" and "national treatment" clauses scattered in various parts not only of the WTO Agreement and its annexes but also in the Ministerial Decisions and Declarations and in the Understanding on Commitments in Financial Services.

Specifically, the "flagship" constitutional provisions referred to are Sec 19, Article II, and Secs. 10 and 12, Article XII, of the Constitution, which are worded as follows:
Article II DECLARATION OF PRINCIPLES AND STATE POLICIES xxx xxx xxx Sec. 19. The State shall develop a self-reliant and independent national economy effectively controlled by Filipinos. xxx xxx xxx

Article XII NATIONAL ECONOMY AND PATRIMONY

xxx xxx xxx Sec. 10. . . . The Congress shall enact measures that will encourage the formation and operation of enterprises whose capital is wholly owned by Filipinos. In the grant of rights, privileges, and concessions covering the national economy and patrimony, the State shall give preference to qualified Filipinos. xxx xxx xxx Sec. 12. The State shall promote the preferential use of Filipino labor, domestic materials and locally produced goods, and adopt measures that help make them competitive.

Petitioners aver that these sacred constitutional principles are desecrated by the following WTO provisions quoted in their memorandum: 19
a) In the area of investment measures related to trade in goods (TRIMS, for brevity): Article 2 National Treatment and Quantitative Restrictions. 1. Without prejudice to other rights and obligations under GATT 1994, no Member shall apply any TRIM that is inconsistent with the provisions of Article II or Article XI of GATT 1994. 2. An illustrative list of TRIMS that are inconsistent with the obligations of general elimination of quantitative restrictions provided for in paragraph I of Article XI of GATT 1994 is contained in the Annex to this Agreement." (Agreement on Trade-Related Investment Measures, Vol. 27, Uruguay Round, Legal Instruments, p. 22121, emphasis supplied).

The Annex referred to reads as follows:

ANNEX Illustrative List 1. TRIMS that are inconsistent with the obligation of national treatment provided for in paragraph 4 of Article III of GATT 1994 include those which are mandatory or enforceable under domestic law or under administrative rulings, or compliance with which is necessary to obtain an advantage, and which require: (a) the purchase or use by an enterprise of products of domestic origin or from any domestic source, whether specified in terms of particular products, in terms of volume or value of products, or in terms of proportion of volume or value of its local production; or (b) that an enterprise's purchases or use of imported products be limited to an amount related to the volume or value of local products that it exports. 2. TRIMS that are inconsistent with the obligations of general elimination of quantitative restrictions provided for in paragraph 1 of Article XI of GATT 1994 include those which are mandatory or enforceable under domestic laws or under administrative rulings, or compliance with which is necessary to obtain an advantage, and which restrict: (a) the importation by an enterprise of products used in or related to the local production that it exports; (b) the importation by an enterprise of products used in or related to its local production by restricting its access to foreign exchange inflows attributable to the enterprise; or (c) the exportation or sale for export specified in terms of particular products, in terms of volume or value of products, or in terms of a preparation of volume or value of its local production. (Annex to the Agreement on Trade-Related Investment Measures, Vol. 27, Uruguay Round Legal Documents, p. 22125, emphasis supplied). The paragraph 4 of Article III of GATT 1994 referred to is quoted as follows: The products of the territory of any contracting party imported into the territory of any other contracting party shall be accorded treatment no less favorable than that accorded to like products of national origin in respect of laws, regulations and requirements affecting their internal sale, offering for sale, purchase, transportation, distribution or use, the provisions of this paragraph shall not prevent the application of differential internal transportation charges which are based exclusively on the economic operation of the means of transport and not on the nationality of the product." (Article III, GATT 1947, as amended by the Protocol Modifying Part II, and Article XXVI of GATT, 14 September 1948, 62 UMTS 82-84 in relation to paragraph 1(a) of the General Agreement on Tariffs and Trade 1994, Vol. 1, Uruguay Round, Legal Instruments p. 177, emphasis supplied).

(b) In the area of trade related aspects of intellectual property rights (TRIPS, for brevity): Each Member shall accord to the nationals of other Members treatment no less favourable than that it accords to its own nationals with regard to the protection of intellectual property. . . (par. 1 Article 3, Agreement on Trade-Related Aspect of Intellectual Property rights, Vol. 31, Uruguay Round, Legal Instruments, p. 25432 (emphasis supplied) (c) In the area of the General Agreement on Trade in Services: National Treatment 1. In the sectors inscribed in its schedule, and subject to any conditions and qualifications set out therein, each Member shall accord to services and service suppliers of any other Member, in respect of all measures affecting the supply of services, treatment no less favourable than it accords to its own like services and service suppliers. 2. A Member may meet the requirement of paragraph I by according to services and service suppliers of any other Member, either formally suppliers of any other Member, either formally identical treatment or formally different treatment to that it accords to its own like services and service suppliers. 3. Formally identical or formally different treatment shall be considered to be less favourable if it modifies the conditions of completion in favour of services or service suppliers of the Member compared to like services or service suppliers of any other Member. (Article XVII, General Agreement on Trade in Services, Vol. 28, Uruguay Round Legal Instruments, p. 22610 emphasis supplied).

It is petitioners' position that the foregoing "national treatment" and "parity provisions" of the WTO Agreement "place nationals and products of member countries on the same footing as Filipinos and local products," in contravention of the "Filipino First" policy of the Constitution. They allegedly render meaningless the phrase "effectively controlled by Filipinos." The constitutional conflict becomes more manifest when viewed in the context of the clear duty imposed on the Philippines as a WTO member to ensure the conformity of its laws, regulations and administrative procedures with its obligations as provided in the annexed agreements. 20 Petitioners further argue that these provisions contravene constitutional limitations on the role exports play in national development and negate the preferential treatment accorded to Filipino labor, domestic materials and locally produced goods. On the other hand, respondents through the Solicitor General counter (1) that such Charter provisions are not self-executing and merely set out general policies; (2) that these nationalistic portions of the Constitution invoked by petitioners should not be read in isolation but should be related to other relevant provisions of Art. XII, particularly Secs. 1 and 13 thereof; (3) that read properly, the cited WTO clauses do not conflict with Constitution; and (4) that the WTO Agreement contains sufficient provisions to

protect developing countries like the Philippines from the harshness of sudden trade liberalization. We shall now discuss and rule on these arguments. Declaration of Principles Not Self-Executing By its very title, Article II of the Constitution is a "declaration of principles and state policies." The counterpart of this article in the 1935 Constitution 21 is called the "basic political creed of the nation" by Dean Vicente Sinco. 22 These principles in Article II are not intended to be self-executing principles ready for enforcement through the courts. 23 They are used by the judiciary as aids or as guides in the exercise of its power of judicial review, and by the legislature in its enactment of laws. As held in the leading case of Kilosbayan, Incorporated vs. Morato, 24 the principles and state policies enumerated in Article II and some sections of Article XII are not "self-executing provisions, the disregard of which can give rise to a cause of action in the courts. They do not embody judicially enforceable constitutional rights but guidelines for legislation." In the same light, we held in Basco vs. Pagcor 25 that broad constitutional principles need legislative enactments to implement the, thus:
On petitioners' allegation that P.D. 1869 violates Sections 11 (Personal Dignity) 12 (Family) and 13 (Role of Youth) of Article II; Section 13 (Social Justice) of Article XIII and Section 2 (Educational Values) of Article XIV of the 1987 Constitution, suffice it to state also that these are merely statements of principles and policies. As such, they are basically not self-executing, meaning a law should be passed by Congress to clearly define and effectuate such principles. In general, therefore, the 1935 provisions were not intended to be selfexecuting principles ready for enforcement through the courts. They were rather directives addressed to the executive and to the legislature. If the executive and the legislature failed to heed the directives of the article, the available remedy was not judicial but political. The electorate could express their displeasure with the failure of the executive and the legislature through the language of the ballot. (Bernas, Vol. II, p. 2).

The reasons for denying a cause of action to an alleged infringement of board constitutional principles are sourced from basic considerations of due process and the lack of judicial authority to wade "into the uncharted ocean of social and economic policy making." Mr. Justice Florentino P. Feliciano in his concurring opinion in Oposa vs. Factoran, Jr., 26 explained these reasons as follows:
My suggestion is simply that petitioners must, before the trial court, show a more specific legal right a right cast in language of a significantly lower order of generality than Article II (15) of the Constitution that is or may be violated by the actions, or failures to act, imputed to the public respondent by petitioners so that the trial court can validly render judgment grating all or part of the relief prayed for. To my mind, the court should be understood as simply saying that such a more specific legal right or rights may well exist in our corpus of law, considering the general policy principles found in the

Constitution and the existence of the Philippine Environment Code, and that the trial court should have given petitioners an effective opportunity so to demonstrate, instead of aborting the proceedings on a motion to dismiss. It seems to me important that the legal right which is an essential component of a cause of action be a specific, operable legal right, rather than a constitutional or statutory policy, for at least two (2) reasons. One is that unless the legal right claimed to have been violated or disregarded is given specification in operational terms, defendants may well be unable to defend themselves intelligently and effectively; in other words, there are due process dimensions to this matter. The second is a broader-gauge consideration where a specific violation of law or applicable regulation is not alleged or proved, petitioners can be expected to fall back on the expanded conception of judicial power in the second paragraph of Section 1 of Article VIII of the Constitution which reads: Sec. 1. . . . Judicial power includes the duty of the courts of justice to settle actual controversies involving rights which are legally demandable and enforceable, and to determine whether or not there has been a grave abuse of discretion amounting to lack or excess of jurisdiction on the part of any branch or instrumentality of the Government. (Emphasis supplied) When substantive standards as general as "the right to a balanced and healthy ecology" and "the right to health" are combined with remedial standards as broad ranging as "a grave abuse of discretion amounting to lack or excess of jurisdiction," the result will be, it is respectfully submitted, to propel courts into the uncharted ocean of social and economic policy making. At least in respect of the vast area of environmental protection and management, our courts have no claim to special technical competence and experience and professional qualification. Where no specific, operable norms and standards are shown to exist, then the policy making departments the legislative and executive departments must be given a real and effective opportunity to fashion and promulgate those norms and standards, and to implement them before the courts should intervene.

Economic Nationalism Should Be Read with Other Constitutional Mandates to Attain Balanced Development of Economy On the other hand, Secs. 10 and 12 of Article XII, apart from merely laying down general principles relating to the national economy and patrimony, should be read and understood in relation to the other sections in said article, especially Secs. 1 and 13 thereof which read:
Sec. 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. . . . xxx xxx xxx Sec. 13. The State shall pursue a trade policy that serves the general welfare and utilizes all forms and arrangements of exchange on the basis of equality and reciprocity.

As pointed out by the Solicitor General, Sec. 1 lays down the basic goals of national economic development, as follows: 1. A more equitable distribution of opportunities, income and wealth; 2. A sustained increase in the amount of goods and services provided by the nation for the benefit of the people; and 3. An expanding productivity as the key to raising the quality of life for all especially the underprivileged. With these goals in context, the Constitution then ordains the ideals of economic nationalism (1) by expressing preference in favor of qualified Filipinos "in the grant of rights, privileges and concessions covering the national economy and patrimony" 27 and in the use of "Filipino labor, domestic materials and locally-produced goods"; (2) by mandating the State to "adopt measures that help make them competitive; 28 and (3) by requiring the State to "develop a self-reliant and independent national economy effectively controlled by Filipinos." 29 In similar language, the Constitution takes into account the realities of the outside world as it requires the pursuit of "a trade policy that serves the general welfare and utilizes all forms and arrangements of exchange on the basis of equality ad reciprocity"; 30 and speaks of industries "which are competitive in both domestic and foreign markets" as well as of the protection of "Filipino enterprises against unfair foreign competition and trade practices." It is true that in the recent case of Manila Prince Hotel vs. Government Service Insurance System, et al., 31 this Court held that "Sec. 10, second par., Art. XII of the 1987 Constitution is a mandatory, positive command which is complete in itself and which needs no further guidelines or implementing laws or rule for its enforcement. From its very words the provision does not require any legislation to put it in operation. It is per se judicially enforceable." However, as the constitutional provision itself states, it is enforceable only in regard to "the grants of rights, privileges and concessions covering national economy and patrimony" and not to every aspect of trade and commerce. It refers to exceptions rather than the rule. The issue here is not whether this paragraph of Sec. 10 of Art. XII is self-executing or not. Rather, the issue is whether, as a rule, there are enough balancing provisions in the Constitution to allow

the Senate to ratify the Philippine concurrence in the WTO Agreement. And we hold that there are. All told, while the Constitution indeed mandates a bias in favor of Filipino goods, services, labor and enterprises, at the same time, it recognizes the need for business exchange with the rest of the world on the bases of equality and reciprocity and limits protection of Filipino enterprises only against foreign competition and trade practices that are unfair. 32 In other words, the Constitution did not intend to pursue an isolationist policy. It did not shut out foreign investments, goods and services in the development of the Philippine economy. While the Constitution does not encourage the unlimited entry of foreign goods, services and investments into the country, it does not prohibit them either. In fact, it allows an exchange on the basis of equality and reciprocity, frowning only on foreign competition that is unfair. WTO Recognizes Need to Protect Weak Economies Upon the other hand, respondents maintain that the WTO itself has some built-in advantages to protect weak and developing economies, which comprise the vast majority of its members. Unlike in the UN where major states have permanent seats and veto powers in the Security Council, in the WTO, decisions are made on the basis of sovereign equality, with each member's vote equal in weight to that of any other. There is no WTO equivalent of the UN Security Council.
WTO decides by consensus whenever possible, otherwise, decisions of the Ministerial Conference and the General Council shall be taken by the majority of the votes cast, except in cases of interpretation of the Agreement or waiver of the obligation of a member which would require three fourths vote. Amendments would require two thirds vote in general. Amendments to MFN provisions and the Amendments provision will require assent of all members. Any member may withdraw from the Agreement upon the 33 expiration of six months from the date of notice of withdrawals.

Hence, poor countries can protect their common interests more effectively through the WTO than through one-on-one negotiations with developed countries. Within the WTO, developing countries can form powerful blocs to push their economic agenda more decisively than outside the Organization. This is not merely a matter of practical alliances but a negotiating strategy rooted in law. Thus, the basic principles underlying the WTO Agreement recognize the need of developing countries like the Philippines to "share in the growth in international trade commensurate with the needs of their economic development." These basic principles are found in the preamble 34 of the WTO Agreement as follows:
The Parties to this Agreement, Recognizing that their relations in the field of trade and economic endeavour should be conducted with a view to raising standards of living, ensuring full employment and a large and steadily growing volume of real income and effective demand, and expanding the production of and trade in goods and services, while allowing for the optimal use of the world's resources in accordance with the objective of sustainable development, seeking

both to protect and preserve the environment and to enhance the means for doing so in a manner consistent with their respective needs and concerns at different levels of economic development, Recognizing further that there is need for positive efforts designed to ensure that developing countries, and especially the least developed among them, secure a share in the growth in international trade commensurate with the needs of their economic development, Being desirous of contributing to these objectives by entering into reciprocal and mutually advantageous arrangements directed to the substantial reduction of tariffs and other barriers to trade and to the elimination of discriminatory treatment in international trade relations, Resolved, therefore, to develop an integrated, more viable and durable multilateral trading system encompassing the General Agreement on Tariffs and Trade, the results of past trade liberalization efforts, and all of the results of the Uruguay Round of Multilateral Trade Negotiations, Determined to preserve the basic principles and to further the objectives underlying this multilateral trading system, . . . (emphasis supplied.)

Specific WTO Provisos Protect Developing Countries So too, the Solicitor General points out that pursuant to and consistent with the foregoing basic principles, the WTO Agreement grants developing countries a more lenient treatment, giving their domestic industries some protection from the rush of foreign competition. Thus, with respect to tariffs in general, preferential treatment is given to developing countries in terms of the amount of tariff reduction and the period within which the reduction is to be spread out. Specifically, GATT requires an average tariff reduction rate of 36% for developed countries to be effected within a period of six (6) years while developing countries including the Philippines are required to effect an average tariff reduction of only 24% within ten (10) years. In respect to domestic subsidy, GATT requires developed countries to reduce domestic support to agricultural products by 20% over six (6) years, as compared to only 13% for developing countries to be effected within ten (10) years. In regard to export subsidy for agricultural products, GATT requires developed countries to reduce their budgetary outlays for export subsidy by 36% and export volumes receiving export subsidy by 21% within a period of six (6) years. For developing countries, however, the reduction rate is only two-thirds of that prescribed for developed countries and a longer period of ten (10) years within which to effect such reduction. Moreover, GATT itself has provided built-in protection from unfair foreign competition and trade practices including anti-dumping measures, countervailing measures and safeguards against import surges. Where local businesses are jeopardized by unfair foreign competition, the Philippines can avail of these measures. There is hardly

therefore any basis for the statement that under the WTO, local industries and enterprises will all be wiped out and that Filipinos will be deprived of control of the economy. Quite the contrary, the weaker situations of developing nations like the Philippines have been taken into account; thus, there would be no basis to say that in joining the WTO, the respondents have gravely abused their discretion. True, they have made a bold decision to steer the ship of state into the yet uncharted sea of economic liberalization. But such decision cannot be set aside on the ground of grave abuse of discretion, simply because we disagree with it or simply because we believe only in other economic policies. As earlier stated, the Court in taking jurisdiction of this case will not pass upon the advantages and disadvantages of trade liberalization as an economic policy. It will only perform its constitutional duty of determining whether the Senate committed grave abuse of discretion. Constitution Does Not Rule Out Foreign Competition Furthermore, the constitutional policy of a "self-reliant and independent national economy" 35 does not necessarily rule out the entry of foreign investments, goods and services. It contemplates neither "economic seclusion" nor "mendicancy in the international community." As explained by Constitutional Commissioner Bernardo Villegas, sponsor of this constitutional policy:
Economic self-reliance is a primary objective of a developing country that is keenly aware of overdependence on external assistance for even its most basic needs. It does not mean autarky or economic seclusion; rather, it means avoiding mendicancy in the international community. Independence refers to the freedom from undue foreign control of the national economy, especially in such strategic industries as in the development of 36 natural resources and public utilities.

The WTO reliance on "most favored nation," "national treatment," and "trade without discrimination" cannot be struck down as unconstitutional as in fact they are rules of equality and reciprocity that apply to all WTO members. Aside from envisioning a trade policy based on "equality and reciprocity," 37 the fundamental law encourages industries that are "competitive in both domestic and foreign markets," thereby demonstrating a clear policy against a sheltered domestic trade environment, but one in favor of the gradual development of robust industries that can compete with the best in the foreign markets. Indeed, Filipino managers and Filipino enterprises have shown capability and tenacity to compete internationally. And given a free trade environment, Filipino entrepreneurs and managers in Hongkong have demonstrated the Filipino capacity to grow and to prosper against the best offered under a policy of laissez faire. Constitution Favors Consumers, Not Industries or Enterprises The Constitution has not really shown any unbalanced bias in favor of any business or enterprise, nor does it contain any specific pronouncement that Filipino companies should be pampered with a total proscription of foreign competition. On the other hand,

respondents claim that WTO/GATT aims to make available to the Filipino consumer the best goods and services obtainable anywhere in the world at the most reasonable prices. Consequently, the question boils down to whether WTO/GATT will favor the general welfare of the public at large. Will adherence to the WTO treaty bring this ideal (of favoring the general welfare) to reality? Will WTO/GATT succeed in promoting the Filipinos' general welfare because it will as promised by its promoters expand the country's exports and generate more employment? Will it bring more prosperity, employment, purchasing power and quality products at the most reasonable rates to the Filipino public? The responses to these questions involve "judgment calls" by our policy makers, for which they are answerable to our people during appropriate electoral exercises. Such questions and the answers thereto are not subject to judicial pronouncements based on grave abuse of discretion. Constitution Designed to Meet Future Events and Contingencies No doubt, the WTO Agreement was not yet in existence when the Constitution was drafted and ratified in 1987. That does not mean however that the Charter is necessarily flawed in the sense that its framers might not have anticipated the advent of a borderless world of business. By the same token, the United Nations was not yet in existence when the 1935 Constitution became effective. Did that necessarily mean that the then Constitution might not have contemplated a diminution of the absoluteness of sovereignty when the Philippines signed the UN Charter, thereby effectively surrendering part of its control over its foreign relations to the decisions of various UN organs like the Security Council? It is not difficult to answer this question. Constitutions are designed to meet not only the vagaries of contemporary events. They should be interpreted to cover even future and unknown circumstances. It is to the credit of its drafters that a Constitution can withstand the assaults of bigots and infidels but at the same time bend with the refreshing winds of change necessitated by unfolding events. As one eminent political law writer and respected jurist 38 explains:
The Constitution must be quintessential rather than superficial, the root and not the blossom, the base and frame-work only of the edifice that is yet to rise. It is but the core of the dream that must take shape, not in a twinkling by mandate of our delegates, but slowly "in the crucible of Filipino minds and hearts," where it will in time develop its sinews and gradually gather its strength and finally achieve its substance. In fine, the Constitution cannot, like the goddess Athena, rise full-grown from the brow of the Constitutional Convention, nor can it conjure by mere fiat an instant Utopia. It must grow with the society it seeks to re-structure and march apace with the progress of the race,

drawing from the vicissitudes of history the dynamism and vitality that will keep it, far from becoming a petrified rule, a pulsing, living law attuned to the heartbeat of the nation.

Third Issue: The WTO Agreement and Legislative Power The WTO Agreement provides that "(e)ach Member shall ensure the conformity of its laws, regulations and administrative procedures with its obligations as provided in the annexed Agreements." 39 Petitioners maintain that this undertaking "unduly limits, restricts and impairs Philippine sovereignty, specifically the legislative power which under Sec. 2, Article VI of the 1987 Philippine Constitution is vested in the Congress of the Philippines. It is an assault on the sovereign powers of the Philippines because this means that Congress could not pass legislation that will be good for our national interest and general welfare if such legislation will not conform with the WTO Agreement, which not only relates to the trade in goods . . . but also to the flow of investments and money . . . as well as to a whole slew of agreements on socio-cultural matters . . . 40 More specifically, petitioners claim that said WTO proviso derogates from the power to tax, which is lodged in the Congress. 41 And while the Constitution allows Congress to authorize the President to fix tariff rates, import and export quotas, tonnage and wharfage dues, and other duties or imposts, such authority is subject to "specified limits and . . . such limitations and restrictions" as Congress may provide, 42 as in fact it did under Sec. 401 of the Tariff and Customs Code. Sovereignty Limited by International Law and Treaties This Court notes and appreciates the ferocity and passion by which petitioners stressed their arguments on this issue. However, while sovereignty has traditionally been deemed absolute and all-encompassing on the domestic level, it is however subject to restrictions and limitations voluntarily agreed to by the Philippines, expressly or impliedly, as a member of the family of nations. Unquestionably, the Constitution did not envision a hermit-type isolation of the country from the rest of the world. In its Declaration of Principles and State Policies, the Constitution "adopts the generally accepted principles of international law as part of the law of the land, and adheres to the policy of peace, equality, justice, freedom, cooperation and amity, with all nations." 43 By the doctrine of incorporation, the country is bound by generally accepted principles of international law, which are considered to be automatically part of our own laws. 44 One of the oldest and most fundamental rules in international law is pacta sunt servanda international agreements must be performed in good faith. "A treaty engagement is not a mere moral obligation but creates a legally binding obligation on the parties . . . A state which has contracted valid international obligations is bound to make in its legislations such modifications as may be necessary to ensure the fulfillment of the obligations undertaken." 45 By their inherent nature, treaties really limit or restrict the absoluteness of sovereignty. By their voluntary act, nations may surrender some aspects of their state power in exchange for greater benefits granted by or derived from a convention or pact. After all,

states, like individuals, live with coequals, and in pursuit of mutually covenanted objectives and benefits, they also commonly agree to limit the exercise of their otherwise absolute rights. Thus, treaties have been used to record agreements between States concerning such widely diverse matters as, for example, the lease of naval bases, the sale or cession of territory, the termination of war, the regulation of conduct of hostilities, the formation of alliances, the regulation of commercial relations, the settling of claims, the laying down of rules governing conduct in peace and the establishment of international organizations. 46 The sovereignty of a state therefore cannot in fact and in reality be considered absolute. Certain restrictions enter into the picture: (1) limitations imposed by the very nature of membership in the family of nations and (2) limitations imposed by treaty stipulations. As aptly put by John F. Kennedy, "Today, no nation can build its destiny alone. The age of self-sufficient nationalism is over. The age of interdependence is here." 47 UN Charter and Other Treaties Limit Sovereignty Thus, when the Philippines joined the United Nations as one of its 51 charter members, it consented to restrict its sovereign rights under the "concept of sovereignty as autolimitation." 47-A Under Article 2 of the UN Charter, "(a)ll members shall give the United Nations every assistance in any action it takes in accordance with the present Charter, and shall refrain from giving assistance to any state against which the United Nations is taking preventive or enforcement action." Such assistance includes payment of its corresponding share not merely in administrative expenses but also in expenditures for the peace-keeping operations of the organization. In its advisory opinion of July 20, 1961, the International Court of Justice held that money used by the United Nations Emergency Force in the Middle East and in the Congo were "expenses of the United Nations" under Article 17, paragraph 2, of the UN Charter. Hence, all its members must bear their corresponding share in such expenses. In this sense, the Philippine Congress is restricted in its power to appropriate. It is compelled to appropriate funds whether it agrees with such peace-keeping expenses or not. So too, under Article 105 of the said Charter, the UN and its representatives enjoy diplomatic privileges and immunities, thereby limiting again the exercise of sovereignty of members within their own territory. Another example: although "sovereign equality" and "domestic jurisdiction" of all members are set forth as underlying principles in the UN Charter, such provisos are however subject to enforcement measures decided by the Security Council for the maintenance of international peace and security under Chapter VII of the Charter. A final example: under Article 103, "(i)n the event of a conflict between the obligations of the Members of the United Nations under the present Charter and their obligations under any other international agreement, their obligation under the present charter shall prevail," thus unquestionably denying the Philippines as a member the sovereign power to make a choice as to which of conflicting obligations, if any, to honor. Apart from the UN Treaty, the Philippines has entered into many other international pacts both bilateral and multilateral that involve limitations on Philippine

sovereignty. These are enumerated by the Solicitor General in his Compliance dated October 24, 1996, as follows:
(a) Bilateral convention with the United States regarding taxes on income, where the Philippines agreed, among others, to exempt from tax, income received in the Philippines by, among others, the Federal Reserve Bank of the United States, the Export/Import Bank of the United States, the Overseas Private Investment Corporation of the United States. Likewise, in said convention, wages, salaries and similar remunerations paid by the United States to its citizens for labor and personal services performed by them as employees or officials of the United States are exempt from income tax by the Philippines. (b) Bilateral agreement with Belgium, providing, among others, for the avoidance of double taxation with respect to taxes on income. (c) Bilateral convention with the Kingdom of Sweden for the avoidance of double taxation. (d) Bilateral convention with the French Republic for the avoidance of double taxation. (e) Bilateral air transport agreement with Korea where the Philippines agreed to exempt from all customs duties, inspection fees and other duties or taxes aircrafts of South Korea and the regular equipment, spare parts and supplies arriving with said aircrafts. (f) Bilateral air service agreement with Japan, where the Philippines agreed to exempt from customs duties, excise taxes, inspection fees and other similar duties, taxes or charges fuel, lubricating oils, spare parts, regular equipment, stores on board Japanese aircrafts while on Philippine soil. (g) Bilateral air service agreement with Belgium where the Philippines granted Belgian air carriers the same privileges as those granted to Japanese and Korean air carriers under separate air service agreements. (h) Bilateral notes with Israel for the abolition of transit and visitor visas where the Philippines exempted Israeli nationals from the requirement of obtaining transit or visitor visas for a sojourn in the Philippines not exceeding 59 days. (i) Bilateral agreement with France exempting French nationals from the requirement of obtaining transit and visitor visa for a sojourn not exceeding 59 days. (j) Multilateral Convention on Special Missions, where the Philippines agreed that premises of Special Missions in the Philippines are inviolable and its agents can not enter said premises without consent of the Head of Mission concerned. Special Missions are also exempted from customs duties, taxes and related charges. (k) Multilateral convention on the Law of Treaties. In this convention, the Philippines agreed to be governed by the Vienna Convention on the Law of Treaties. (l) Declaration of the President of the Philippines accepting compulsory jurisdiction of the International Court of Justice. The International Court of Justice has jurisdiction in all legal disputes concerning the interpretation of a treaty, any question of international law, the existence of any fact which, if established, would constitute a breach "of international obligation."

In the foregoing treaties, the Philippines has effectively agreed to limit the exercise of its sovereign powers of taxation, eminent domain and police power. The underlying consideration in this partial surrender of sovereignty is the reciprocal commitment of the other contracting states in granting the same privilege and immunities to the Philippines, its officials and its citizens. The same reciprocity characterizes the Philippine commitments under WTO-GATT.
International treaties, whether relating to nuclear disarmament, human rights, the environment, the law of the sea, or trade, constrain domestic political sovereignty through the assumption of external obligations. But unless anarchy in international relations is preferred as an alternative, in most cases we accept that the benefits of the reciprocal obligations involved outweigh the costs associated with any loss of political sovereignty. (T)rade treaties that structure relations by reference to durable, well-defined substantive norms and objective dispute resolution procedures reduce the risks of larger countries exploiting raw economic power to bully smaller countries, by subjecting power relations to some form of legal ordering. In addition, smaller countries typically stand to gain disproportionately from trade liberalization. This is due to the simple fact that liberalization will provide access to a larger set of potential new trading relationship than in case of the 48 larger country gaining enhanced success to the smaller country's market.

The point is that, as shown by the foregoing treaties, a portion of sovereignty may be waived without violating the Constitution, based on the rationale that the Philippines "adopts the generally accepted principles of international law as part of the law of the land and adheres to the policy of . . . cooperation and amity with all nations." Fourth Issue: The WTO Agreement and Judicial Power Petitioners aver that paragraph 1, Article 34 of the General Provisions and Basic Principles of the Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS) 49 intrudes on the power of the Supreme Court to promulgate rules concerning pleading, practice and procedures. 50 To understand the scope and meaning of Article 34, TRIPS, 51 it will be fruitful to restate its full text as follows:
Article 34 Process Patents: Burden of Proof 1. For the purposes of civil proceedings in respect of the infringement of the rights of the owner referred to in paragraph 1 (b) of Article 28, if the subject matter of a patent is a process for obtaining a product, the judicial authorities shall have the authority to order the defendant to prove that the process to obtain an identical product is different from the patented process. Therefore, Members shall provide, in at least one of the following circumstances, that any identical product when produced without the consent of the patent owner shall, in the absence of proof to the contrary, be deemed to have been obtained by the patented process: (a) if the product obtained by the patented process is new;

(b) if there is a substantial likelihood that the identical product was made by the process and the owner of the patent has been unable through reasonable efforts to determine the process actually used. 2. Any Member shall be free to provide that the burden of proof indicated in paragraph 1 shall be on the alleged infringer only if the condition referred to in subparagraph (a) is fulfilled or only if the condition referred to in subparagraph (b) is fulfilled. 3. In the adduction of proof to the contrary, the legitimate interests of defendants in protecting their manufacturing and business secrets shall be taken into account.

From the above, a WTO Member is required to provide a rule of disputable (not the words "in the absence of proof to the contrary") presumption that a product shown to be identical to one produced with the use of a patented process shall be deemed to have been obtained by the (illegal) use of the said patented process, (1) where such product obtained by the patented product is new, or (2) where there is "substantial likelihood" that the identical product was made with the use of the said patented process but the owner of the patent could not determine the exact process used in obtaining such identical product. Hence, the "burden of proof" contemplated by Article 34 should actually be understood as the duty of the alleged patent infringer to overthrow such presumption. Such burden, properly understood, actually refers to the "burden of evidence" (burden of going forward) placed on the producer of the identical (or fake) product to show that his product was produced without the use of the patented process. The foregoing notwithstanding, the patent owner still has the "burden of proof" since, regardless of the presumption provided under paragraph 1 of Article 34, such owner still has to introduce evidence of the existence of the alleged identical product, the fact that it is "identical" to the genuine one produced by the patented process and the fact of "newness" of the genuine product or the fact of "substantial likelihood" that the identical product was made by the patented process. The foregoing should really present no problem in changing the rules of evidence as the present law on the subject, Republic Act No. 165, as amended, otherwise known as the Patent Law, provides a similar presumption in cases of infringement of patented design or utility model, thus:
Sec. 60. Infringement. Infringement of a design patent or of a patent for utility model shall consist in unauthorized copying of the patented design or utility model for the purpose of trade or industry in the article or product and in the making, using or selling of the article or product copying the patented design or utility model. Identity or substantial identity with the patented design or utility model shall constitute evidence of copying. (emphasis supplied)

Moreover, it should be noted that the requirement of Article 34 to provide a disputable presumption applies only if (1) the product obtained by the patented process in NEW or (2) there is a substantial likelihood that the identical product was made by the process and the process owner has not been able through reasonable effort to determine the process used. Where either of these two provisos does not obtain, members shall be

free to determine the appropriate method of implementing the provisions of TRIPS within their own internal systems and processes. By and large, the arguments adduced in connection with our disposition of the third issue derogation of legislative power will apply to this fourth issue also. Suffice it to say that the reciprocity clause more than justifies such intrusion, if any actually exists. Besides, Article 34 does not contain an unreasonable burden, consistent as it is with due process and the concept of adversarial dispute settlement inherent in our judicial system. So too, since the Philippine is a signatory to most international conventions on patents, trademarks and copyrights, the adjustment in legislation and rules of procedure will not be substantial. 52 Fifth Issue: Concurrence Only in the WTO Agreement and Not in Other Documents Contained in the Final Act Petitioners allege that the Senate concurrence in the WTO Agreement and its annexes but not in the other documents referred to in the Final Act, namely the Ministerial Declaration and Decisions and the Understanding on Commitments in Financial Services is defective and insufficient and thus constitutes abuse of discretion. They submit that such concurrence in the WTO Agreement alone is flawed because it is in effect a rejection of the Final Act, which in turn was the document signed by Secretary Navarro, in representation of the Republic upon authority of the President. They contend that the second letter of the President to the Senate 53 which enumerated what constitutes the Final Act should have been the subject of concurrence of the Senate. "A final act, sometimes called protocol de cloture, is an instrument which records the winding up of the proceedings of a diplomatic conference and usually includes a reproduction of the texts of treaties, conventions, recommendations and other acts agreed upon and signed by the plenipotentiaries attending the conference." 54 It is not the treaty itself. It is rather a summary of the proceedings of a protracted conference which may have taken place over several years. The text of the "Final Act Embodying the Results of the Uruguay Round of Multilateral Trade Negotiations" is contained in just one page 55 in Vol. I of the 36-volume Uruguay Round of Multilateral Trade Negotiations. By signing said Final Act, Secretary Navarro as representative of the Republic of the Philippines undertook:
(a) to submit, as appropriate, the WTO Agreement for the consideration of their respective competent authorities with a view to seeking approval of the Agreement in accordance with their procedures; and (b) to adopt the Ministerial Declarations and Decisions.

The assailed Senate Resolution No. 97 expressed concurrence in exactly what the Final Act required from its signatories, namely, concurrence of the Senate in the WTO Agreement.

The Ministerial Declarations and Decisions were deemed adopted without need for ratification. They were approved by the ministers by virtue of Article XXV: 1 of GATT which provides that representatives of the members can meet "to give effect to those provisions of this Agreement which invoke joint action, and generally with a view to facilitating the operation and furthering the objectives of this Agreement." 56 The Understanding on Commitments in Financial Services also approved in Marrakesh does not apply to the Philippines. It applies only to those 27 Members which "have indicated in their respective schedules of commitments on standstill, elimination of monopoly, expansion of operation of existing financial service suppliers, temporary entry of personnel, free transfer and processing of information, and national treatment with respect to access to payment, clearing systems and refinancing available in the normal course of business." 57 On the other hand, the WTO Agreement itself expresses what multilateral agreements are deemed included as its integral parts, 58 as follows:
Article II Scope of the WTO 1. The WTO shall provide the common institutional frame-work for the conduct of trade relations among its Members in matters to the agreements and associated legal instruments included in the Annexes to this Agreement. 2. The Agreements and associated legal instruments included in Annexes 1, 2, and 3, (hereinafter referred to as "Multilateral Agreements") are integral parts of this Agreement, binding on all Members. 3. The Agreements and associated legal instruments included in Annex 4 (hereinafter referred to as "Plurilateral Trade Agreements") are also part of this Agreement for those Members that have accepted them, and are binding on those Members. The Plurilateral Trade Agreements do not create either obligation or rights for Members that have not accepted them. 4. The General Agreement on Tariffs and Trade 1994 as specified in annex 1A (hereinafter referred to as "GATT 1994") is legally distinct from the General Agreement on Tariffs and Trade, dated 30 October 1947, annexed to the Final Act adopted at the conclusion of the Second Session of the Preparatory Committee of the United Nations Conference on Trade and Employment, as subsequently rectified, amended or modified (hereinafter referred to as "GATT 1947").

It should be added that the Senate was well-aware of what it was concurring in as shown by the members' deliberation on August 25, 1994. After reading the letter of President Ramos dated August 11, 1994, 59 the senators of the Republic minutely dissected what the Senate was concurring in, as follows: 60
THE CHAIRMAN: Yes. Now, the question of the validity of the submission came up in the first day hearing of this Committee yesterday. Was the observation made by Senator Taada that what was submitted to the Senate was not the agreement on establishing

the World Trade Organization by the final act of the Uruguay Round which is not the same as the agreement establishing the World Trade Organization? And on that basis, Senator Tolentino raised a point of order which, however, he agreed to withdraw upon understanding that his suggestion for an alternative solution at that time was acceptable. That suggestion was to treat the proceedings of the Committee as being in the nature of briefings for Senators until the question of the submission could be clarified. And so, Secretary Romulo, in effect, is the President submitting a new . . . is he making a new submission which improves on the clarity of the first submission? MR. ROMULO: Mr. Chairman, to make sure that it is clear cut and there should be no misunderstanding, it was his intention to clarify all matters by giving this letter. THE CHAIRMAN: Thank you. Can this Committee hear from Senator Taada and later on Senator Tolentino since they were the ones that raised this question yesterday? Senator Taada, please. SEN. TAADA: Thank you, Mr. Chairman. Based on what Secretary Romulo has read, it would now clearly appear that what is being submitted to the Senate for ratification is not the Final Act of the Uruguay Round, but rather the Agreement on the World Trade Organization as well as the Ministerial Declarations and Decisions, and the Understanding and Commitments in Financial Services. I am now satisfied with the wording of the new submission of President Ramos. SEN. TAADA. . . . of President Ramos, Mr. Chairman. THE CHAIRMAN. Thank you, Senator Taada. Can we hear from Senator Tolentino? And after him Senator Neptali Gonzales and Senator Lina. SEN. TOLENTINO, Mr. Chairman, I have not seen the new submission actually transmitted to us but I saw the draft of his earlier, and I think it now complies with the provisions of the Constitution, and with the Final Act itself . The Constitution does not require us to ratify the Final Act. It requires us to ratify the Agreement which is now being submitted. The Final Act itself specifies what is going to be submitted to with the governments of the participants. In paragraph 2 of the Final Act, we read and I quote: By signing the present Final Act, the representatives agree: (a) to submit as appropriate the WTO Agreement for the consideration of the respective competent authorities with a view to seeking approval of the Agreement in accordance with their procedures. In other words, it is not the Final Act that was agreed to be submitted to the governments for ratification or acceptance as whatever their constitutional procedures may provide but it is the World Trade Organization Agreement. And if that is the one that is being submitted now, I think it satisfies both the Constitution and the Final Act itself .

Thank you, Mr. Chairman. THE CHAIRMAN. Thank you, Senator Tolentino, May I call on Senator Gonzales. SEN. GONZALES. Mr. Chairman, my views on this matter are already a matter of record. And they had been adequately reflected in the journal of yesterday's session and I don't see any need for repeating the same. Now, I would consider the new submission as an act ex abudante cautela. THE CHAIRMAN. Thank you, Senator Gonzales. Senator Lina, do you want to make any comment on this? SEN. LINA. Mr. President, I agree with the observation just made by Senator Gonzales out of the abundance of question. Then the new submission is, I believe, stating the obvious and therefore I have no further comment to make.

Epilogue In praying for the nullification of the Philippine ratification of the WTO Agreement, petitioners are invoking this Court's constitutionally imposed duty "to determine whether or not there has been grave abuse of discretion amounting to lack or excess of jurisdiction" on the part of the Senate in giving its concurrence therein via Senate Resolution No. 97. Procedurally, a writ of certiorari grounded on grave abuse of discretion may be issued by the Court under Rule 65 of the Rules of Court when it is amply shown that petitioners have no other plain, speedy and adequate remedy in the ordinary course of law. By grave abuse of discretion is meant such capricious and whimsical exercise of judgment as is equivalent to lack of jurisdiction. 61 Mere abuse of discretion is not enough. It must be grave abuse of discretion as when the power is exercised in an arbitrary or despotic manner by reason of passion or personal hostility, and must be so patent and so gross as to amount to an evasion of a positive duty or to a virtual refusal to perform the duty enjoined or to act at all in contemplation of law. 62 Failure on the part of the petitioner to show grave abuse of discretion will result in the dismissal of the petition. 63 In rendering this Decision, this Court never forgets that the Senate, whose act is under review, is one of two sovereign houses of Congress and is thus entitled to great respect in its actions. It is itself a constitutional body independent and coordinate, and thus its actions are presumed regular and done in good faith. Unless convincing proof and persuasive arguments are presented to overthrow such presumptions, this Court will resolve every doubt in its favor. Using the foregoing well-accepted definition of grave abuse of discretion and the presumption of regularity in the Senate's processes, this Court cannot find any cogent reason to impute grave abuse of discretion to the Senate's exercise of its power of concurrence in the WTO Agreement granted it by Sec. 21 of Article VII of the Constitution. 64

It is true, as alleged by petitioners, that broad constitutional principles require the State to develop an independent national economy effectively controlled by Filipinos; and to protect and/or prefer Filipino labor, products, domestic materials and locally produced goods. But it is equally true that such principles while serving as judicial and legislative guides are not in themselves sources of causes of action. Moreover, there are other equally fundamental constitutional principles relied upon by the Senate which mandate the pursuit of a "trade policy that serves the general welfare and utilizes all forms and arrangements of exchange on the basis of equality and reciprocity" and the promotion of industries "which are competitive in both domestic and foreign markets," thereby justifying its acceptance of said treaty. So too, the alleged impairment of sovereignty in the exercise of legislative and judicial powers is balanced by the adoption of the generally accepted principles of international law as part of the law of the land and the adherence of the Constitution to the policy of cooperation and amity with all nations. That the Senate, after deliberation and voting, voluntarily and overwhelmingly gave its consent to the WTO Agreement thereby making it "a part of the law of the land" is a legitimate exercise of its sovereign duty and power. We find no "patent and gross" arbitrariness or despotism "by reason of passion or personal hostility" in such exercise. It is not impossible to surmise that this Court, or at least some of its members, may even agree with petitioners that it is more advantageous to the national interest to strike down Senate Resolution No. 97. But that is not a legal reason to attribute grave abuse of discretion to the Senate and to nullify its decision. To do so would constitute grave abuse in the exercise of our own judicial power and duty. Ineludably, what the Senate did was a valid exercise of its authority. As to whether such exercise was wise, beneficial or viable is outside the realm of judicial inquiry and review. That is a matter between the elected policy makers and the people. As to whether the nation should join the worldwide march toward trade liberalization and economic globalization is a matter that our people should determine in electing their policy makers. After all, the WTO Agreement allows withdrawal of membership, should this be the political desire of a member. The eminent futurist John Naisbitt, author of the best seller Megatrends, predicts an Asian Renaissance 65 where "the East will become the dominant region of the world economically, politically and culturally in the next century." He refers to the "free market" espoused by WTO as the "catalyst" in this coming Asian ascendancy. There are at present about 31 countries including China, Russia and Saudi Arabia negotiating for membership in the WTO. Notwithstanding objections against possible limitations on national sovereignty, the WTO remains as the only viable structure for multilateral trading and the veritable forum for the development of international trade law. The alternative to WTO is isolation, stagnation, if not economic self-destruction. Duly enriched with original membership, keenly aware of the advantages and disadvantages of globalization with its on-line experience, and endowed with a vision of the future, the Philippines now straddles the crossroads of an international strategy for economic prosperity and stability in the new millennium. Let the people, through their duly authorized elected officers, make their free choice.

WHEREFORE, the petition is DISMISSED for lack of merit. SO ORDERED. .R. No. 131512 January 20, 2000

LAND TRANSPORTATION OFFICE [LTO], represented by Assistant Secretary Manuel F. Bruan, LTO Regional Office, Region X represented by its Regional Director, Timoteo A. Garcia; and LTO Butuan represented by Rosita G. Sadiaga, its Registrar, petitioners, vs. CITY OF BUTUAN, represented in this case by Democrito D. Plaza II, City Mayor, respondents. VITUG, J.: The 1987 Constitution enunciates the policy that the territorial and political subdivisions shall enjoy local autonomy.1 In obedience to that mandate of the fundamental law, Republic Act ("R.A.") No. 7160, otherwise known as the Local Government Code,2 expresses that the territorial and political subdivisions of the State shall enjoy genuine and meaningful local autonomy in order to enable them to attain their fullest development as self-reliant communities and make them more effective partners in the attainment of national goals, and that it is a basic aim of the State to provide for a more responsive and accountable local government structure instituted through a system of decentralization whereby local government units shall be given more powers, authority, responsibilities and resources. While the Constitution seeks to strengthen local units and ensure their viability, clearly, however, it has never been the intention of that organic law to create an imperuim in imperio and install an infra sovereign political subdivision independent of a single sovereign state. The Court is asked in this instance to resolve the issue of whether under the present set up the power of the Land Registration Office ("LTO") to register, tricycles in particular, as well as to issue licenses for the driving thereof, has likewise devolved to local government units. The Regional Trial Court (Branch 2) of Butuan City held3 that the authority to register tricycles, the grant of the corresponding franchise, the issuance of tricycle drivers' license, and the collection of fees therefor had all been vested in the Local Government Units ("LGUs"). Accordingly, it decreed the issuance of a permanent writ of injunction against LTO, prohibiting and enjoining LTO, as well as its employees and other persons acting in its behalf, from (a) registering tricycles and (b) issuing licenses to drivers of tricycles. The Court of Appeals, on appeal to it, sustained the trial court.1wphi1.nt The adverse rulings of both the court a quo and the appellate court prompted the LTO to file the instant petition for review on certiorari to annul and set aside the decision,4 dated 17 November 1997, of the Court of Appeals affirming the permanent injunctive writ order of the Regional Trial Court (Branch 2) of Butuan City.

Respondent City of Butuan asserts that one of the salient provisions introduced by the Local Government Code is in the area of local taxation which allows LGUs to collect registration fees or charges along with, in its view, the corresponding issuance of all kinds of licenses or permits for the driving of tricycles. The 1987 Constitution provides: 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.5 Sec. 129 and Section 133 of the Local Government Code read: Sec. 129. Power to Create Sources or Revenue. Each local government unit shall exercise its power to create its own sources of revenue and to levy taxes, fees, and charges subject to the provisions herein, consistent with the basic policy of local autonomy. Such taxes, fees, and charges shall accrue exclusively to the local government units. Sec. 133. Common Limitations on the Taxing Powers of Local Government Units. Unless otherwise provided herein, the exercise of the taxing powers of provinces, cities, municipalities, and barangays shall not extend to the levy of the following: xxx xxx xxx

(l) Taxes, fees or charges for the registration of motor vehicles and for the issuance of all kinds of licenses or permits for the driving thereof, except tricycles. Relying on the foregoing provisions of the law, the Sangguniang Panglungsod ("SP") of Butuan, on 16 August 1992, passed SP Ordinance No. 916-92 entitled "An Ordinance Regulating the Operation of Tricycles-for-Hire, providing mechanism for the issuance of Franchise, Registration and Permit, and imposing Penalties for Violations thereof and for other Purposes." The ordinance provided for, among other things, the payment of franchise fees for the grant of the franchise of tricycles-for-hire, fees for the registration of the vehicle, and fees for the issuance of a permit for the driving thereof. Petitioner LTO explains that one of the functions of the national government that, indeed, has been transferred to local government units is the franchising authority over tricycles-for-hire of the Land Transportation Franchising and Regulatory Board ("LTFRB") but not, it asseverates, the authority of LTO to register all motor vehicles and to issue to qualified persons of licenses to drive such vehicles. In order to settle the variant positions of the parties, the City of Butuan, represented by its City Mayor Democrito D. Plaza, filed on 28 June 1994 with the trial court a petition for "prohibition, mandamus, injunction with a prayer for preliminary restraining order ex-parte" seeking the

declaration of the validity of SP Ordinance No. 962-93 and the prohibition of the registration of tricycles-for-hire and the issuance of licenses for the driving thereof by the LTO. LTO opposed the prayer in the petition. On 20 March 1995, the trial court rendered a resolution; the dispositive portion read: In view of the foregoing, let a permanent injunctive writ be issued against the respondent Land Transportation Office and the other respondents, prohibiting and enjoining them, their employees, officers, attorney's or other persons acting in their behalf from forcing or compelling Tricycles to be registered with, and drivers to secure their licenses from respondent LTO or secure franchise from LTFRB and from collecting fees thereon. It should be understood that the registration, franchise of tricycles and driver's license/permit granted or issued by the City of Butuan are valid only within the territorial limits of Butuan City. No pronouncement as to costs.6 Petitioners timely moved for a reconsideration of the above resolution but it was to no avail. Petitioners then appealed to the Court of Appeals. In its now assailed decision, the appellate court, on 17 November 1997, sustained the trial court. It ruled: WHEREFORE, the petition is hereby DISMISSED and the questioned permanent injunctive writ issued by the court a quo dated March 20, 1995 AFFIRMED.7 Coming up to this Court, petitioners raise this sole assignment of error, to wit: The Court of Appeals [has] erred in sustaining the validity of the writ of injunction issued by the trial court which enjoined LTO from (1) registering tricycles-for-hire and (2) issuing licenses for the driving thereof since the Local Government Code devolved only the franchising authority of the LTFRB. Functions of the LTO were not devolved to the LGU's.8 The petition is impressed with merit. The Department of Transportation and Communications9 ("DOTC"), through the LTO and the LTFRB, has since been tasked with implementing laws pertaining to land transportation. The LTO is a line agency under the DOTC whose powers and functions, pursuant to Article III, Section 4 (d) [1],10 of R.A. No. 4136, otherwise known as Land Transportation and Traffic Code, as amended, deal primarily with the registration of all motor vehicles and the licensing of drivers thereof. The LTFRB, upon the other hand, is the governing body tasked by E.O. No. 202, dated 19 June 1987, to regulate the operation of public utility or "for hire" vehicles and to grant franchises or certificates of public convenience ("CPC").11 Finely put, registration and licensing functions are vested in the LTO while franchising and regulatory responsibilities had been vested in the LTFRB.

Under the Local Government Code, certain functions of the DOTC were transferred to the LGUs, thusly: Sec. 458. Powers, Duties, Functions and Compensation. xxx xxx xxx

(3) Subject to the provisions of Book II of this Code, enact ordinances granting franchises and authorizing the issuance of permits or licenses, upon such conditions and for such purposes intended to promote the general welfare of the inhabitants of the city and pursuant to this legislative authority shall: xxx xxx xxx

(VI) Subject to the guidelines prescribed by the Department of Transportation and Communications, regulate the operation of tricycles and grant franchises for the operation thereof within the territorial jurisdiction of the city. (Emphasis supplied). LGUs indubitably now have the power to regulate the operation of tricycles-for-hire and to grant franchises for the operation thereof. "To regulate" means to fix, establish, or control; to adjust by rule, method, or established mode; to direct by rule or restriction; or to subject to governing principles or laws.12 A franchise is defined to be a special privilege to do certain things conferred by government on an individual or corporation, and which does not belong to citizens generally of common right.13 On the other hand, "to register" means to record formally and exactly, to enroll, or to enter precisely in a list or the like,14 and a "driver's license" is the certificate or license issued by the government which authorizes a person to operate a motor vehicle.15 The devolution of the functions of the DOTC, performed by the LTFRB, to the LGUs, as so aptly observed by the Solicitor General, is aimed at curbing the alarming increase of accidents in national highways involving tricycles. It has been the perception that local governments are in good position to achieve the end desired by the law-making body because of their proximity to the situation that can enable them to address that serious concern better than the national government. It may not be amiss to state, nevertheless, that under Article 458 (a)[3-VI] of the Local Government Code, the power of LGUs to regulate the operation of tricycles and to grant franchises for the operation thereof is still subject to the guidelines prescribed by the DOTC. In compliance therewith, the Department of Transportation and Communications ("DOTC") issued "Guidelines to Implement the Devolution of LTFRBs Franchising Authority over Tricycles-ForHire to Local Government units pursuant to the Local Government Code." Pertinent provisions of the guidelines state: In lieu of the Land Transportation Franchising and Regulatory Board (LTFRB) in the DOTC, the Sangguniang Bayan/Sangguniang Panglungsod (SB/SP) shall perform the following:

(a) Issue, amend, revise, renew, suspend, or cancel MTOP and prescribe the appropriate terms and conditions therefor; xxx Operating Conditions: 1. For safety reasons, no tricycles should operate on national highways utilized by 4 wheel vehicles greater than 4 tons and where normal speed exceed 40 KPH. However, the SB/SP may provide exceptions if there is no alternative route. 2. Zones must be within the boundaries of the municipality/city. However, existing zones within more than one municipality/city shall be maintained, provided that operators serving said zone shall secure MTOP's from each of the municipalities/cities having jurisdiction over the areas covered by the zone. 3. A common color for tricycles-for-hire operating in the same zone may be imposed. Each unit shall be assigned and bear an identification number, aside from its LTO license plate number. 4. An operator wishing to stop service completely, or to suspend service for more than one month, should report in writing such termination or suspension to the SB/SP which originally granted the MTOP prior thereto. Transfer to another zone may be permitted upon application. 5. The MTOP shall be valid for three (3) years, renewable for the same period. Transfer to another zone, change of ownership of unit or transfer of MTOP shall be construed as an amendment to an MTOP and shall require appropriate approval of the SB/SP. 6. Operators shall employ only drivers duly licensed by LTO for tricycles-forhire. 7. No tricycle-for-hire shall be allowed to carry more passengers and/or goods than it is designed for. 8. A tricycle-for-hire shall be allowed to operate like a taxi service, i.e., service is rendered upon demand and without a fixed route within a zone.16 Such as can be gleaned from the explicit language of the statute, as well as the corresponding guidelines issued by DOTC, the newly delegated powers pertain to the franchising and regulatory powers theretofore exercised by the LTFRB and not to the functions of the LTO relative to the registration of motor vehicles and issuance of licenses for the driving thereof. Clearly unaffected by the Local Government Code are the powers of LTO under R.A. No. 4136 requiring the registration of all kinds of motor vehicles "used or operated on or upon any public highway" in the country. Thus xxx xxx

Sec. 5. All motor vehicles and other vehicles must be registered. (a) No motor vehicle shall be used or operated on or upon any public highway of the Philippines unless the same is properly registered for the current year in accordance with the provisions of this Act (Article 1, Chapter II, R.A. No. 4136). The Commissioner of Land Transportation and his deputies are empowered at anytime to examine and inspect such motor vehicles to determine whether said vehicles are registered, or are unsightly, unsafe, improperly marked or equipped, or otherwise unfit to be operated on because of possible excessive damage to highways, bridges and other infrastructures.17 The LTO is additionally charged with being the central repository and custodian of all records of all motor vehicles.18 The Court shares the apprehension of the Solicitor General if the above functions were to likewise devolve to local government units; he states: If the tricycle registration function of respondent LTO is decentralized, the incidence of theft of tricycles will most certainly go up, and stolen tricycles registered in one local government could be registered in another with ease. The determination of ownership thereof will also become very difficult. Fake driver's licenses will likewise proliferate. This likely scenario unfolds where a tricycle driver, not qualified by petitioner LTO's testing, could secure a license from one municipality, and when the same is confiscated, could just go another municipality to secure another license. Devolution will entail the hiring of additional personnel charged with inspecting tricycles for road worthiness, testing drivers, and documentation. Revenues raised from tricycle registration may not be enough to meet salaries of additional personnel and incidental costs for tools and equipment.19 The reliance made by respondents on the broad taxing power of local government units, specifically under Section 133 of the Local Government Code, is tangential. Police power and taxation, along with eminent domain, are inherent powers of sovereignty which the State might share with local government units by delegation given under a constitutional or a statutory fiat. All these inherent powers are for a public purpose and legislative in nature but the similarities just about end there. The basic aim of police power is public good and welfare. Taxation, in its case, focuses an the power of government to raise revenue in order to support its existence and carry out its legitimate objectives. Although correlative to each other in many respects, the grant of one does not necessarily carry with it the grant of the other. The two powers are, by tradition and jurisprudence, separate and distinct powers, varying in their respective concepts, character, scopes and limitations. To construe the tax provisions of Section 133(1) indistinctively would result in the repeal to that extent of LTO's regulatory power which evidently has not been intended. If it were otherwise, the law could have just said so in Section 447 and 458 of Book III of the Local Government Code in the same manner that the specific devolution of LTFRB's power on franchising of tricycles has been provided. Repeal by implication is not favored.20 The power over tricycles granted under Section 458(8)(3)(VI) of the Local Government Code to

LGUs is the power to regulate their operation and to grant franchises for the operation thereof. The exclusionary clause contained in the tax provisions of Section 133(1) of the Local Government Code must not be held to have had the effect of withdrawing the express power of LTO to cause the registration of all motor vehicles and the issuance of licenses for the driving thereof. These functions of the LTO are essentially regulatory in nature, exercised pursuant to the police power of the State, whose basic objectives are to achieve road safety by insuring the road worthiness of these motor vehicles and the competence of drivers prescribed by R.A. 4136. Not insignificant is the rule that a statute must not be construed in isolation but must be taken in harmony with the extant body of laws.21 The Court cannot end this decision without expressing its own serious concern over the seeming laxity in the grant of franchises for the operation of tricycles-for-hire and in allowing the indiscriminate use by such vehicles on public highways and principal thoroughfares. Senator Aquilino C. Pimentel, Jr., the principal author and sponsor of the bill that eventually has become to be known as the Local Government Code, has aptly remarked: Tricycles are a popular means of transportation, specially in the countryside. They are, unfortunately, being allowed to drive along highways and principal thoroughfares where they pose hazards to their passengers arising from potential collisions with buses, cars and jeepneys. The operation of tricycles within a municipality may be regulated by the Sangguniang Bayan. In this connection, the Sangguniang concerned would do well to consider prohibiting the operation of tricycles along or across highways invite collisions with faster and bigger vehicles and impede the flow of traffic.22 The need for ensuring public safety and convenience to commuters and pedestrians alike is paramount. It might be well, indeed, for public officials concerned to pay heed to a number of provisions in our laws that can warrant in appropriate cases an incurrence of criminal and civil liabilities. Thus The Revised Penal Code Art. 208. Prosecution of offenses; negligence and tolerance. The penalty of prision correccional in its minimum period and suspension shall be imposed upon any public officer, or officer of the law, who, in dereliction of the duties of his office, shall maliciously refrain from instituting prosecution for the punishment of violators of the law, or shall tolerate the commission of offenses. The Civil Code Art. 27. Any person suffering material or moral loss because a public servant or employee refuses or neglects, without just cause, to perform his official duty may file an action for damages and other relief against the latter, without prejudice to any disciplinary administrative action that may be taken.1wphi1.nt

Art. 34. When a member of a city or municipal police force refuses or fails to render aid or protection to any person in case of danger to life or property, such peace officer shall be primarily liable for damages, and the city or municipality shall be subsidiarily responsible therefor. The civil action herein recognized shall be independent of any criminal proceedings, and a preponderance of evidence shall suffice to support such action. Art. 2189. Provinces, cities and municipalities shall be liable for damages for the death of, or injuries suffered by, any person by reason of the defective condition of roads, streets, bridges, public buildings, and other public works under their control or supervision. The Local Government Code Sec. 24. Liability for Damages. Local government units and their officials are not exempt from liability for death or injury to persons or damage to property. WHEREFORE, the assailed decision which enjoins the Land Transportation Office from requiring the due registration of tricycles and a license for the driving thereof is REVERSED and SET ASIDE. No pronouncements on costs. Let copies of this decision be likewise furnished the Department of Interior and Local Governments, the Department of Public Works and Highways and the Department of Transportation and Communication. SO ORDERED. G.R. No. 109289 October 3, 1994 RUFINO R. TAN, petitioner, vs. RAMON R. DEL ROSARIO, JR., as SECRETARY OF FINANCE & JOSE U. ONG, as COMMISSIONER OF INTERNAL REVENUE, respondents. G.R. No. 109446 October 3, 1994 CARAG, CABALLES, JAMORA AND SOMERA LAW OFFICES, CARLO A. CARAG, MANUELITO O. CABALLES, ELPIDIO C. JAMORA, JR. and BENJAMIN A. SOMERA, JR., petitioners, vs. RAMON R. DEL ROSARIO, in his capacity as SECRETARY OF FINANCE and JOSE U. ONG, in his capacity as COMMISSIONER OF INTERNAL REVENUE, respondents.

Rufino R. Tan for and in his own behalf. Carag, Caballes, Jamora & Zomera Law Offices for petitioners in G.R. 109446.

VITUG, J.: These two consolidated special civil actions for prohibition challenge, in G.R. No. 109289, the constitutionality of Republic Act No. 7496, also commonly known as the Simplified Net Income Taxation Scheme ("SNIT"), amending certain provisions of the National Internal Revenue Code and, in G.R. No. 109446, the validity of Section 6, Revenue Regulations No. 2-93, promulgated by public respondents pursuant to said law. Petitioners claim to be taxpayers adversely affected by the continued implementation of the amendatory legislation. In G.R. No. 109289, it is asserted that the enactment of Republic Act No. 7496 violates the following provisions of the Constitution:
Article VI, Section 26(1) Every bill passed by the Congress shall embrace only one subject which shall be expressed in the title thereof. Article VI, Section 28(1) The rule of taxation shall be uniform and equitable. The Congress shall evolve a progressive system of taxation. Article III, Section 1 No person shall be deprived of . . . property without due process of law, nor shall any person be denied the equal protection of the laws.

In G.R. No. 109446, petitioners, assailing Section 6 of Revenue Regulations No. 2-93, argue that public respondents have exceeded their rule-making authority in applying SNIT to general professional partnerships. The Solicitor General espouses the position taken by public respondents. The Court has given due course to both petitions. The parties, in compliance with the Court's directive, have filed their respective memoranda. G.R. No. 109289 Petitioner contends that the title of House Bill No. 34314, progenitor of Republic Act No. 7496, is a misnomer or, at least, deficient for being merely entitled, "Simplified Net Income Taxation Scheme for the Self-Employed and Professionals Engaged in the Practice of their Profession" (Petition in G.R. No. 109289).

The full text of the title actually reads:

An Act Adopting the Simplified Net Income Taxation Scheme For The Self-Employed and Professionals Engaged In The Practice of Their Profession, Amending Sections 21 and 29 of the National Internal Revenue Code, as Amended.

The pertinent provisions of Sections 21 and 29, so referred to, of the National Internal Revenue Code, as now amended, provide:
Sec. 21. Tax on citizens or residents. xxx xxx xxx (f) Simplified Net Income Tax for the Self-Employed and/or Professionals Engaged in the Practice of Profession. A tax is hereby imposed upon the taxable net income as determined in Section 27 received during each taxable year from all sources, other than income covered by paragraphs (b), (c), (d) and (e) of this section by every individual whether a citizen of the Philippines or an alien residing in the Philippines who is self-employed or practices his profession herein, determined in accordance with the following schedule: Not over P10,000 3% Over P10,000 P300 + 9% but not over P30,000 of excess over P10,000 Over P30,000 P2,100 + 15% but not over P120,00 of excess over P30,000 Over P120,000 P15,600 + 20% but not over P350,000 of excess over P120,000 Over P350,000 P61,600 + 30% of excess over P350,000 Sec. 29. Deductions from gross income. In computing taxable income subject to tax under Sections 21(a), 24(a), (b) and (c); and 25 (a)(1), there shall be allowed as deductions the items specified in paragraphs (a) to (i) of this section: Provided, however, That in computing taxable income subject to tax under Section 21 (f) in the case of individuals engaged in business or practice of profession, only the following direct costs shall be allowed as deductions: (a) Raw materials, supplies and direct labor; (b) Salaries of employees directly engaged in activities in the course of or pursuant to the business or practice of their profession; (c) Telecommunications, electricity, fuel, light and water; (d) Business rentals; (e) Depreciation;

(f) Contributions made to the Government and accredited relief organizations for the rehabilitation of calamity stricken areas declared by the President; and (g) Interest paid or accrued within a taxable year on loans contracted from accredited financial institutions which must be proven to have been incurred in connection with the conduct of a taxpayer's profession, trade or business. For individuals whose cost of goods sold and direct costs are difficult to determine, a maximum of forty per cent (40%) of their gross receipts shall be allowed as deductions to answer for business or professional expenses as the case may be.

On the basis of the above language of the law, it would be difficult to accept petitioner's view that the amendatory law should be considered as having now adopted a gross income, instead of as having still retained the net income, taxation scheme. The allowance for deductible items, it is true, may have significantly been reduced by the questioned law in comparison with that which has prevailed prior to the amendment; limiting, however, allowable deductions from gross income is neither discordant with, nor opposed to, the net income tax concept. The fact of the matter is still that various deductions, which are by no means inconsequential, continue to be well provided under the new law. Article VI, Section 26(1), of the Constitution has been envisioned so as (a) to prevent log-rolling legislation intended to unite the members of the legislature who favor any one of unrelated subjects in support of the whole act, (b) to avoid surprises or even fraud upon the legislature, and (c) to fairly apprise the people, through such publications of its proceedings as are usually made, of the subjects of legislation. 1 The above objectives of the fundamental law appear to us to have been sufficiently met. Anything else would be to require a virtual compendium of the law which could not have been the intendment of the constitutional mandate. Petitioner intimates that Republic Act No. 7496 desecrates the constitutional requirement that taxation "shall be uniform and equitable" in that the law would now attempt to tax single proprietorships and professionals differently from the manner it imposes the tax on corporations and partnerships. The contention clearly forgets, however, that such a system of income taxation has long been the prevailing rule even prior to Republic Act No. 7496. Uniformity of taxation, like the kindred concept of equal protection, merely requires that all subjects or objects of taxation, similarly situated, are to be treated alike both in privileges and liabilities (Juan Luna Subdivision vs. Sarmiento, 91 Phil. 371). Uniformity does not forfend classification as long as: (1) the standards that are used therefor are substantial and not arbitrary, (2) the categorization is germane to achieve the legislative purpose, (3) the law applies, all things being equal, to both present and future conditions, and (4) the classification applies equally well to all those belonging to the same class (Pepsi Cola vs. City of Butuan, 24 SCRA 3; Basco vs. PAGCOR, 197 SCRA 52).

What may instead be perceived to be apparent from the amendatory law is the legislative intent to increasingly shift the income tax system towards the schedular approach 2 in the income taxation of individual taxpayers and to maintain, by and large, the present global treatment 3 on taxable corporations. We certainly do not view this classification to be arbitrary and inappropriate. Petitioner gives a fairly extensive discussion on the merits of the law, illustrating, in the process, what he believes to be an imbalance between the tax liabilities of those covered by the amendatory law and those who are not. With the legislature primarily lies the discretion to determine the nature (kind), object (purpose), extent (rate), coverage (subjects) and situs (place) of taxation. This court cannot freely delve into those matters which, by constitutional fiat, rightly rest on legislative judgment. Of course, where a tax measure becomes so unconscionable and unjust as to amount to confiscation of property, courts will not hesitate to strike it down, for, despite all its plenitude, the power to tax cannot override constitutional proscriptions. This stage, however, has not been demonstrated to have been reached within any appreciable distance in this controversy before us. Having arrived at this conclusion, the plea of petitioner to have the law declared unconstitutional for being violative of due process must perforce fail. The due process clause may correctly be invoked only when there is a clear contravention of inherent or constitutional limitations in the exercise of the tax power. No such transgression is so evident to us. G.R. No. 109446 The several propositions advanced by petitioners revolve around the question of whether or not public respondents have exceeded their authority in promulgating Section 6, Revenue Regulations No. 2-93, to carry out Republic Act No. 7496. The questioned regulation reads:
Sec. 6. General Professional Partnership The general professional partnership (GPP) and the partners comprising the GPP are covered by R. A. No. 7496. Thus, in determining the net profit of the partnership, only the direct costs mentioned in said law are to be deducted from partnership income. Also, the expenses paid or incurred by partners in their individual capacities in the practice of their profession which are not reimbursed or paid by the partnership but are not considered as direct cost, are not deductible from his gross income.

The real objection of petitioners is focused on the administrative interpretation of public respondents that would apply SNIT to partners in general professional partnerships. Petitioners cite the pertinent deliberations in Congress during its enactment of Republic Act No. 7496, also quoted by the Honorable Hernando B. Perez, minority floor leader of the House of Representatives, in the latter's privilege speech by way of commenting on the questioned implementing regulation of public respondents following the effectivity of the law, thusly:

MR. ALBANO, Now Mr. Speaker, I would like to get the correct impression of this bill. Do we speak here of individuals who are earning, I mean, who earn through business enterprises and therefore, should file an income tax return? MR. PEREZ. That is correct, Mr. Speaker. This does not apply to corporations. It applies only to individuals. (See Deliberations on H. B. No. 34314, August 6, 1991, 6:15 P.M.; Emphasis ours). Other deliberations support this position, to wit: MR. ABAYA . . . Now, Mr. Speaker, did I hear the Gentleman from Batangas say that this bill is intended to increase collections as far as individuals are concerned and to make collection of taxes equitable? MR. PEREZ. That is correct, Mr. Speaker. (Id. at 6:40 P.M.; Emphasis ours). In fact, in the sponsorship speech of Senator Mamintal Tamano on the Senate version of the SNITS, it is categorically stated, thus: This bill, Mr. President, is not applicable to business corporations or to partnerships; it is only with respect to individuals and professionals. (Emphasis ours)

The Court, first of all, should like to correct the apparent misconception that general professional partnerships are subject to the payment of income tax or that there is a difference in the tax treatment between individuals engaged in business or in the practice of their respective professions and partners in general professional partnerships. The fact of the matter is that a general professional partnership, unlike an ordinary business partnership (which is treated as a corporation for income tax purposes and so subject to the corporate income tax), is not itself an income taxpayer. The income tax is imposed not on the professional partnership, which is tax exempt, but on the partners themselves in their individual capacity computed on their distributive shares of partnership profits. Section 23 of the Tax Code, which has not been amended at all by Republic Act 7496, is explicit:
Sec. 23. Tax liability of members of general professional partnerships. (a) Persons exercising a common profession in general partnership shall be liable for income tax only in their individual capacity, and the share in the net profits of the general professional partnership to which any taxable partner would be entitled whether distributed or otherwise, shall be returned for taxation and the tax paid in accordance with the provisions of this Title. (b) In determining his distributive share in the net income of the partnership, each partner

(1) Shall take into account separately his distributive share of the partnership's income, gain, loss, deduction, or credit to the extent provided by the pertinent provisions of this Code, and (2) Shall be deemed to have elected the itemized deductions, unless he declares his distributive share of the gross income undiminished by his share of the deductions.

There is, then and now, no distinction in income tax liability between a person who practices his profession alone or individually and one who does it through partnership (whether registered or not) with others in the exercise of a common profession. Indeed, outside of the gross compensation income tax and the final tax on passive investment income, under the present income tax system all individuals deriving income from any source whatsoever are treated in almost invariably the same manner and under a common set of rules. We can well appreciate the concern taken by petitioners if perhaps we were to consider Republic Act No. 7496 as an entirely independent, not merely as an amendatory, piece of legislation. The view can easily become myopic, however, when the law is understood, as it should be, as only forming part of, and subject to, the whole income tax concept and precepts long obtaining under the National Internal Revenue Code. To elaborate a little, the phrase "income taxpayers" is an all embracing term used in the Tax Code, and it practically covers all persons who derive taxable income. The law, in levying the tax, adopts the most comprehensive tax situs of nationality and residence of the taxpayer (that renders citizens, regardless of residence, and resident aliens subject to income tax liability on their income from all sources) and of the generally accepted and internationally recognized income taxable base (that can subject non-resident aliens and foreign corporations to income tax on their income from Philippine sources). In the process, the Code classifies taxpayers into four main groups, namely: (1) Individuals, (2) Corporations, (3) Estates under Judicial Settlement and (4) Irrevocable Trusts (irrevocable both as to corpus and as to income). Partnerships are, under the Code, either "taxable partnerships" or "exempt partnerships." Ordinarily, partnerships, no matter how created or organized, are subject to income tax (and thus alluded to as "taxable partnerships") which, for purposes of the above categorization, are by law assimilated to be within the context of, and so legally contemplated as, corporations. Except for few variances, such as in the application of the "constructive receipt rule" in the derivation of income, the income tax approach is alike to both juridical persons. Obviously, SNIT is not intended or envisioned, as so correctly pointed out in the discussions in Congress during its deliberations on Republic Act 7496, aforequoted, to cover corporations and partnerships which are independently subject to the payment of income tax. "Exempt partnerships," upon the other hand, are not similarly identified as corporations nor even considered as independent taxable entities for income tax purposes. A general professional partnership is such an example. 4 Here, the partners themselves, not the partnership (although it is still obligated to file an income tax return [mainly for

administration and data]), are liable for the payment of income tax in their individual capacity computed on their respective and distributive shares of profits. In the determination of the tax liability, a partner does so as an individual, and there is no choice on the matter. In fine, under the Tax Code on income taxation, the general professional partnership is deemed to be no more than a mere mechanism or a flowthrough entity in the generation of income by, and the ultimate distribution of such income to, respectively, each of the individual partners. Section 6 of Revenue Regulation No. 2-93 did not alter, but merely confirmed, the above standing rule as now so modified by Republic Act No. 7496 on basically the extent of allowable deductions applicable to all individual income taxpayers on their non-compensation income. There is no evident intention of the law, either before or after the amendatory legislation, to place in an unequal footing or in significant variance the income tax treatment of professionals who practice their respective professions individually and of those who do it through a general professional partnership. WHEREFORE, the petitions are DISMISSED. No special pronouncement on costs. SO ORDERED. MISIONER OF INTERNAL REVENUE and COMMISIONER OF CUSTOMS, petitioners, vs. HON. APOLINARIO B. SANTOS, in his capacity as Presiding Judge of the Regional Trial Court, Branch 67, Pasig City; ANTONIO M. MARCO; JEWELRY BY MARCO & CO., INC., and GUILD OF PHILIPPINE JEWELLERS, INC., respondents. DECISION HERMOSISIMA, JR., J.: Of grave concern to this Court is the judicial pronouncement of the court a quo that certain provisions of the Tariff & Customs Code and the National Internal Revenue Code are unconstitutional. This provokes the issue: Can the Regional Trial Courts declare a law inoperative and without force and effect or otherwise unconstitutional? If it can, under what circumstances? In this petition, the Commissioner of Internal Revenue and the Commissioner of Customs jointly seek the reversal of the Decision,i[1] dated February 16, 1995, of herein public respondent, Hon. Apolinario B. Santos, Presiding Judge of Branch 67 of the Regional Trial Court of Pasig City. The following facts, concisely related in the petitionii[2] of the Office of the Solicitor General, appear to be undisputed: "1. Private respondent Guild of Philippine Jewelers, Inc., is an association of Filipino jewelers engaged in the manufacture of jewelers (sic) and allied undertakings. Among its members are Hans Brumann, Inc., Miladay Jewels Inc., Mercelles, Inc., Solid Gold International Traders inc.,

Diagem Trading Corporation, and Private respondent Jewelry by Marco & Co., Inc. Private respondent Antonio M. Marco is the President of the Guild. 2. On August 5, 1988, Felicidad L. Viray, then Regional Director, Region No. 4-A of the Bureau of Internal Revenue, acting for and in behalf of the Commissioner of Internal Revenue, issued Regional Mission Order No. 109-88 to BIR officers, led by Eliseo Corcega, to conduct surveillance, monitoring, and inventory of all imported articles of Hans Brumann, Inc., and place the same under preventive embargo. The duration of the mission was from August 8 to August 20, 1988 (Exhibit 1; Exhibit A). 3. On August 17, 1988, persuant to the aforementioned Mission Order, the BIR officers proceeded to the establishment of Hans Brumann, Inc., served the Mission Order, and informed the establishment that they were going to make an inventory of the articles involved to see if the proper taxes thereon have been paid. They then made an inventory of the articles displayed in the cabinets with the assistance of an employee of the establishment. They listed down the articles, which list was signed by the assistant employee. They also requested the presentation of proof of necessary payments for excise tax and value-added tax on said articles (pp, 10-15, TSN April 12,1993, Exhibits 2, 2-A, 3, 3-a). 4. The BIR officers requested the establishment not to sell the articles until it can be proven that the necessary taxes thereon have been paid. Accordingly, Mr. Hans Brumann, the owner of the establishment, signed a receipt for Goods, Articles, and Things Seized under Authority of the National Internal Revenue Code (dated August 17, 1988), acknowledging that the articles inventoried have been seized and left in his possession, and promising not to dispose of the same without authority of the Commissioner of Internal Revenue pending investigation.iii[3] 5. Subsequently, BIR officer Eliseo Corcega submitted to his superiors a report of the inventory conducted and a computation of the value-added tax and ad valorem tax on the articles for evaluation and disposition.iv[4] 6. Mr. Hans Brumann, the owner of the establishment, never filed a protest with the BIR on the preventive embargo of the articles.v[5] 7. On October 17, 1988, Letter of Authority No. 0020596 was issued by Deputy Commissioner Eufracio D. Santos to BIR officers to examine the books of accounts and other accounting records of Hans Brumann, Inc., for stocktaking investigation for excise tax purposes for the period January 1, 1988 to present (Exhibit C). In a latter dated October 27, 1988, in connection with the physical count of the inventory (stocks on hand) pursuant to said Letter of Authority, Hans Brumann, Inc. was requested to prepare and make available to the BIR the documents indicated therein (Exhibit 'D'). 8. Hans Brumann, inc., did not produce the documents requested by the BIR.vi[6] 9. Similar Letters of Authority were issued to BIR officers to examine the books of accounts ans other accounting records of Miladay Jewels, Inc., Mercelles, Inc., Solid Gold International

Traders, Inc., (Exhibit E, G and N) and Diagem Trading Corporationvii[7] for stocktaking/investigation for excise tax pirpose for the period January 1, 1988 to present. 10. In the case of Miladay Jewels, Inc. and Mercelles, Inc., there is no account of what actually transpired in the implementation of the Letters of Authority. 11. In the case of Solid Gold International Traders Corporation, the BIR officers made an inventory of the articles in the establishment.viii[8] The same is true with respect to Diagem Traders Corporation.ix[9] 12. On November 29, 1988, private respondents Antonio M. Marco and Jewelry By Marco & Co., Inc. filed with the Regional Trial Court, National Capital Judicial Region, Pasig City, Meto Manila, a petition for declaratory relief with writ of preliminary injunction and/or temporary restraining order against herein petitioners and Revenue Regional Director Felicidad L. Viray (docketed as Civil Case No. 56736) praying that Sections 126, 127(a) and (b) and 150 (a) of the National Internal Revenue Code and Hdg. No 71.01, 71.02, 71.03 and 71.04, Chapter 71 of the Tariff and Customs Code of the Philippines be declared unconstitutional and void, and that the Commissioner of Internal Revenue and Customs be prevented or enjoined from issuing mission orders and other orders of similar nature. x x x 13. On February 9, 1989, herein petitioners filed their answer to the petition. x x x

14. On October 16, 1989, private respondents filed a Motion with Leave to Amend Petition by including as petitioner the Guild of Philippine Jewelers, Inc., which motion was granted. x x x 15. 67. The case, which was originally assigned to Branch 154, was later reassigned to Branch

16. On February 16, 1995, public respondent rendered a decision, the dispositive portion of which reads: 'In view of the foregoing reflections, judgment is hereby rendered, as follows: 1. Declaring Section 104 of the Tariff and the Custom Code of the Philippines, Hdg, 71.01, 71.02, 71.03, and 71.04, Chapter 71 as amended by Executive Order No. 470, imposing three to ten (3% to 10%) percent tariff and customs duty on natural and cultured pearls and precious or semi-precious stones, and Section 150 par. (a)the National Internal Revenue Code of 1977, as amended, renumbered and rearranged by Executive Order 273, imposing twenty (20%) percent excise tax on jewelry, pearls and other precious stones, as INOPERATIVE and WITHOUT FORCE and EFFECT insofar as petitioners are concerned. 2. Enforcement of the same is hereby enjoined. No cost. SO ORDERED.

Section 150 (a) of Executive Order No. 273 reads: SEC. 150. Non-essential goods. There shall be levied, assessed and collected a tax equivalent to 20% based on the wholesale price or the value of importation used by the Bureau of Customs in determining tariff and customs duties; net of the excise tax and value-added tax, of the following goods: (a) All goods commonly or commercially known as jewelry, whether real or imitation, pearls, precious and semi-precious stones and imitations thereof; goods made of, or ornamented, mounted and fitted with, precious metals or imitations thereof or ivory (not including surgical and dental instruments, silver-plated wares, frames or mountings for spectacles or eyeglasses, and dental gold or gold alloys and other precious metals used in filling, mounting or fitting of the teeth); opera glasses and lorgnettes. The term precious metals shall include platinum, gold, silver, and other metals of similar or greater value. The term imitation thereof shall include platings and alloys of such metals. Section 150 (a) of Executive Order No. 273, which took effect on January 1, 1988, amended the then Section 163 (a) of the Tax Code of 1986 which provided that: SEC. 163. Percentage tax on sales of non-essential articles. There shall be levied, assessed and collected, once only on every original sale, barter, exchange or similar transaction for nominal or valuable consideration intended to transfer ownership of, or title to, the article herein below enumerated a tax equivalent to 50% of the gross value in money of the articles so sold, bartered. Exchanged or transferred, such tax to be paid by the manufacturer or producer: (a) All articles commonly or commercially known as jewelry, whether real or imitation, pearls, precious and semi-precious stones, and imitations thereof, articles made of, or ornamented, mounted or fitted with, precious metals or imitations thereof or ivory (not including surgical and dental instruments, silver-plated wares, frames or mounting for spectacles or eyeglasses, and dental gold or gold alloys and other precious metal used in filling, mounting or fitting of the teeth); opera glasses, and lorgnettes. The term precious metals shall include platinum, gold, silver, and other metals of similar or greater value. The term imitations thereof shall include platings and alloys of such metals; Section 163(a) of the 1986 Tax Code was formerly Section 194(a) of the 1977 Tax Code and Section 184(a) of the Tax code, as amended by Presidential Decree No. 69, which took effect on January 1, 1974. It will be noted that, while under the present law, jewelry is subject to a 20% excise tax in addition to a 10% value-added tax under the old law, it was subjected to 50% percentage tax. It was even subjected to a 70% percentage tax under then Section 184(a) of the Tax Code, as amended by P.D. 69. Section 104, Hdg, Nos. 17.01, 17.02, 17.03 and 17.04, Chapter 71 of the Tariff and Customs Code, as amended by Executive Order No. 470, dated July 20, 1991, imposes import duty on

natural or cultured pearls and precious or semi-precious stones at the rate of 3% to 10% to be applied in stages from 1991 to 1994 and 30% in 1995. Prior to the issuance of E.O. 470, the rate of import duty in 1988 was 10% to 50% when the petition was filed in the court a quo. In support of their petition before the lower court, the private respondents submitted a position paper purporting to be an exhaustive study of the tax rates on jewelry prevailing in other Asian countries, in comparison to tax rates levied on the same in the Philippines.x[10] The following issues were thus raised therein: "1. Whether or not the Honorable Court has jurisdiction over the subject matter of the petition. 2. Whether the petition states a cuase of action or whether the petition alleges a justiciable controversy between the parties. 3. Whether Section 150, par. (a) of the NIRC and Section 104, Hdg. 71.01, 71.02, 71.03 and 71.04 of the Tariff and Customs Code are unconstitutional. 4. Whether the issuance of the Mission Order and Letters of Authority is valid and legal.

In the assailed decision, the public respondent held indeed that the Regional Trial Court has jurisdiction to take cognizance of the petition since jurisdiction over the nature of the suit is conferred by law and it is detemine[d] through the allegations in the petition, and that the Court of Tax Appeals ha no jurisdiction to declare a statute unconstitutional much less issue writs of certiorari and prohibition in order to correct acts of respondents allegedly committed with grave abuse of discretion amounting to lack of jurisdiction. As to the second issue, the public respondent, made the holding that there exist a justiciable controversy between the parties, agreeing with the statements made in the position paper presented by the private respondents, and considering these statements to be factual evidence, to wit: Evidence for the petitioners indeed reveals that government taxation policy treats jewelry, pearls, and other precious stones and metals as non-essential luxury items and therefore, taxed heavily; that the atmospheric cost of taxation is killing the local manufacturing jewelry industry because they cannot compete with the neighboring and other countries where importation and manufacturing of jewelry is not taxed heavily, if not at all; that while government incentives and subsidies exist, local manufacturers cannot avail of the same because officially many of them are unregistered and are unable to produce the required official documents because they operate underground, outside the tariff and tax structure; that local jewelry manufacturing is under threat of extinction, otherwise discouraged, while domestic trading has become more attractive; and as a consequence, neighboring countries, such as Hongkong, Singapore, Malaysia, Thailand, and other foreign competitors supplying the Philippine market either through local channels or

through the black market for smuggled goods are the ones who are getting business and making money, while members of the petitioner Guild of Philippine Jewelers, Inc. are constantly subjected to bureaucratic harassment instead of being given by the government the necessary support in order to survive and generate revenue for the government, and most of all fight competitively not only in the domestic market but in the arena of world market where the real contest is. Considering the allegations of fact in the petition which were duly proven during the trial, the Court holds that the petition states a cause of action and there exist a justiciable controversy between the parties which would require determination of constitutionality of laws imposing excise tax and customs duty on jewelry.xi[11] (emphasis ours) The public respondent, in addressing the third issue, ruled that the laws in question are confiscatory and oppressive. Again, virtually adopting verbatim the reasons presented by the private respondents in their position paper, the lower court stated: The court finds that indeed government taxation policy trats(sic) hewelry(sic) as non-essential luxury item and therefore, taxed heavily. Aside from the ten (10%) percent value added tax (VAT), local jewelry manufacturers contend with the (manufacturing) excise tax of twenty (20%) percent (to be applied in stages) customs duties on imported raw materials, the highest in the Asia-Pacific region. In contrast, imported gemstones and other precious metals are duty free in Hongkong, Thailand, Malaysia and Singapore. The court elaborates further on the experience of other countries in their treatment of the jewelry sector. MALAYSIA Duties and taxes on imported gemstones and gold and the sales tax on jewelry were abolished in Malaysia in 1984. They were removed to encouraged the development of Malaysias jewelry manufacturing industry and to increase exports of jewelry. THAILAND Gems and jewelry are Thailands ninth most important export earner. In the past, the industry was overlooked by successive administrations much to the dismay of those involved in developing trade. Prohibitive import duties and sales tax on precious gemstones restricted the growth (sic) of the industry, resulting in most of the business being unofficial. It was indeed difficult for a government or businessman to promote an industry which did not officially exist. Despite these circumstances, Thailands Gem business kept growing up in (sic) businessmen began to realize its potential. In 1978, the government quietly removed the severe duties on precious stones, but imposed a sales tax of 3.5%. Little was said or done at that time as the government wanted to see if a free trade in gemstones and jewelry would increase local manufacturing and exports or if it would mean more foreign made jewelry pouring into Thailand. However, as time progressed, there were indications that local manufacturing was indeed being

encouraged and the economy was earning more from exports. The government soon removed the 3% sales tax too. Putting Thailand at par with Hongkong and Singapore. In these countries, there are no more import duties and sales tax on gems. (Cited in pages 6 and 7 of Exhibit M. The Center for Research and Communication in cooperation with the Guild of Philippine Jewelers, Inc., June 1986). To illustrate, shown hereunder in the Philippine tariff and tax structure on jewelry and other percious and semi-precious stones compared to other neighboring countries, to wit: Tariff on imported Jewelry and Precious stones Philippines

(MANUFACTURING) Excise Tax 3% to 10% to be applied in stages None None None None

Sales Tax

10% (VAT)

20%

10% VAT

Malaysia Thailand Singapore Hongkong

None None None None

None None None None

In this connection, the present tariff and tax structure increases manufacturing costs and renders the local jewelry manufacturers uncompetitive against other countries even before they start manufacturing and trading. Because of the prohibitive cast(sic) of taxation, most manufacturers source from black market for smuggled goods, and that while manufacturers can avail of tax exemption and/or tax credits from the (manufacturing) excise tax, they have no documents to present when filing this exemption because, as pointed out earlier, most of them source their raw materials from the black market, and since many of them do not legally exist or operate onofficially(sic), or underground, again they have no records (receipts) to indicate where and when they will utilize such tax credits. (Cited in Exhibit M Buencamino Report). Given these constraints, the local manufacturer has no recourse but to the back door for smuggled goods if only to be able to compete even ineffectively, or cease manufacturing activities and instead engage in the tradinf (sic) of smuggled finished jewelry. Worthy of not is the fact that indeed no evidence was adduced by respondents to disprove the foregoing allegations of fact. Under the foregoing factual circumstances, the Court finds the questioned statutory provisions confiscatory and destructive of the proprietary right of the petitioners to engage in business in violation of Section 1, Article III of the Constitution which states, as follows: No person shall be deprived of the life, liberty, or property without due process of law x x x.xii[12]

Anent the fourth and last issue, the herein public respondent did not find it necessary to rule thereon, since, in his opinion, the same has been rendered moot and academic by the aforementioned pronouncement.xiii[13] The petitioners now assail the decision rendered by the public respondent, contending that the latter has no authority to pass judgment upon the taxation policy of the government. In addition, the petitioners impugn the decision in question by asserting that there was no showing that the tax laws on jewelry are confiscatory and desctructive of private respondents proprietary rights. We rule in favor of the petitioners. It is interesting to note that public respondent, in the dispositive portion of his decision, perhaps keeping in mind his limitations under the law as a trial judge, did not go so far as to declare the laws in question to be unconstitutional. However, therein he declared the laws to be inoperative and without force and effect insofar as the private respondents are concerned. But, respondent judge, in the body of his decision, unequivocally but wrongly declared the said provisions of law to be violative of Section 1, Article III of the Constitution. In fact, in their Supplemental Comment on the Petition for Review,xiv[14] the private respondents insist that Judge Santos, in his capacity as judge of the Regional Trial Court, acted within his authority in passing upon the issues, to wit: A perusal of the appealed decision would undoubtedly disclose that public respondent did not pass judgment on the soundness or wisdom of the governments tax policy on jewelry. True, public respondent, in his questioned decision, observed, inter alia, that indeed government tax policy treats jewelry as non-essential item, and therefore, taxed heavily; that the present tariff and tax structure increase manufacturing cost and renders the local jewelry manufacturers uncompetitive against other countries even before they start manufacturing and trading; that many of the local manufacturers do not legally exist or operate unofficially or underground; and that the manufacturers have no recourse but to the back door for smuggled goods if only to be able to compete even if ineffectively or cease manufacturing activities. BUT, public respondent did not, in any manner, interfere with or encroach upon the prerogative of the legislature to determine what should be the tax policy on jewelry. On the other hand, the issue raised before, and passed upon by, the public respondent was whether or not Section 150, paragraph (a) of the National Internal Revenue Code (NIRC) and Section 104, Hdg, 71.01, 71.02, 71.03 and 71,04 of the Tariff and Customs Code are unconstitutional, or differently stated, whether or not the questioned statutory provisions affect the constitutional right of private respondents to engage in business. It is submitted that public respondent confined himself on this issue which is clearly a judicial question. We find it incongruous, in the face of the sweeping pronouncements made by Judge Santos in his decision, that private respondents can still persist in their argument that the former did not overreach the restrictions dictated upon him by law. There is no doubt in the Courts mind, despite protestations to the contrary, that respondent judge encroached upon matters properly

falling within the province of legislative functions. In citing as basis for his decision unproven comparative data pertaining to differences between tax rates of various Asian countries, and concluding that the jewelry industry in the Philippines suffers as a result, the respondent judge took it upon himself to supplant legislative policy regarding jewelry taxation. In advocating the abolition of local tax and duty on jewelry simply because other countries have adopted such policies, the respondent judge overlooked the fact that such matters are not for him to decide. There are reasons why jewelry, a non-essential item, is taxed as it is in this country, and these reasons, deliberate upon by our legislature, are beyond the reach of judicial questioning. As held in Macasiano vs. National Housing Authority:xv[15] The policy of our courts is to avoid ruling on constitutional questions and to presume that the acts of the political departments are valid in the absence of a clear and unmistakable showing to the contrary. To doubt is to sustain, this presumption is based on the doctrine of separation of powers which enjoins upon each department a becoming respect for the acts of the other departments. The theory is that as the joint act of Congress and the President of the Philippines, a law has been carefully studied and determined to be in accordance with the fundamental law before it was finally enacted. (emphasis ours) What we see here is a debate on the WISDOM of the laws in question. This is a matter on which the RTC is not competent to rule.xvi[16] As Cooley observed: Debatable questions are for the legislature to decide. The courts do not sit to resolve the merits of conflicting issues.xvii[17] In Angara vs. Electoral Commission,xviii[18] Justice Laurel made it clear that the judiciary does not pass upon question of wisdom, justice or expediency of legislation. And fittingly so, for in the exercise of judicial power, we are allowed only to settle actual controversies involving rights which are legally demandable and enfoceable, and may not annul an act of the political departments simply because we feel it is unwise or impractical.xix[19] This is not to say that Regional Trial Courts have no power whatsoever to declare a law unconstitutional. In J. M. Tuason and Co. v. Court of Appealsxx[20] we said that [p]lainly the Constitution contemplates that the inferior courts should have jurisdiction in cases involving constitutionality of any treaty or law, for it speaks of appellate review of final judgments of inferior courts in cases where such constitutionality happens to be in issue. this authority of lower courts to decide questions of constitutionality in the first instance was reaffirmed in Ynos v. Intermediate Court of Appeals.xxi[21] But this authority does not extend to deciding questions which pertain to legislative policy. The trial court is not the proper forum for the ventilation of the issues raised by the private respondents. The arguments they presented focus on the wisdom of the provisions of law which they seek to nullify. Regional Trial Courts can only look into the validity of a provision, that is, whether or not it has been passed according to the procedures laid down by law, and thus cannot inquire as to the reasons for its existence. Granting arguendo that the private respondents may have provided convincing arguments why the jewelry industry in the Philippines should not be taxed as it is, it is to the legislature that they must resort to for relief, since with the legislature primarily lies the discretion to determine the nature (kind), object (purpose), extent (rate), coverage (subjects) and situs (place) of taxation. This Court cannot freely delve into those matters which, by constitutional fiat, rightly rest on legislative judgment.xxii[22]

As succinctly put in Lim vs. Pacquing:xxiii[23] Where a controversy may be settled an a platform other than one involving constitutional adjudication, the court should exercise becoming modesty and avoid the constitutional question. As judges, we can only interpret and apply the law and, despite our doubts about its wisdom, cannot repeal or amend it.xxiv[24] The respondents presented an exhaustive study on the tax rates on jewelry levied by different Asian countries. This is meant to convince us that compared to other countries, the tax rates imposed on said industry in the Philippines is oppressive and confiscatory. This Court, however, cannot subscribe to the theory that the tax rates of other countries should be used as a yardstick in determining what may be the proper subjects of taxation in our own country. It should be pointed out that in imposing the aforementioned taxes and duties, the State, acting through the legislative and executive branches, is exercising its sovereign prerogative. 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 singling out of one particular class for taxation, or exemption, infringe no constitutional limitation.xxv[25] WHEREFORE, premises considered, the petition is hereby GRANTED, and the DECISION in Civil Case No. 56736 is hereby REVERSED and SET ASIDE. No costs. SO ORDERED

EN BANC [G.R. Nos. 95203-05 : December 18, 1990.] 192 SCRA 363 SENATOR ERNESTO MACEDA, Petitioner, vs. ENERGY REGULATORY BOARD (ERB); MARCELO N. FERNANDO, ALEJANDRO B. AFURONG; REX V. TANTIONGCO; and OSCAR E. ALA, in their collective official capacities as Chairman and Members of the Board (ERB), respectively; CATALINO MACARAIG, in his quadruple official capacities as Executive Secretary, Chairman of Philippine National Oil Company; Office of the Energy Affairs, and with MANUEL ESTRELLA, in their respective official capacities as Chairman and President of the Petron Corporation; PILIPINAS SHELL PETROLEUM CORPORATION; with CESAR BUENAVENTURA and REY GAMBOA as chairman and President, respectively; CALTEX PHILIPPINES with FRANCIS ABLAN, President and Chief Executive Officer; and the Presidents of Philippine Petroleum Dealer's Association, Caltex Dealer's Co., Petron Dealer's Asso., Shell Dealer's Asso. of the Phil., Liquefied Petroleum Gas Institute of the Phils., any and all concerned gasoline and petrol dealers or stations; and such other persons, officials, and parties, acting for and on their behalf; or in representation of and/or under their authority, Respondents.

[G.R. Nos. 95119-21 : December 18, 1990.] 192 SCRA 363 OLIVER O. LOZANO, Petitioner, vs. ENERGY REGULATORY BOARD (ERB), PILIPINAS SHELL PETROLEUM CORPORATION, CALTEX (PHIL.), INC., and PETRON CORPORATION, Respondents. DECISION SARMIENTO, J.: The petitioners pray for injunctive relief, to stop the Energy Regulatory Board (Board hereinafter) from implementing its Order, dated September 21, 1990, mandating a provisional increase in the prices of petroleum and petroleum products, as follows: PRODUCTS IN PESOS PER LITER OPSF Premium Gasoline 1.7700 Regular Gasoline 1.7700 Avturbo 1.8664 Kerosene 1.2400 Diesel Oil 1.2400 Fuel Oil 1.4900 Feedstock 1.4900 LPG 0.8487 Asphalts 2.7160 Thinners 1.7121 1 It appears that on September 10, 1990, Caltex (Philippines), Inc., Pilipinas Shell Petroleum Corporation, and Petron Corporation proferred separate applications with the Board for permission to increase the wholesale posted prices of petroleum products, as follows: Caltex P3.2697 per liter Shell 2.0338 per liter Petron 2.00 per liter 2

and meanwhile, for provisional authority to increase temporarily such wholesale posted prices pending further proceedings.:-cralaw On September 21, 1990, the Board, in a joint (on three applications) Order granted provisional relief as follows: WHEREFORE, considering the foregoing, and pursuant to Section 8 of Executive Order No. 172, this Board hereby grants herein applicants' prayer for provisional relief and, accordingly, authorizes said applicants a weighted average provisional increase of ONE PESO AND FORTY-TWO CENTAVOS (P1.42) per liter in the wholesale posted prices of their various petroleum products enumerated below, refined and/or marketed by them locally. 3 The petitioners submit that the above Order had been issued with grave abuse of discretion, tantamount to lack of jurisdiction, and correctible by Certiorari. The petitioner, Senator Ernesto Maceda, 4 also submits that the same was issued without proper notice and hearing in violation of Section 3, paragraph (e), of Executive Order No. 172; that the Board, in decreeing an increase, had created a new source for the Oil Price Stabilization Fund (OPSF), or otherwise that it had levied a tax, a power vested in the legislature, and/or that it had "re-collected", by an act of taxation, ad valorem taxes on oil which Republic Act No. 6965 had abolished. The petitioner, Atty. Oliver Lozano, 5 likewise argues that the Board's Order was issued without notice and hearing, and hence, without due process of law. The intervenor, the Trade Union of the Philippines and Allied Services (TUPAS/FSM)-W.F.T.U., 6 argues on the other hand, that the increase cannot be allowed since the respondents oil companies had not exhausted their existing oil stock which they had bought at old prices and that they cannot be allowed to charge new rates for stock purchased at such lower rates. The Court set the cases (in G.R. Nos. 95203-05) for hearing on October 25, 1990, in which Senator Maceda and his counsel, Atty. Alexander Padilla, argued. The Solicitor General, on behalf of the Board, also presented his arguments, together with Board Commissioner Rex Tantiangco. Attys. Federico Alikpala, Jr. and Joselia Poblador represented the oil firms (Petron and Caltex, respectively). The parties were thereafter required to submit their memorandums after which, the Court considered the cases submitted for resolution. On November 20, 1990, the Court ordered these cases consolidated. On November 27, 1990, we gave due course to both petitions.

The Court finds no merit in these petitions. Senator Maceda and Atty. Lozano, in questioning the lack of a hearing, have overlooked the provisions of Section 8 of Executive Order No. 172, which we quote: "SECTION 8. Authority to Grant Provisional Relief . The Board may, upon the filing of an application, petition or complaint or at any stage thereafter and without prior hearing, on the basis of supporting papers duly verified or authenticated, grant provisional relief on motion of a party in the case or on its own initiative, without prejudice to a final decision after hearing, should the Board find that the pleadings, together with such affidavits, documents and other evidence which may be submitted in support of the motion, substantially support the provisional order: Provided, That the Board shall immediately schedule and conduct a hearing thereon within thirty (30) days thereafter, upon publication and notice to all affected parties.: nad As the Order itself indicates, the authority for provisional increase falls within the above provision. There is no merit in the Senator's contention that the "applicable" provision is Section 3, paragraph (e) of the Executive Order, which we quote: (e) Whenever the Board has determined that there is a shortage of any petroleum product, or when public interest so requires, it may take such steps as it may consider necessary, including the temporary adjustment of the levels of prices of petroleum products and the payment to the Oil Price Stabilization Fund created under Presidential Decree No. 1956 by persons or entities engaged in the petroleum industry of such amounts as may be determined by the Board, which will enable the importer to recover its cost of importation. What must be stressed is that while under Executive Order No. 172, a hearing is indispensable, it does not preclude the Board from ordering, ex parte, a provisional increase, as it did here, subject to its final disposition of whether or not: (1) to make it permanent; (2) to reduce or increase it further; or (3) to deny the application. Section 37 paragraph (e) is akin to a temporary restraining order or a writ of preliminary attachment issued by the courts, which are given ex parte, and which are subject to the resolution of the main case. Section 3, paragraph (e) and Section 8 do not negate each other, or otherwise, operate exclusively of the other, in that the Board may resort to one but not to both at the same time. Section 3(e) outlines the jurisdiction of the Board and the grounds for which it may decree a price adjustment, subject to the requirements of notice and hearing. Pending that, however, it may order, under Section 8, an authority to increase provisionally, without

need of a hearing, subject to the final outcome of the proceeding. The Board, of course, is not prevented from conducting a hearing on the grant of provisional authority which is of course, the better procedure however, it cannot be stigmatized later if it failed to conduct one. As we held in Citizens' Alliance for Consumer Protection v. Energy Regulatory Board. 7 In the light of Section 8 quoted above, public respondent Board need not even have conducted formal hearings in these cases prior to issuance of its Order of 14 August 1987 granting a provisional increase of prices. The Board, upon its own discretion and on the basis of documents and evidence submitted by private respondents, could have issued an order granting provisional relief immediately upon filing by private respondents of their respective applications. In this respect, the Court considers the evidence presented by private respondents in support of their applications i.e., evidence showing that importation costs of petroleum products had gone up; that the peso had depreciated in value; and that the Oil Price Stabilization Fund (OPSF) had by then been depleted as substantial and hence constitutive of at least prima facie basis for issuance by the Board of a provisional relief order granting an increase in the prices of petroleum products. 8 We do not therefore find the challenged action of the Board to have been done in violation of the due process clause. The petitioners may contest however, the applications at the hearings proper. Senator Maceda's attack on the Order in question on premises that it constitutes an act of taxation or that it negates the effects of Republic Act No. 6965, cannot prosper. Republic Act No. 6965 operated to lower taxes on petroleum and petroleum products by imposing specific taxes rather than ad valorem taxes thereon; it is, not, however, an insurance against an "oil hike", whenever warranted, or is it a price control mechanism on petroleum and petroleum products. The statute had possibly forestalled a larger hike, but it operated no more.: nad The Board Order authorizing the proceeds generated by the increase to be deposited to the OPSF is not an act of taxation. It is authorized by Presidential Decree No. 1956, as amended by Executive Order No. 137, as follows: SECTION 8. There is hereby created a Trust Account in the books of accounts of the Ministry of Energy to be designated as Oil Price Stabilization Fund (OPSF) for the purpose of minimizing frequent price changes brought about by exchange rate adjustments and/or changes in world market prices of crude oil and imported petroleum products. The Oil Price Stabilization Fund (OPSF) may be sourced from any of the following:

a) Any increase in the tax collection from ad valorem tax or customs duty imposed on petroleum products subject to tax under this Decree arising from exchange rate adjustment, as may be determined by the Minister of Finance in consultation with the Board of Energy; b) Any increase in the tax collection as a result of the lifting of tax exemptions of government corporations, as may be determined by the Minister of Finance in consultation with the Board of Energy; c) Any additional amount to be imposed on petroleum products to augment the resources of the Fund through an appropriate Order that may be issued by the Board of Energy requiring payment by persons or companies engaged in the business of importing, manufacturing and/or marketing petroleum products; 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 rates as fixed by the Board of Energy. Anent claims that oil companies cannot charge new prices for oil purchased at old rates, suffice it to say that the increase in question was not prompted alone by the increase in world oil prices arising from tension in the Persian Gulf. What the Court gathers from the pleadings as well as events of which it takes judicial notice, is that: (1) as of June 30, 1990, the OPSF has incurred a deficit of P6.1 Billion; (2) the exchange rate has fallen to P28.00 to $1.00; (3) the country's balance of payments is expected to reach $1 Billion; (4) our trade deficit is at $2.855 Billion as of the first nine months of the year. Evidently, authorities have been unable to collect enough taxes necessary to replenish the OPSF as provided by Presidential Decree No. 1956, and hence, there was no available alternative but to hike existing prices. The OPSF, as the Court held in the aforecited CACP cases, must not be understood to be a funding designed to guarantee oil firms' profits although as a subsidy, or a trust account, the Court has no doubt that oil firms make money from it. As we held there, however, the OPSF was established precisely to protect the consuming public from the erratic movement of oil prices and to preclude oil companies from taking advantage of fluctuations occurring every so often. As a buffer mechanism, it stabilizes domestic prices by bringing about a uniform rate rather than leaving pricing to the caprices of the market. In all likelihood, therefore, an oil hike would have probably been imminent, with or without trouble in the Gulf, although trouble would have probably aggravated it.: nad

The Court is not to be understood as having prejudged the justness of an oil price increase amid the above premises. What the Court is saying is that it thinks that based thereon, the Government has made out a prima facie case to justify the provisional increase in question. Let the Court therefore make clear that these findings are not final; the burden, however, is on the petitioners' shoulders to demonstrate the fact that the present economic picture does not warrant a permanent increase. There is no doubt that the increase in oil prices in question (not to mention another one impending, which the Court understands has been under consideration by policy-makers) spells hard(er) times for the Filipino people. The Court can not, however, debate the wisdom of policy or the logic behind it (unless it is otherwise arbitrary), not because the Court agrees with policy, but because the Court is not the suitable forum for debate. It is a question best judged by the political leadership which after all, determines policy, and ultimately, by the electorate, that stands to be better for it or worse off, either in the short or long run. At this point, the Court shares the indignation of the people over the conspiracy of events and regrets its own powerlessness, if by this Decision it has been powerless. The constitutional scheme of things has simply left it with no choice. In fine, we find no grave abuse of discretion committed by the respondent Board in issuing its questioned Order. WHEREFORE, these petitions are DISMISSED. No costs. SO ORDERED. G.R. No. 91649 May 14, 1991 ATTORNEYS HUMBERTO BASCO, EDILBERTO BALCE, SOCRATES MARANAN AND LORENZO SANCHEZ, petitioners, vs. PHILIPPINE AMUSEMENTS AND GAMING CORPORATION (PAGCOR), respondent. H.B. Basco & Associates for petitioners. Valmonte Law Offices collaborating counsel for petitioners. Aguirre, Laborte and Capule for respondent PAGCOR.

PARAS, J.:p

A TV ad proudly announces: "The new PAGCOR responding through responsible gaming." But the petitioners think otherwise, that is why, they filed the instant petition seeking to annul the Philippine Amusement and Gaming Corporation (PAGCOR) Charter PD 1869, because it is allegedly contrary to morals, public policy and order, and because A. It constitutes a waiver of a right prejudicial to a third person with a right recognized by law. It waived the Manila City government's right to impose taxes and license fees, which is recognized by law; B. For the same reason stated in the immediately preceding paragraph, the law has intruded into the local government's right to impose local taxes and license fees. This, in contravention of the constitutionally enshrined principle of local autonomy; C. It violates the equal protection clause of the constitution in that it legalizes PAGCOR conducted gambling, while most other forms of gambling are outlawed, together with prostitution, drug trafficking and other vices; D. It violates the avowed trend of the Cory government away from monopolistic and crony economy, and toward free enterprise and privatization. (p. 2, Amended Petition; p. 7, Rollo) In their Second Amended Petition, petitioners also claim that PD 1869 is contrary to the declared national policy of the "new restored democracy" and the people's will as expressed in the 1987 Constitution. The decree is said to have a "gambling objective" and therefore is contrary to Sections 11, 12 and 13 of Article II, Sec. 1 of Article VIII and Section 3 (2) of Article XIV, of the present Constitution (p. 3, Second Amended Petition; p. 21, Rollo). The procedural issue is whether petitioners, as taxpayers and practicing lawyers (petitioner Basco being also the Chairman of the Committee on Laws of the City Council of Manila), can question and seek the annulment of PD 1869 on the alleged grounds mentioned above. The Philippine Amusements and Gaming Corporation (PAGCOR) was created by virtue of P.D. 1067-A dated January 1, 1977 and was granted a franchise under P.D. 1067-B also dated January 1, 1977 "to establish, operate and maintain gambling casinos on land or water within the territorial jurisdiction of the Philippines." Its operation was originally conducted in the well known floating casino "Philippine Tourist." The operation was considered a success for it proved to be a potential source of revenue to fund

infrastructure and socio-economic projects, thus, P.D. 1399 was passed on June 2, 1978 for PAGCOR to fully attain this objective. Subsequently, on July 11, 1983, PAGCOR was created under P.D. 1869 to enable the Government to regulate and centralize all games of chance authorized by existing franchise or permitted by law, under the following declared policy Sec. 1. Declaration of Policy. It is hereby declared to be the policy of the State to centralize and integrate all games of chance not heretofore authorized by existing franchises or permitted by law in order to attain the following objectives: (a) To centralize and integrate the right and authority to operate and conduct games of chance into one corporate entity to be controlled, administered and supervised by the Government. (b) To establish and operate clubs and casinos, for amusement and recreation, including sports gaming pools, (basketball, football, lotteries, etc.) and such other forms of amusement and recreation including games of chance, which may be allowed by law within the territorial jurisdiction of the Philippines and which will: (1) generate sources of additional revenue to fund infrastructure and socio-civic projects, such as flood control programs, beautification, sewerage and sewage projects, Tulungan ng Bayan Centers, Nutritional Programs, Population Control and such other essential public services; (2) create recreation and integrated facilities which will expand and improve the country's existing tourist attractions; and (3) minimize, if not totally eradicate, all the evils, malpractices and corruptions that are normally prevalent on the conduct and operation of gambling clubs and casinos without direct government involvement. (Section 1, P.D. 1869) To attain these objectives PAGCOR is given territorial jurisdiction all over the Philippines. Under its Charter's repealing clause, all laws, decrees, executive orders, rules and regulations, inconsistent therewith, are accordingly repealed, amended or modified. It is reported that PAGCOR is the third largest source of government revenue, next to the Bureau of Internal Revenue and the Bureau of Customs. In 1989 alone, PAGCOR earned P3.43 Billion, and directly remitted to the National Government a total of P2.5 Billion in form of franchise tax, government's income share, the President's Social Fund and Host Cities' share. In addition, PAGCOR sponsored other socio-cultural and charitable projects on its own or in cooperation with various governmental agencies, and other private associations and organizations. In its 3 1/2 years of operation under the present administration, PAGCOR remitted to the government a total of P6.2 Billion. As of December 31, 1989, PAGCOR was employing 4,494 employees in its nine (9)

casinos nationwide, directly supporting the livelihood of Four Thousand Four Hundred Ninety-Four (4,494) families. But the petitioners, are questioning the validity of P.D. No. 1869. They allege that the same is "null and void" for being "contrary to morals, public policy and public order," monopolistic and tends toward "crony economy", and is violative of the equal protection clause and local autonomy as well as for running counter to the state policies enunciated in Sections 11 (Personal Dignity and Human Rights), 12 (Family) and 13 (Role of Youth) of Article II, Section 1 (Social Justice) of Article XIII and Section 2 (Educational Values) of Article XIV of the 1987 Constitution. This challenge to P.D. No. 1869 deserves a searching and thorough scrutiny and the most deliberate consideration by the Court, involving as it does the exercise of what has been described as "the highest and most delicate function which belongs to the judicial department of the government." (State v. Manuel, 20 N.C. 144; Lozano v. Martinez, 146 SCRA 323). As We enter upon the task of passing on the validity of an act of a co-equal and coordinate branch of the government We need not be reminded of the time-honored principle, deeply ingrained in our jurisprudence, that a statute is presumed to be valid. Every presumption must be indulged in favor of its constitutionality. This is not to say that We approach Our task with diffidence or timidity. Where it is clear that the legislature or the executive for that matter, has over-stepped the limits of its authority under the constitution, We should not hesitate to wield the axe and let it fall heavily, as fall it must, on the offending statute (Lozano v. Martinez, supra). In Victoriano v. Elizalde Rope Workers' Union, et al, 59 SCRA 54, the Court thru Mr. Justice Zaldivar underscored the . . . thoroughly established principle which must be followed in all cases where questions of constitutionality as obtain in the instant cases are involved. All presumptions are indulged in favor of constitutionality; one who attacks a statute alleging unconstitutionality must prove its invalidity beyond a reasonable doubt; that a law may work hardship does not render it unconstitutional; that if any reasonable basis may be conceived which supports the statute, it will be upheld and the challenger must negate all possible basis; that the courts are not concerned with the wisdom, justice, policy or expediency of a statute and that a liberal interpretation of the constitution in favor of the constitutionality of legislation should be adopted. (Danner v. Hass, 194 N.W. 2nd 534, 539; Spurbeck v. Statton, 106 N.W. 2nd 660, 663; 59 SCRA 66; see also e.g. Salas v. Jarencio, 46 SCRA 734, 739 [1970]; Peralta v. Commission on Elections, 82 SCRA 30, 55 [1978]; and Heirs of Ordona v. Reyes, 125 SCRA 220, 241-242 [1983] cited in Citizens Alliance for Consumer Protection v. Energy Regulatory Board, 162 SCRA 521, 540)

Of course, there is first, the procedural issue. The respondents are questioning the legal personality of petitioners to file the instant petition. Considering however the importance to the public of the case at bar, and in keeping with the Court's duty, under the 1987 Constitution, to determine whether or not the other branches of government have kept themselves within the limits of the Constitution and the laws and that they have not abused the discretion given to them, the Court has brushed aside technicalities of procedure and has taken cognizance of this petition. (Kapatiran ng mga Naglilingkod sa Pamahalaan ng Pilipinas Inc. v. Tan, 163 SCRA 371) With particular regard to the requirement of proper party as applied in the cases before us, We hold that the same is satisfied by the petitioners and intervenors because each of them has sustained or is in danger of sustaining an immediate injury as a result of the acts or measures complained of. And even if, strictly speaking they are not covered by the definition, it is still within the wide discretion of the Court to waive the requirement and so remove the impediment to its addressing and resolving the serious constitutional questions raised. In the first Emergency Powers Cases, ordinary citizens and taxpayers were allowed to question the constitutionality of several executive orders issued by President Quirino although they were involving only an indirect and general interest shared in common with the public. The Court dismissed the objection that they were not proper parties and ruled that "the transcendental importance to the public of these cases demands that they be settled promptly and definitely, brushing aside, if we must technicalities of procedure." We have since then applied the exception in many other cases. (Association of Small Landowners in the Philippines, Inc. v. Sec. of Agrarian Reform, 175 SCRA 343). Having disposed of the procedural issue, We will now discuss the substantive issues raised. Gambling in all its forms, unless allowed by law, is generally prohibited. But the prohibition of gambling does not mean that the Government cannot regulate it in the exercise of its police power. The concept of police power is well-established in this jurisdiction. It has been defined as the "state authority to enact legislation that may interfere with personal liberty or property in order to promote the general welfare." (Edu v. Ericta, 35 SCRA 481, 487) As defined, it consists of (1) an imposition or restraint upon liberty or property, (2) in order to foster the common good. It is not capable of an exact definition but has been, purposely, veiled in general terms to underscore its all-comprehensive embrace. (Philippine Association of Service Exporters, Inc. v. Drilon, 163 SCRA 386).

Its scope, ever-expanding to meet the exigencies of the times, even to anticipate the future where it could be done, provides enough room for an efficient and flexible response to conditions and circumstances thus assuming the greatest benefits. (Edu v. Ericta, supra) It finds no specific Constitutional grant for the plain reason that it does not owe its origin to the charter. Along with the taxing power and eminent domain, it is inborn in the very fact of statehood and sovereignty. It is a fundamental attribute of government that has enabled it to perform the most vital functions of governance. Marshall, to whom the expression has been credited, refers to it succinctly as the plenary power of the state "to govern its citizens". (Tribe, American Constitutional Law, 323, 1978). The police power of the State is a power co-extensive with self-protection and is most aptly termed the "law of overwhelming necessity." (Rubi v. Provincial Board of Mindoro, 39 Phil. 660, 708) It is "the most essential, insistent, and illimitable of powers." (Smith Bell & Co. v. National, 40 Phil. 136) It is a dynamic force that enables the state to meet the agencies of the winds of change. What was the reason behind the enactment of P.D. 1869? P.D. 1869 was enacted pursuant to the policy of the government to "regulate and centralize thru an appropriate institution all games of chance authorized by existing franchise or permitted by law" (1st whereas clause, PD 1869). As was subsequently proved, regulating and centralizing gambling operations in one corporate entity the PAGCOR, was beneficial not just to the Government but to society in general. It is a reliable source of much needed revenue for the cash strapped Government. It provided funds for social impact projects and subjected gambling to "close scrutiny, regulation, supervision and control of the Government" (4th Whereas Clause, PD 1869). With the creation of PAGCOR and the direct intervention of the Government, the evil practices and corruptions that go with gambling will be minimized if not totally eradicated. Public welfare, then, lies at the bottom of the enactment of PD 1896. Petitioners contend that P.D. 1869 constitutes a waiver of the right of the City of Manila to impose taxes and legal fees; that the exemption clause in P.D. 1869 is violative of the principle of local autonomy. They must be referring to Section 13 par. (2) of P.D. 1869 which exempts PAGCOR, as the franchise holder from paying any "tax of any kind or form, income or otherwise, as well as fees, charges or levies of whatever nature, whether National or Local." (2) Income and other taxes. a) Franchise Holder: No tax of any kind or form, income or otherwise as well as fees, charges or levies of whatever nature, whether National or Local, shall be assessed and collected under this franchise from the Corporation; nor shall any form or tax or charge attach in any way to the earnings of the Corporation, except a franchise tax of five (5%) percent of the gross revenues or earnings derived by the Corporation from its operations under this franchise. Such tax shall be due

and payable quarterly to the National Government and shall be in lieu of all kinds of taxes, levies, fees or assessments of any kind, nature or description, levied, established or collected by any municipal, provincial or national government authority (Section 13 [2]). Their contention stated hereinabove is without merit for the following reasons: (a) The City of Manila, being a mere Municipal corporation has no inherent right to impose taxes (Icard v. City of Baguio, 83 Phil. 870; City of Iloilo v. Villanueva, 105 Phil. 337; Santos v. Municipality of Caloocan, 7 SCRA 643). Thus, "the Charter or statute must plainly show an intent to confer that power or the municipality cannot assume it" (Medina v. City of Baguio, 12 SCRA 62). Its "power to tax" therefore must always yield to a legislative act which is superior having been passed upon by the state itself which has the "inherent power to tax" (Bernas, the Revised [1973] Philippine Constitution, Vol. 1, 1983 ed. p. 445). (b) The Charter of the City of Manila is subject to control by Congress. It should be stressed that "municipal corporations are mere creatures of Congress" (Unson v. Lacson, G.R. No. 7909, January 18, 1957) which has the power to "create and abolish municipal corporations" due to its "general legislative powers" (Asuncion v. Yriantes, 28 Phil. 67; Merdanillo v. Orandia, 5 SCRA 541). Congress, therefore, has the power of control over Local governments (Hebron v. Reyes, G.R. No. 9124, July 2, 1950). And if Congress can grant the City of Manila the power to tax certain matters, it can also provide for exemptions or even take back the power. (c) The City of Manila's power to impose license fees on gambling, has long been revoked. As early as 1975, the power of local governments to regulate gambling thru the grant of "franchise, licenses or permits" was withdrawn by P.D. No. 771 and was vested exclusively on the National Government, thus: Sec. 1. Any provision of law to the contrary notwithstanding, the authority of chartered cities and other local governments to issue license, permit or other form of franchise to operate, maintain and establish horse and dog race tracks, jai-alai and other forms of gambling is hereby revoked. Sec. 2. Hereafter, all permits or franchises to operate, maintain and establish, horse and dog race tracks, jai-alai and other forms of gambling shall be issued by the national government upon proper application and verification of the qualification of the applicant . . . Therefore, only the National Government has the power to issue "licenses or permits" for the operation of gambling. Necessarily, the power to demand or collect license fees which is a consequence of the issuance of "licenses or permits" is no longer vested in the City of Manila.

(d) Local governments have no power to tax instrumentalities of the National Government. PAGCOR is a government owned or controlled corporation with an original charter, PD 1869. All of its shares of stocks are owned by the National Government. In addition to its corporate powers (Sec. 3, Title II, PD 1869) it also exercises regulatory powers thus: Sec. 9. Regulatory Power. The Corporation shall maintain a Registry of the affiliated entities, and shall exercise all the powers, authority and the responsibilities vested in the Securities and Exchange Commission over such affiliating entities mentioned under the preceding section, including, but not limited to amendments of Articles of Incorporation and By-Laws, changes in corporate term, structure, capitalization and other matters concerning the operation of the affiliated entities, the provisions of the Corporation Code of the Philippines to the contrary notwithstanding, except only with respect to original incorporation. PAGCOR has a dual role, to operate and to regulate gambling casinos. The latter role is governmental, which places it in the category of an agency or instrumentality of the Government. Being an instrumentality of the 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. Marland, 4 Wheat 316, 4 L Ed. 579) This doctrine emanates from the "supremacy" of the National Government over local governments. Justice Holmes, speaking for the Supreme Court, made reference to the entire absence of power on the part of the States to touch, in that way (taxation) at least, the instrumentalities of the United States (Johnson v. Maryland, 254 US 51) and it can be agreed that no state or political subdivision can regulate a federal instrumentality in such a way as to prevent it from consummating its federal responsibilities, or even to seriously burden it in the accomplishment of them. (Antieau, Modern Constitutional Law, Vol. 2, p. 140, emphasis supplied) Otherwise, mere creatures of the State can defeat National policies thru extermination of what local authorities may perceive to be undesirable activities or enterprise using the power to tax as "a tool for regulation" (U.S. v. Sanchez, 340 US 42).

The power to tax which was called by Justice Marshall as the "power to destroy" (Mc Culloch v. Maryland, supra) cannot be allowed to defeat an instrumentality or creation of the very entity which has the inherent power to wield it. (e) Petitioners also argue that the Local Autonomy Clause of the Constitution will be violated by P.D. 1869. This is a pointless argument. Article X of the 1987 Constitution (on Local Autonomy) provides: Sec. 5. Each local government unit shall have the power to create its own source of revenue and to levy taxes, fees, and other charges subject to such guidelines and limitation as the congress may provide, consistent with the basic policy on local autonomy. Such taxes, fees and charges shall accrue exclusively to the local government. (emphasis supplied) The power of local government to "impose taxes and fees" is always subject to "limitations" which Congress may provide by law. Since PD 1869 remains an "operative" law until "amended, repealed or revoked" (Sec. 3, Art. XVIII, 1987 Constitution), its "exemption clause" remains as an exception to the exercise of the power of local governments to impose taxes and fees. It cannot therefore be violative but rather is consistent with the principle of local autonomy. Besides, the principle of local autonomy under the 1987 Constitution simply means "decentralization" (III Records of the 1987 Constitutional Commission, pp. 435-436, as cited in Bernas, The Constitution of the Republic of the Philippines, Vol. II, First Ed., 1988, p. 374). It does not make local governments sovereign within the state or an "imperium in imperio." Local Government has been described as a political subdivision of a nation or state which is constituted by law and has substantial control of local affairs. In a unitary system of government, such as the government under the Philippine Constitution, local governments can only be an intra sovereign subdivision of one sovereign nation, it cannot be an imperium in imperio. Local government in such a system can only mean a measure of decentralization of the function of government. (emphasis supplied) As to what state powers should be "decentralized" and what may be delegated to local government units remains a matter of policy, which concerns wisdom. It is therefore a political question. (Citizens Alliance for Consumer Protection v. Energy Regulatory Board, 162 SCRA 539). What is settled is that the matter of regulating, taxing or otherwise dealing with gambling is a State concern and hence, it is the sole prerogative of the State to retain it or delegate it to local governments.

As gambling is usually an offense against the State, legislative grant or express charter power is generally necessary to empower the local corporation to deal with the subject. . . . In the absence of express grant of power to enact, ordinance provisions on this subject which are inconsistent with the state laws are void. (Ligan v. Gadsden, Ala App. 107 So. 733 Ex-Parte Solomon, 9, Cals. 440, 27 PAC 757 following in re Ah You, 88 Cal. 99, 25 PAC 974, 22 Am St. Rep. 280, 11 LRA 480, as cited in Mc Quinllan Vol. 3 Ibid, p. 548, emphasis supplied) Petitioners next contend that P.D. 1869 violates the equal protection clause of the Constitution, because "it legalized PAGCOR conducted gambling, while most gambling are outlawed together with prostitution, drug trafficking and other vices" (p. 82, Rollo). We, likewise, find no valid ground to sustain this contention. The petitioners' posture ignores the well-accepted meaning of the clause "equal protection of the laws." The clause does not preclude classification of individuals who may be accorded different treatment under the law as long as the classification is not unreasonable or arbitrary (Itchong v. Hernandez, 101 Phil. 1155). A law does not have to operate in equal force on all persons or things to be conformable to Article III, Section 1 of the Constitution (DECS v. San Diego, G.R. No. 89572, December 21, 1989). The "equal protection clause" does not prohibit the Legislature from establishing classes of individuals or objects upon which different rules shall operate (Laurel v. Misa, 43 O.G. 2847). The Constitution does not require situations which are different in fact or opinion to be treated in law as though they were the same (Gomez v. Palomar, 25 SCRA 827). Just how P.D. 1869 in legalizing gambling conducted by PAGCOR is violative of the equal protection is not clearly explained in the petition. The mere fact that some gambling activities like cockfighting (P.D 449) horse racing (R.A. 306 as amended by RA 983), sweepstakes, lotteries and races (RA 1169 as amended by B.P. 42) are legalized under certain conditions, while others are prohibited, does not render the applicable laws, P.D. 1869 for one, unconstitutional. If the law presumably hits the evil where it is most felt, it is not to be overthrown because there are other instances to which it might have been applied. (Gomez v. Palomar, 25 SCRA 827) The equal protection clause of the 14th Amendment does not mean that all occupations called by the same name must be treated the same way; the state may do what it can to prevent which is deemed as evil and stop short of those cases in which harm to the few concerned is not less than the harm to the public that would insure if the rule laid down were made mathematically exact. (Dominican Hotel v. Arizona, 249 US 2651).

Anent petitioners' claim that PD 1869 is contrary to the "avowed trend of the Cory Government away from monopolies and crony economy and toward free enterprise and privatization" suffice it to state that this is not a ground for this Court to nullify P.D. 1869. If, indeed, PD 1869 runs counter to the government's policies then it is for the Executive Department to recommend to Congress its repeal or amendment. The judiciary does not settle policy issues. The Court can only declare what the law is and not what the law should be. Under our system of government, policy issues are within the domain of the political branches of government and of the people themselves as the repository of all state power. (Valmonte v. Belmonte, Jr., 170 SCRA 256). On the issue of "monopoly," however, the Constitution provides that: Sec. 19. The State shall regulate or prohibit monopolies when public interest so requires. No combinations in restraint of trade or unfair competition shall be allowed. (Art. XII, National Economy and Patrimony) It should be noted that, as the provision is worded, monopolies are not necessarily prohibited by the Constitution. The state must still decide whether public interest demands that monopolies be regulated or prohibited. Again, this is a matter of policy for the Legislature to decide. On petitioners' allegation that P.D. 1869 violates Sections 11 (Personality Dignity) 12 (Family) and 13 (Role of Youth) of Article II; Section 13 (Social Justice) of Article XIII and Section 2 (Educational Values) of Article XIV of the 1987 Constitution, suffice it to state also that these are merely statements of principles and, policies. As such, they are basically not self-executing, meaning a law should be passed by Congress to clearly define and effectuate such principles. In general, therefore, the 1935 provisions were not intended to be selfexecuting principles ready for enforcement through the courts. They were rather directives addressed to the executive and the legislature. If the executive and the legislature failed to heed the directives of the articles the available remedy was not judicial or political. The electorate could express their displeasure with the failure of the executive and the legislature through the language of the ballot. (Bernas, Vol. II, p. 2) Every law has in its favor the presumption of constitutionality (Yu Cong Eng v. Trinidad, 47 Phil. 387; Salas v. Jarencio, 48 SCRA 734; Peralta v. Comelec, 82 SCRA 30; Abbas v. Comelec, 179 SCRA 287). Therefore, for PD 1869 to be nullified, it must be shown that there is a clear and unequivocal breach of the Constitution, not merely a doubtful and equivocal one. In other words, the grounds for nullity must be clear and beyond reasonable doubt. (Peralta v. Comelec, supra) Those who petition this Court to declare a law, or parts thereof, unconstitutional must clearly establish the basis for such a

declaration. Otherwise, their petition must fail. Based on the grounds raised by petitioners to challenge the constitutionality of P.D. 1869, the Court finds that petitioners have failed to overcome the presumption. The dismissal of this petition is therefore, inevitable. But as to whether P.D. 1869 remains a wise legislation considering the issues of "morality, monopoly, trend to free enterprise, privatization as well as the state principles on social justice, role of youth and educational values" being raised, is up for Congress to determine. As this Court held in Citizens' Alliance for Consumer Protection v. Energy Regulatory Board, 162 SCRA 521 Presidential Decree No. 1956, as amended by Executive Order No. 137 has, in any case, in its favor the presumption of validity and constitutionality which petitioners Valmonte and the KMU have not overturned. Petitioners have not undertaken to identify the provisions in the Constitution which they claim to have been violated by that statute. This Court, however, is not compelled to speculate and to imagine how the assailed legislation may possibly offend some provision of the Constitution. The Court notes, further, in this respect that petitioners have in the main put in question the wisdom, justice and expediency of the establishment of the OPSF, issues which are not properly addressed to this Court and which this Court may not constitutionally pass upon. Those issues should be addressed rather to the political departments of government: the President and the Congress. Parenthetically, We wish to state that gambling is generally immoral, and this is precisely so when the gambling resorted to is excessive. This excessiveness necessarily depends not only on the financial resources of the gambler and his family but also on his mental, social, and spiritual outlook on life. However, the mere fact that some persons may have lost their material fortunes, mental control, physical health, or even their lives does not necessarily mean that the same are directly attributable to gambling. Gambling may have been the antecedent, but certainly not necessarily the cause. For the same consequences could have been preceded by an overdose of food, drink, exercise, work, and even sex. WHEREFORE, the petition is DISMISSED for lack of merit. SO ORDERED. EN BANC G.R. No. L-59068 January 27, 1983

JOSE MARI EULALIO C. LOZADA and ROMEO B. IGOT, petitioners, vs. THE COMMISSION ON ELECTIONS, respondent.

DE CASTRO, J.: This is a petition for mandamus filed by Jose Mari Eulalio C. Lozada and Romeo B. Igot as a representative suit for and in behalf of those who wish to participate in the election irrespective of party affiliation, to compel the respondent COMELEC to call a special election to fill up existing vacancies numbering twelve (12) in the Interim Batasan Pambansa. The petition is based on Section 5(2), Article VIII of the 1973 Constitution which reads: (2) In case a vacancy arises in the Batasang Pambansa eighteen months or more before a regular election, the Commission on Election shall call a special election to be held within sixty (60) days after the vacancy occurs to elect the Member to serve the unexpired term. Petitioner Lozada claims that he is a taxpayer and a bonafide elector of Cebu City and a transient voter of Quezon City, Metro Manila, who desires to run for the position in the Batasan Pambansa; while petitioner Romeo B. Igot alleges that, as a taxpayer, he has standing to petition by mandamus the calling of a special election as mandated by the 1973 Constitution. As reason for their petition, petitioners allege that they are "... deeply concerned about their duties as citizens and desirous to uphold the constitutional mandate and rule of law ...; that they have filed the instant petition on their own and in behalf of all other Filipinos since the subject matters are of profound and general interest. " The respondent COMELEC, represented by counsel, opposes the petition alleging, substantially, that 1) petitioners lack standing to file the instant petition for they are not the proper parties to institute the action; 2) this Court has no jurisdiction to entertain this petition; and 3) Section 5(2), Article VIII of the 1973 Constitution does not apply to the Interim Batasan Pambansa. The petition must be dismiss. I As taxpayers, petitioners may not file the instant petition, for nowhere therein is it alleged that tax money is being illegally spent. The act complained of is the inaction of the COMELEC to call a special election, as is allegedly its ministerial duty under the constitutional provision above cited, and therefore, involves no expenditure of public funds. It is only when an act complained of, which may include a legislative enactment

or statute, involves the illegal expenditure of public money that the so-called taxpayer suit may be allowed. 1 What the case at bar seeks is one that entails expenditure of public funds which may be illegal because it would be spent for a purpose that of calling a special election which, as will be shown, has no authority either in the Constitution or a statute. As voters, neither have petitioners the requisite interest or personality to qualify them to maintain and prosecute the present petition. The unchallenged rule is that the person who impugns the validity of a statute must have a personal and substantial interest in the case such that he has sustained, or will sustain, direct injury as a result of its enforcement. 2 In the case before Us, the alleged inaction of the COMELEC to call a special election to fill-up the existing vacancies in the Batasan Pambansa, standing alone, would adversely affect only the generalized interest of all citizens. Petitioners' standing to sue may not be predicated upon an interest of the kind alleged here, which is held in common by all members of the public because of the necessarily abstract nature of the injury supposedly shared by all citizens. Concrete injury, whether actual or threatened, is that indispensable element of a dispute which serves in part to cast it in a form traditionally capable of judicial resolution. 3 When the asserted harm is a "generalized grievance" shared in substantially equal measure by all or a large class of citizens, that harm alone normally does not warrant exercise of jurisdiction. 4 As adverted to earlier, petitioners have not demonstrated any permissible personal stake, for petitioner Lozada's interest as an alleged candidate and as a voter is not sufficient to confer standing. Petitioner Lozada does not only fail to inform the Court of the region he wants to be a candidate but makes indiscriminate demand that special election be called throughout the country. Even his plea as a voter is predicated on an interest held in common by all members of the public and does not demonstrate any injury specially directed to him in particular. II The Supreme Court's jurisdiction over the COMELEC is only to review by certiorari the latter's decision, orders or rulings. This is as clearly provided in Article XI IC Section 11 of the New Constitution which reads: Any decision, order, or ruling of the Commission may be brought to the Supreme Court on certiorari by the aggrieved party within thirty days from his receipt of a copy thereof. There is in this case no decision, order or ruling of the COMELEC which is sought to be reviewed by this Court under its certiorari jurisdiction as provided for in the aforequoted provision which is the only known provision conferring jurisdiction or authority on the Supreme Court over the COMELEC. It is not alleged that the COMELEC was asked by petitioners to perform its alleged duty under the Constitution to call a special election, and that COMELEC has issued an order or resolution denying such petition.

Even from the standpoint of an action for mandamus, with the total absence of a showing that COMELEC has unlawfully neglected the performance of a ministerial duty, or has refused on being demanded, to discharge such a duty; and as demonstrated above, it is not shown, nor can it ever be shown, that petitioners have a clear right to the holding of a special election. which is equally the clear and ministerial duty of COMELEC to respect, mandamus will not lie. 5 The writ will not issue in doubtful cases.
6

It is obvious that the holding of special elections in several regional districts where vacancies exist, would entail huge expenditure of money. Only the Batasan Pambansa can make the necessary appropriation for the purpose, and this power of the Batasan Pambansa may neither be subject to mandamus by the courts much less may COMELEC compel the Batasan to exercise its power of appropriation. From the role Batasan Pambansa has to play in the holding of special elections, which is to appropriate the funds for the expenses thereof, it would seem that the initiative on the matter must come from said body, not the COMELEC, even when the vacancies would occur in the regular not interim Batasan Pambansa. The power to appropriate is the sole and exclusive prerogative of the legislative body, the exercise of which may not be compelled through a petition for mandamus. What is more, the provision of Section 5(2), Article VIII of the Constitution was intended to apply to vacancies in the regular National Assembly, now Batasan Pambansa, not to the Interim Batasan Pambansa, as will presently be shown. III Perhaps the strongest reason why the aforecited provision of the Constitution is not intended to apply to the Interim National Assembly as originally envisioned by the 1973 Constitution is the fact that as passed by the Constitutional Convention, the Interim National Assembly was to be composed by the delegates to the Constitutional Convention, as well as the then incumbent President and Vice-President, and the members of the Senate and House of Representatives of Congress under the 1935 Constitution. With such number of representatives representing each congressional district, or a province, not to mention the Senators, there was felt absolutely no need for filing vacancies occurring in the Interim National Assembly, considering the uncertainty of the duration of its existence. What was in the mind of the Constitutional Convention in providing for special elections to fill up vacancies is the regular National Assembly, because a province or representative district would have only one representative in the said National Assembly. Even as presently constituted where the representation in the Interim Batasan Pambansa is regional and sectoral, the need to fill up vacancies in the Body is neither imperative nor urgent. No district or province would ever be left without representation at all, as to necessitate the filling up of vacancies in the Interim Batasan Pambansa. There would always be adequate representation for every province which only forms

part of a certain region, specially considering that the Body is only transitory in character. The unmistakable intent of the Constitutional Convention as adverted to is even more positively revealed by the fact that the provision of Section 5(2) of Article VIII of the New Constitution is in the main body of the said Constitution, not in the transitory provisions in which all matters relating to the Interim Batasan Pambansa are found. No provision outside of Article VIII on the "Transitory Provisions" has reference or relevance to the Interim Batasan Pambansa. Also under the original provision of the Constitution (Section 1, Article XVII-Transitory Provisions), the Interim National Assembly had only one single occasion on which to call for an election, and that is for the election of members of the regular National Assembly.1wph1.t The Constitution could not have at that time contemplated to fill up vacancies in the Interim National Assembly the composition of which, as already demonstrated, would not raise any imperious necessity of having to call special elections for that purpose, because the duration of its existence was neither known or pre-determined. It could be for a period so brief that the time prescriptions mentioned in Section 5(2), Article VIII of the Constitution cannot be applicable. The foregoing observations make it indubitably clear that the aforementioned provision for calling special elections to fill up vacancies apply only to the regular Batasan Pambansa. This is evident from the language thereof which speaks of a vacancy in the Batasan Pambansa, " which means the regular Batasan Pambansa as the same words "Batasan Pambansa" found in all the many other sections of Article VIII, undoubtedly refer to the regular Batasan, not the interim one. A word or phrase used in one part of a Constitution is to receive the same interpretation when used in every other part, unless it clearly appears, from the context or otherwise, that a different meaning should be applied. 7 WHEREFORE, the petition is hereby dismissed. SO ORDERED.

G.R. No. 130716 December 9, 1998 FRANCISCO I. CHAVEZ, petitioner, vs. PRESIDENTIAL COMMISSION ON GOOD GOVERNMENT (PCGG) and MAGTANGGOL GUNIGUNDO (in his capacity as chairman of the PCGG), respondents, GLORIA A. JOPSON, CELNAN A. JOPSON, SCARLET A. JOPSON, and TERESA A. JOPSON, petitioners-in-intervention.

PANGANIBAN, J.: Petitioner asks this Court to define the nature and the extent of the people's constitutional right to information on matters of public concern. Does this right include access to the terms of government negotiations prior to their consummation or conclusion? May the government, through the Presidential Commission on Good Government (PCGG), be required to reveal the proposed terms of a compromise agreement with the Marcos heirs as regards their alleged ill-gotten wealth? More specifically, are the "General Agreement" and "Supplemental Agreement," both dated December 28, 1993 and executed between the PCGG and the Marcos heirs, valid and binding? The Case These are the main questions raised in this original action seeking (1) to prohibit and "[e]njoin respondents [PCGG and its chairman] from privately entering into, perfecting and/or executing any greement with the heirs of the late President Ferdinand E. Marcos

. . . relating to and concerning the properties and assets of Ferdinand Marcos located in the Philippines and/or abroad including the so-called Marcos gold hoard"; and (2) to "[c]ompel respondent[s] to make public all negotiations and agreement, be they ongoing or perfected, and all documents related to or relating to such negotiations and agreement between the PCGG and the Marcos heirs." 1 The Facts Petitioner Francisco I. Chavez, as "taxpayer, citizen and former government official who initiated the prosecution of the Marcoses and their cronies who committed unmitigated plunder of the public treasury and the systematic subjugation of the country's economy," alleges that what impelled him to bring this action were several news reports 2 bannered in a number of broadsheets sometime in September 1997. These news items referred to (1) the alleged discovery of billions of dollars of Marcos assets deposited in various coded accounts in Swiss banks; and (2) the reported execution of a compromise, between the government (through PCGG) and the Marcos heirs, on how to split or share these assets. Petitioner, invoking his constitutional right to information 3 and the correlative duty of the state to disclose publicly all its transactions involving the national interest, 4 demands that respondents make public any and all negotiations and agreements pertaining to PCGG's task of recovering the Marcoses' ill-gotten wealth. He claims that any compromise on the alleged billions of ill-gotten wealth involves an issue of "paramount public interest," since it has a "debilitating effect on the country's economy" that would be greatly prejudicial to the national interest of the Filipino people. Hence, the people in general have a right to know the transactions or deals being contrived and effected by the government. Respondents, on the other hand, do not deny forging a compromise agreement with the Marcos heirs. They claim, though, that petitioner's action is premature, because there is no showing that he has asked the PCGG to disclose the negotiations and the Agreements. And even if he has, PCGG may not yet be compelled to make any disclosure, since the proposed terms and conditions of the Agreements have not become effective and binding. Respondents further aver that the Marcos heirs have submitted the subject Agreements to the Sandiganbayan for its approval in Civil Case No. 141, entitled Republic v. Heirs of Ferdinand E. Marcos, and that the Republic opposed such move on the principal grounds that (1) said Agreements have not been ratified by or even submitted to the President for approval, pursuant to Item No. 8 of the General Agreement; and (2) the Marcos heirs have failed to comply with their undertakings therein, particularly the collation and submission of an inventory of their assets. The Republic also cited an April 11, 1995 Resolution in Civil Case No. 0165, in which the Sandiganbayan dismissed a similar petition filed by the Marcoses' attorney-in-fact.

Furthermore, then President Fidel V. Ramos, in his May 4, 1998 Memorandum 5 to then PCGG Chairman Magtanggol Gunigundo, categorically stated: This is to reiterate my previous position embodied in the Palace Press Release of 6 April 1995 that I have not authorized you to approve the Compromise Agreements of December 28, 1993 or any agreement at all with the Marcoses, and would have disapproved them had they been submitted to me. The Full Powers of Attorney of March 1994 and July 4, 1994, did not authorize you to approve said Agreements, which I reserve for myself as President of the Republic of the Philippines. The assailed principal Agreement 6 reads: GENERAL AGREEMENT KNOW ALL MEN BY THESE PRESENTS: This Agreement entered into this 28th day of December, 1993, by and between The Republic of the Philippines, through the Presidential Commission on Good Government (PCGG), a governmental agency vested with authority defined under Executive Orders Nos. 1, 2 and 14, with offices at the philcomcen Building, Pasig, Metro Manila, represented by its Chairman referred to as FIRST PARTY, and Estate of Ferdinand E. Marcos, represented by Imelda Romualdez Marcos and Ferdinand R. Marcos, Jr., all of legal age, and with address at c/o No. 154 Lopez Rizal St., Mandaluyong, Metro Manila, and Imelda Romualdez Marcos, Imee Marcos Manotoc, Ferdinand E. Marcos, Jr., and Irene Marcos Araneta, hereinafter collectively referred to as the PRIVATE PARTY. W I T N E S S E T H: WHEREAS, the PRIVATE PARTY has been impelled by their sense of nationalism and love of country and of the entire Filipino people, and their desire to set up a foundation and finance impact projects like installation of

power plants in selected rural areas and initiation of other community projects for the empowerment of the people; WHEREAS, the FIRST PARTY has obtained a judgment from the Swiss Federal Tribunal of December 21, 1990, that the $356 million belongs in principle to the Republic of the Philippines provided certain conditionalities are met, but even after 7 years, the FIRST PARTY has not been able to procure a final judgment of conviction against the PRIVATE PARTY; WHEREAS, the FIRST PARTY is desirous of avoiding a long-drawn out litigation which, as proven by the past 7 years, is consuming money, time and effort, and is counter-productive and ties up assets which the FIRST PARTY could otherwise utilize for its Comprehensive Agrarian Reform Program, and other urgent needs; WHEREAS, His Excellency, President Fidel V. Ramos, has adopted a policy of unity and reconciliation in order to bind the nation's wounds and start the process of rebuilding this nation as it goes on to the twenty-first century; WHEREAS, this Agreement settles all claims and counterclaims which the parties may have against one another, whether past, present, or future, matured or inchoate. NOW, THEREFORE, for and in consideration of the mutual covenants set forth herein, the parties agree as follows: 1. The parties will collate all assets presumed to be owned by, or held by other parties for the benefit of, the PRIVATE PARTY for purposes of determining the totality of the assets covered by the settlement. The subject assets shall be classified by the nature thereof, namely: (a) real estate; (b) jewelry; (c) paintings and other works of art; (d) securities; (e) funds on deposit; (f) precious metals, if any, and (g) miscellaneous assets or assets which could not appropriately fall under any of the preceding classification. The list shall be based on the full disclosure of the PRIVATE PARTY to insure its accuracy. 2. Based on the inventory, the FIRST PARTY shall determine which shall be ceded to the FIRST PARTY, and which shall be assigned

to/retained by the PRIVATE PARTY. The assets of the PRIVATE PARTY shall be net of and exempt from, any form of taxes due the Republic of the Philippines. However, considering the unavailability of all pertinent and relevant documents and information as to balances and ownership, the actual specification of assets to be retained by the PRIVATE PARTY shall be covered by supplemental agreements which shall form part of this Agreement. 3. Foreign assets which the PRIVATE PARTY shall fully disclose but which are held by trustees, nominees, agents or foundations are hereby waived over by the PRIVATE PARTY in favor of the FIRST PARTY. For this purpose, the parties shall cooperate in taking the appropriate action, judicial and/or extrajudicial, to recover the same for the FIRST PARTY. 4. All disclosures of assets made by the PRIVATE PARTY shall not be used as evidence by the FIRST PARTY in any criminal, civil, tax or administrative case, but shall be valid and binding against said PARTY for use by the FIRST PARTY in withdrawing any account and/or recovering any asset. The PRIVATE PARTY withdraws any objection to the withdrawal by and/or release to the FIRST PARTY by the Swiss banks and/or Swiss authorities of the $356 million, its accrued interests, and/or any other account; over which the PRIVATE PARTY waives any right, interest or participation in favor of the FIRST PARTY. However, any withdrawal or release of any account aforementioned by the FIRST PARTY shall be made in the presence of any authorized representative of the PRIVATE PARTY. 5. The trustees, custodians, safekeepers, depositaries, agents, nominees, administrators, lawyers, or any other party acting in similar capacity in behalf of the PRIVATE PARTY are

hereby informed through this General Agreement to insure that it is fully implemented and this shall serve as absolute authority from both parties for full disclosure to the FIRST PARTY of said assets and for the FIRST PARTY to withdraw said account and/or assets and any other assets which the FIRST PARTY on its own or through the help of the PRIVATE PARTY/their trustees, etc., may discover. 6. Any asset which may be discovered in the future as belonging to the PRIVATE PARTY or is being held by another for the benefit of the PRIVATE PARTY and which is not included in the list per No. 1 for whatever reason shall automatically belong to the FIRST PARTY, and the PRIVATE PARTY in accordance with No. 4 above, waives any right thereto. 7. This Agreement shall be binding on and inure to the benefit of, the parties and their respective legal representatives, successors and assigns and shall supersede any other prior agreement. 8. The PARTIES shall submit this and any other implementing Agreements to the President of the Philippines for approval. In the same manner, the PRIVATE PARTY shall provide the FIRST PARTY assistance by way of testimony or deposition on any information it may have that could shed light on the cases being pursued by the FIRST PARTY against other parties. The FIRST PARTY shall desist from instituting new suits already subject of this Agreement against the PRIVATE PARTY and cause the dismissal of all other cases pending in the Sandiganbayan and in other courts. 9. In case of violation by the PRIVATE PARTY of any of the conditions herein contained, the PARTIES shall be restored automatically to the status quo ante the signing of this Agreement.

For purposes of this Agreement, the PRIVATE PARTY shall be represented by Atty. Simeon M. Mesina, Jr., as their only Attorney-in-Fact. IN WITNESS WHEREOF, the parties have signed this instrument this 28th day of December, 1993, in Makati, Metro Manila. PRESIDENTIAL COMMISSION ON GOOD GOVERNMENT By: [Sgd.] MAGTANGGOL C. GUNIGUNDO Chairman ESTATE OF FERDINAND E. MARCOS, IMELDA R. MARCOS, MA. IMELDA MARCOS-MANOTOC, FERDINAND R. MARCOS, JR., & IRENE MARCOSARANETA By: [Sgd.] IMELDA ROMUALDEZMARCOS [Sgd.] MA. IMELDA MARCOSMANOTOC FERDINAND R. MARCOS, JR. 7 [Sgd.] IRENE MARCOSARANETA Assisted by:

[Sgd.] ATTY. SIMEON M. MESINA, JR. Counsel & Attorneyin-Fact Petitioner also denounces this supplement to the above Agreement: 8 SUPPLEMENTAL AGREEMENT This Agreement entered into this 28th day of December, 1993, by and between The Republic of the Philippines, through the Presidential Commission on Good Government (PCGG), a governmental agency vested with authority defined under Executive Orders Nos. 1, 2 and 14, with offices at the Philcomcen Building, Pasig, Metro Manila, represented by its Chairman Magtanggol C. Gunigundo, hereinafter referred to as the FIRST PARTY, and Estate of Ferdinand E. Marcos, represented by Imelda Romualdez Marcos and Ferdinand R. Marcos, Jr., all of legal age, and with address at c/o No. 154 Lopez Rizal St., Mandaluyong, Metro Manila, and Imelda Romualdez Marcos, Imee Marcos Manotoc, Ferdinand E. Marcos, Jr., and Irene Marcos Araneta, hereinafter collectively referred to as the PRIVATE PARTY. W I T N E S S E T H: The parties in this case entered into a General Agreement dated Dec. 28, 1993; The PRIVATE PARTY expressly reserve their right to pursue their interest and/or sue over local assets located in the Philippines against parties other than the FIRST PARTY. The parties hereby agree that all expenses related to the recovery and/or withdrawal of all assets including lawyers' fees, agents' fees, nominees' service fees, bank charges, traveling expenses and all other expenses related thereto shall be for the account of the PRIVATE PARTY.

In consideration of the foregoing, the parties hereby agree that the PRIVATE PARTY shall be entitled to the equivalent of 25% of the amount that may be eventually withdrawn from said $356 million Swiss deposits. IN WITNESS WHEREOF, the parties have signed this instrument this 28th day of December, 1993, in Makati, Metro Manila. PRESIDENTIAL COMMISSION ON GOOD GOVERNMENT By: [Sgd.] MAGTANGGOL C. GUNIGUNDO Chairman ESTATE OF FERDINAND E. MARCOS, IMELDA R. MARCOS, MA. IMELDA MARCOS-MANOTOC, FERDINAND R. MARCOS, JR., & IRENE MARCOSARANETA By: [Sgd.] IMELDA ROMUALDEZ-MARCOS [Sgd.] MA. IMELDA MARCOS-MANOTOC FERDINAND R. MARCOS, JR. 9 [Sgd.] IRENE MARCOS-ARANETA Assisted by: [Sgd.] ATTY. SIMEON M. MESINA, JR. Counsel & Attorney-in-Fact Acting on a motion of petitioner, the Court issued a Temporary Restraining Order dated March 23, enjoining respondents, their agents and/or representatives from
10

"entering into, or perfecting and/or executing any agreement with the heirs of the late President Ferdinand E. Marcos relating to and concerning their ill-gotten wealth." Issues The Oral Argument, held on March 16, 1998, focused on the following issues: (a) Procedural: (1) Whether or not the petitioner has the personality or legal standing to file the instant petition; and (2) Whether or not this Court is the proper court before which this action may be filed. (b) Substantive: (1) Whether or not this Court could require the PCGG to disclose to the public the details of any agreement, perfected or not, with the Marcoses; and (2) Whether or not there exist any legal restraints against a compromise agreement between the Marcoses and the PCGG relative to the Marcoses' ill-gotten wealth. 11 After their oral presentations, the parties filed their respective memoranda. On August 19, 1998, Gloria, Celnan, Scarlet and Teresa, all surnamed Jopson, filed before the Court a Motion for Intervention, attaching thereto their Petition in Intervention. They aver that they are "among the 10,000 claimants whose right to claim from the Marcos Family and/or the Marcos Estate is recognized by the decision in In re Estate of Ferdinand Marcos, Human Rights Litigation, Maximo Hilao, et al., Class Plaintiffs No. 92-15526, U.S. Court of Appeals for the 9th Circuit US App. Lexis 14796, June 16, 1994 and the Decision of the Swiss Supreme Court of December 10, 1997." As such, they claim to have personal and direct interest in the subject matter of the instant case, since a distribution or disposition of the Marcos properties may adversely affect their legitimate claims. In a minute Resolution issued on August 24, 1998, the Court granted their motion to intervene and required the respondents to comment thereon. The September 25, 1998 Comment 12 of the solicitor general on said motion merely reiterated his aforecited arguments against the main petition. 13 The Court's Ruling The petition id imbued with merit.

First Procedural Issue: Petitioner's Standing Petitioner, on the one hand, explains that as a taxpayer and citizen, he has the legal personality to file the instant petition. He submits that since ill-gotten wealth "belongs to the Filipino people and [is], in truth hand in fact, part of the public treasury," any compromise in relation to it would constitute a diminution of the public funds, which can be enjoined by a taxpayer whose interest is for a full, if not substantial, recovery of such assets. Besides, petitioner emphasize, the matter of recovering the ill-gotten wealth of the Marcoses is an issue "of transcendental importance the public." He asserts that ordinary taxpayers have a right to initiate and prosecute actions questioning the validity of acts or orders of government agencies or instrumentalities, if the issues raised are "of paramount public interest;" and if they "immeasurably affect the social, economic, and moral well-being of the people." Moreover, the mere fact that he is a citizen satisfies the requirement of personal interest, when the proceeding involves the assertion of a public right, 14 such as in this case. He invokes several decisions 15 of this Court which have set aside the procedural matter of locus standi, when the subject of the case involved public interest. On the other hand, the solicitor general, on behalf of respondents, contends that petitioner has no standing to institute the present action, because no expenditure of public funds is involved and said petitioner has no actual interest in the alleged agreement. Respondents further insist that the instant petition is premature, since there is no showing that petitioner has requested PCGG to disclose any such negotiations and agreements; or that, if he has, the Commission has refused to do so. Indeed, the arguments cited by petitioner constitute the controlling decisional rule as regards his legal standing to institute the instant petition. Access to public documents and records is a public right, and the real parties in interest are the people themselves.
16

In Taada v. Tuvera, 17 the Court asserted that when the issue concerns a public a right and the object of mandamus is to obtain the enforcement of a public duty, the people are regarded as the real parties in interest; and because it is sufficient that petitioner is a citizen and as such is interested in the execution of the laws, he need not show that he has any legal or special interest in the result of the action. 18 In the aforesaid case, the petitioners sought to enforce their right to be informed on matters of public concern, a right then recognized in Section 6, Article IV of the 1973 Constitution, 19 in connection with the rule that laws in order to be valid and enforceable must be published in the Official Gazette or otherwise effectively promulgated. In ruling for the petitioners' legal

standing, the Court declared that the right they sought to be enforced "is a public right recognized by no less than the fundamental law of the land." Legaspi v. Civil Service Commission, 20 while reiterating Taada, further declared that "when a mandamus proceeding involves the assertion of a public right, the requirement of personal interest is satisfied by the mere fact that petitioner is a citizen and, therefore, part of the general 'public' which possesses the right." 21 Further, in Albano v. Reyes, 22 we said that while expenditure of public funds may not have been involved under the questioned contract for the development, the management and the operation of the Manila International Container Terminal, "public interest [was] definitely involved considering the important role [of the subject contract] . . . in the economic development of the country and the magnitude of the financial consideration involved." We concluded that, as a consequence, the disclosure provision in the Constitution would constitute sufficient authority for upholding the petitioner's standing. Similarly, the instant petition is anchored on the right of the people to information and access to official records, documents and papers a right guaranteed under Section 7, Article III of the 1987 Constitution. Petitioner, a former solicitor general, is a Filipino citizen. Because of the satisfaction of the two basic requisites laid down by decisional law to sustain petitioner's legal standing, i.e. (1) the enforcement of a public right (2) espoused by a Filipino citizen, we rule that the petition at bar should be allowed. In any event, the question on the standing of Petitioner Chavez is rendered moot by the intervention of the Jopsons, who are among the legitimate claimants to the Marcos wealth. The standing of the Jopsons is not seriously contested by the solicitor general. Indeed, said petitioners-intervenors have a legal interest in the subject matter of the instant case, since a distribution or disposition of the Marcoses' ill-gotten properties may adversely affect the satisfaction of their claims. Second Procedural Issue: The Court's Jurisdiction Petitioner asserts that because this petition is an original action for mandamus and one that is not intended to delay any proceeding in the Sandiganbayan, its having been filed before this Court was proper. He invokes Section 5, Article VIII of the Constitution, which confers upon the Supreme Court original jurisdiction over petitions for prohibition and mandamus. The solicitor general, on the other hand, argues that the petition has been erroneously brought before this Court, since there is neither a justiciable controversy nor a violation of petitioner's rights by the PCGG. He alleges that the assailed agreements are already the very lis mota in Sandiganbayan Civil Case No. 0141, which has yet to dispose of the

issue; thus, this petition is premature. Furthermore, respondents themselves have opposed the Marcos heirs' motion, filed in the graft court, for the approval of the subject Agreements. Such opposition belies petitioner's claim that the government, through respondents, has concluded a settlement with the Marcoses as regards their alleged illgotten assets. In Taada and Legaspi, we upheld therein petitioners' resort to a mandamus proceeding, seeking to enforce a public right as well as to compel performance of a public duty mandated by no less than the fundamental law. 23 Further, Section 5, Article VIII of the Constitution, expressly confers upon the Supreme Court original jurisdiction over petitions for certiorari, prohibition, mandamus, quo warranto and habeas corpus. Respondents argue that petitioner should have properly sought relief before the Sandiganbayan, particularly in Civil Case No. 0141, in which the enforcement of the compromise Agreements is pending resolution. There may seem to be some merit in such argument, if petitioner is merely seeking to enjoin the enforcement of the compromise and/or to compel the PCGG to disclose to the public the terms contained in said Agreements. However, petitioner is here seeking the public disclose of "all negotiations and agreement, be they ongoing or perfected, and documents related to or relating to such negotiations and agreement between the PCGG and the Marcos heirs." In other words, this petition is not confined to the Agreements that have already been drawn, but likewise to any other ongoing or future undertaking towards any settlement on the alleged Marcos loot. Ineluctably, the core issue boils down to the precise interpretation, in terms of scope, of the twin constitutional provisions on "public transactions." This broad and prospective relief sought by the instant petition brings it out of the realm of Civil Case No. 0141. First Substantive Issue: Public Disclosure of Terms of Any Agreement, Perfected or Not In seeking the public disclosure of negotiations and agreements pertaining to a compromise settlement with the Marcoses as regards their alleged ill-gotten wealth, petitioner invokes the following provisions of the Constitution: Sec. 7 [Article III]. The right of the people to information on matters of public concern shall be recognized. Access to official records, and to documents, and papers pertaining to official acts, transactions, or decisions, as well as to government research data used as basis for policy development, shall be afforded the citizen, subject to such limitations as may be provided by law.

Sec. 28 [Article II]. Subject to reasonable conditions prescribed by law, the State adopts and implements a policy of full public disclosure of all its transactions involving public interest. Respondents' opposite view is that the above constitutional provisions refer to completed and operative official acts, not to those still being considered. As regards the assailed Agreements entered into by the PCGG with the Marcoses, there is yet no right of action that has accrued, because said Agreements have not been approved by the President, and the Marcos heirs have failed to fulfill their express undertaking therein. Thus, the Agreements have not become effective. Respondents add that they are not aware of any ongoing negotiation for another compromise with the Marcoses regarding their alleged ill-gotten assets. The "information" and the "transactions" referred to in the subject provisions of the Constitution have as yet no defined scope and extent. There are no specific laws prescribing the exact limitations within which the right may be exercised or the correlative state duty may be obliged. However, the following are some of the recognized restrictions: (1) national security matters and intelligence information, (2) trade secrets and banking transactions, (3) criminal matters, and (4) other confidential information. Limitations to the Right: (1) National Security Matters At the very least, this jurisdiction recognizes the common law holding that there is a governmental privilege against public disclosure with respect to state secrets regarding military, diplomatic and other national security matters. 24 But where there is no need to protect such state secrets, the privilege may not be invoked to withhold documents and other information, 25 provided that they are examined "in strict confidence" and given "scrupulous protection." Likewise, information on inter-government exchanges prior to the conclusion of treaties and executive agreements may be subject to reasonable safeguards for the sake of national interest. 26 (2) Trade Secrets and Banking Transactions The drafters of the Constitution also unequivocally affirmed that, aside from national security matters and intelligence information, trade or industrial secrets (pursuant to the Intellectual Property Code 27 and other related laws) as well as banking transactions (pursuant to the Secrecy of Bank Deposits Act 28) are also exempted from compulsory disclosure. 29

(3) Criminal Matters Also excluded are classified law enforcement matters, such as those relating to the apprehension, the prosecution and the detention of criminals, 30 which courts may nor inquire into prior to such arrest, detention and prosecution. Efforts at effective law enforcement would be seriously jeopardized by free public access to, for example, police information regarding rescue operations, the whereabouts of fugitives, or leads on covert criminal activities. (4) Other Confidential Information The Ethical Standards Act 31 further prohibits public officials and employees from using or divulging "confidential or classified information officially known to them by reason of their office and not made available to the public." 32 Other acknowledged limitations to information access include diplomatic correspondence, closed door Cabinet meetings and executive sessions of either house of Congress, as well as the internal deliberations of the Supreme Court. 33 Scope: Matters of Public Concern and Transactions Involving Public Interest In Valmonte v. Belmonte Jr., 34 the Court emphasized that the information sought must be "matters of public concern," access to which may be limited by law. Similarly, the state policy of full public disclosure extends only to "transactions involving public interest" and may also be "subject to reasonable conditions prescribed by law." As to the meanings of the terms "public interest" and "public concern," the Court, in Legaspi v. Civil Service Commission, 35 elucidated: In determining whether or not a particular information is of public concern there is no rigid test which can be applied. "Public concern" like "public interest" is a term that eludes exact definition. Both terms embrace a broad spectrum of subjects which the public may want to know, either because these directly affect their lives, or simply because such matters naturally arouse the interest of an ordinary citizen. In the final analysis, it is for the courts to determine on a case by case basis whether the matter at issue is of interest or importance, as it relates to or affects the public. Considered a public concern in the above-mentioned case was the "legitimate concern of citizens to ensure that government positions requiring civil service eligibility are occupied only by persons who are eligibles." So was the need to give the general public adequate notification of various laws that regulate and affect the actions and conduct of

citizens, as held in Taada. Likewise did the "public nature of the loanable funds of the GSIS and the public office held by the alleged borrowers (members of the defunct Batasang Pambansa)" qualify the information sought in Valmonte as matters of public interest and concern. In Aquino-Sarmiento v. Morato, 36 the Court also held that official acts of public officers done in pursuit if their official functions are public in character; hence, the records pertaining to such official acts and decisions are within the ambit of the constitutional right of access to public records. Under Republic Act No. 6713, public officials and employees are mandated to "provide information on their policies and procedures in clear and understandable language, [and] ensure openness of information, public consultations and hearings whenever appropriate . . .," except when "otherwise provided by law or when required by the public interest." In particular, the law mandates free public access, at reasonable hours, to the annual performance reports of offices and agencies of government and government-owned or controlled corporations; and the statements of assets, liabilities and financial disclosures of all public officials and employees. 37 In general, writings coming into the hands of public officers in connection with their official functions must be accessible to the public, consistent with the policy of transparency of governmental affairs. This principle is aimed at affording the people an opportunity to determine whether those to whom they have entrusted the affairs of the government are honesty, faithfully and competently performing their functions as public servants. 38 Undeniably, the essence of democracy lies in the free flow of thought; 39 but thoughts and ideas must be well-informed so that the public would gain a better perspective of vital issues confronting them and, thus, be able to criticize as well as participate in the affairs of the government in a responsible, reasonable and effective manner. Certainly, it is by ensuring an unfettered and uninhibited exchange of ideas among a well-informed public that a government remains responsive to the changes desired by the people. 40 The Nature of the Marcoses' Alleged Ill-Gotten Wealth We now come to the immediate matter under consideration. Upon the departure from the country of the Marcos family and their cronies in February 1986, the new government headed by President Corazon C. Aquino was specifically mandated to "[r]ecover ill-gotten properties amassed by the leaders and supporters of the previous regime and [to] protect the interest of the people through orders of sequestration or freezing of assets or accounts." 41 Thus, President Aquino's very first executive orders (which partook of the nature of legislative enactments) dealt with the recovery of these alleged ill-gotten properties.

Executive Order No. 1, promulgated on February 28, 1986, only two (2) days after the Marcoses fled the country, created the PCGG which was primarily tasked to assist the President in the recovery of vast government resources allegedly amassed by former President Marcos, his immediate family, relatives and close associates both here and abroad. Under Executive Order No. 2, issued twelve (12) days later, all persons and entities who had knowledge or possession of ill-gotten assets and properties were warned and, under pain of penalties prescribed by law, prohibited from concealing, transferring or dissipating them or from otherwise frustrating or obstructing the recovery efforts of the government. On May 7, 1986, another directive (EO No. 14) was issued giving additional powers to the PCGG which, taking into account the overriding considerations of national interest and national survival, required it to achieve expeditiously and effectively its vital task of recovering ill-gotten wealth. With such pronouncements of our government, whose authority emanates from the people, there is no doubt that the recovery of the Marcoses' alleged ill-gotten wealth is a matter of public concern and imbued with public interest. 42 We may also add that "illgotten wealth," by its very nature, assumes a public character. Based on the aforementioned Executive Orders, "ill-gotten wealth" refers to assets and properties purportedly acquired, directly or indirectly, by former President Marcos, his immediate family, relatives and close associates through or as a result of their improper or illegal use of government funds or properties; or their having taken undue advantage of their public office; or their use of powers, influences or relationships, "resulting in their unjust enrichment and causing grave damage and prejudice to the Filipino people and the Republic of the Philippines." Clearly, the assets and properties referred to supposedly originated from the government itself. To all intents and purposes, therefore, they belong to the people. As such, upon reconveyance they will be returned to the public treasury, subject only to the satisfaction of positive claims of certain persons as may be adjudged by competent courts. Another declared overriding consideration for the expeditious recovery of ill-gotten wealth is that it may be used for national economic recovery. We believe the foregoing disquisition settles the question of whether petitioner has a right to respondents' disclosure of any agreement that may be arrived at concerning the Marcoses' purported ill-gotten wealth. Access to Information on Negotiating Terms But does the constitutional provision likewise guarantee access to information regarding ongoing negotiations or proposals prior to the final agreement? This same clarification

was sought and clearly addressed by the constitutional commissioners during their deliberations, which we quote hereunder: 43 MR. SUAREZ. And when we say "transactions" which should be distinguished from contracts, agreements, or treaties or whatever, does the Gentleman refer to the steps leading to the consummation of the contract, or does he refer to the contract itself? MR. OPLE. The "transactions" used here, I suppose, is generic and, therefore, it can cover both steps leading to a contract, and already a consummated contract, Mr. Presiding Officer. MR. SUAREZ. This contemplates inclusion of negotiations leading to the consummation of the transaction? MR. OPLE. Yes, subject to reasonable safeguards on the national interest. Considering the intent of the Constitution, we believe that it is incumbent upon the PCGG and its officers, as well as other government representatives, to disclose sufficient public information on any proposed settlement they have decided to take up with the ostensible owners and holders of ill-gotten wealth. Such information, though, must pertain to definite propositions of the government, not necessarily to intra-agency or inter-agency recommendations or communications 44 during the stage when common assertions are still in the process of being formulated or are in the "exploratory" stage. There is a need, of course, to observe the same restrictions on disclosure of information in general, as discussed earlier such as on matters involving national security, diplomatic or foreign relations, intelligence and other classified information. Second Substantive Issue: Legal Restraints on a Marcos-PCGG Compromise Petitioner lastly contends that any compromise agreement between the government and the Marcoses will be a virtual condonation of all the alleged wrongs done by them, as well as an unwarranted permission to commit graft and corruption. Respondents, for their part, assert that there is no legal restraint on entering into a compromise with the Marcos heirs, provided the agreement does not violate any law. Prohibited Compromises In general, the law encourages compromises in civil cases, except with regard to the following matters: (1) the civil status of persons, (2) the validity of a marriage or a legal separation, (3) any ground for legal separation, (4) future support, (5) the jurisdiction of

courts, and (6) future legitimate. 45 And like any other contract, the terms and conditions of a compromise must not be contrary to law, morals, good customs, public policy or public order. 46 A compromise is binding and has the force of law between the parties, 47 unless the consent of a party is vitiated such as by mistake, fraud, violence, intimidation or undue influence or when there is forgery, or if the terms of the settlment are so palpably unconscionable. In the latter instances, the agreement may be invalidated by the courts. 48 Effect of Compromise on Civil Actions One of the consequences of a compromise, and usually its primary object, is to avoid or to end a litigation. 49 In fact, the law urges courts to persuade the parties in a civil case to agree to a fair settlement. 50 As an incentive, a court may mitigate damages to be paid by a losing party who shows a sincere desire to compromise. 51 In Republic & Campos Jr. v. Sandiganbayan, 52 which affirmed the grant by the PCGG of civil and criminal immunity to Jose Y. Campos and the family, the Court held that in the absence an express prohibition, the rule on compromises in civil actions under the Civil Code is applicable to PCGG cases. Such principle is pursuant to the objectives of EO No. 14 particularly the just and expeditious recovery of ill-gotten wealth, so that it may be used to hasten economic recovery. The same principle was upheld in Benedicto v. Board of Administrators of Television Stations RPN, BBC and IBC 53 and Republic v. Benedicto, 54 which ruled in favor of the validity of the PCGG compromise agreement with Roberto S. Benedicto. Immunity from Criminal Prosecution However, any compromise relating to the civil liability arising from an offense does not automatically terminate the criminal proceeding against or extinguish the criminal liability of the malefactor. 55 While a compromise in civil suits is expressly authorized by law, there is no similar general sanction as regards criminal liability. The authority must be specifically conferred. In the present case, the power to grant criminal immunity was confered on PCGG by Section 5 of EO No. 14, as amended by EO No. 14-A, whci provides: Sec. 5. The President Commission on Good Government is authorized to grant immunity from criminal prosecution to any person who provides information or testifies in any investigation conducted by such Commission to establish the unlawful manner in which any respondent, defendant or accused has acquired or accumulated the property or properties in question in any case where such information or testimony is necessary to

ascertain or prove the latter's guilt or his civil liability. The immunity thereby granted shall be continued to protect the witness who repeats such testimony before the Sandiganbayan when required to do so by the latter or by the Commission. The above provision specifies that the PCGG may exercise such authority under these conditions: (1) the person to whom criminal immunity is granted provides information or testifies in an investigation conducted by the Commission; (2) the information or testimony pertains to the unlawful manner in which the respondent, defendant or accused acquired or accumulated ill-gotten property; and (3) such information or testimony is necessary to ascertain or prove guilt or civil liability of such individual. From the wording of the law, it can be easily deducted that the person referred to is a witness in the proceeding, not the principal respondent, defendant or accused. Thus, in the case of Jose Y. Campos, the grant of both civil and criminal immunity to him and his family was "[i]n consideration of the full cooperation of Mr. Jose Y. Campos [with] this Commission, his voluntary surrender of the properties and assets [] disclosed and declared by him to belong to deposed President Ferdinand E. Marcos [] to the Government of the Republic of the Philippines[;] his full, complete and truthful disclosures[;] and his commitment to pay a sum of money as determined by the Philippine Government." 56 Moreover, the grant of criminal immunity to the Camposes and the Benedictos was limited to acts and omissions prior to February 25, 1996. At the time such immunity was granted, no criminal cases have yet been filed against them before the competent court. Validity of the PCGG-Marcos Compromise Agreements Going now to the subject General and Supplemental Agreements between the PCGG and the Marcos heirs, a cursory perusal thereof reveals serious legal flaws. First, the Agreements do not conform to the above requirements of EO Nos. 14 and 14-A. We believe that criminal immunity under Section 5 cannot be granted to the Marcoses, who are the principal defendants in the spate of ill-gotten wealth cases now pending before the Sandiganbayan. As stated earlier, the provision is applicable mainly to witnesses who provide information or testify against a respondent, defendant or accused in an illgotten wealth case. While the General Agreement states that the Marcoses "shall provide the [government] assistance by way of testimony or deposition on any information [they] may have that could shed light on the cases being pursued by the [government] against other parties," 57 the clause does not fully comply with the law. Its inclusion in the Agreement may have been only an afterthought, conceived in pro forma compliance with Section 5 of EO No. 14, as amended. There is no indication whatsoever that any of the Marcos heirs has

indeed provided vital information against any respondent or defendant as to the manner in which the latter may have unlawfully acquired public property. Second, under Item No. 2 of the General Agreement, the PCGG commits to exempt from all forms of taxes the properties to be retained by the Marcos heirs. This is a clear violation of the Construction. The power to tax and to grant tax exemptions is vested in the Congress and, to a certain extent, in the local legislative bodies. 58 Section 28 (4), Article VI of the Constitution, specifically provides: "No law granting any tax exemption shall be passed without the concurrence of a majority of all the Member of the Congress." The PCGG has absolutely no power to grant tax exemptions, even under the cover of its authority to compromise ill-gotten wealth cases. Even granting that Congress enacts a law exempting the Marcoses form paying taxes on their properties, such law will definitely not pass the test of the equal protection clause under the Bill of Rights. Any special grant of tax exemption in favor only of the Marcos heirs will constitute class legislation. It will also violate the constitutional rule that "taxation shall be uniform and equitable." 59 Neither can the stipulation be construed to fall within the power of the commissioner of internal revenue to compromise taxes. Such authority may be exercised only when (1) there is reasonable doubt as to the validity of the claim against the taxpayer, and (2) the taxpayer's financial position demonstrates a clear inability to pay. 60 Definitely, neither requisite is present in the case of the Marcoses, because under the Agreement they are effectively conceding the validity of the claims against their properties, part of which they will be allowed to retain. Nor can the PCGG grant of tax exemption fall within the power of the commissioner to abate or cancel a tax liability. This power can be exercised only when (1) the tax appears to be unjustly or excessively assessed, or (2) the administration and collection costs involved do not justify the collection of the tax due. 61 In this instance, the cancellation of tax liability is done even before the determination of the amount due. In any event, criminal violations of the Tax Code, for which legal actions have been filed in court or in which fraud is involved, cannot be compromised. 62 Third, the government binds itself to cause the dismissal of all cases against the Marcos heirs, pending before the Sandiganbayan and other court. 63 This is a direct encroachment on judicial powers, particularly in regard to criminal jurisdiction. Wellsettled is the doctrine that once a case has been filed before a court of competent jurisdiction, the matter of its dismissal or pursuance lies within the full discretion and control of the judge. In a criminal case, the manner in which the prosecution is handled, including the matter of whom to present as witnesses, may lie within the sound discretion of the government prosecution; 64 but the court decides, based on the evidence proffered, in what manner it will dispose of the case. Jurisdiction, once acquired by the trial court, is not lost despite a resolution, even by the justice secretary, to withdraw the information or to dismiss the complaint. 65 The prosecution's motion to withdraw or to dismiss is not the least binding upon the court. On the contrary,

decisional rules require the trial court to make its own evaluation of the merit of the case, because granting such motion is equivalent to effecting a disposition of the case itself. 66 Thus, the PCGG, as the government prosecutor of ill-gotten wealth cases, cannot guarantee the dismissal of all such criminal cases against the Marcoses pending in the courts, for said dismissal is not within its sole power and discretion. Fourth, the government also waives all claims and counterclaims, "whether past, present, or future, matured or inchoate," against the Marcoses. 67 Again, this illencompassing stipulation is contrary to law. Under the Civil Code, an action for future fraud may not be waived. 68 The stipulation in the Agreement does not specify the exact scope of future claims against the Marcoses that the government thereby relinquishes. Such vague and broad statement may well be interpreted to include all future illegal acts of any of the Marcos heirs, practically giving them a license to perpetrate fraud against the government without any liability at all. This is a palpable violation of the due process and equal protection guarantees of the Constitution. It effectively ensconces the Marcoses beyond the reach of the law. It also sets a dangerous precedent for public accountability. It is a virtual warrant for public officials to amass public funds illegally, since there is an open option to compromise their liability in exchange for only a portion of their ill-gotten wealth. Fifth, the Agreements do not provide for a definite or determinable period within which the parties shall fulfill their respective prestations. It may take a lifetime before the Marcoses submit an inventory of their total assets. Sixth, the Agreements do not state with specificity the standards for determining which assets shall be forfeited by the government and which shall be retained by the Marcoses. While the Supplemental Agreement provides that the Marcoses shall be entitled to 25 per cent of the $356 million Swiss deposits (less government recovery expenses), such sharing arrangement pertains only to the said deposits. No similar splitting scheme is defined with respect to the other properties. Neither is there, anywhere in the Agreements, a statement of the basis for the 25-75 percent sharing ratio. Public officers entering into an arrangement appearing to be manifestly and grossly disadvantageous to the government, in violation of the Ati-Graft and Corruption Practice Act, 69 invite their indictment for corruption under the said law. Finally, the absence of then President Ramos' approval of the principal Agreement, an express condition therein, renders the compromise incomplete and unenforceable. Nevertheless, as detailed above, even if such approval were obtained, the Agreements would still not be valid. From the foregoing disquisition, it is crystal clear to the Court that the General and Supplemental Agreements, both dated December 28, 1993, which the PCGG entered into with the Marcos heirs, are violative of the Constitution and the laws aforementioned.

WHEREFORE, the petition is GRANTED. The General and Supplemental Agreement dated December 28, 1993, which PCGG and the Marcos heirs entered into are hereby declared NULL AND VOID for being contrary to law and the Constitution. Respondent PCGG, its officers and all government functionaries and officials who are or may be directly ot indirectly involved in the recovery of the alleged ill-gotten wealth of the Marcoses and their associates are DIRECTED to disclose to the public the terms of any proposed compromise settlment, as well as the final agreement, relating to such alleged ill-gotten wealth, in accordance with the discussions embodied in this Decision. No pronouncement as to cost. SO ORDERED. [G. R. No. 140835. August 14, 2000] RAMON A. GONZALES, petitioner, vs. HON. ANDRES R. NARVASA, as Chairman, PREPARATORY COMMISSION ON CONSTITUTIONAL REFORMS; HON. RONALDO B. ZAMORA, as Executive Secretary; COMMISSION ON AUDIT; ROBERTO AVENTAJADO, as Presidential Consultant on Council of Economic Advisers/Economic Affairs; ANGELITO C. BANAYO, as Presidential Adviser for/on Political Affairs; VERONICA IGNACIO-JONES, as Presidential Assistant/ Appointment Secretary (In charge of appointments), respondents. DECISION GONZAGA-REYES, J.: In this petition for prohibition and mandamus filed on December 9, 1999, petitioner Ramon A. Gonzales, in his capacity as a citizen and taxpayer, assails the constitutionality of the creation of the Preparatory Commission on Constitutional Reform (PCCR) and of the positions of presidential consultants, advisers and assistants. Petitioner asks this Court to enjoin the PCCR and the presidential consultants, advisers and assistants from acting as such, and to enjoin Executive Secretary Ronaldo B. Zamora from enforcing their advice and recommendations. In addition, petitioner seeks to enjoin the Commission on Audit from passing in audit expenditures for the PCCR and the presidential consultants, advisers and assistants. Finally, petitioner prays for an order compelling respondent Zamora to furnish petitioner with information on certain matters. On January 28, 2000, respondent Hon. Andres R. Narvasa, impleaded in his capacity as Chairman of the PCCR, filed his Comment to the Petition. The rest of the respondents, who are being represented in this case by the Solicitor General, filed their Comment with this Court on March 7, 2000. Petitioner then filed a Consolidated Reply on April 24, 2000, whereupon this case was considered submitted for decision. I. Preparatory Commission on Constitutional Reform

The Preparatory Commission on Constitutional Reform (PCCR) was created by President Estrada on November 26, 1998 by virtue of Executive Order No. 43 (E.O. No. 43) in order to study and recommend proposed amendments and/or revisions to the 1987 Constitution, and the manner of implementing the same.ix[1] Petitioner disputes the constitutionality of the PCCR on two grounds. First, he contends that it is a public office which only the legislature can create by way of a law.ix[2] Secondly, petitioner asserts that by creating such a body the President is intervening in a process from which he is totally excluded by the Constitution the amendment of the fundamental charter.ix[3] It is alleged by respondents that, with respect to the PCCR, this case has become moot and academic. We agree. An action is considered moot when it no longer presents a justiciable controversy because the issues involved have become academic or dead.ix[4] Under E.O. No. 43, the PCCR was instructed to complete its task on or before June 30, 1999.ix[5] However, on February 19, 1999, the President issued Executive Order No. 70 (E.O. No. 70), which extended the time frame for the completion of the commissions work, viz SECTION 6. Section 8 is hereby amended to read as follows: Time Frame. The Commission shall commence its work on 01 January 1999 and complete the same on or before 31 December 1999. The Commission shall submit its report and recommendations to the President within fifteen (15) working days from 31 December 1999. The PCCR submitted its recommendations to the President on December 20, 1999 and was dissolved by the President on the same day. It had likewise spent the funds allotted to it.ix[6] Thus, the PCCR has ceased to exist, having lost its raison detre. Subsequent events have overtaken the petition and the Court has nothing left to resolve. The staleness of the issue before us is made more manifest by the impossibility of granting the relief prayed for by petitioner. Basically, petitioner asks this Court to enjoin the PCCR from acting as such.ix[7] Clearly, prohibition is an inappropriate remedy since the body sought to be enjoined no longer exists. It is well established that prohibition is a preventive remedy and does not lie to restrain an act that is already fait accompli.ix[8] At this point, any ruling regarding the PCCR would simply be in the nature of an advisory opinion, which is definitely beyond the permissible scope of judicial power. In addition to the mootness of the issue, petitioners lack of standing constitutes another obstacle to the successful invocation of judicial power insofar as the PCCR is concerned.

The question in standing is whether a party has alleged such a personal stake in the outcome of the controversy as to assure that concrete adverseness which sharpens the presentation of issues upon which the court so largely depends for illumination of difficult constitutional questions.ix[9] In assailing the constitutionality of E.O. Nos. 43 and 70, petitioner asserts his interest as a citizen and taxpayer.ix[10] A citizen acquires standing only if he can establish that he has suffered some actual or threatened injury as a result of the allegedly illegal conduct of the government; the injury is fairly traceable to the challenged action; and the injury is likely to be redressed by a favorable action.ix[11] In Kilosbayan, Incorporated v. Morato,ix[12] we denied standing to petitioners who were assailing a lease agreement between the Philippine Charity Sweepstakes Office and the Philippine Gaming Management Corporation, stating that, in Valmonte v. Philippine Charity Sweepstakes Office, G.R. No. 78716, Sept. 22, 1987, standing was denied to a petitioner who sought to declare a form of lottery known as Instant Sweepstakes invalid because, as the Court held, Valmonte brings the suit as a citizen, lawyer, taxpayer and father of three (3) minor children. But nowhere in his petition does petitioner claim that his rights and privileges as a lawyer or citizen have been directly and personally injured by the operation of the Instant Sweepstakes. The interest of the person assailing the constitutionality of a statute must be direct and personal. He must be able to show, not only that the law is invalid, but also that he has sustained or in immediate danger of sustaining some direct injury as a result of its enforcement, and not merely that he suffers thereby in some indefinite way. It must appear that the person complaining has been or is about to be denied some right or privilege to which he is lawfully entitled or that he is about to be subjected to some burdens or penalties by reason of the statute complained of. We apprehend no difference between the petitioner in Valmonte and the present petitioners. Petitioners do not in fact show what particularized interest they have for bringing this suit. It does not detract from the high regard for petitioners as civic leaders to say that their interest falls short of that required to maintain an action under Rule 3, d 2. Coming now to the instant case, petitioner has not shown that he has sustained or is in danger of sustaining any personal injury attributable to the creation of the PCCR. If at all, it is only Congress, not petitioner, which can claim any injury in this case since, according to petitioner, the President has encroached upon the legislatures powers to create a public office and to propose amendments to the Charter by forming the PCCR. Petitioner has sustained no direct, or even any indirect, injury. Neither does he claim that his rights or privileges have been or are in danger of being violated, nor that he shall be subjected to any penalties or burdens as a result of the PCCRs activities. Clearly, petitioner has failed to establish his locus standi so as to enable him to seek judicial redress as a citizen.

A taxpayer is deemed to have the standing to raise a constitutional issue when it is established that public funds have been disbursed in alleged contravention of the law or the Constitution.ix[13], Thus payers action is properly brought only when there is an exercise by Congress of its taxing or spending power.ix[14] This was our ruling in a recent case wherein petitioners Telecommunications and Broadcast Attorneys of the Philippines (TELEBAP) and GMA Network, Inc. questioned the validity of section 92 of B.P. No. 881 (otherwise knows as the Omnibus Election Code) requiring radio and television stations to give free air time to the Commission on Elections during the campaign period.ix[15] The Court held that petitioner TELEBAP did not have any interest as a taxpayer since the assailed law did not involve the taxing or spending power of Congress.ix[16] Many other rulings have premised the grant or denial of standing to taxpayers upon whether or not the case involved a disbursement of public funds by the legislature. In Sanidad v. Commission on Elections,ix[17] the petitioners therein were allowed to bring a taxpayers suit to question several presidential decrees promulgated by then President Marcos in his legislative capacity calling for a national referendum, with the Court explaining that ...[i]t is now an ancient rule that the valid source of a statute Presidential Decrees are of such nature may be contested by one who will sustain a direct injury as a result of its enforcement. At the instance of taxpayers, laws providing for the disbursement of public funds may be enjoined, upon the theory that the expenditure of public funds by an officer of the State for the purpose of executing an unconstitutional act constitutes a misapplication of such funds. The breadth of Presidential Decree No. 991 carries an appropriation of Five Million Pesos for the effective implementation of its purposes. Presidential Decree No. 1031 appropriates the sum of Eight Million Pesos to carry out its provisions. The interest of the aforenamed petitioners as taxpayers in the lawful expenditure of these amounts of public money sufficiently clothes them with that personality to litigate the validity of the Decrees appropriating said funds. In still another case, the Court held that petitioners the Philippine Constitution Association, Inc., a non-profit civic organization - had standing as taxpayers to question the constitutionality of Republic Act No. 3836 insofar as it provides for retirement gratuity and commutation of vacation and sick leaves to Senators and Representatives and to the elective officials of both houses of Congress.ix[18] And in Pascual v. Secretary of Public Works,ix[19] the Court allowed petitioner to maintain a taxpayers suit assailing the constitutional soundness of Republic Act No. 920 appropriating P85,000 for the construction, repair and improvement of feeder roads within private property. All these cases involved the disbursement of public funds by means of a law. Meanwhile, in Bugnay Construction and Development Corporation v. Laron,ix[20] the Court declared that the trial court was wrong in allowing respondent Ravanzo to bring an action for injunction in his capacity as a taxpayer in order to question the legality of the contract of lease covering the public market entered into between the City of

Dagupan and petitioner. The Court declared that Ravanzo did not possess the requisite standing to bring such taxpayers suit since [o]n its face, and there is no evidence to the contrary, the lease contract entered into between petitioner and the City shows that no public funds have been or will be used in the construction of the market building. Coming now to the instant case, it is readily apparent that there is no exercise by Congress of its taxing or spending power. The PCCR was created by the President by virtue of E.O. No. 43, as amended by E.O. No. 70. Under section 7 of E.O. No. 43, the amount of P3 million is appropriated for its operational expenses to be sourced from the funds of the Office of the President. The relevant provision states Appropriations. The initial amount of Three Million Pesos (P3,000,000.00) is hereby appropriated for the operational expenses of the Commission to be sourced from funds of the Office of the President, subject to the usual accounting and auditing rules and regulations. Additional amounts shall be released to the Commission upon submission of requirements for expenditures. The appropriations for the PCCR were authorized by the President, not by Congress. In fact, there was no an appropriation at all. In a strict sense, appropriation has been defined as nothing more than the legislative authorization prescribed by the Constitution that money may be paid out of the Treasury, while appropriation made by law refers to the act of the legislature setting apart or assigning to a particular use a certain sum to be used in the payment of debt or dues from the State to its creditors. ix[21] The funds used for the PCCR were taken from funds intended for the Office of the President, in the exercise of the Chief Executives power to transfer funds pursuant to section 25 (5) of article VI of the Constitution. In the final analysis, it must be stressed that the Court retains the power to decide whether or not it will entertain a taxpayers suit.ix[22] In the case at bar, there being no exercise by Congress of its taxing or spending power, petitioner cannot be allowed to question the creation of the PCCR in his capacity as a taxpayer, but rather, he must establish that he has a personal and substantial interest in the case and that he has sustained or will sustain direct injury as a result of its enforcement.ix[23] In other words, petitioner must show that he is a real party in interest - that he will stand to be benefited or injured by the judgment or that he will be entitled to the avails of the suit.ix[24] Nowhere in his pleadings does petitioner presume to make such a representation. II. Presidential Consultants, Advisers, Assistants The second issue raised by petitioner concerns the presidential consultants. Petitioner alleges that in 1995 and 1996, the President created seventy (70) positions in the Office of the President and appointed to said positions twenty (20) presidential consultants, twenty-two (22) presidential advisers, and twenty-eight (28) presidential assistants.ix[25] Petitioner asserts that, as in the case of the PCCR, the President does not have the power to create these positions.ix[26]

Consistent with the abovementioned discussion on standing, petitioner does not have the personality to raise this issue before the Court. First of all, he has not proven that he has sustained or is in danger of sustaining any injury as a result of the appointment of such presidential advisers. Secondly, petitioner has not alleged the necessary facts so as to enable the Court to determine if he possesses a taxpayers interest in this particular issue. Unlike the PCCR which was created by virtue of an executive order, petitioner does not allege by what official act, whether it be by means of an executive order, administrative order, memorandum order, or otherwise, the President attempted to create the positions of presidential advisers, consultants and assistants. Thus, it is unclear what act of the President petitioner is assailing. In support of his allegation, petitioner merely annexed a copy of the Philippine Government Directory (Annex C) listing the names and positions of such presidential consultants, advisers and assistants to his petition. However, appointment is obviously not synonymous with creation. It would be improvident for this Court to entertain this issue given the insufficient nature of the allegations in the Petition. III. Right to Information Finally, petitioner asks us to issue a writ of mandamus ordering Executive Secretary Ronaldo B. Zamora to answer his letter (Annex D) dated October 4, 1999 requesting for the names of executive officials holding multiple positions in government, copies of their appointments, and a list of the recipients of luxury vehicles seized by the Bureau of Customs and turned over to Malacanang.ix[27] The right to information is enshrined in Section 7 of the Bill of Rights which provides that The right of the people to information on matters of public concern shall be recognized. Access to official records, and to documents, and papers pertaining to official acts, transactions, or decisions, as well as to government research data used as basis for policy development, shall be afforded the citizen, subject to such limitations as may be provided by law. Under both the 1973ix[28] and 1987 Constitution, this is a self-executory provision which can be invoked by any citizen before the courts. This was our ruling in Legaspi v. Civil Service Commission,ix[29] wherein the Court classified the right to information as a public right and when a [m]andamus proceeding involves the assertion of a public right, the requirement of personal interest is satisfied by the mere fact that the petitioner is a citizen, and therefore, part of the general public which possesses the right. However, Congress may provide for reasonable conditions upon the access to information. Such limitations were embodied in Republic Act No. 6713, otherwise knows as the Code of Conduct and Ethical Standards for Public Officials and Employees, which took effect on March 25, 1989. This law provides that, in the performance of their duties, all public officials and employees are obliged to respond to letters sent by the public within fifteen (15) working days from receipt thereof and to ensure the accessibility of all public

documents for inspection by the public within reasonable working hours, subject to the reasonable claims of confidentiality.ix[30] Elaborating on the significance of the right to information, the Court said in Baldoza v. Dimaanoix[31] that [t]he incorporation of this right in the Constitution is a recognition of the fundamental role of free exchange of information in a democracy. There can be no realistic perception by the public of the nations problems, nor a meaningful democratic decisionmaking if they are denied access to information of general interest. Information is needed to enable the members of society to cope with the exigencies of the times. The information to which the public is entitled to are those concerning matters of public concern, a term which embrace[s] a broad spectrum of subjects which the public may want to know, either because these directly affect their lives, or simply because such matters naturally arouse the interest of an ordinary citizen. In the final analysis, it is for the courts to determine in a case by case basis whether the matter at issue is of interest or importance, as it relates to or affects the public.ix[32] Thus, we agree with petitioner that respondent Zamora, in his official capacity as Executive Secretary, has a constitutional and statutory duty to answer petitioners letter dealing with matters which are unquestionably of public concern that is, appointments made to public offices and the utilization of public property. With regard to petitioners request for copies of the appointment papers of certain officials, respondent Zamora is obliged to allow the inspection and copying of the same subject to the reasonable limitations required for the orderly conduct of official business.ix[33] WHEREFORE, the petition is dismissed, with the exception that respondent Zamora is ordered to furnish petitioner with the information requested. SO ORDERED. [G.R. No. 138570. October 10, 2000] BAYAN (Bagong Alyansang Makabayan), a JUNK VFA MOVEMENT, BISHOP TOMAS MILLAMENA (Iglesia Filipina Independiente), BISHOP ELMER BOLOCAN (United Church of Christ of the Phil.), DR. REYNALDO LEGASCA, MD, KILUSANG MAMBUBUKID NG PILIPINAS, KILUSANG MAYO UNO, GABRIELA, PROLABOR, and the PUBLIC INTEREST LAW CENTER, petitioners, vs. EXECUTIVE SECRETARY RONALDO ZAMORA, FOREIGN AFFAIRS SECRETARY DOMINGO SIAZON, DEFENSE SECRETARY ORLANDO MERCADO, BRIG. GEN. ALEXANDER AGUIRRE, SENATE PRESIDENT MARCELO FERNAN, SENATOR FRANKLIN DRILON, SENATOR BLAS OPLE, SENATOR RODOLFO BIAZON, and SENATOR FRANCISCO TATAD, respondents. [G.R. No. 138572. October 10, 2000] PHILIPPINE CONSTITUTION ASSOCIATION, INC.(PHILCONSA), EXEQUIEL B. GARCIA, AMADOGAT INCIONG, CAMILO L. SABIO, AND RAMON A. GONZALES,

petitioners, vs. HON. RONALDO B. ZAMORA, as Executive Secretary, HON. ORLANDO MERCADO, as Secretary of National Defense, and HON. DOMINGO L. SIAZON, JR., as Secretary of Foreign Affairs, respondents. [G.R. No. 138587. October 10, 2000] TEOFISTO T. GUINGONA, JR., RAUL S. ROCO, and SERGIO R. OSMEA III, petitioners, vs. JOSEPH E. ESTRADA, RONALDO B. ZAMORA, DOMINGO L. SIAZON, JR., ORLANDO B. MERCADO, MARCELO B. FERNAN, FRANKLIN M. DRILON, BLAS F. OPLE and RODOLFO G. BIAZON, respondents. [G.R. No. 138680. October 10, 2000] INTEGRATED BAR OF THE PHILIPPINES, Represented by its National President, Jose Aguila Grapilon, petitioners, vs. JOSEPH EJERCITO ESTRADA, in his capacity as President, Republic of the Philippines, and HON. DOMINGO SIAZON, in his capacity as Secretary of Foreign Affairs, respondents. [G.R. No. 138698. October 10, 2000] JOVITO R. SALONGA, WIGBERTO TAADA, ZENAIDA QUEZON-AVENCEA, ROLANDO SIMBULAN, PABLITO V. SANIDAD, MA. SOCORRO I. DIOKNO, AGAPITO A. AQUINO, JOKER P. ARROYO, FRANCISCO C. RIVERA JR., RENE A.V. SAGUISAG, KILOSBAYAN, MOVEMENT OF ATTORNEYS FOR BROTHERHOOD, INTEGRITY AND NATIONALISM, INC. (MABINI), petitioners, vs. THE EXECUTIVE SECRETARY, THE SECRETARY OF FOREIGN AFFAIRS, THE SECRETARY OF NATIONAL DEFENSE, SENATE PRESIDENT MARCELO B. FERNAN, SENATOR BLAS F. OPLE, SENATOR RODOLFO G. BIAZON, AND ALL OTHER PERSONS ACTING THEIR CONTROL, SUPERVISION, DIRECTION, AND INSTRUCTION IN RELATION TO THE VISITING FORCES AGREEMENT (VFA), respondents. DECISION BUENA, J.: Confronting the Court for resolution in the instant consolidated petitions for certiorari and prohibition are issues relating to, and borne by, an agreement forged in the turn of the last century between the Republic of the Philippines and the United States of America -the Visiting Forces Agreement. The antecedents unfold. On March 14, 1947, the Philippines and the United States of America forged a Military Bases Agreement which formalized, among others, the use of installations in the Philippine territory by United States military personnel. To further strengthen their defense and security relationship,

the Philippines and the United States entered into a Mutual Defense Treaty on August 30, 1951. Under the treaty, the parties agreed to respond to any external armed attack on their territory, armed forces, public vessels, and aircraft.ix[1] In view of the impending expiration of the RP-US Military Bases Agreement in 1991, the Philippines and the United States negotiated for a possible extension of the military bases agreement. On September 16, 1991, the Philippine Senate rejected the proposed RP-US Treaty of Friendship, Cooperation and Security which, in effect, would have extended the presence of US military bases in the Philippines.ix[2] With the expiration of the RP-US Military Bases Agreement, the periodic military exercises conducted between the two countries were held in abeyance. Notwithstanding, the defense and security relationship between the Philippines and the United States of America continued pursuant to the Mutual Defense Treaty. On July 18, 1997, the United States panel, headed by US Defense Deputy Assistant Secretary for Asia Pacific Kurt Campbell, met with the Philippine panel, headed by Foreign Affairs Undersecretary Rodolfo Severino Jr., to exchange notes on the complementing strategic interests of the United States and the Philippines in the Asia-Pacific region. Both sides discussed, among other things, the possible elements of the Visiting Forces Agreement (VFA for brevity). Negotiations by both panels on the VFA led to a consolidated draft text, which in turn resulted to a final series of conferences and negotiationsix[3] that culminated in Manila on January 12 and 13, 1998. Thereafter, then President Fidel V. Ramos approved the VFA, which was respectively signed by public respondent Secretary Siazon and Unites States Ambassador Thomas Hubbard on February 10, 1998. On October 5, 1998, President Joseph E. Estrada, through respondent Secretary of Foreign Affairs, ratified the VFA.ix[4] On October 6, 1998, the President, acting through respondent Executive Secretary Ronaldo Zamora, officially transmitted to the Senate of the Philippines,ix[5] the Instrument of Ratification, the letter of the Presidentix[6] and the VFA, for concurrence pursuant to Section 21, Article VII of the 1987 Constitution. The Senate, in turn, referred the VFA to its Committee on Foreign Relations, chaired by Senator Blas F. Ople, and its Committee on National Defense and Security, chaired by Senator Rodolfo G. Biazon, for their joint consideration and recommendation. Thereafter, joint public hearings were held by the two Committees.ix[7] On May 3, 1999, the Committees submitted Proposed Senate Resolution No. 443ix[8] recommending the concurrence of the Senate to the VFA and the creation of a Legislative Oversight Committee to oversee its implementation. Debates then ensued. On May 27, 1999, Proposed Senate Resolution No. 443 was approved by the Senate, by a twothirds (2/3) voteix[9] of its members. Senate Resolution No. 443 was then re-numbered as Senate Resolution No. 18.ix[10] On June 1, 1999, the VFA officially entered into force after an Exchange of Notes between respondent Secretary Siazon and United States Ambassador Hubbard.

The VFA, which consists of a Preamble and nine (9) Articles, provides for the mechanism for regulating the circumstances and conditions under which US Armed Forces and defense personnel may be present in the Philippines, and is quoted in its full text, hereunder: Article I Definitions As used in this Agreement, United States personnel means United States military and civilian personnel temporarily in the Philippines in connection with activities approved by the Philippine Government. Within this definition: 1. The term military personnel refers to military members of the United States Army, Navy, Marine Corps, Air Force, and Coast Guard. 2. The term civilian personnel refers to individuals who are neither nationals of, nor ordinary residents in the Philippines and who are employed by the United States armed forces or who are accompanying the United States armed forces, such as employees of the American Red Cross and the United Services Organization. Article II Respect for Law It is the duty of the United States personnel to respect the laws of the Republic of the Philippines and to abstain from any activity inconsistent with the spirit of this agreement, and, in particular, from any political activity in the Philippines. The Government of the United States shall take all measures within its authority to ensure that this is done. Article III Entry and Departure 1.The Government of the Philippines shall facilitate the admission of United States personnel and their departure from the Philippines in connection with activities covered by this agreement. 2.United States military personnel shall be exempt from passport and visa regulations upon entering and departing the Philippines. 3. The following documents only, which shall be presented on demand, shall be required in respect of United States military personnel who enter the Philippines: (a) personal identity card issued by the appropriate United States authority showing full name, date of birth, rank or grade and service number (if any), branch of service and photograph;

(b) individual or collective document issued by the appropriate United States authority, authorizing the travel or visit and identifying the individual or group as United States military personnel; and (c) the commanding officer of a military aircraft or vessel shall present a declaration of health, and when required by the cognizant representative of the Government of the Philippines, shall conduct a quarantine inspection and will certify that the aircraft or vessel is free from quarantinable diseases. Any quarantine inspection of United States aircraft or United States vessels or cargoes thereon shall be conducted by the United States commanding officer in accordance with the international health regulations as promulgated by the World Health Organization, and mutually agreed procedures. 4. United States civilian personnel shall be exempt from visa requirements but shall present, upon demand, valid passports upon entry and departure of the Philippines. 5. If the Government of the Philippines has requested the removal of any United States personnel from its territory, the United States authorities shall be responsible for receiving the person concerned within its own territory or otherwise disposing of said person outside of the Philippines. Article IV Driving and Vehicle Registration 1. Philippine authorities shall accept as valid, without test or fee, a driving permit or license issued by the appropriate United States authority to United States personnel for the operation of military or official vehicles. 2. Vehicles owned by the Government of the United States need not be registered, but shall have appropriate markings. Article V Criminal Jurisdiction 1. Subject to the provisions of this article: (a) Philippine authorities shall have jurisdiction over United States personnel with respect to offenses committed within the Philippines and punishable under the law of the Philippines. (b) United States military authorities shall have the right to exercise within the Philippines all criminal and disciplinary jurisdiction conferred on them by the military law of the United States over United States personnel in the Philippines.

2. (a) Philippine authorities exercise exclusive jurisdiction over United States personnel with respect to offenses, including offenses relating to the security of the Philippines, punishable under the laws of the Philippines, but not under the laws of the United States. (b) United States authorities exercise exclusive jurisdiction over United States personnel with respect to offenses, including offenses relating to the security of the United States, punishable under the laws of the United States, but not under the laws of the Philippines. (c) For the purposes of this paragraph and paragraph 3 of this article, an offense relating to security means: (1) treason; (2) sabotage, espionage or violation of any law relating to national defense.

3. In cases where the right to exercise jurisdiction is concurrent, the following rules shall apply: (a) Philippine authorities shall have the primary right to exercise jurisdiction over all offenses committed by United States personnel, except in cases provided for in paragraphs 1(b), 2 (b), and 3 (b) of this Article. (b) United States military authorities shall have the primary right to exercise jurisdiction over United States personnel subject to the military law of the United States in relation to. (1) offenses solely against the property or security of the United States or offenses solely against the property or person of United States personnel; and (2) offenses arising out of any act or omission done in performance of official duty. (c) The authorities of either government may request the authorities of the other government to waive their primary right to exercise jurisdiction in a particular case. (d) Recognizing the responsibility of the United States military authorities to maintain good order and discipline among their forces, Philippine authorities will, upon request by the United States, waive their primary right to exercise jurisdiction except in cases of particular importance to the Philippines. If the Government of the Philippines determines that the case is of particular importance, it shall communicate such determination to the United States authorities within twenty (20) days after the Philippine authorities receive the United States request.

(e) When the United States military commander determines that an offense charged by authorities of the Philippines against United states personnel arises out of an act or omission done in the performance of official duty, the commander will issue a certificate setting forth such determination. This certificate will be transmitted to the appropriate authorities of the Philippines and will constitute sufficient proof of performance of official duty for the purposes of paragraph 3(b)(2) of this Article. In those cases where the Government of the Philippines believes the circumstances of the case require a review of the duty certificate, United States military authorities and Philippine authorities shall consult immediately. Philippine authorities at the highest levels may also present any information bearing on its validity. United States military authorities shall take full account of the Philippine position. Where appropriate, United States military authorities will take disciplinary or other action against offenders in official duty cases, and notify the Government of the Philippines of the actions taken. (f) If the government having the primary right does not exercise jurisdiction, it shall notify the authorities of the other government as soon as possible. (g) The authorities of the Philippines and the United States shall notify each other of the disposition of all cases in which both the authorities of the Philippines and the United States have the right to exercise jurisdiction. 4. Within the scope of their legal competence, the authorities of the Philippines and United States shall assist each other in the arrest of United States personnel in the Philippines and in handling them over to authorities who are to exercise jurisdiction in accordance with the provisions of this article. 5. United States military authorities shall promptly notify Philippine authorities of the arrest or detention of United States personnel who are subject of Philippine primary or exclusive jurisdiction. Philippine authorities shall promptly notify United States military authorities of the arrest or detention of any United States personnel. 6. The custody of any United States personnel over whom the Philippines is to exercise jurisdiction shall immediately reside with United States military authorities, if they so request, from the commission of the offense until completion of all judicial proceedings. United States military authorities shall, upon formal notification by the Philippine authorities and without delay, make such personnel available to those authorities in time for any investigative or judicial proceedings relating to the offense with which the person has been charged in extraordinary cases, the Philippine Government shall present its position to the United States Government regarding custody, which the United States Government shall take into full account. In the event Philippine judicial proceedings are not completed within one year, the United States shall be relieved of any obligations under this paragraph. The one-year period will not include the time necessary to appeal. Also, the one-year period will not include any time during which scheduled trial procedures are delayed because United States authorities, after timely notification by Philippine authorities to arrange for the presence of the accused, fail to do so.

7. Within the scope of their legal authority, United States and Philippine authorities shall assist each other in the carrying out of all necessary investigation into offenses and shall cooperate in providing for the attendance of witnesses and in the collection and production of evidence, including seizure and, in proper cases, the delivery of objects connected with an offense. 8. When United States personnel have been tried in accordance with the provisions of this Article and have been acquitted or have been convicted and are serving, or have served their sentence, or have had their sentence remitted or suspended, or have been pardoned, they may not be tried again for the same offense in the Philippines. Nothing in this paragraph, however, shall prevent United States military authorities from trying United States personnel for any violation of rules of discipline arising from the act or omission which constituted an offense for which they were tried by Philippine authorities. 9. When United States personnel are detained, taken into custody, or prosecuted by Philippine authorities, they shall be accorded all procedural safeguards established by the law of the Philippines. At the minimum, United States personnel shall be entitled: (a) To a prompt and speedy trial; (b) To be informed in advance of trial of the specific charge or charges made against them and to have reasonable time to prepare a defense; (c) To be confronted with witnesses against them and to cross examine such witnesses; (d) To present evidence in their defense and to have compulsory process for obtaining witnesses; (e) To have free and assisted legal representation of their own choice on the same basis as nationals of the Philippines; (f) To have the service of a competent interpreter; and (g) To communicate promptly with and to be visited regularly by United States authorities, and to have such authorities present at all judicial proceedings. These proceedings shall be public unless the court, in accordance with Philippine laws, excludes persons who have no role in the proceedings. 10. The confinement or detention by Philippine authorities of United States personnel shall be carried out in facilities agreed on by appropriate Philippine and United States authorities. United States Personnel serving sentences in the Philippines shall have the right to visits and material assistance.

11. United States personnel shall be subject to trial only in Philippine courts of ordinary jurisdiction, and shall not be subject to the jurisdiction of Philippine military or religious courts. Article VI Claims 1. Except for contractual arrangements, including United States foreign military sales letters of offer and acceptance and leases of military equipment, both governments waive any and all claims against each other for damage, loss or destruction to property of each others armed forces or for death or injury to their military and civilian personnel arising from activities to which this agreement applies. 2. For claims against the United States, other than contractual claims and those to which paragraph 1 applies, the United States Government, in accordance with United States law regarding foreign claims, will pay just and reasonable compensation in settlement of meritorious claims for damage, loss, personal injury or death, caused by acts or omissions of United States personnel, or otherwise incident to the non-combat activities of the United States forces. Article VII Importation and Exportation 1. United States Government equipment, materials, supplies, and other property imported into or acquired in the Philippines by or on behalf of the United States armed forces in connection with activities to which this agreement applies, shall be free of all Philippine duties, taxes and other similar charges. Title to such property shall remain with the United States, which may remove such property from the Philippines at any time, free from export duties, taxes, and other similar charges. The exemptions provided in this paragraph shall also extend to any duty, tax, or other similar charges which would otherwise be assessed upon such property after importation into, or acquisition within, the Philippines. Such property may be removed from the Philippines, or disposed of therein, provided that disposition of such property in the Philippines to persons or entities not entitled to exemption from applicable taxes and duties shall be subject to payment of such taxes, and duties and prior approval of the Philippine Government. 2. Reasonable quantities of personal baggage, personal effects, and other property for the personal use of United States personnel may be imported into and used in the Philippines free of all duties, taxes and other similar charges during the period of their temporary stay in the Philippines. Transfers to persons or entities in the Philippines not entitled to import privileges may only be made upon prior approval of the appropriate Philippine authorities including payment by the recipient of applicable duties and taxes imposed in accordance with the laws of the Philippines. The exportation of such property and of property acquired in the Philippines by United States personnel shall be free of all Philippine duties, taxes, and other similar charges. Article VIII Movement of Vessels and Aircraft

1. Aircraft operated by or for the United States armed forces may enter the Philippines upon approval of the Government of the Philippines in accordance with procedures stipulated in implementing arrangements. 2. Vessels operated by or for the United States armed forces may enter the Philippines upon approval of the Government of the Philippines. The movement of vessels shall be in accordance with international custom and practice governing such vessels, and such agreed implementing arrangements as necessary. 3. Vehicles, vessels, and aircraft operated by or for the United States armed forces shall not be subject to the payment of landing or port fees, navigation or over flight charges, or tolls or other use charges, including light and harbor dues, while in the Philippines. Aircraft operated by or for the United States armed forces shall observe local air traffic control regulations while in the Philippines. Vessels owned or operated by the United States solely on United States Government non-commercial service shall not be subject to compulsory pilotage at Philippine ports. Article IX Duration and Termination This agreement shall enter into force on the date on which the parties have notified each other in writing through the diplomatic channel that they have completed their constitutional requirements for entry into force. This agreement shall remain in force until the expiration of 180 days from the date on which either party gives the other party notice in writing that it desires to terminate the agreement. Via these consolidatedix[11] petitions for certiorari and prohibition, petitioners - as legislators, non-governmental organizations, citizens and taxpayers - assail the constitutionality of the VFA and impute to herein respondents grave abuse of discretion in ratifying the agreement. We have simplified the issues raised by the petitioners into the following: I Do petitioners have legal standing as concerned citizens, taxpayers, or legislators to question the constitutionality of the VFA? II Is the VFA governed by the provisions of Section 21, Article VII or of Section 25, Article XVIII of the Constitution? III Does the VFA constitute an abdication of Philippine sovereignty?

a. Are Philippine courts deprived of their jurisdiction to hear and try offenses committed by US military personnel? b. Is the Supreme Court deprived of its jurisdiction over offenses punishable by reclusion perpetua or higher? IV Does the VFA violate: a. b. the equal protection clause under Section 1, Article III of the Constitution? the Prohibition against nuclear weapons under Article II, Section 8?

c. Section 28 (4), Article VI of the Constitution granting the exemption from taxes and duties for the equipment, materials supplies and other properties imported into or acquired in the Philippines by, or on behalf, of the US Armed Forces?
LOCUS STANDI

At the outset, respondents challenge petitioners standing to sue, on the ground that the latter have not shown any interest in the case, and that petitioners failed to substantiate that they have sustained, or will sustain direct injury as a result of the operation of the VFA.ix[12] Petitioners, on the other hand, counter that the validity or invalidity of the VFA is a matter of transcendental importance which justifies their standing.ix[13] A party bringing a suit challenging the constitutionality of a law, act, or statute must show not only that the law is invalid, but also that he has sustained or in is in immediate, or imminent danger of sustaining some direct injury as a result of its enforcement, and not merely that he suffers thereby in some indefinite way. He must show that he has been, or is about to be, denied some right or privilege to which he is lawfully entitled, or that he is about to be subjected to some burdens or penalties by reason of the statute complained of.ix[14] In the case before us, petitioners failed to show, to the satisfaction of this Court, that they have sustained, or are in danger of sustaining any direct injury as a result of the enforcement of the VFA. As taxpayers, petitioners have not established that the VFA involves the exercise by Congress of its taxing or spending powers.ix[15] On this point, it bears stressing that a taxpayers suit refers to a case where the act complained of directly involves the illegal disbursement of public funds derived from taxation.ix[16] Thus, in Bugnay Const. & Development Corp. vs. Laronix[17], we held: x x x it is exigent that the taxpayer-plaintiff sufficiently show that he would be benefited or injured by the judgment or entitled to the avails of the suit as a real party in interest. Before he can invoke the power of judicial review, he must specifically prove that he has sufficient interest in preventing the illegal expenditure of money raised by taxation and that he will sustain a direct

injury as a result of the enforcement of the questioned statute or contract. It is not sufficient that he has merely a general interest common to all members of the public. Clearly, inasmuch as no public funds raised by taxation are involved in this case, and in the absence of any allegation by petitioners that public funds are being misspent or illegally expended, petitioners, as taxpayers, have no legal standing to assail the legality of the VFA. Similarly, Representatives Wigberto Taada, Agapito Aquino and Joker Arroyo, as petitionerslegislators, do not possess the requisite locus standi to maintain the present suit. While this Court, in Phil. Constitution Association vs. Hon. Salvador Enriquez,ix[18] sustained the legal standing of a member of the Senate and the House of Representatives to question the validity of a presidential veto or a condition imposed on an item in an appropriation bull, we cannot, at this instance, similarly uphold petitioners standing as members of Congress, in the absence of a clear showing of any direct injury to their person or to the institution to which they belong. Beyond this, the allegations of impairment of legislative power, such as the delegation of the power of Congress to grant tax exemptions, are more apparent than real. While it may be true that petitioners pointed to provisions of the VFA which allegedly impair their legislative powers, petitioners failed however to sufficiently show that they have in fact suffered direct injury. In the same vein, petitioner Integrated Bar of the Philippines (IBP) is stripped of standing in these cases. As aptly observed by the Solicitor General, the IBP lacks the legal capacity to bring this suit in the absence of a board resolution from its Board of Governors authorizing its National President to commence the present action.ix[19] Notwithstanding, in view of the paramount importance and the constitutional significance of the issues raised in the petitions, this Court, in the exercise of its sound discretion, brushes aside the procedural barrier and takes cognizance of the petitions, as we have done in the early Emergency Powers Cases,ix[20] where we had occasion to rule: x x x ordinary citizens and taxpayers were allowed to question the constitutionality of several executive orders issued by President Quirino although they were involving only an indirect and general interest shared in common with the public. The Court dismissed the objection that they were not proper parties and ruled that transcendental importance to the public of these cases demands that they be settled promptly and definitely, brushing aside, if we must, technicalities of procedure. We have since then applied the exception in many other cases. (Association of Small Landowners in the Philippines, Inc. v. Sec. of Agrarian Reform, 175 SCRA 343). (Underscoring Supplied) This principle was reiterated in the subsequent cases of Gonzales vs. COMELEC,ix[21] Daza vs. Singson,ix[22] and Basco vs. Phil. Amusement and Gaming Corporation,ix[23] where we emphatically held: Considering however the importance to the public of the case at bar, and in keeping with the Courts duty, under the 1987 Constitution, to determine whether or not the other branches of the

government have kept themselves within the limits of the Constitution and the laws and that they have not abused the discretion given to them, the Court has brushed aside technicalities of procedure and has taken cognizance of this petition. x x x Again, in the more recent case of Kilosbayan vs. Guingona, Jr.,ix[24] thisCourt ruled that in cases of transcendental importance, the Court may relax the standing requirements and allow a suit to prosper even where there is no direct injury to the party claiming the right of judicial review. Although courts generally avoid having to decide a constitutional question based on the doctrine of separation of powers, which enjoins upon the departments of the government a becoming respect for each others acts,ix[25] this Court nevertheless resolves to take cognizance of the instant petitions.
APPLICABLE CONSTITUTIONAL PROVISION

One focal point of inquiry in this controversy is the determination of which provision of the Constitution applies, with regard to the exercise by the senate of its constitutional power to concur with the VFA. Petitioners argue that Section 25, Article XVIII is applicable considering that the VFA has for its subject the presence of foreign military troops in the Philippines. Respondents, on the contrary, maintain that Section 21, Article VII should apply inasmuch as the VFA is not a basing arrangement but an agreement which involves merely the temporary visits of United States personnel engaged in joint military exercises. The 1987 Philippine Constitution contains two provisions requiring the concurrence of the Senate on treaties or international agreements. Section 21, Article VII, which herein respondents invoke, reads: No treaty or international agreement shall be valid and effective unless concurred in by at least two-thirds of all the Members of the Senate. Section 25, Article XVIII, provides: After the expiration in 1991 of the Agreement between the Republic of the Philippines and the United States of America concerning Military Bases, foreign military bases, troops, or facilities shall not be allowed in the Philippines except under a treaty duly concurred in by the senate and, when the Congress so requires, ratified by a majority of the votes cast by the people in a national referendum held for that purpose, and recognized as a treaty by the other contracting State. Section 21, Article VII deals with treatise or international agreements in general, in which case, the concurrence of at least two-thirds (2/3) of all the Members of the Senate is required to make the subject treaty, or international agreement, valid and binding on the part of the Philippines. This provision lays down the general rule on treatise or international agreements and applies to any form of treaty with a wide variety of subject matter, such as, but not limited to, extradition or tax treatise or those economic in nature. All treaties or international agreements entered into by

the Philippines, regardless of subject matter, coverage, or particular designation or appellation, requires the concurrence of the Senate to be valid and effective. In contrast, Section 25, Article XVIII is a special provision that applies to treaties which involve the presence of foreign military bases, troops or facilities in the Philippines. Under this provision, the concurrence of the Senate is only one of the requisites to render compliance with the constitutional requirements and to consider the agreement binding on the Philippines. Section 25, Article XVIII further requires that foreign military bases, troops, or facilities may be allowed in the Philippines only by virtue of a treaty duly concurred in by the Senate, ratified by a majority of the votes cast in a national referendum held for that purpose if so required by Congress, and recognized as such by the other contracting state. It is our considered view that both constitutional provisions, far from contradicting each other, actually share some common ground. These constitutional provisions both embody phrases in the negative and thus, are deemed prohibitory in mandate and character. In particular, Section 21 opens with the clause No treaty x x x, and Section 25 contains the phrase shall not be allowed. Additionally, in both instances, the concurrence of the Senate is indispensable to render the treaty or international agreement valid and effective. To our mind, the fact that the President referred the VFA to the Senate under Section 21, Article VII, and that the Senate extended its concurrence under the same provision, is immaterial. For in either case, whether under Section 21, Article VII or Section 25, Article XVIII, the fundamental law is crystalline that the concurrence of the Senate is mandatory to comply with the strict constitutional requirements. On the whole, the VFA is an agreement which defines the treatment of United States troops and personnel visiting the Philippines. It provides for the guidelines to govern such visits of military personnel, and further defines the rights of the United States and the Philippine government in the matter of criminal jurisdiction, movement of vessel and aircraft, importation and exportation of equipment, materials and supplies. Undoubtedly, Section 25, Article XVIII, which specifically deals with treaties involving foreign military bases, troops, or facilities, should apply in the instant case. To a certain extent and in a limited sense, however, the provisions of section 21, Article VII will find applicability with regard to the issue and for the sole purpose of determining the number of votes required to obtain the valid concurrence of the Senate, as will be further discussed hereunder. It is a finely-imbedded principle in statutory construction that a special provision or law prevails over a general one. Lex specialis derogat generali. Thus, where there is in the same statute a particular enactment and also a general one which, in its most comprehensive sense, would include what is embraced in the former, the particular enactment must be operative, and the general enactment must be taken to affect only such cases within its general language which are not within the provision of the particular enactment.ix[26] In Leveriza vs. Intermediate Appellate Court,ix[27] we enunciated:

x x x that another basic principle of statutory construction mandates that general legislation must give way to a special legislation on the same subject, and generally be so interpreted as to embrace only cases in which the special provisions are not applicable (Sto. Domingo vs. de los Angeles, 96 SCRA 139), that a specific statute prevails over a general statute (De Jesus vs. People, 120 SCRA 760) and that where two statutes are of equal theoretical application to a particular case, the one designed therefor specially should prevail (Wil Wilhensen Inc. vs. Baluyot, 83 SCRA 38). Moreover, it is specious to argue that Section 25, Article XVIII is inapplicable to mere transient agreements for the reason that there is no permanent placing of structure for the establishment of a military base. On this score, the Constitution makes no distinction between transient and permanent. Certainly, we find nothing in Section 25, Article XVIII that requires foreign troops or facilities to be stationed or placed permanently in the Philippines. It is a rudiment in legal hermenuetics that when no distinction is made by law, the Court should not distinguish- Ubi lex non distinguit nec nos distinguire debemos. In like manner, we do not subscribe to the argument that Section 25, Article XVIII is not controlling since no foreign military bases, but merely foreign troops and facilities, are involved in the VFA. Notably, a perusal of said constitutional provision reveals that the proscription covers foreign military bases, troops, or facilities. Stated differently, this prohibition is not limited to the entry of troops and facilities without any foreign bases being established. The clause does not refer to foreign military bases, troops, or facilities collectively but treats them as separate and independent subjects. The use of comma and the disjunctive word or clearly signifies disassociation and independence of one thing from the others included in the enumeration,ix[28] such that, the provision contemplates three different situations - a military treaty the subject of which could be either (a) foreign bases, (b) foreign troops, or (c) foreign facilities - any of the three standing alone places it under the coverage of Section 25, Article XVIII. To this end, the intention of the framers of the Charter, as manifested during the deliberations of the 1986 Constitutional Commission, is consistent with this interpretation: MR. MAAMBONG. I just want to address a question or two to Commissioner Bernas. This formulation speaks of three things: foreign military bases, troops or facilities. My first question is: If the country does enter into such kind of a treaty, must it cover the threebases, troops or facilities-or could the treaty entered into cover only one or two? FR. BERNAS. Definitely, it can cover only one. Whether it covers only one or it covers three, the requirement will be the same. MR. MAAMBONG. In other words, the Philippine government can enter into a treaty covering not bases but merely troops?

FR. BERNAS. Yes. MR. MAAMBONG. I cannot find any reason why the government can enter into a treaty covering only troops. FR. BERNAS. Why not? Probably if we stretch our imagination a little bit more, we will find some. We just want to cover everything.ix[29] (Underscoring Supplied) Moreover, military bases established within the territory of another state is no longer viable because of the alternatives offered by new means and weapons of warfare such as nuclear weapons, guided missiles as well as huge sea vessels that can stay afloat in the sea even for months and years without returning to their home country. These military warships are actually used as substitutes for a land-home base not only of military aircraft but also of military personnel and facilities. Besides, vessels are mobile as compared to a land-based military headquarters. At this juncture, we shall then resolve the issue of whether or not the requirements of Section 25 were complied with when the Senate gave its concurrence to the VFA. Section 25, Article XVIII disallows foreign military bases, troops, or facilities in the country, unless the following conditions are sufficiently met, viz: (a) it must be under a treaty; (b) the treaty must be duly concurred in by the Senate and, when so required by congress, ratified by a majority of the votes cast by the people in a national referendum; and (c) recognized as a treaty by the other contracting state. There is no dispute as to the presence of the first two requisites in the case of the VFA. The concurrence handed by the Senate through Resolution No. 18 is in accordance with the provisions of the Constitution, whether under the general requirement in Section 21, Article VII, or the specific mandate mentioned in Section 25, Article XVIII, the provision in the latter article requiring ratification by a majority of the votes cast in a national referendum being unnecessary since Congress has not required it. As to the matter of voting, Section 21, Article VII particularly requires that a treaty or international agreement, to be valid and effective, must be concurred in by at least two-thirds of all the members of the Senate. On the other hand, Section 25, Article XVIII simply provides that the treaty be duly concurred in by the Senate. Applying the foregoing constitutional provisions, a two-thirds vote of all the members of the Senate is clearly required so that the concurrence contemplated by law may be validly obtained and deemed present. While it is true that Section 25, Article XVIII requires, among other things, that the treaty-the VFA, in the instant case-be duly concurred in by the Senate, it is very true however that said provision must be related and viewed in light of the clear mandate embodied in Section 21, Article VII, which in more specific terms, requires that the concurrence of a treaty, or international agreement, be made by a two -thirds vote of all the members of the Senate. Indeed, Section 25, Article XVIII must not be treated in isolation to section 21, Article, VII.

As noted, the concurrence requirement under Section 25, Article XVIII must be construed in relation to the provisions of Section 21, Article VII. In a more particular language, the concurrence of the Senate contemplated under Section 25, Article XVIII means that at least twothirds of all the members of the Senate favorably vote to concur with the treaty-the VFA in the instant case. Under these circumstances, the charter provides that the Senate shall be composed of twenty-four (24) Senators.ix[30] Without a tinge of doubt, two-thirds (2/3) of this figure, or not less than sixteen (16) members, favorably acting on the proposal is an unquestionable compliance with the requisite number of votes mentioned in Section 21 of Article VII. The fact that there were actually twenty-three (23) incumbent Senators at the time the voting was made,ix[31] will not alter in any significant way the circumstance that more than two-thirds of the members of the Senate concurred with the proposed VFA, even if the two-thirds vote requirement is based on this figure of actual members (23). In this regard, the fundamental law is clear that two-thirds of the 24 Senators, or at least 16 favorable votes, suffice so as to render compliance with the strict constitutional mandate of giving concurrence to the subject treaty. Having resolved that the first two requisites prescribed in Section 25, Article XVIII are present, we shall now pass upon and delve on the requirement that the VFA should be recognized as a treaty by the United States of America. Petitioners content that the phrase recognized as a treaty, embodied in section 25, Article XVIII, means that the VFA should have the advice and consent of the United States Senate pursuant to its own constitutional process, and that it should not be considered merely an executive agreement by the United States. In opposition, respondents argue that the letter of United States Ambassador Hubbard stating that the VFA is binding on the United States Government is conclusive, on the point that the VFA is recognized as a treaty by the United States of America. According to respondents, the VFA, to be binding, must only be accepted as a treaty by the United States. This Court is of the firm view that the phrase recognized as a treaty means that the other contracting party accepts or acknowledges the agreement as a treaty.ix[32] To require the other contracting state, the United States of America in this case, to submit the VFA to the United States Senate for concurrence pursuant to its Constitution,ix[33] is to accord strict meaning to the phrase. Well-entrenched is the principle that the words used in the Constitution are to be given their ordinary meaning except where technical terms are employed, in which case the significance thus attached to them prevails. Its language should be understood in the sense they have in common use.ix[34] Moreover, it is inconsequential whether the United States treats the VFA only as an executive agreement because, under international law, an executive agreement is as binding as a

treaty.ix[35] To be sure, as long as the VFA possesses the elements of an agreement under international law, the said agreement is to be taken equally as a treaty. A treaty, as defined by the Vienna Convention on the Law of Treaties, is an international instrument concluded between States in written form and governed by international law, whether embodied in a single instrument or in two or more related instruments, and whatever its particular designation.ix[36] There are many other terms used for a treaty or international agreement, some of which are: act, protocol, agreement, compromis d arbitrage, concordat, convention, declaration, exchange of notes, pact, statute, charter and modus vivendi. All writers, from Hugo Grotius onward, have pointed out that the names or titles of international agreements included under the general term treaty have little or no legal significance. Certain terms are useful, but they furnish little more than mere description.ix[37] Article 2(2) of the Vienna Convention provides that the provisions of paragraph 1 regarding the use of terms in the present Convention are without prejudice to the use of those terms, or to the meanings which may be given to them in the internal law of the State. Thus, in international law, there is no difference between treaties and executive agreements in their binding effect upon states concerned, as long as the negotiating functionaries have remained within their powers.ix[38] International law continues to make no distinction between treaties and executive agreements: they are equally binding obligations upon nations.ix[39] In our jurisdiction, we have recognized the binding effect of executive agreements even without the concurrence of the Senate or Congress. In Commissioner of Customs vs. Eastern Sea Trading,ix[40] we had occasion to pronounce: x x x the right of the Executive to enter into binding agreements without the necessity of subsequent congressional approval has been confirmed by long usage. From the earliest days of our history we have entered into executive agreements covering such subjects as commercial and consular relations, most-favored-nation rights, patent rights, trademark and copyright protection, postal and navigation arrangements and the settlement of claims. The validity of these has never been seriously questioned by our courts. x x x x x x xxx

Furthermore, the United States Supreme Court has expressly recognized the validity and constitutionality of executive agreements entered into without Senate approval. (39 Columbia Law Review, pp. 753-754) (See, also, U.S. vs. Curtis Wright Export Corporation, 299 U.S. 304, 81 L. ed. 255; U.S. vs. Belmont, 301 U.S. 324, 81 L. ed. 1134; U.S. vs. Pink, 315 U.S. 203, 86 L. ed. 796; Ozanic vs. U.S. 188 F. 2d. 288; Yale Law Journal, Vol. 15 pp. 1905-1906; California Law Review, Vol. 25, pp. 670-675; Hyde on International Law [revised Edition], Vol. 2, pp. 1405, 1416-1418; willoughby on the U.S. Constitution Law, Vol. I [2d ed.], pp. 537-540; Moore, International Law Digest, Vol. V, pp. 210-218; Hackworth, International Law Digest, Vol. V, pp. 390-407). (Italics Supplied) (Emphasis Ours)

The deliberations of the Constitutional Commission which drafted the 1987 Constitution is enlightening and highly-instructive: MR. MAAMBONG. Of course it goes without saying that as far as ratification of the other state is concerned, that is entirely their concern under their own laws. FR. BERNAS. Yes, but we will accept whatever they say. If they say that we have done everything to make it a treaty, then as far as we are concerned, we will accept it as a treaty.ix[41] The records reveal that the United States Government, through Ambassador Thomas C. Hubbard, has stated that the United States government has fully committed to living up to the terms of the VFA.ix[42] For as long as the united States of America accepts or acknowledges the VFA as a treaty, and binds itself further to comply with its obligations under the treaty, there is indeed marked compliance with the mandate of the Constitution. Worth stressing too, is that the ratification, by the President, of the VFA and the concurrence of the Senate should be taken as a clear an unequivocal expression of our nations consent to be bound by said treaty, with the concomitant duty to uphold the obligations and responsibilities embodied thereunder. Ratification is generally held to be an executive act, undertaken by the head of the state or of the government, as the case may be, through which the formal acceptance of the treaty is proclaimed.ix[43] A State may provide in its domestic legislation the process of ratification of a treaty. The consent of the State to be bound by a treaty is expressed by ratification when: (a) the treaty provides for such ratification, (b) it is otherwise established that the negotiating States agreed that ratification should be required, (c) the representative of the State has signed the treaty subject to ratification, or (d) the intention of the State to sign the treaty subject to ratification appears from the full powers of its representative, or was expressed during the negotiation.ix[44] In our jurisdiction, the power to ratify is vested in the President and not, as commonly believed, in the legislature. The role of the Senate is limited only to giving or withholding its consent, or concurrence, to the ratification.ix[45] With the ratification of the VFA, which is equivalent to final acceptance, and with the exchange of notes between the Philippines and the United States of America, it now becomes obligatory and incumbent on our part, under the principles of international law, to be bound by the terms of the agreement. Thus, no less than Section 2, Article II of the Constitution,ix[46] declares that the Philippines adopts the generally accepted principles of international law as part of the law of the land and adheres to the policy of peace, equality, justice, freedom, cooperation and amity with all nations. As a member of the family of nations, the Philippines agrees to be bound by generally accepted rules for the conduct of its international relations. While the international obligation devolves upon the state and not upon any particular branch, institution, or individual member of its

government, the Philippines is nonetheless responsible for violations committed by any branch or subdivision of its government or any official thereof. As an integral part of the community of nations, we are responsible to assure that our government, Constitution and laws will carry out our international obligation.ix[47] Hence, we cannot readily plead the Constitution as a convenient excuse for non-compliance with our obligations, duties and responsibilities under international law. Beyond this, Article 13 of the Declaration of Rights and Duties of States adopted by the International Law Commission in 1949 provides: Every State has the duty to carry out in good faith its obligations arising from treaties and other sources of international law, and it may not invoke provisions in its constitution or its laws as an excuse for failure to perform this duty.ix[48] Equally important is Article 26 of the convention which provides that Every treaty in force is binding upon the parties to it and must be performed by them in good faith. This is known as the principle of pacta sunt servanda which preserves the sanctity of treaties and have been one of the most fundamental principles of positive international law, supported by the jurisprudence of international tribunals.ix[49]
NO GRAVE ABUSE OF DISCRETION

In the instant controversy, the President, in effect, is heavily faulted for exercising a power and performing a task conferred upon him by the Constitution-the power to enter into and ratify treaties. Through the expediency of Rule 65 of the Rules of Court, petitioners in these consolidated cases impute grave abuse of discretion on the part of the chief Executive in ratifying the VFA, and referring the same to the Senate pursuant to the provisions of Section 21, Article VII of the Constitution. On this particular matter, grave abuse of discretion implies such capricious and whimsical exercise of judgment as is equivalent to lack of jurisdiction, or, when the power is exercised in an arbitrary or despotic manner by reason of passion or personal hostility, and it must be so patent and gross as to amount to an evasion of positive duty enjoined or to act at all in contemplation of law.ix[50] By constitutional fiat and by the intrinsic nature of his office, the President, as head of State, is the sole organ and authority in the external affairs of the country. In many ways, the President is the chief architect of the nations foreign policy; his dominance in the field of foreign relations is (then) conceded.ix[51] Wielding vast powers an influence, his conduct in the external affairs of the nation, as Jefferson describes, is executive altogether."ix[52] As regards the power to enter into treaties or international agreements, the Constitution vests the same in the President, subject only to the concurrence of at least two-thirds vote of all the members of the Senate. In this light, the negotiation of the VFA and the subsequent ratification of the agreement are exclusive acts which pertain solely to the President, in the lawful exercise of his vast executive and diplomatic powers granted him no less than by the fundamental law

itself. Into the field of negotiation the Senate cannot intrude, and Congress itself is powerless to invade it.ix[53] Consequently, the acts or judgment calls of the President involving the VFAspecifically the acts of ratification and entering into a treaty and those necessary or incidental to the exercise of such principal acts - squarely fall within the sphere of his constitutional powers and thus, may not be validly struck down, much less calibrated by this Court, in the absence of clear showing of grave abuse of power or discretion. It is the Courts considered view that the President, in ratifying the VFA and in submitting the same to the Senate for concurrence, acted within the confines and limits of the powers vested in him by the Constitution. It is of no moment that the President, in the exercise of his wide latitude of discretion and in the honest belief that the VFA falls within the ambit of Section 21, Article VII of the Constitution, referred the VFA to the Senate for concurrence under the aforementioned provision. Certainly, no abuse of discretion, much less a grave, patent and whimsical abuse of judgment, may be imputed to the President in his act of ratifying the VFA and referring the same to the Senate for the purpose of complying with the concurrence requirement embodied in the fundamental law. In doing so, the President merely performed a constitutional task and exercised a prerogative that chiefly pertains to the functions of his office. Even if he erred in submitting the VFA to the Senate for concurrence under the provisions of Section 21 of Article VII, instead of Section 25 of Article XVIII of the Constitution, still, the President may not be faulted or scarred, much less be adjudged guilty of committing an abuse of discretion in some patent, gross, and capricious manner. For while it is conceded that Article VIII, Section 1, of the Constitution has broadened the scope of judicial inquiry into areas normally left to the political departments to decide, such as those relating to national security, it has not altogether done away with political questions such as those which arise in the field of foreign relations.ix[54] The High Tribunals function, as sanctioned by Article VIII, Section 1, is merely (to) check whether or not the governmental branch or agency has gone beyond the constitutional limits of its jurisdiction, not that it erred or has a different view. In the absence of a showing (of) grave abuse of discretion amounting to lack of jurisdiction, there is no occasion for the Court to exercise its corrective powerIt has no power to look into what it thinks is apparent error.ix[55] As to the power to concur with treaties, the constitution lodges the same with the Senate alone. Thus, once the Senateix[56] performs that power, or exercises its prerogative within the boundaries prescribed by the Constitution, the concurrence cannot, in like manner, be viewed to constitute an abuse of power, much less grave abuse thereof. Corollarily, the Senate, in the exercise of its discretion and acting within the limits of such power, may not be similarly faulted for having simply performed a task conferred and sanctioned by no less than the fundamental law. For the role of the Senate in relation to treaties is essentially legislative in character;ix[57] the Senate, as an independent body possessed of its own erudite mind, has the prerogative to either accept or reject the proposed agreement, and whatever action it takes in the exercise of its wide latitude of discretion, pertains to the wisdom rather than the legality of the act. In this sense, the Senate partakes a principal, yet delicate, role in keeping the principles of separation of powers

and of checks and balances alive and vigilantly ensures that these cherished rudiments remain true to their form in a democratic government such as ours. The Constitution thus animates, through this treaty-concurring power of the Senate, a healthy system of checks and balances indispensable toward our nations pursuit of political maturity and growth. True enough, rudimentary is the principle that matters pertaining to the wisdom of a legislative act are beyond the ambit and province of the courts to inquire. In fine, absent any clear showing of grave abuse of discretion on the part of respondents, this Court- as the final arbiter of legal controversies and staunch sentinel of the rights of the people is then without power to conduct an incursion and meddle with such affairs purely executive and legislative in character and nature. For the Constitution no less, maps out the distinct boundaries and limits the metes and bounds within which each of the three political branches of government may exercise the powers exclusively and essentially conferred to it by law. WHEREFORE, in light of the foregoing disquisitions, the instant petitions are hereby DISMISSED. SO ORDERED. G.R. No. 138298 August 24, 2001

RAOUL B. DEL MAR, petitioner, vs. PHILIPPINE AMUSEMENT AND GAMING CORPORATION, BELLE JAI-ALAI CORPORATION, FILIPINAS GAMING ENTERTAINMENT TOTALIZATOR CORPORATION, respondents. x---------------------------------------------------------x G.R. No. 138982 August 24, 2001

FEDERICO S. SANDOVAL II and MICHAEL T. DEFENSOR, petitioners, vs. PHILIPPINE AMUSEMENT AND GAMING CORPORATION, respondent. JUAN MIGUEL ZUBIRI, intervenor. RESOLUTION VITUG, J.: In it's decision, dated 29 November 2000, the Court granted petitions filed by Raoul B. Del Mar, Federico S. Sandoval 11 and Michael T. Defensor to enjoin the Philippine Amusement and Gaming Corporation (PAGCOR), Belle Jai-Alai Corporation (BELLE) and Filipinas Gaming Entertainment Totalizator Corporation (FILGAME) from operating, maintaining or managing

jai-alai games and from enforcing the 17th June 1999 Agreement entered into among said respondents for that purpose.1 The ponencia penned by Justice Reynato S. Puno, concurred in by Chief Justice Hilario G. Davide, Jr., and Justices Jose A.R. Melo, Artemio V. Panganiban, Bernardo P. Pardo, Arturo B. Buena, Minerva P. Gonzaga-Reyes and Consuelo Ynares-Santiago, enucleated that PAGCOR was bereft of any franchise to operate, maintain or manage jai-alai games whether by itself alone or in conjunction with its co-respondents. The dissenting opinion of Justice Sabino R. de Leon, Jr., subscribed to by Justices Josue N. Bellosillo, Santiago M. Kapunan and Leonardo A. Quisumbing, stated that PAGCOR had a valid franchise to conduct jai-alai games and had likewise the authority under that franchise to maintain, operate or manage jai-alai games through and in association with its co-respondents BELLE and FILGAME pursuant to their agreement. The separate opinion of Justice Jose c. Vitug, shared by Justice Vicente V. Mendoza, expressed the view that the franchise accorded to PAGCOR was broad enough to authorize it to operate sports and gaming pools, inclusive of jai-alai, that authority, however, did not allow it to contract any part of that franchise to its co-respondents BELLE and FILGAME. The subsequent motion for reconsideration were resolved in the Court's resolution of 19 June 2001, in this wise; viz: "Acting on the motions for reconsideration filed by public respondent Philippine Amusement and Gaming Corporation (PAGCOR) and private respondents Belle Jai-Alai Corporation (BELLE), and Filipinas Gaming Entertainment Totalizator Corporation (FILGAME), seeking to reverse the court's Decision dated November 29, 2000, only seven (7) justices, namely, Josue Bellosillo, Jose Melo, Santiago Kapunan, Leonardo Quisumbing, Consuelo Y. Santiago, Sabino de Leon and Angelina Gutierrez voted to grant the motions. For lack of required number of votes, the said modtions for reconsideration are denied. The opinions of Justices Puno, Melo, Vitug and De Leon are herewith made part of this resolution." Respondents have sought from the Court a clarification of the foregoing resolution. During the deliberations of the Court culminating in the promulgation of its 19th June 2001 resolution, the justices voted thusly: (a) Chief Justice Hilario G. Davide, Jr., and Justices Reynato S. Puno, Artemio V. Panganiban, Bernardo P. Pardo and Minerva P. Gonzaga-Reyes held that PAGCOR had no valid franchise and that, therefore, it had no authority to operate, maintain or manage jai-alai games, either by itself or in association with any other entity; (b) Justices Josue N. Bellosillo, Jose A.R. Melo, Santiago M. Kapunan, Leonardo A. Quisumbing, Consuelo Ynares-Santiago, Sabino R. de Leon, Jr., and Angelina Sandoval-Gutierrez concluded that PAGCOR had a valid franchise to conduct jai-alai games and that it could operate, maintain or manage such games by itself or in association with BELLE and FILGAME conformably with their agreement; while (c) Justices Jose C. Vitug, Vicente V. Mendoza and Arturo B. Buena maintained that PAGCOR alone could operate, maintain or manage jai-alai games but that it could not contract, either directly or indirectly, any of such activities to entities, including BELLE and FILGAME, which were not themselves holders of a valid franchise.

In fine, the results of voting on the issues raised in the motions for reconsideration, can be summed up thusly: On the issue of whether PAGCOR itself has a valid franchise to conduct jai-alai games, five members of the Court (Chief Justice Hilario G. Davide, Jr., and Justices Reynato S. Puno, Artemio V. Panganiban, Bernardo P. Pardo, and Minerva P. Gonzaga-Reyes) have voted in the negative and ten members of the Court (Justices Josue N. Bellosillo, Jose A. R. Melo, Jose C. Vitug, Vitug, Vicente V. Mendoza, Santiago M. Kapunan, Leonardo A. Quisumbing, Arturo B. Buena, Consuelo Ynares-Santiago, Sabino R. De Leon, Jr. and Angelina Sandoval-Gutierrez) have voted in the affirmative; and on the issue of whether PAGCOR can operate, maintain or manage jai-alai games in association with Belle and Filgame according to their assailed agreement, only seven members of the Court (Justices Josue N. Bellosillo, Jose A. R. Melo, Santiago M. Kapunan, Leonardo A. Quisumbing, Consuelo Ynares-Santiago, Sabino R. De Leon, Jr., and Angelina Sandoval-Gutierrez) have voted in the affirmative; while eight members of the Court have voted in the negative five justices (Chief Justice Hilario G. Davide, Jr., and Justices Reynato S. Puno, Artemio V. Panganiban, Bernardo P. Pardo, and Minerva P. Gonzaga-Reyes) have voted in the negative on the thesis that PAGCOR has no franchise to operate, maintain, or manage jai-alai, and three justices (Justices Jose C. Vitug, Vicente V. Mendoza, and Arturo B. Buena) have voted in the negative on the ground that only PAGCOR by itself, not with any other person or entity, can operate, maintain, or manage jai-alai games. WHEREFORE, acting on the instant motions for clarification filed by respondents and on the basis of the results of the voting heretofore elucidated, the Court resolves (a) to partially GRANT the motions for clarification insofar as it is prayed that Philippine Amusement and Gaming Corporation (PAGCOR) has a valid franchise to, but only by itself (i.e., not in association with any other person or entity), operate, maintain and/or manage the game of jaialai, and (b) to DENY the motions insofar as respondents would also seek a reconsideration of the Court's decision of 29 November 2000 that has, since then, (i) enjoined the continued operation, maintenance, and/or management of jai-alai games by PAGCOR in association with its co-respondents Belle Jai-Alai Corporation and/or Filipinas Gaming Entertainment Totalizator Corporation and (ii) held to be without force and effect the agreement of 17 June 1999 among said respondents. SO ORDERED.1wphi1.nt G.R. No. 143540 April 11, 2003

JOEL G. MIRANDA, petitioner, vs. ANTONIO C. CARREON, MILAGROS B. CASCO, ELSIE S. ESTARES, JULIUS N. MALLARI, ELINORA A. DANAO, JOVELYN G. RETAMAL, MARIFE S. ALMAZAN, JONALD R. DALMACIO, JENNIFER C. PLAZA, RIZALDY B. AGGABAO, VILMA T. VENTURA, BENEDICT B. PANGANIBAN, JOSE L. GOMBIO, MELCHOR E. SORIANO, ZARINA C. PANGANIBAN, EMELITA D. TAUYA, EVANGELINE A. SICAM, MATABAI AQUARIOUS Q. CULANG, MELVIN L. GARCIA, JOHNNY N. YU, JR., LOIDA J. PURUGGANAN, EDUARDO S. VALENCIA, EDITHA A. REGLOS,

HENRY P. MAPALAD, RAMIL C. GALANG, JUSTINA M. MACASO, MARTHA B. ALLAM, and ARSENIA A. CATAINA, respondents. SANDOVAL-GUTIERREZ, J.: Before us is a petition for review on certiorari1 assailing the Decision2 dated May 21, 1999 and the Resolution dated June 5, 2000 of the Court of Appeals in CA-G.R. SP No. 36997. In the early part of 1988, Vice Mayor Amelita Navarro, while serving as Acting Mayor of the City of Santiago because of the suspension of Mayor Jose Miranda, appointed the above-named respondents to various positions in the city government. Their appointments were with permanent status and based on the evaluation made by the City Personnel Selection and Promotion Board (PSPB) created pursuant to Republic Act No. 7160.3 The Civil Service Commission (CSC) approved the appointments. When Mayor Jose Miranda reassumed his post on March 5, 1998 after his suspension, he considered the composition of the PSPB irregular since the majority party, to which he belongs, was not properly represented.4 He then formed a three-man special performance audit team composed of Roberto C. Bayaua, Antonio AL. Martinez and Antonio L. Santos, to conduct a personnel evaluation audit of those who were previously screened by the PSPB and those on probation. After conducting the evaluation, the audit team submitted to him a report dated June 8, 1998 stating that the respondents were found "wanting in (their) performance." On June 10, 1998, or three months after Mayor Miranda reassumed his post, he issued an order terminating respondents services effective June 15, 1998 because they "performed poorly" during the probationary period. Respondents appealed to the CSC, contending that being employees on probation,5 they can be dismissed from the service on the ground of poor performance only after their probationary period of six months, not after three (3) months. They also denied that an evaluation on their performance was conducted, hence, their dismissal from the service violated their right to due process. On October 19, 1998, the CSC issued Resolution No. 982717 reversing the order of Mayor Miranda and ordering that respondents be reinstated to their former positions with payment of backwages, thus: xxx "Granting that the complainant-employees (now respondents) indeed rated poorly, the question that remains is whether they can be terminated from the service on that ground. xxx

"x x x, at the time of their termination the complainants have not finished the six (6) months probationary period. x x x, they may be terminated even before the expiration of the probationary period pursuant to Section 26, par. 1, Chapter 5, Book V, Title I-A of the Revised Administrative Code of 1987. Said Section provides: All such persons (appointees who meet all the requirements of the position) must serve a probationary period of six months following their original appointment and shall undergo a thorough character investigation in order to acquire a permanent civil service status. A probationer may be dropped from the service for unsatisfactory conduct or for want of capacity anytime before the expiration of the probationary period: Provided, that such action is appealable to the Commission. "It is, however, clear from the foregoing quoted provision that an employee on probation status may be terminated only for unsatisfactory conduct or want of capacity. In this case, the services of the complainants were terminated on the ground of poor performance x x x. Although poor performance may come near the concept of want of capacity, the latter, as held by this Commission, implies opportunity on the part of the head of office to observe the performance and demeanor of the employee concerned (Charito Pandes, CSC Resolution No. 965592). At this point, considering that Mayor Jose Miranda reassumed his post only on March 5, 1998 after serving his suspension, it is quite improbable that he can already gauge the performance of the complainants through the mere lapse of three months considering that the date of the letter of termination is June 10, 1998 and its effectivity date June 15, 1998."6 (emphasis supplied) Meanwhile, the COMELEC disqualified Mayor Jose Miranda as a mayoralty candidate in the 1998 May elections. His son Joel G. Miranda, herein petitioner, substituted for him and was proclaimed Mayor of Santiago City. He then filed a motion for reconsideration of the CSC Resolution No. 982717 (in favor of respondents) but it was denied in the CSC Resolution No. 990557 dated March 3, 1999. Petitioner then filed with the Court of Appeals a petition for review on certiorari, docketed as CA-G.R. SP No. 36997. On May 21, 1999, the Court of Appeals rendered a Decision affirming in toto the CSC Resolution No. 982717. Forthwith, petitioner filed a motion for reconsideration, but before it could be resolved by the Court of Appeals, several events supervened. This Court, in G.R. No. 136351, "Joel G. Miranda vs. Antonio M. Abaya and the COMELEC," set aside the proclamation of petitioner as Mayor of Santiago City for lack of a certificate of candidacy and declared Vice Mayor Amelita Navarro as City Mayor by operation of law.7 On December 20, 1999, Mayor Navarro filed with the Court of Appeals a "Motion to Withdraw the Motion for Reconsideration" (previously submitted by former Mayor Joel G. Miranda). On June 5, 2000, the Court of Appeals denied petitioners motion for reconsideration of its Decision.

On June 11, 2000, the Court of Appeals granted Mayor Navarros "Motion to Withdraw the Motion for Reconsideration." In effect, the CSC Resolution reinstating respondents to their positions stays. In this petition, petitioner Joel G. Miranda contends that the Court of Appeals erred in affirming the CSC Resolution declaring that the termination of respondents services is illegal and ordering their reinstatement to their former positions with payment of backwages. In their comment, respondents claim that since petitioner ceased to be Mayor of Santiago City, he has no legal personality to file the instant petition and, therefore, the same should be dismissed. They insist that they were not actually evaluated on their performance. But assuming there was indeed such an evaluation, it should have been done by their immediate supervisors, not by those appointed by former Mayor Jose Miranda. In his reply, petitioner contends that as a taxpayer, he has a legal interest in the case at bar, hence, can lawfully file this petition. Section 17, Rule 3 of the 1997 Rules of Civil Procedure, as amended, provides: "Sec. 17. Death or separation of a party who is a public officer. When a public officer is a party in an action in his official capacity and during its pendency dies, resigns or otherwise ceases to hold office, the action may be continued and maintained by or against his successor if, within thirty (30) days after the successor takes office or such time as may be granted by the Court, it is satisfactorily shown by any party that there is substantial need for continuing or maintaining it and the successor adopts or continues or threatens to adopt or continue the action of his predecessor." It is clear from the above Rule that when petitioner ceased to be mayor of Santiago City, the action may be continued and maintained by his successor, Mayor Amelita Navarro, if there is substantial need to do so. Mayor Navarro, however, found no substantial need to continue and maintain the action of her predecessor in light of the CSC Resolution declaring that respondents services were illegally terminated by former Mayor Jose Miranda. In fact, she filed with the Court of Appeals a"Motion to Withdraw the Motion for Reconsideration" (lodged by petitioner). She likewise reinstated all the respondents to their respective positions and approved the payment of their salaries. Petitioner insists though that as a taxpayer, he is a real party-in-interest and, therefore, should continue and maintain this suit. Such contention is misplaced. Section 2, Rule 3 of the same Rules provides: "Section 2. Parties in interest. - A real party in interest is the party who stands to be benefited or injured by the judgment in the suit, or the party entitled to the avails of the suit. Unless otherwise authorized by law or these Rules, every action must be prosecuted or defended in the name of the real party in interest." (emphasis supplied)

Even as a taxpayer, petitioner does not stand "to be benefited or injured by the judgment of the suit." Not every action filed by a taxpayer can qualify to challenge the legality of official acts done by the government.8 It bears stressing that "a taxpayers suit refers to a case where the act complained of directly involves the illegal disbursement of public funds from taxation."9 The issue in this case is whether respondents services were illegally terminated. Clearly, it does not involve the illegal disbursement of public funds, hence, petitioners action cannot be considered a taxpayers suit. At any rate, to put to rest the controversy at hand, we shall resolve the issue of whether respondents services were illegally terminated by former Mayor Jose Miranda. The 1987 Constitution provides that "no officer or employee of the civil service shall be removed or suspended except for cause provided by law."10 Under the Revised Administrative Code of 1987, a government officer or employee may be removed from the service on two (2) grounds: (1) unsatisfactory conduct and (2) want of capacity. While the Code does not define and delineate the concepts of these two grounds, however, the Civil Service Law (Presidential Decree No. 807, as amended) provides specific grounds for dismissing a government officer or employee from the service. Among these grounds are inefficiency and incompetence in the performance of official duties. In the case at bar, respondents were dismissed on the ground of poor performance. Poor performance falls within the concept of inefficiency and incompetence in the performance of official duties which, as earlier mentioned, are grounds for dismissing a government official or employee from the service. But inefficiency or incompetence can only be determined after the passage of sufficient time, hence, the probationary period of six (6) months for the respondents. Indeed, to be able to gauge whether a subordinate is inefficient or incompetent requires enough time on the part of his immediate superior within which to observe his performance. This condition, however, was not observed in this case. As aptly stated by the CSC, it is quite improbable that Mayor Jose Miranda could finally determine the performance of respondents for only the first three months of the probationary period. Not only that, we find merit in respondents claim that they were denied due process. They cited Item 2.2 (b), Section VI of the Omnibus Guidelines on Appointments and Other Personnel Actions (CSC Memorandum Circular No. 38, Series of 1993, as amended by CSC Memorandum Circular No. 12, Series of 1994) which provides: "2.2. Unsatisfactory or Poor Performance xxx b. An official or employee who, for one evaluation period, is rated poor in performance, may be dropped from the rolls after due notice. Due notice shall mean that the officer or employee is informed in writing of the status of his performance not later than the fourth month of that rating period with sufficient warning that failure to improve his performance within the remaining period of the semester shall warrant his

separation from the service. Such notice shall also contain sufficient information which shall enable the employee to prepare an explanation."11 (emphasis supplied) Respondents vehemently assert that they were never notified in writing regarding the status of their performance, neither were they warned that they will be dismissed from the service should they fail to improve their performance. Significantly, petitioner did not refute respondents assertion. The records show that what respondents received was only the termination order from Mayor Jose Miranda. Obviously, respondents right to due process was violated. Moreover, respondents contend that the only reason behind their arbitrary dismissal was Mayor Jose Mirandas perception that they were not loyal to him, being appointees of then Acting Mayor Navarro. This contention appears to be true considering that all those who were accepted and screened by the PSPB during the incumbency of Acting Mayor Navarro were rated to have performed poorly by an audit team whose three members were personally picked by Mayor Jose Miranda. The Constitution has envisioned the civil service to be a career service based on merit and rewards system that will truly be accountable and responsive to the people and deserving of their trust and support.12 These noble objectives will be frustrated if the tenure of its members is subject to the whim of partisan politics. A civil servant who lives in ceaseless fear of being capriciously removed from office every time a new political figure assumes power will strive to do anything that pleases the latter. In this way, he will hardly develop efficiency, accountability and a sense of loyalty to the public service. Such a climate will only breed opportunistic, inefficient and irresponsible civil servants to the detriment of the public. This should not be countenanced. In fine, we hold that petitioner, not being a real party in interest, has no legal personality to file this petition. Besides, his motion for reconsideration was validly withdrawn by the incumbent Mayor. Even assuming he is a real party in interest, we see no reason to disturb the findings of both the CSC and the Court of Appeals. The reinstatement of respondents who, unfortunately, were victims of political bickerings, is in order. WHEREFORE, the petition is DENIED. The assailed Decision dated May 21, 1999 of the Court of Appeals in CA-G.R. SP No. 36997 is AFFIRMED. Treble costs against petitioner. SO ORDERED. G.R. No. L-10405 December 29, 1960

WENCESLAO PASCUAL, in his official capacity as Provincial Governor of Rizal, petitioner-appellant, vs.

THE SECRETARY OF PUBLIC WORKS AND COMMUNICATIONS, ET AL., respondents-appellees. Asst. Fiscal Noli M. Cortes and Jose P. Santos for appellant. Office of the Asst. Solicitor General Jose G. Bautista and Solicitor A. A. Torres for appellee.

CONCEPCION, J.: Appeal, by petitioner Wenceslao Pascual, from a decision of the Court of First Instance of Rizal, dismissing the above entitled case and dissolving the writ of preliminary injunction therein issued, without costs. On August 31, 1954, petitioner Wenceslao Pascual, as Provincial Governor of Rizal, instituted this action for declaratory relief, with injunction, upon the ground that Republic Act No. 920, entitled "An Act Appropriating Funds for Public Works", approved on June 20, 1953, contained, in section 1-C (a) thereof, an item (43[h]) of P85,000.00 "for the construction, reconstruction, repair, extension and improvement" of Pasig feeder road terminals (Gen. Roxas Gen. Araneta Gen. Lucban Gen. Capinpin Gen. Segundo Gen. Delgado Gen. Malvar Gen. Lim)"; that, at the time of the passage and approval of said Act, the aforementioned feeder roads were "nothing but projected and planned subdivision roads, not yet constructed, . . . within the Antonio Subdivision . . . situated at . . . Pasig, Rizal" (according to the tracings attached to the petition as Annexes A and B, near Shaw Boulevard, not far away from the intersection between the latter and Highway 54), which projected feeder roads "do not connect any government property or any important premises to the main highway"; that the aforementioned Antonio Subdivision (as well as the lands on which said feeder roads were to be construed) were private properties of respondent Jose C. Zulueta, who, at the time of the passage and approval of said Act, was a member of the Senate of the Philippines; that on May, 1953, respondent Zulueta, addressed a letter to the Municipal Council of Pasig, Rizal, offering to donate said projected feeder roads to the municipality of Pasig, Rizal; that, on June 13, 1953, the offer was accepted by the council, subject to the condition "that the donor would submit a plan of the said roads and agree to change the names of two of them"; that no deed of donation in favor of the municipality of Pasig was, however, executed; that on July 10, 1953, respondent Zulueta wrote another letter to said council, calling attention to the approval of Republic Act. No. 920, and the sum of P85,000.00 appropriated therein for the construction of the projected feeder roads in question; that the municipal council of Pasig endorsed said letter of respondent Zulueta to the District Engineer of Rizal, who, up to the present "has not made any endorsement thereon" that inasmuch as the projected feeder roads in question were private property at the time of the passage and approval of Republic Act No. 920, the appropriation of P85,000.00 therein made, for the construction, reconstruction, repair, extension and improvement of said projected feeder roads, was illegal and, therefore, void ab initio"; that said appropriation of P85,000.00 was made by Congress because its members were made to believe that the projected feeder roads in question were "public roads and not private streets of a private subdivision"'; that, "in order to give a semblance of legality, when there is absolutely none, to the aforementioned appropriation",

respondents Zulueta executed on December 12, 1953, while he was a member of the Senate of the Philippines, an alleged deed of donation copy of which is annexed to the petition of the four (4) parcels of land constituting said projected feeder roads, in favor of the Government of the Republic of the Philippines; that said alleged deed of donation was, on the same date, accepted by the then Executive Secretary; that being subject to an onerous condition, said donation partook of the nature of a contract; that, such, said donation violated the provision of our fundamental law prohibiting members of Congress from being directly or indirectly financially interested in any contract with the Government, and, hence, is unconstitutional, as well as null and void ab initio, for the construction of the projected feeder roads in question with public funds would greatly enhance or increase the value of the aforementioned subdivision of respondent Zulueta, "aside from relieving him from the burden of constructing his subdivision streets or roads at his own expense"; that the construction of said projected feeder roads was then being undertaken by the Bureau of Public Highways; and that, unless restrained by the court, the respondents would continue to execute, comply with, follow and implement the aforementioned illegal provision of law, "to the irreparable damage, detriment and prejudice not only to the petitioner but to the Filipino nation." Petitioner prayed, therefore, that the contested item of Republic Act No. 920 be declared null and void; that the alleged deed of donation of the feeder roads in question be "declared unconstitutional and, therefor, illegal"; that a writ of injunction be issued enjoining the Secretary of Public Works and Communications, the Director of the Bureau of Public Works and Highways and Jose C. Zulueta from ordering or allowing the continuance of the abovementioned feeder roads project, and from making and securing any new and further releases on the aforementioned item of Republic Act No. 920, and the disbursing officers of the Department of Public Works and Highways from making any further payments out of said funds provided for in Republic Act No. 920; and that pending final hearing on the merits, a writ of preliminary injunction be issued enjoining the aforementioned parties respondent from making and securing any new and further releases on the aforesaid item of Republic Act No. 920 and from making any further payments out of said illegally appropriated funds. Respondents moved to dismiss the petition upon the ground that petitioner had "no legal capacity to sue", and that the petition did "not state a cause of action". In support to this motion, respondent Zulueta alleged that the Provincial Fiscal of Rizal, not its provincial governor, should represent the Province of Rizal, pursuant to section 1683 of the Revised Administrative Code; that said respondent is " not aware of any law which makes illegal the appropriation of public funds for the improvements of . . . private property"; and that, the constitutional provision invoked by petitioner is inapplicable to the donation in question, the same being a pure act of liberality, not a contract. The other respondents, in turn, maintained that petitioner could not assail the appropriation in question because "there is no actual bona fide case . . . in which the validity of Republic Act No. 920 is necessarily involved" and petitioner "has not shown that he has a personal and substantial interest" in said Act "and that its enforcement has caused or will cause him a direct injury." Acting upon said motions to dismiss, the lower court rendered the aforementioned decision, dated October 29, 1953, holding that, since public interest is involved in this case, the Provincial

Governor of Rizal and the provincial fiscal thereof who represents him therein, "have the requisite personalities" to question the constitutionality of the disputed item of Republic Act No. 920; that "the legislature is without power appropriate public revenues for anything but a public purpose", that the instructions and improvement of the feeder roads in question, if such roads where private property, would not be a public purpose; that, being subject to the following condition: The within donation is hereby made upon the condition that the Government of the Republic of the Philippines will use the parcels of land hereby donated for street purposes only and for no other purposes whatsoever; it being expressly understood that should the Government of the Republic of the Philippines violate the condition hereby imposed upon it, the title to the land hereby donated shall, upon such violation, ipso facto revert to the DONOR, JOSE C. ZULUETA. (Emphasis supplied.) which is onerous, the donation in question is a contract; that said donation or contract is "absolutely forbidden by the Constitution" and consequently "illegal", for Article 1409 of the Civil Code of the Philippines, declares in existence and void from the very beginning contracts "whose cause, objector purpose is contrary to law, morals . . . or public policy"; that the legality of said donation may not be contested, however, by petitioner herein, because his "interest are not directly affected" thereby; and that, accordingly, the appropriation in question "should be upheld" and the case dismissed. At the outset, it should be noted that we are concerned with a decision granting the aforementioned motions to dismiss, which as much, are deemed to have admitted hypothetically the allegations of fact made in the petition of appellant herein. According to said petition, respondent Zulueta is the owner of several parcels of residential land situated in Pasig, Rizal, and known as the Antonio Subdivision, certain portions of which had been reserved for the projected feeder roads aforementioned, which, admittedly, were private property of said respondent when Republic Act No. 920, appropriating P85,000.00 for the "construction, reconstruction, repair, extension and improvement" of said roads, was passed by Congress, as well as when it was approved by the President on June 20, 1953. The petition further alleges that the construction of said roads, to be undertaken with the aforementioned appropriation of P85,000.00, would have the effect of relieving respondent Zulueta of the burden of constructing his subdivision streets or roads at his own expenses, 1and would "greatly enhance or increase the value of the subdivision" of said respondent. The lower court held that under these circumstances, the appropriation in question was "clearly for a private, not a public purpose." Respondents do not deny the accuracy of this conclusion, which is self-evident. 2However, respondent Zulueta contended, in his motion to dismiss that: A law passed by Congress and approved by the President can never be illegal because Congress is the source of all laws . . . Aside from the fact that movant is not aware of any law which makes illegal the appropriation of public funds for the improvement of what we, in the meantime, may assume as private property . . . (Record on Appeal, p. 33.)

The first proposition must be rejected most emphatically, it being inconsistent with the nature of the Government established under the Constitution of the Republic of the Philippines and the system of checks and balances underlying our political structure. Moreover, it is refuted by the decisions of this Court invalidating legislative enactments deemed violative of the Constitution or organic laws. 3 As regards the legal feasibility of appropriating public funds for a public purpose, the principle according to Ruling Case Law, is this: It is a general rule that the legislature is without power to appropriate public revenue for anything but a public purpose. . . . It is the essential character of the direct object of the expenditure which must determine its validity as justifying a tax, and not the magnitude of the interest to be affected nor the degree to which the general advantage of the community, and thus the public welfare, may be ultimately benefited by their promotion. Incidental to the public or to the state, which results from the promotion of private interest and the prosperity of private enterprises or business, does not justify their aid by the use public money. (25 R.L.C. pp. 398-400; Emphasis supplied.) The rule is set forth in Corpus Juris Secundum in the following language: In accordance with the rule that the taxing power must be exercised for public purposes only, discussed supra sec. 14, money raised by taxation can be expended only for public purposes and not for the advantage of private individuals. (85 C.J.S. pp. 645-646; emphasis supplied.) Explaining the reason underlying said rule, Corpus Juris Secundum states: Generally, under the express or implied provisions of the constitution, public funds may be used only for public purpose. The right of the legislature to appropriate funds is correlative with its right to tax, and, under constitutional provisions against taxation except for public purposes and prohibiting the collection of a tax for one purpose and the devotion thereof to another purpose, no appropriation of state funds can be made for other than for a public purpose.

The test of the constitutionality of a statute requiring the use of public funds is whether the statute is designed to promote the public interest, as opposed to the furtherance of the advantage of individuals, although each advantage to individuals might incidentally serve the public. (81 C.J.S. pp. 1147; emphasis supplied.) Needless to say, this Court is fully in accord with the foregoing views which, apart from being patently sound, are a necessary corollary to our democratic system of government, which, as such, exists primarily for the promotion of the general welfare. Besides, reflecting as they do, the established jurisprudence in the United States, after whose constitutional system ours has been

patterned, said views and jurisprudence are, likewise, part and parcel of our own constitutional law.lawphil.net This notwithstanding, the lower court felt constrained to uphold the appropriation in question, upon the ground that petitioner may not contest the legality of the donation above referred to because the same does not affect him directly. This conclusion is, presumably, based upon the following premises, namely: (1) that, if valid, said donation cured the constitutional infirmity of the aforementioned appropriation; (2) that the latter may not be annulled without a previous declaration of unconstitutionality of the said donation; and (3) that the rule set forth in Article 1421 of the Civil Code is absolute, and admits of no exception. We do not agree with these premises. The validity of a statute depends upon the powers of Congress at the time of its passage or approval, not upon events occurring, or acts performed, subsequently thereto, unless the latter consists of an amendment of the organic law, removing, with retrospective operation, the constitutional limitation infringed by said statute. Referring to the P85,000.00 appropriation for the projected feeder roads in question, the legality thereof depended upon whether said roads were public or private property when the bill, which, latter on, became Republic Act 920, was passed by Congress, or, when said bill was approved by the President and the disbursement of said sum became effective, or on June 20, 1953 (see section 13 of said Act). Inasmuch as the land on which the projected feeder roads were to be constructed belonged then to respondent Zulueta, the result is that said appropriation sought a private purpose, and hence, was null and void. 4 The donation to the Government, over five (5) months after the approval and effectivity of said Act, made, according to the petition, for the purpose of giving a "semblance of legality", or legalizing, the appropriation in question, did not cure its aforementioned basic defect. Consequently, a judicial nullification of said donation need not precede the declaration of unconstitutionality of said appropriation. Again, Article 1421 of our Civil Code, like many other statutory enactments, is subject to exceptions. For instance, the creditors of a party to an illegal contract may, under the conditions set forth in Article 1177 of said Code, exercise the rights and actions of the latter, except only those which are inherent in his person, including therefore, his right to the annulment of said contract, even though such creditors are not affected by the same, except indirectly, in the manner indicated in said legal provision. Again, it is well-stated that the validity of a statute may be contested only by one who will sustain a direct injury in consequence of its enforcement. Yet, there are many decisions nullifying, at the instance of taxpayers, laws providing for the disbursement of public funds, 5 upon the theory that "the expenditure of public funds by an officer of the State for the purpose of administering an unconstitutional act constitutes a misapplication of such funds," which may be enjoined at the request of a taxpayer. 6Although there are some decisions to the contrary, 7the prevailing view in the United States is stated in the American Jurisprudence as follows: In the determination of the degree of interest essential to give the requisite standing to attack the constitutionality of a statute, the general rule is that not only persons

individually affected, but also taxpayers, have sufficient interest in preventing the illegal expenditure of moneys raised by taxation and may therefore question the constitutionality of statutes requiring expenditure of public moneys. (11 Am. Jur. 761; emphasis supplied.) However, this view was not favored by the Supreme Court of the U.S. in Frothingham vs. Mellon (262 U.S. 447), insofar as federal laws are concerned, upon the ground that the relationship of a taxpayer of the U.S. to its Federal Government is different from that of a taxpayer of a municipal corporation to its government. Indeed, under the composite system of government existing in the U.S., the states of the Union are integral part of the Federation from an international viewpoint, but, each state enjoys internally a substantial measure of sovereignty, subject to the limitations imposed by the Federal Constitution. In fact, the same was made by representatives of each state of the Union, not of the people of the U.S., except insofar as the former represented the people of the respective States, and the people of each State has, independently of that of the others, ratified said Constitution. In other words, the Federal Constitution and the Federal statutes have become binding upon the people of the U.S. in consequence of an act of, and, in this sense, through the respective states of the Union of which they are citizens. The peculiar nature of the relation between said people and the Federal Government of the U.S. is reflected in the election of its President, who is chosen directly, not by the people of the U.S., but by electors chosen by each State, in such manner as the legislature thereof may direct (Article II, section 2, of the Federal Constitution).lawphi1.net The relation between the people of the Philippines and its taxpayers, on the other hand, and the Republic of the Philippines, on the other, is not identical to that obtaining between the people and taxpayers of the U.S. and its Federal Government. It is closer, from a domestic viewpoint, to that existing between the people and taxpayers of each state and the government thereof, except that the authority of the Republic of the Philippines over the people of the Philippines is more fully direct than that of the states of the Union, insofar as the simple and unitary type of our national government is not subject to limitations analogous to those imposed by the Federal Constitution upon the states of the Union, and those imposed upon the Federal Government in the interest of the Union. For this reason, the rule recognizing the right of taxpayers to assail the constitutionality of a legislation appropriating local or state public funds which has been upheld by the Federal Supreme Court (Crampton vs. Zabriskie, 101 U.S. 601) has greater application in the Philippines than that adopted with respect to acts of Congress of the United States appropriating federal funds. Indeed, in the Province of Tayabas vs. Perez (56 Phil., 257), involving the expropriation of a land by the Province of Tayabas, two (2) taxpayers thereof were allowed to intervene for the purpose of contesting the price being paid to the owner thereof, as unduly exorbitant. It is true that in Custodio vs. President of the Senate (42 Off. Gaz., 1243), a taxpayer and employee of the Government was not permitted to question the constitutionality of an appropriation for backpay of members of Congress. However, in Rodriguez vs. Treasurer of the Philippines and Barredo vs. Commission on Elections (84 Phil., 368; 45 Off. Gaz., 4411), we entertained the action of taxpayers impugning the validity of certain appropriations of public funds, and invalidated the same. Moreover, the reason that impelled this Court to take such position in said two (2) cases the importance of the issues therein raised is present in the case at bar. Again, like the

petitioners in the Rodriguez and Barredo cases, petitioner herein is not merely a taxpayer. The Province of Rizal, which he represents officially as its Provincial Governor, is our most populated political subdivision, 8and, the taxpayers therein bear a substantial portion of the burden of taxation, in the Philippines. Hence, it is our considered opinion that the circumstances surrounding this case sufficiently justify petitioners action in contesting the appropriation and donation in question; that this action should not have been dismissed by the lower court; and that the writ of preliminary injunction should have been maintained. Wherefore, the decision appealed from is hereby reversed, and the records are remanded to the lower court for further proceedings not inconsistent with this decision, with the costs of this instance against respondent Jose C. Zulueta. It is so ordered. G.R. No. L-75697 June 18, 1987 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.: This petition was filed on September 1, 1986 by petitioner on his own behalf and purportedly on behalf of other videogram operators adversely affected. It assails the constitutionality of Presidential Decree No. 1987 entitled "An Act Creating the Videogram Regulatory Board" with broad powers to regulate and supervise the videogram industry (hereinafter briefly referred to as the BOARD). The Decree was promulgated on October 5, 1985 and took effect on April 10, 1986, fifteen (15) days after completion of its publication in the Official Gazette. On November 5, 1985, a month after the promulgation of the abovementioned decree, Presidential Decree No. 1994 amended the National Internal Revenue Code providing, inter alia: SEC. 134. Video Tapes. There shall be collected on each processed video-tape cassette, ready for playback, regardless of length, an annual

tax of five pesos; Provided, That locally manufactured or imported blank video tapes shall be subject to sales tax. On October 23, 1986, the Greater Manila Theaters Association, Integrated Movie Producers, Importers and Distributors Association of the Philippines, and Philippine Motion Pictures Producers Association, hereinafter collectively referred to as the Intervenors, were permitted by the Court to intervene in the case, over petitioner's opposition, upon the allegations that intervention was necessary for the complete protection of their rights and that their "survival and very existence is threatened by the unregulated proliferation of film piracy." The Intervenors were thereafter allowed to file their Comment in Intervention. The rationale behind the enactment of the DECREE, is set out in its preambular clauses as follows: 1. WHEREAS, the proliferation and unregulated circulation of videograms including, among others, videotapes, discs, cassettes or any technical improvement or variation thereof, have greatly prejudiced the operations of moviehouses and theaters, and have caused a sharp decline in theatrical attendance by at least forty percent (40%) and a tremendous drop in the collection of sales, contractor's specific, amusement and other taxes, thereby resulting in substantial losses estimated at P450 Million annually in government revenues; 2. WHEREAS, videogram(s) establishments collectively earn around P600 Million per annum from rentals, sales and disposition of videograms, and such earnings have not been subjected to tax, thereby depriving the Government of approximately P180 Million in taxes each year; 3. WHEREAS, the unregulated activities of videogram establishments have also affected the viability of the movie industry, particularly the more than 1,200 movie houses and theaters throughout the country, and occasioned industry-wide displacement and unemployment due to the shutdown of numerous moviehouses and theaters; 4. "WHEREAS, in order to ensure national economic recovery, it is imperative for the Government to create an environment conducive to growth and development of all business industries, including the movie industry which has an accumulated investment of about P3 Billion; 5. WHEREAS, proper taxation of the activities of videogram establishments will not only alleviate the dire financial condition of the movie industry upon which more than 75,000 families and 500,000 workers depend for their livelihood, but also provide an additional source

of revenue for the Government, and at the same time rationalize the heretofore uncontrolled distribution of videograms; 6. WHEREAS, the rampant and unregulated showing of obscene videogram features constitutes a clear and present danger to the moral and spiritual well-being of the youth, and impairs the mandate of the Constitution for the State to support the rearing of the youth for civic efficiency and the development of moral character and promote their physical, intellectual, and social well-being; 7. WHEREAS, civic-minded citizens and groups have called for remedial measures to curb these blatant malpractices which have flaunted our censorship and copyright laws; 8. WHEREAS, in the face of these grave emergencies corroding the moral values of the people and betraying the national economic recovery program, bold emergency measures must be adopted with dispatch; ... (Numbering of paragraphs supplied). Petitioner's attack on the constitutionality of the DECREE rests on the following grounds: 1. Section 10 thereof, which imposes a tax of 30% on the gross receipts payable to the local government is a RIDER and the same is not germane to the subject matter thereof; 2. The tax imposed is harsh, confiscatory, oppressive and/or in unlawful restraint of trade in violation of the due process clause of the Constitution; 3. There is no factual nor legal basis for the exercise by the President of the vast powers conferred upon him by Amendment No. 6; 4. There is undue delegation of power and authority; 5. The Decree is an ex-post facto law; and 6. There is over regulation of the video industry as if it were a nuisance, which it is not. We shall consider the foregoing objections in seriatim. 1. The Constitutional requirement that "every bill shall embrace only one subject which shall be expressed in the title thereof" 1 is sufficiently complied with if the title be comprehensive enough to include the general purpose which a statute seeks to achieve. It is not necessary that the title express each and every end that the statute

wishes to accomplish. The requirement is satisfied if all the parts of the statute are related, and are germane to the subject matter expressed in the title, or as long as they are not inconsistent with or foreign to the general subject and title. 2 An act having a single general subject, indicated in the title, may contain any number of provisions, no matter how diverse they may be, so long as they are not inconsistent with or foreign to the general subject, and may be considered in furtherance of such subject by providing for the method and means of carrying out the general object." 3 The rule also is that the constitutional requirement as to the title of a bill should not be so narrowly construed as to cripple or impede the power of legislation. 4 It should be given practical rather than technical construction. 5 Tested by the foregoing criteria, petitioner's contention that the tax provision of the DECREE is a rider is without merit. That section reads, inter alia: Section 10. Tax on Sale, Lease or Disposition of Videograms. Notwithstanding any provision of law to the contrary, the province shall collect a tax of thirty percent (30%) of the purchase price or rental rate, as the case may be, for every sale, lease or disposition of a videogram containing a reproduction of any motion picture or audiovisual program. Fifty percent (50%) of the proceeds of the tax collected shall accrue to the province, and the other fifty percent (50%) shall acrrue to the municipality where the tax is collected; PROVIDED, That in Metropolitan Manila, the tax shall be shared equally by the City/Municipality and the Metropolitan Manila Commission. xxx xxx xxx The foregoing provision is allied and germane to, and is reasonably necessary for the accomplishment of, the general object of the DECREE, which is the regulation of the video industry through the Videogram Regulatory Board as expressed in its title. The tax provision is not inconsistent with, nor foreign to that general subject and title. As a tool for regulation 6 it is simply one of the regulatory and control mechanisms scattered throughout the DECREE. The express purpose of the DECREE to include taxation of the video industry in order to regulate and rationalize the heretofore uncontrolled distribution of videograms is evident from Preambles 2 and 5, supra. Those preambles explain the motives of the lawmaker in presenting the measure. The title of the DECREE, which is the creation of the Videogram Regulatory Board, is comprehensive enough to include the purposes expressed in its Preamble and reasonably covers all its provisions. It is unnecessary to express all those objectives in the title or that the latter be an index to the body of the DECREE. 7 2. Petitioner also submits that the thirty percent (30%) tax imposed is harsh and oppressive, confiscatory, and in restraint of trade. However, it is beyond serious question that a tax does not cease to be valid merely because it regulates, discourages, or even definitely deters the activities taxed. 8 The power to impose taxes is one so

unlimited in force and so searching in extent, that the courts scarcely venture to declare that it is subject to any restrictions whatever, except such as rest in the discretion of the authority which exercises it. 9 In imposing a tax, the legislature acts upon its constituents. This is, in general, a sufficient security against erroneous and oppressive taxation. 10 The tax imposed by the DECREE is not only a regulatory but also a revenue measure prompted by the realization that earnings of videogram establishments of around P600 million per annum have not been subjected to tax, thereby depriving the Government of an additional source of revenue. It is an end-user tax, imposed on retailers for every videogram they make available for public viewing. It is similar to the 30% amusement tax imposed or borne by the movie industry which the theater-owners pay to the government, but which is passed on to the entire cost of the admission ticket, thus shifting the tax burden on the buying or the viewing public. It is a tax that is imposed uniformly on all videogram operators. The levy of the 30% tax is for a public purpose. It was imposed primarily to answer the need for regulating the video industry, particularly because of the rampant film piracy, the flagrant violation of intellectual property rights, and the proliferation of pornographic video tapes. And while it was also an objective of the DECREE to protect the movie industry, the tax remains a valid imposition. The public purpose of a tax may legally exist even if the motive which impelled the legislature to impose the tax was to favor one industry over another. 11 It is inherent in the power to tax that a state be free to select the subjects of taxation, and it has been repeatedly held that "inequities which result from a singling out of one particular class for taxation or exemption infringe no constitutional limitation". 12 Taxation has been made the implement of the state's police power. 13 At bottom, the rate of tax is a matter better addressed to the taxing legislature. 3. Petitioner argues that there was no legal nor factual basis for the promulgation of the DECREE by the former President under Amendment No. 6 of the 1973 Constitution providing that "whenever in the judgment of the President ... , there exists a grave emergency or a threat or imminence thereof, or whenever the interim Batasang Pambansa or the regular National Assembly fails or is unable to act adequately on any matter for any reason that in his judgment requires immediate action, he may, in order to meet the exigency, issue the necessary decrees, orders, or letters of instructions, which shall form part of the law of the land." In refutation, the Intervenors and the Solicitor General's Office aver that the 8th "whereas" clause sufficiently summarizes the justification in that grave emergencies

corroding the moral values of the people and betraying the national economic recovery program necessitated bold emergency measures to be adopted with dispatch. Whatever the reasons "in the judgment" of the then President, considering that the issue of the validity of the exercise of legislative power under the said Amendment still pends resolution in several other cases, we reserve resolution of the question raised at the proper time. 4. Neither can it be successfully argued that the DECREE contains an undue delegation of legislative power. The grant in Section 11 of the DECREE of authority to the BOARD to "solicit the direct assistance of other agencies and units of the government and deputize, for a fixed and limited period, the heads or personnel of such agencies and units to perform enforcement functions for the Board" is not a delegation of the power to legislate but merely a conferment of authority or discretion as to its execution, enforcement, and implementation. "The true distinction is between the delegation of power to make the law, which necessarily involves a discretion as to what it shall be, and conferring authority or discretion as to its execution to be exercised under and in pursuance of the law. The first cannot be done; to the latter, no valid objection can be made." 14 Besides, in the very language of the decree, the authority of the BOARD to solicit such assistance is for a "fixed and limited period" with the deputized agencies concerned being "subject to the direction and control of the BOARD." That the grant of such authority might be the source of graft and corruption would not stigmatize the DECREE as unconstitutional. Should the eventuality occur, the aggrieved parties will not be without adequate remedy in law. 5. The DECREE is not violative of the ex post facto principle. An ex post facto law is, among other categories, one which "alters the legal rules of evidence, and authorizes conviction upon less or different testimony than the law required at the time of the commission of the offense." It is petitioner's position that Section 15 of the DECREE in providing that: All videogram establishments in the Philippines are hereby given a period of forty-five (45) days after the effectivity of this Decree within which to register with and secure a permit from the BOARD to engage in the videogram business and to register with the BOARD all their inventories of videograms, including videotapes, discs, cassettes or other technical improvements or variations thereof, before they could be sold, leased, or otherwise disposed of. Thereafter any videogram found in the possession of any person engaged in the videogram business without the required proof of registration by the BOARD, shall be prima facie evidence of violation of the Decree, whether the possession of such videogram be for private showing and/or public exhibition. raises immediately a prima facie evidence of violation of the DECREE when the required proof of registration of any videogram cannot be presented and thus partakes of the nature of an ex post facto law.

The argument is untenable. As this Court held in the recent case of Vallarta vs. Court of Appeals, et al. 15 ... it is now well settled that "there is no constitutional objection to the passage of a law providing that the presumption of innocence may be overcome by a contrary presumption founded upon the experience of human conduct, and enacting what evidence shall be sufficient to overcome such presumption of innocence" (People vs. Mingoa 92 Phil. 856 [1953] at 858-59, citing 1 COOLEY, A TREATISE ON THE CONSTITUTIONAL LIMITATIONS, 639-641). And the "legislature may enact that when certain facts have been proved that they shall be prima facie evidence of the existence of the guilt of the accused and shift the burden of proof provided there be a rational connection between the facts proved and the ultimate facts presumed so that the inference of the one from proof of the others is not unreasonable and arbitrary because of lack of connection between the two in common experience". 16 Applied to the challenged provision, there is no question that there is a rational connection between the fact proved, which is non-registration, and the ultimate fact presumed which is violation of the DECREE, besides the fact that the prima facie presumption of violation of the DECREE attaches only after a forty-five-day period counted from its effectivity and is, therefore, neither retrospective in character. 6. We do not share petitioner's fears that the video industry is being over-regulated and being eased out of existence as if it were a nuisance. Being a relatively new industry, the need for its regulation was apparent. While the underlying objective of the DECREE is to protect the moribund movie industry, there is no question that public welfare is at bottom of its enactment, considering "the unfair competition posed by rampant film piracy; the erosion of the moral fiber of the viewing public brought about by the availability of unclassified and unreviewed video tapes containing pornographic films and films with brutally violent sequences; and losses in government revenues due to the drop in theatrical attendance, not to mention the fact that the activities of video establishments are virtually untaxed since mere payment of Mayor's permit and municipal license fees are required to engage in business. 17 The enactment of the Decree since April 10, 1986 has not brought about the "demise" of the video industry. On the contrary, video establishments are seen to have proliferated in many places notwithstanding the 30% tax imposed. In the last analysis, what petitioner basically questions is the necessity, wisdom and expediency of the DECREE. These considerations, however, are primarily and exclusively a matter of legislative concern. Only congressional power or competence, not the wisdom of the action taken, may be the basis for declaring a statute invalid. This is as it ought

to be. The principle of separation of powers has in the main wisely allocated the respective authority of each department and confined its jurisdiction to such a sphere. There would then be intrusion not allowable under the Constitution if on a matter left to the discretion of a coordinate branch, the judiciary would substitute its own. If there be adherence to the rule of law, as there ought to be, the last offender should be courts of justice, to which rightly litigants submit their controversy precisely to maintain unimpaired the supremacy of legal norms and prescriptions. The attack on the validity of the challenged provision likewise insofar as there may be objections, even if valid and cogent on its wisdom cannot be sustained. 18 In fine, petitioner has not overcome the presumption of validity which attaches to a challenged statute. We find no clear violation of the Constitution which would justify us in pronouncing Presidential Decree No. 1987 as unconstitutional and void. WHEREFORE, the instant Petition is hereby dismissed. No costs. SO ORDERED. G.R. No. L-77194 March 15, 1988 VIRGILIO GASTON, HORTENCIA STARKE, ROMEO GUANZON, OSCAR VILLANUEVA, JOSE ABELLO, REMO RAMOS, CAROLINA LOPEZ, JESUS ISASI, MANUEL LACSON, JAVIER LACSON, TITO TAGARAO, EDUARDO SUATENGCO, AUGUSTO LLAMAS, RODOLFO SIASON, PACIFICO MAGHARI, JR., JOSE JAMANDRE, AURELIO GAMBOA, ET AL., petitioners, vs. REPUBLIC PLANTERS BANK, PHILIPPINE SUGAR COMMISSION, and SUGAR REGULATORY ADMINISTRATION, respondents, ANGEL H. SEVERINO, JR., GLICERIO JAVELLANA, GLORIA P. DE LA PAZ, JOEY P. DE LA PAZ, ET AL., and NATIONAL FEDERATION OF SUGARCANE PLANTERS, intervenors.

MELENCIO-HERRERA, J.: Petitioners are sugar producers, sugarcane planters and millers, who have come to this Court in their individual capacities and in representation of other sugar producers, planters and millers, said to be so numerous that it is impracticable to bring them all before the Court although the subject matter of the present controversy is of common interest to all sugar producers, whether parties in this action or not.

Respondent Philippine Sugar Commission (PHILSUCOM, for short) was formerly the government office tasked with the function of regulating and supervising the sugar industry until it was superseded by its co-respondent Sugar Regulatory Administration (SRA, for brevity) under Executive Order No. 18 on May 28, 1986. Although said Executive Order abolished the PHILSUCOM, its existence as a juridical entity was mandated to continue for three (3) more years "for the purpose of prosecuting and defending suits by or against it and enables it to settle and close its affairs, to dispose of and convey its property and to distribute its assets." Respondent Republic Planters Bank (briefly, the Bank) is a commercial banking corporation. Angel H. Severino, Jr., et al., who are sugarcane planters planting and milling their sugarcane in different mill districts of Negros Occidental, were allowed to intervene by the Court, since they have common cause with petitioners and respondents having interposed no objection to their intervention. Subsequently, on January 14,1988, the National Federation of Sugar Planters (NFSP) also moved to intervene, which the Court allowed on February 16,1988. Petitioners and Intervenors have come to this Court praying for a Writ of mandamus commanding respondents: TO IMPLEMENT AND ACCOMPLISH THE PRIVATIZATION OF REPUBLIC PLANTERS BANK BY THE TRANSFER AND DISTRIBUTION OF THE SHARES OF STOCK IN THE SAID BANK; NOW HELD BY AND STILL CARRIED IN THE NAME OF THE PHILIPPINE SUGAR COMMISSION, TO THE SUGAR PRODUCERS, PLANTERS AND MILLERS, WHO ARE THE TRUE BENEFICIAL OWNERS OF THE 761,416 COMMON SHARES VALUED AT P36,548.000.00, AND 53,005,045 PREFERRED SHARES (A, B & C) WITH A TOTAL PAR VALUE OF P254,424,224.72, OR A TOTAL INVESTMENT OF P290,972,224.72, THE SAID INVESTMENT HAVING BEEN FUNDED BY THE DEDUCTION OF Pl.00 PER PICUL FROM SUGAR PROCEEDS OF THE SUGAR PRODUCERS COMMENCING THE YEAR 1978-79 UNTIL THE PRESENT AS STABILIZATION FUND PURSUANT TO P.D. # 388. Respondent Bank does not take issue with either petitioners or its correspondents as it has no beneficial or equitable interest that may be affected by the ruling in this Petition, but welcomes the filing of the Petition since it will settle finally the issue of legal ownership of the questioned shares of stock. Respondents PHILSUCOM and SRA, for their part, squarely traverse the petition arguing that no trust results from Section 7 of P.D. No. 388; that the stabilization fees collected are considered government funds under the Government Auditing Code; that

the transfer of shares of stock from PHILSUCOM to the sugar producers would be irregular, if not illegal; and that this suit is barred by laches. The Solicitor General aptly summarizes the basic issues thus: (1) whether the stabilization fees collected from sugar planters and millers pursuant to Section 7 of P.D. No. 388 are funds in trust for them, or public funds; and (2) whether shares of stock in respondent Bank paid for with said stabilization fees belong to the PHILSUCOM or to the different sugar planters and millers from whom the fees were collected or levied. P. D. No. 388, promulgated on February 2,1974, which created the PHILSUCOM, provided for the collection of a Stabilization Fund as follows: SEC. 7. Capitalization, Special Fund of the Commission, Development and Stabilization Fund. There is hereby established a fund for the commission for the purpose of financing the growth and development of the sugar industry and all its components, stabilization of the domestic market including the foreign market to be administered in trust by the Commission and deposited in the Philippine National Bank derived in the manner herein below cited from the following sources: a. Stabilization fund shall be collected as provided for in the various provisions of this Decree. b. Stabilization fees shall be collected from planters and millers in the amount of Two (P2.00) Pesos for every picul produced and milled for a period of five years from the approval of this Decree and One (Pl.00) Peso for every picul produced and milled every year thereafter. Provided: That fifty (P0.50) centavos per picul of the amount levied on planters, millers and traders under Section 4(c) of this Decree will be used for the payment of salaries and wages of personnel, fringe benefits and allowances of officers and employees for the purpose of accomplishing and employees for the purpose of accomplishing the efficient performance of the duties of the Commission. Provided, further: That said amount shall constitute a lien on the sugar quedan and/or warehouse receipts and shall be paid immediately by the planters and mill companies, sugar centrals and refineries to the Commission. (paragraphing and bold supplied). Section 7 of P.D. No. 388 does provide that the stabilization fees collected "shall be administered in trust by the Commission." However, while the element of an intent to create a trust is present, a resulting trust in favor of the sugar producers, millers and planters cannot be said to have ensued because the presumptive intention of the parties is not reasonably ascertainable from the language of the statute itself.

The doctrine of resulting trusts is founded on the presumed intention of the parties; and as a general rule, it arises where, and only where such may be reasonably presumed to be the intention of the parties, as determined from the facts and circumstances existing at the time of the transaction out of which it is sought to be established (89 C.J.S. 947). No implied trust in favor of the sugar producers either can be deduced from the imposition of the levy. "The essential Idea of an implied trust involves a certain antagonism between the cestui que trust and the trustee even when the trust has not arisen out of fraud nor out of any transaction of a fraudulent or immoral character (65 CJ 222). It is not clearly shown from the statute itself that the PHILSUCOM imposed on itself the obligation of holding the stabilization fund for the benefit of the sugar producers. It must be categorically demonstrated that the very administrative agency which is the source of such regulation would place a burden on itself (Batchelder v. Central Bank of the Philippines, L-25071, July 29,1972,46 SCRA 102, citing People v. Que Po Lay, 94 Phil. 640 [1954]). Neither can petitioners place reliance on the history of respondents Bank. They recite that at the beginning, the Bank was owned by the Roman-Rojas Group. Because it underwent difficulties early in the year 1978, Mr. Roberto S. Benedicto, then Chairman of the PHILSUCOM, submitted a proposal to the Central Bank for the rehabilitation of the Bank. The Central Bank acted favorably on the proposal at the meeting of the Monetary Board on March 31, 1978 subject to the infusion of fresh capital by the Benedicto Group. Petitioners maintain that this infusion of fresh capital was accomplished, not by any capital investment by Mr. Benedicto, but by PHILSUCOM, which set aside the proceeds of the P1.00 per picul stabilization fund to pay for its subscription in shares of stock of respondent Bank. It is petitioners' submission that all shares were placed in PHILSUCOM's name only out of convenience and necessity and that they are the true and beneficial owners thereof. In point of fact, we cannot see our way clear to upholding petitioners' position that the investment of the proceeds from the stabilization fund in subscriptions to the capital stock of the Bank were being made for and on their behalf. That could have been clarified by the Trust Agreement, dated May 28, 1986, entered into between PHILSUCOM, as "Trustor" acting through Mr. Fred J. Elizalde as Officer-in-Charge, and respondent RPB- Trust Department' as "Trustee," acknowledging that PHILSUCOM holds said shares for and in behalf of the sugar producers," the latter "being the true and beneficial owners thereof." The Agreement, however, did not get off the ground because it failed to receive the approval of the PHILSUCOM Board of Commissioners as required in the Agreement itself. The SRA, which succeeded PHILSUCOM, neither approved the Agreement because of the adverse opinion of the SRA, Resident Auditor, dated June 25,1986, which was aimed by the Chairman of the Commission on Audit, on January 26,1987.

On February 19, 1987, the SRA, resolved to revoke the Trust Agreement "in the light of the ruling of the Commission on Audit that the aforementioned Agreement is of doubtful validity." From the legal standpoint, we find basis for the opinion of the Commission on Audit reading: That the government, PHILSUCOM or its successor-in-interest, Sugar Regulatory Administration, in particular, owns and stocks. While it is true that the collected stabilization fees were set aside by PHILSUCOM to pay its subscription to RPB, it did not collect said fees for the account of the sugar producers. That stabilization fees are charges/levies on sugar produced and milled which accrued to PHILSUCOM under PD 338, as amended. ... 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 vs. Araneta, 98 Phil. 148). They constitute sugar liens (Sec. 7[b], P.D. No. 388). The collections made accrue to a "Special Fund," a "Development and Stabilization Fund," almost Identical to the "Sugar Adjustment and Stabilization Fund" created under Section 6 of Commonwealth Act 567. 1 The tax collected is not in a pure exercise of the taxing power. It is levied with a regulatory purpose, to provide means for the stabilization of the sugar industry. The levy is primarily in the exercise of the police power of the State (Lutz vs. Araneta, supra.). The protection of a large industry constituting one of the great sources of the state's wealth and therefore directly or indirectly affecting the welfare of so great a portion of the population of the State is affected to such an extent by public interests as to be within the police power of the sovereign. (Johnson vs. State ex rel. Marey, 128 So. 857, cited in Lutz vs. Araneta, supra). 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 vs. 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(l]). 2

The character of the Stabilization Fund as a special 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[1],1973 Constitution, Article VIII, Sec. 18[l]). That the fees were collected from sugar producers, planters and millers, and that the funds were channeled to the purchase of shares of stock in respondent Bank do not convert the funds into a trust fired for their benefit nor make them the beneficial owners of the shares so purchased. It is but rational that the fees be collected from them since it is also they who are to be benefited from the expenditure of the funds derived from it. The investment in shares of respondent Bank is not alien to the purpose intended because of the Bank's character as a commodity bank for sugar conceived for the industry's growth and development. Furthermore, of note is the fact that one-half, (1/2) or PO.50 per picul, of the amount levied under P.D. No. 388 is to be utilized for the "payment of salaries and wages of personnel, fringe benefits and allowances of officers and employees of PHILSUCOM" thereby immediately negating the claim that the entire amount levied is in trust for sugar, producers, planters and millers. To rule in petitioners' favor would contravene the general principle that revenues derived from taxes cannot be used for purely private purposes or for the exclusive benefit of private persons. The Stabilization Fund is to be utilized for the benefit of the entire sugar industry, "and all its components, stabilization of the domestic market," including the foreign market the industry being of vital importance to the country's economy and to national interest. WHEREFORE, the Writ of mandamus is denied and the Petition hereby dismissed. No costs. This Decision is immediately executory. SO ORDERED.

CONGRESSMAN ENRIQUE T. GARCIA (SECOND DISTRICT OF BATAAN), PETITIONER, VS. THE EXECUTIVE SECRETARY, THE COMMISSIONER OF CUSTOMS, THE NATIONAL ECONOMIC AND DEVELOPMENT AUTHORITY, THE TARIFF COMMISSION, THE SECRETARY OF FINANCE, AND THE ENERGY REGULATORY BOARD, RESPONDENTS. DECISION FELICIANO, J.:

On 27 November 1990, the President issued Executive Order No. 438 which imposed, in addition to any other duties, taxes and charges imposed by law on all articles imported into the Philippines, an additional duty of five percent (5%) ad valorem. This additional duty was imposed across the board on all imported articles, including crude oil and other oil products imported into the Philippines. This additional duty was subsequently increased from five percent (5%) ad valorem to nine percent (9%) ad valorem by the promulgation of Executive Order No. 443, dated 3 January 1991. On 24 July 1991, the Department of Finance requested the Tariff Commission to initiate the process required by the Tariff and Customs Code for the imposition of a specific levy on crude oil and other petroleum products, covered by HS Heading Nos. 27.09, 27.10 and 27.11 of Section 104 of the Tariff and Customs Code as amended. Accordingly, the Tariff Commission, following the procedure set forth in Section 401 of the Tariff and Customs Code, scheduled a public hearing to give interested parties an opportunity to be heard and to present evidence in support of their respective positions. Meantime, Executive Order No. 475 was issued by the President, on 15 August 1991 reducing the rate of additional duty on all imported articles from nine percent (9%) to five percent (5%) ad valorem, except in the cases of crude oil and other oil products which continued to be subject to the additional duty of nine percent (9%) ad valorem. Upon completion of the public hearings, the Tariff Commission submitted to the President a "Report on Special Duty on Crude Oil and Oil Products" dated 16 August 1991, for consideration and appropriate action. Seven (7) days later, the President issued Executive Order No. 478, dated 23 August 1991, which levied (in addition to the aforementioned additional duty of nine percent (9%) ad valorem and all other existing ad valorem duties) a special duty of P0.95 per liter or P151.05 per barrel of imported crude oil and P1.00 per liter of imported oil products. In the present Petition for Certiorari, Prohibition and Mandamus, petitioner assails the validity of Executive Orders Nos. 475 and 478. He argues that Executive Orders Nos. 475 and 478 are violative of Section 24, Article VI of the 1987 Constitution which provides as follows: "Section 24. All appropriation, revenue or tariff bills, bills authorizing increase of the public debt, bills of local application, and private bills shall originate exclusively in the House of Representatives, but the Senate may propose or concur with amendments." He contends that since the Constitution vests the authority to enact revenue bills in Congress, the President may not assume such power by issuing Executive Orders Nos. 475 and 478 which are in the nature of revenue-generating measures. Petitioner further argues that Executive Orders No. 475 and 478 contravene Section 401 of the Tariff and Customs Code, which Section authorizes the President, according to petitioner, to increase, reduce or remove tariff duties or to impose additional duties only when necessary to

protect local industries or products but not for the purpose of raising additional revenue for the government. Thus, petitioner questions first the constitutionality and second the legality of Executive Orders Nos. 475 and 478, and asks us to restrain the implementation of those Executive Orders. We will examine these questions in that order. Before doing so, however, the Court notes that the recent promulgation of Executive Order No. 517 did not render the instant Petition moot and academic. Executive Order No. 517 which is dated 30 April 1992 provides as follows: "Section 1. Lifting of the Additional Duty. -- The additional duty in the nature of ad valorem imposed on all imported articles prescribed by the provisions of Executive Order No. 443, as amended, is hereby lifted; Provided, however, that the selected articles covered by HS Heading Nos. 27.09 and 27.10 of Section 104 of the Tariff and Customs Code, as amended, subject of Annex 'A' hereof, shall continue to be subject to the additional duty of nine (9%) percent ad valorem." Under the above quoted provision, crude oil and other oil products continue to be subject to the additional duty of nine percent (9%) ad valorem under Executive Order No. 475 and to the special duty of P0.95 per liter of imported crude oil and P1.00 per liter of imported oil products under Executive Order No. 478. Turning first to the question of constitutionality, under Section 24, Article VI of the Constitution, the enactment of appropriation, revenue and tariff bills, like all other bills is, of course, within the province of the Legislative rather than the Executive Department. It does not follow, however, that therefore Executive Orders Nos. 475 and 478, assuming they may be characterized as revenue measures, are prohibited to the President, that they must be enacted instead by the Congress of the Philippines. Section 28(2) of Article VI of the Constitution provides as follows: (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, tonage and wharfage dues, and other duties or imposts within the framework of the national development program of the Government." (Underscoring supplied) There is thus explicit constitutional permission[1] to Congress to authorize the President "subject to such limitations and restrictions as [Congress] may impose" to fix "within specific limits" "tariff rates x x x and other duties or imposts x x x." The relevant congressional statute is the Tariff and Customs Code of the Philippines, and Sections 104 and 401, the pertinent provisions thereof. These are the provisions which the President explicitly invoked in promulgating Executive Orders Nos. 475 and 478. Section 104 of the Tariff and Customs Code provides in relevant part:

"Sec. 104. All tariff sections, chapters, headings and subheadings and the rates of import duty under Section 104 of Presidential Decree No. 34 and all subsequent amendments issued under Executive Orders and Presidential Decrees are hereby adopted and form part of this Code. There shall be levied, collected, and paid upon all imported articles the rates of duty indicated in the Section under this section except as otherwise specifically provided for in this Code: Provided, that, the maximum rate shall not exceed one hundred per cent ad valorem. The rates of duty herein provided or subsequently fixed pursuant to Section Four Hundred One of this Code shall be subject to periodic investigation by the Tariff Commission and may be revised by the President upon recommendation of the National Economic and Development Authority. xxx xxx xxx" (Underscoring supplied) Section 401 of the same Code needs to be quoted in full: "Sec. 401. Flexible Clause. -a. In the interest of national economy, general welfare and/or national security, and subject to the limitations herein prescribed, the President, upon recommendation of the National Economic and Development Authority (hereinafter referred to as NEDA), is hereby empowered: (1) to increase, reduce or remove existing protective rates of import duty (including any necessary change in classification). The existing rates may be increased or decreased but in no case shall the reduced rate of import duty be lower than the basic rate of ten (10) per cent ad valorem, nor shall the increased rate of import duty be higher than a maximum of one hundred (100) per cent ad valorem; (2) to establish import quota or to ban imports of any commodity, as may be necessary; and (3) to impose an additional duty on all imports not exceeding ten (10) per cent ad valorem whenever necessary; Provided, That upon periodic investigations by the Tariff Commission and recommendation of the NEDA, the President may cause a gradual reduction of protection levels granted in Section One hundred and four of this Code, including those subsequently granted pursuant to this section. b. Before any recommendation is submitted to the President by the NEDA pursuant to the provisions of this section, except in the imposition of an additional duty not exceeding ten (10) per cent ad valorem, the Commission shall conduct an investigation in the course of which they shall hold public hearings wherein interested parties shall be afforded reasonable opportunity to be present, produce evidence and to be heard. The Commission shall also hear the views and recommendations of any government office, agency or instrumentality concerned. The Commission shall submit their findings and recommendations to the NEDA within thirty (30) days after the termination of the public hearings. c. The power of the President to increase or decrease rates of import duty within the limits fixed in subsection a shall include the authority to modify the form of duty. In modifying the form of duty, the corresponding ad valorem or specific equivalents of the duty with respect to imports from the principal competing foreign country for the most recent representative period shall be used as bases.

d. The Commissioner of Customs shall regularly furnish the Commission a copy of all customs import entries as filed in the Bureau of Customs. The Commission or its duly authorized representatives shall have access to, and the right to copy all liquidated customs import entries and other documents appended thereto as finally filed in the Commission on Audit. e. The NEDA shall promulgate rules and regulations necessary to carry out the provisions of this section. f. Any Order issued by the President pursuant to the provisions of this section shall take effect thirty (30) days after promulgation, except in the imposition of additional duty not exceeding ten (10) per cent ad valorem which shall take effect at the discretion of the President." (Underscoring supplied) Petitioner, however, seeks to avoid the thrust of the delegated authorizations found in Sections 104 and 401 of the Tariff and Customs Code, by contending that the President is authorized to act under the Tariff and Customs Code only "to protect local industries and products for the sake of the national economy, general welfare and/or national security."[2] He goes on to claim that: "E.O. Nos. 478 and 475 having nothing to do whatsoever with the protection of local industries and products for the sake of national economy, general welfare and/or national security. On the contrary, they work in reverse, especially as to crude oil, an essential product which we do not have to protect, since we produce only minimal quantities and have to import the rest of what we need. These Executive Orders are avowedly solely to enable the government to raise government finances, contrary to Sections 24 and 28 (2) of Article VI of the Constitution, as well as to Section 401 of the Tariff and Customs Code."[3] (Underscoring in the original) The Court is not persuaded. In the first place, there is nothing in the language of either Section 104 or of 401 of the Tariff and Customs Code that suggest such a sharp and absolute limitation of authority. The entire contention of petitioner is anchored on just two (2) words, one found in Section 401 (a)(1): "existing protective rates of import duty," and the second in the proviso found at the end of Section 401 (a): "protection levels granted in Section 104 of this Code x x x." We believe that the words "protective" and "protection" are simply not enough to support the very broad and encompassing limitation which petitioner seeks to rest on those two (2) words. In the second place, petitioner's singular theory collides with a very practical fact of which this Court may take judicial notice -- that the Bureau of Customs which administers the Tariff and Customs Code, is one of the two (2) principal traditional generators or producers of governmental revenue, the other being the Bureau of Internal Revenue. (There is a third agency, non-traditional in character, that generates lower but still comparable levels of revenue for the government -- The Philippine Amusement and Games Corporation [PAGCOR].) In the third place, customs duties which are assessed at the prescribed tariff rates are very much like taxes which are frequently imposed for both revenue-raising and for regulatory purposes.[4] Thus, it has been held that "customs duties" is "the name given to taxes on the importation and exportation of commodities, the tariff or tax assessed upon merchandise imported from, or

exported to, a foreign country."[5] The levying of customs duties on imported goods may have in some measure the effect of protecting local industries -- where such local industries actually exist and are producing comparable goods. Simultaneously, however, the very same customs duties inevitably have the effect of producing governmental revenues. Customs duties like internal revenue taxes are rarely, if ever, designed to achieve one policy objective only. Most commonly, customs duties, which constitute taxes in the sense of exactions the proceeds of which become public funds[6] -- have either or both the generation of revenue and the regulation of economic or social activity as their moving purposes and frequently, it is very difficult to say which, in a particular instance, is the dominant or principal objective. In the instant case, since the Philippines in fact produces ten (10) to fifteen percent (15%) of the crude oil consumed here, the imposition of increased tariff rates and a special duty on imported crude oil and imported oil products may be seen to have some "protective" impact upon indigenous oil production. For the effective price of imported crude oil and oil products is increased. At the same time, it cannot be gainsaid that substantial revenues for the government are raised by the imposition of such increased tariff rates or special duty. In the fourth place, petitioner's concept which he urges us to build into our constitutional and customs law, is a stiflingly narrow one. Section 401 of the Tariff and Customs Code establishes general standards with which the exercise of the authority delegated by that provision to the President must be consistent: that authority must be exercised in "the interest of national economy, general welfare and/or national security." Petitioner, however, insists that the "protection of local industries" is the only permissible objective that can be secured by the exercise of that delegated authority, and that therefore "protection of local industries" is the sum total or the alpha and the omega of "the national economy, general welfare and/or national security." We find it extremely difficult to take seriously such a confined and closed view of the legislative standards and policies summed up in Section 401. We believe, for instance, that the protection of consumers, who after all constitute the very great bulk of our population, is at the very least as important a dimension of "the national economy, general welfare and national security" as the protection of local industries. And so customs duties may be reduced or even removed precisely for the purpose of protecting consumers from the high prices and shoddy quality and inefficient service that tariff-protected and subsidized local manufacturers may otherwise impose upon the community. It seems also important to note that tariff rates are commonly established and the corresponding customs duties levied and collected upon articles and goods which are not found at all and not produced in the Philippines. The Tariff and Customs Code is replete with such articles and commodities: among the more interesting examples are ivory (Chapter 5, 5.10); castoreum or musk taken from the beaver (Chapter 5, 5.14); olives (Chapter 7, Notes); truffles or European fungi growing under the soil on tree roots (Chapter 7, Notes); dates (Chapter 8, 8.01); figs (Chapter 8, 8.03); caviar (Chapter 16, 16.01); aircraft (Chapter 88, 88.01); special diagnostic instruments and apparatus for human medicine and surgery (Chapter 90, Notes); X-ray generators; X-ray tubes; X-ray screens, etc (Chapter 90, 90.20); etc. In such cases, customs duties may be seen to be imposed either for revenue purposes purely or perhaps, in certain cases, to discourage any importation of the items involved. In either case, it is clear that customs duties

are levied and imposed entirely apart from whether or not there are any competing local industries to protect. Accordingly, we believe and so hold that Executive Orders Nos. 475 and 478 which may be conceded to be substantially moved by the desire to generate additional public revenues, are not, for that reason alone, either constitutionally flawed, or legally infirm under Section 401 of the Tariff and Customs Code. Petitioner has not successfully overcome the presumptions of constitutionality and legality to which those Executive Orders are entitled.[7] The conclusion we have reached above renders it unnecessary to deal with petitioner's additional contention that, should Executive Orders Nos. 475 and 478 be declared unconstitutional and illegal, there should be a roll back of prices of petroleum products equivalent to the "resulting excess money not be needed to adequately maintain the Oil Price Stabilization Fund (OPSF)."[8] WHEREFORE, premises considered, the Petition for Certiorari, Prohibition and Mandamus is hereby DISMISSED for lack of merit. Costs against petitioner. SO ORDERED.

G.R. No. 119761 August 29, 1996 COMMISSIONER OF INTERNAL REVENUE, petitioner, vs. HON. COURT OF APPEALS, HON. COURT OF TAX APPEALS and FORTUNE TOBACCO CORPORATION, respondents.

VITUG, J.:p The Commissioner of Internal Revenue ("CIR") disputes the decision, dated 31 March 1995, of respondent Court of Appeals 1 affirming the 10th August 1994 decision and the 11th October 1994 resolution of the Court of Tax Appeals 2 ("CTA") in C.T.A. Case No. 5015, entitled "Fortune Tobacco Corporation vs. Liwayway Vinzons-Chato in her capacity as Commissioner of Internal Revenue." The facts, by and large, are not in dispute. Fortune Tobacco Corporation ("Fortune Tobacco") is engaged in the manufacture of different brands of cigarettes. On various dates, the Philippine Patent Office issued to the corporation separate certificates of trademark registration over "Champion," "Hope," and "More" cigarettes. In

a letter, dated 06 January 1987, of then Commissioner of Internal Revenue Bienvenido A. Tan, Jr., to Deputy Minister Ramon Diaz of the Presidential Commission on Good Government, "the initial position of the Commission was to classify 'Champion,' 'Hope,' and 'More' as foreign brands since they were listed in the World Tobacco Directory as belonging to foreign companies. However, Fortune Tobacco changed the names of 'Hope' to 'Hope Luxury' and 'More' to 'Premium More,' thereby removing the said brands from the foreign brand category. Proof was also submitted to the Bureau (of Internal Revenue ['BIR']) that 'Champion' was an original Fortune Tobacco Corporation register and therefore a local brand." 3 Ad Valorem taxes were imposed on these brands, 4 at the following rates: BRAND AD VALOREM TAX RATE E.O. 22 and E.O. 273 RA 6956 06-23-86 07-25-87 06-18-90 07-01-86 01-01-88 07-05-90 Hope Luxury M. 100's Sec. 142, (c), (2) 40% 45% Hope Luxury M. King Sec. 142, (c), (2) 40% 45% More Premium M. 100's Sec. 142, (c), (2) 40% 45% More Premium International Sec. 142, (c), (2) 40% 45% Champion Int'l. M. 100's Sec. 142, (c), (2) 40% 45% Champion M. 100's Sec. 142, (c), (2) 40% 45% Champion M. King Sec. 142, (c), last par. 15% 20% Champion Lights Sec. 142, (c), last par. 15% 20% 5 A bill, which later became Republic Act ("RA") No. 7654, 6 was enacted, on 10 June 1993, by the legislature and signed into law, on 14 June 1993, by the President of the Philippines. The new law became effective on 03 July 1993. It amended Section 142(c)(1) of the National Internal Revenue Code ("NIRC") to read; as follows: Sec. 142. Cigars and Cigarettes. xxx xxx xxx (c) Cigarettes packed by machine. There shall be levied, assessed and collected on cigarettes packed by machine a tax at the rates prescribed

below based on the constructive manufacturer's wholesale price or the actual manufacturer's wholesale price, whichever is higher: (1) On locally manufactured cigarettes which are currently classified and taxed at fifty-five percent (55%) or the exportation of which is not authorized by contract or otherwise, fifty-five (55%) provided that the minimum tax shall not be less than Five Pesos (P5.00) per pack. (2) On other locally manufactured cigarettes, forty-five percent (45%) provided that the minimum tax shall not be less than Three Pesos (P3.00) per pack. xxx xxx xxx When the registered manufacturer's wholesale price or the actual manufacturer's wholesale price whichever is higher of existing brands of cigarettes, including the amounts intended to cover the taxes, of cigarettes packed in twenties does not exceed Four Pesos and eighty centavos (P4.80) per pack, the rate shall be twenty percent (20%). 7 (Emphasis supplied) About a month after the enactment and two (2) days before the effectivity of RA 7654, Revenue Memorandum Circular No. 37-93 ("RMC 37-93"), was issued by the BIR the full text of which expressed: REPUBLIKA NG PILIPINAS KAGAWARAN NG PANANALAPI KAWANIHAN NG RENTAS INTERNAS J u l y 1 , 1 9 9 3 REVENUE MEMORANDUM CIRCULAR NO. 37-93 SUBJECT: Reclassification of Cigarettes Subject to Excise Tax

TO: All Internal Revenue Officers and Others Concerned. In view of the issues raised on whether "HOPE," "MORE" and "CHAMPION" cigarettes which are locally manufactured are appropriately considered as locally manufactured cigarettes bearing a foreign brand, this Office is compelled to review the previous rulings on the matter. Section 142 (c)(1) National Internal Revenue Code, as amended by R.A. No. 6956, provides: On locally manufactured cigarettes bearing a foreign brand, fifty-five percent (55%) Provided, That this rate shall apply regardless of whether or not the right to use or title to the foreign brand was sold or transferred by its owner to the local manufacturer. Whenever it has to be determined whether or not a cigarette bears a foreign brand, the listing of brands manufactured in foreign countries appearing in the current World Tobacco Directory shall govern. Under the foregoing, the test for imposition of the 55% ad valorem tax on cigarettes is that the locally manufactured cigarettes bear a foreign brand regardless of whether or not the right to use or title to the foreign brand was sold or transferred by its owner to the local manufacturer. The brand must be originally owned by a foreign manufacturer or producer. If ownership of the cigarette brand is, however, not definitely determinable, ". . . the listing of brands manufactured in foreign countries appearing in the current World Tobacco Directory shall govern. . . ." "HOPE" is listed in the World Tobacco Directory as being manufactured by (a) Japan Tobacco, Japan and (b) Fortune Tobacco, Philippines. "MORE" is listed in the said directory as being manufactured by: (a) Fills de Julia Reig, Andorra; (b) Rothmans, Australia; (c) RJR-Macdonald Canada; (d) Rettig-Strenberg, Finland; (e) Karellas, Greece; (f) R.J. Reynolds, Malaysia; (g) Rothmans, New Zealand; (h) Fortune Tobacco, Philippines; (i) R.J. Reynolds, Puerto Rico; (j) R.J. Reynolds, Spain; (k) Tabacalera, Spain; (l) R.J. Reynolds, Switzerland; and (m) R.J. Reynolds, USA. "Champion" is registered in the said directory as being manufactured by (a) Commonwealth Bangladesh; (b) Sudan, Brazil; (c) Japan Tobacco, Japan; (d) Fortune Tobacco, Philippines; (e) Haggar, Sudan; and (f) Tabac Reunies, Switzerland. Since there is no showing who among the above-listed manufacturers of the cigarettes bearing the said brands are the real owner/s thereof, then it follows that the same shall be considered foreign brand for purposes of determining the ad valorem tax pursuant to Section 142 of the National

Internal Revenue Code. As held in BIR Ruling No. 410-88, dated August 24, 1988, "in cases where it cannot be established or there is dearth of evidence as to whether a brand is foreign or not, resort to the World Tobacco Directory should be made." In view of the foregoing, the aforesaid brands of cigarettes, viz: "HOPE," "MORE" and "CHAMPION" being manufactured by Fortune Tobacco Corporation are hereby considered locally manufactured cigarettes bearing a foreign brand subject to the 55% ad valorem tax on cigarettes. Any ruling inconsistent herewith is revoked or modified accordingly. (SGD) LIWAYWAY VINZONSCHATO Commission er On 02 July 1993, at about 17:50 hours, BIR Deputy Commissioner Victor A. Deoferio, Jr., sent via telefax a copy of RMC 37-93 to Fortune Tobacco but it was addressed to no one in particular. On 15 July 1993, Fortune Tobacco received, by ordinary mail, a certified xerox copy of RMC 37-93. In a letter, dated 19 July 1993, addressed to the appellate division of the BIR, Fortune Tobacco requested for a review, reconsideration and recall of RMC 3793. The request was denied on 29 July 1993. The following day, or on 30 July 1993, the CIR assessed Fortune Tobacco for ad valorem tax deficiency amounting to P9,598,334.00. On 03 August 1993, Fortune Tobacco filed a petition for review with the CTA. 8 On 10 August 1994, the CTA upheld the position of Fortune Tobacco and adjudged: WHEREFORE, Revenue Memorandum Circular No. 37-93 reclassifying the brands of cigarettes, viz: "HOPE," "MORE" and "CHAMPION" being manufactured by Fortune Tobacco Corporation as locally manufactured cigarettes bearing a foreign brand subject to the 55% ad valorem tax on cigarettes is found to be defective, invalid and unenforceable, such that when R.A. No. 7654 took effect on July 3, 1993, the brands in question were not CURRENTLY CLASSIFIED AND TAXED at 55% pursuant to Section 1142(c)(1) of the Tax Code, as amended by R.A. No. 7654 and were therefore still classified as other locally manufactured cigarettes and taxed at 45% or 20% as the case may be.

Accordingly, the deficiency ad valorem tax assessment issued on petitioner Fortune Tobacco Corporation in the amount of P9,598,334.00, exclusive of surcharge and interest, is hereby canceled for lack of legal basis. Respondent Commissioner of Internal Revenue is hereby enjoined from collecting the deficiency tax assessment made and issued on petitioner in relation to the implementation of RMC No. 37-93. SO ORDERED. 9 In its resolution, dated 11 October 1994, the CTA dismissed for lack of merit the motion for reconsideration. The CIR forthwith filed a petition for review with the Court of Appeals, questioning the CTA's 10th August 1994 decision and 11th October 1994 resolution. On 31 March 1993, the appellate court's Special Thirteenth Division affirmed in all respects the assailed decision and resolution. In the instant petition, the Solicitor General argues: That I. RMC 37-93 IS A RULING OR OPINION OF THE COMMISSIONER OF INTERNAL REVENUE INTERPRETING THE PROVISIONS OF THE TAX CODE. II. BEING AN INTERPRETATIVE RULING OR OPINION, THE PUBLICATION OF RMC 37-93, FILING OF COPIES THEREOF WITH THE UP LAW CENTER AND PRIOR HEARING ARE NOT NECESSARY TO ITS VALIDITY, EFFECTIVITY AND ENFORCEABILITY. III. PRIVATE RESPONDENT IS DEEMED TO HAVE BEEN NOTIFIED OR RMC 37-93 ON JULY 2, 1993. IV. RMC 37-93 IS NOT DISCRIMINATORY SINCE IT APPLIES TO ALL LOCALLY MANUFACTURED CIGARETTES SIMILARLY SITUATED AS "HOPE," "MORE" AND "CHAMPION" CIGARETTES. V. PETITIONER WAS NOT LEGALLY PROSCRIBED FROM RECLASSIFYING "HOPE," "MORE" AND "CHAMPION" CIGARETTES BEFORE THE EFFECTIVITY OF R.A. NO. 7654.

VI. SINCE RMC 37-93 IS AN INTERPRETATIVE RULE, THE INQUIRY IS NOT INTO ITS VALIDITY, EFFECTIVITY OR ENFORCEABILITY BUT INTO ITS CORRECTNESS OR PROPRIETY; RMC 37-93 IS CORRECT. 10 In fine, petitioner opines that RMC 37-93 is merely an interpretative ruling of the BIR which can thus become effective without any prior need for notice and hearing, nor publication, and that its issuance is not discriminatory since it would apply under similar circumstances to all locally manufactured cigarettes. The Court must sustain both the appellate court and the tax court. Petitioner stresses on the wide and ample authority of the BIR in the issuance of rulings for the effective implementation of the provisions of the National Internal Revenue Code. Let it be made clear that such authority of the Commissioner is not here doubted. Like any other government agency, however, the CIR may not disregard legal requirements or applicable principles in the exercise of its quasilegislative powers. Let us first distinguish between two kinds of administrative issuances a legislative rule and an interpretative rule. In Misamis Oriental Association of Coco Traders, Inc., vs. Department of Finance Secretary, 11 the Court expressed: . . . a legislative rule is in the nature of subordinate legislation, designed to implement a primary legislation by providing the details thereof . In the same way that laws must have the benefit of public hearing, it is generally required that before a legislative rule is adopted there must be hearing. In this connection, the Administrative Code of 1987 provides: Public Participation. If not otherwise required by law, an agency shall, as far as practicable, publish or circulate notices of proposed rules and afford interested parties the opportunity to submit their views prior to the adoption of any rule. (2) In the fixing of rates, no rule or final order shall be valid unless the proposed rates shall have been published in a newspaper of general circulation at least two (2) weeks before the first hearing thereon. (3) In case of opposition, the rules on contested cases shall be observed. In addition such rule must be published. On the other hand, interpretative rules are designed to provide guidelines to the law which the administrative agency is in charge of enforcing. 12

It should be understandable that when an administrative rule is merely interpretative in nature, its applicability needs nothing further than its bare issuance for it gives no real consequence more than what the law itself has already prescribed. When, upon the other hand, the administrative rule goes beyond merely providing for the means that can facilitate or render least cumbersome the implementation of the law but substantially adds to or increases the burden of those governed, it behooves the agency to accord at least to those directly affected a chance to be heard, and thereafter to be duly informed, before that new issuance is given the force and effect of law. A reading of RMC 37-93, particularly considering the circumstances under which it has been issued, convinces us that the circular cannot be viewed simply as a corrective measure (revoking in the process the previous holdings of past Commissioners) or merely as construing Section 142(c)(1) of the NIRC, as amended, but has, in fact and most importantly, been made in order to place "Hope Luxury," "Premium More" and "Champion" within the classification of locally manufactured cigarettes bearing foreign brands and to thereby have them covered by RA 7654. Specifically, the new law would have its amendatory provisions applied to locally manufactured cigarettes which at the time of its effectivity were not so classified as bearing foreign brands. Prior to the issuance of the questioned circular, "Hope Luxury," "Premium More," and "Champion" cigarettes were in the category of locally manufactured cigarettes not bearing foreign brand subject to 45% ad valorem tax. Hence, without RMC 37-93, the enactment of RA 7654, would have had no new tax rate consequence on private respondent's products. Evidently, in order to place "Hope Luxury," "Premium More," and "Champion" cigarettes within the scope of the amendatory law and subject them to an increased tax rate, the now disputed RMC 37-93 had to be issued. In so doing, the BIR not simply intrepreted the law; verily, it legislated under its quasi-legislative authority. The due observance of the requirements of notice, of hearing, and of publication should not have been then ignored. Indeed, the BIR itself, in its RMC 10-86, has observed and provided: RMC NO. 10-86 Effectivity of Internal Revenue Rules and Regulations It has been observed that one of the problem areas bearing on compliance with Internal Revenue Tax rules and regulations is lack or insufficiency of due notice to the tax paying public. Unless there is due notice, due compliance therewith may not be reasonably expected. And most importantly, their strict enforcement could possibly suffer from legal infirmity in the light of the constitutional provision on "due process of law" and the essence of the Civil Code provision concerning effectivity of laws, whereby due notice is a basic requirement (Sec. 1, Art. IV, Constitution; Art. 2, New Civil Code).

In order that there shall be a just enforcement of rules and regulations, in conformity with the basic element of due process, the following procedures are hereby prescribed for the drafting, issuance and implementation of the said Revenue Tax Issuances: (1) This Circular shall apply only to (a) Revenue Regulations; (b) Revenue Audit Memorandum Orders; and (c) Revenue Memorandum Circulars and Revenue Memorandum Orders bearing on internal revenue tax rules and regulations. (2) Except when the law otherwise expressly provides, the aforesaid internal revenue tax issuances shall not begin to be operative until after due notice thereof may be fairly presumed. Due notice of the said issuances may be fairly presumed only after the following procedures have been taken; xxx xxx xxx (5) Strict compliance with the foregoing procedures is enjoined. 13 Nothing on record could tell us that it was either impossible or impracticable for the BIR to observe and comply with the above requirements before giving effect to its questioned circular. Not insignificantly, RMC 37-93 might have likewise infringed on uniformity of taxation. Article VI, Section 28, paragraph 1, of the 1987 Constitution mandates taxation to be uniform and equitable. Uniformity requires that all subjects or objects of taxation, similarly situated, are to be treated alike or put on equal footing both in privileges and liabilities. 14 Thus, all taxable articles or kinds of property of the same class must be taxed at the same rate 15 and the tax must operate with the same force and effect in every place where the subject may be found. Apparently, RMC 37-93 would only apply to "Hope Luxury," "Premium More" and "Champion" cigarettes and, unless petitioner would be willing to concede to the submission of private respondent that the circular should, as in fact my esteemed colleague Mr. Justice Bellosillo so expresses in his separate opinion, be considered adjudicatory in nature and thus violative of due process following the Ang Tibay 16 doctrine, the measure suffers from lack of uniformity of taxation. In its decision, the CTA has keenly noted that other cigarettes bearing foreign

brands have not been similarly included within the scope of the circular, such as 1. Locally manufactured by ALHAMBRA INDUSTRIES, INC. (a) "PALM TREE" is listed as manufactured by office of Monopoly, Korea (Exhibit "R") 2. Locally manufactured by LA SUERTE CIGAR and CIGARETTE COMPANY (a) "GOLDEN KEY" is listed being manufactured by United Tobacco, Pakistan (Exhibit "S") (b) "CANNON" is listed as being manufactured by Alpha Tobacco, Bangladesh (Exhibit "T") 3. Locally manufactured by LA PERLA INDUSTRIES, INC. (a) "WHITE HORSE" is listed as being manufactured by Rothman's, Malaysia (Exhibit "U") (b) "RIGHT" is listed as being manufactured by SVENSKA, Tobaks, Sweden (Exhibit "V-1") 4. Locally manufactured by MIGHTY CORPORATION (a) "WHITE HORSE" is listed as being manufactured by Rothman's, Malaysia (Exhibit "U-1") 5. Locally manufactured by STERLING TOBACCO CORPORATION (a) "UNION" is listed as being manufactured by Sumatra Tobacco, Indonesia and Brown and Williamson, USA (Exhibit "U-3") (b) "WINNER" is listed as being manufactured by Alpha Tobacco, Bangladesh; Nangyang, Hongkong; Joo Lan, Malaysia; Pakistan Tobacco Co., Pakistan; Premier Tobacco, Pakistan and Haggar, Sudan (Exhibit "U-4"). 17 The court quoted at length from the transcript of the hearing conducted on 10 August 1993 by the Committee on Ways and Means of the House of Representatives; viz:

THE CHAIRMAN. So you have specific information on Fortune Tobacco alone. You don't have specific information on other tobacco manufacturers. Now, there are other brands which are similarly situated. They are locally manufactured bearing foreign brands. And may I enumerate to you all these brands, which are also listed in the World Tobacco Directory . . . Why were these brand not reclassified at 55 if your want to give a level playing filed to foreign manufacturers? MS. CHATO. Mr. Chairman, in fact, we have already prepared a Revenue Memorandum Circular that was supposed to come after RMC No. 37-93 which have really named specifically the list of locally manufactured cigarettes bearing a foreign brand for excise tax purposes and includes all these brands that you mentioned at 55 percent except that at that time, when we had to come up with this, we were forced to study the brands of Hope, More and Champion because we were given documents that would indicate the that these brands were actually being claimed or patented in other countries because we went by Revenue Memorandum Circular 1488 and we wanted to give some rationality to how it came about but we couldn't find the rationale there. And we really found based on our own interpretation that the only test that is given by that existing law would be registration in the World Tobacco Directory. So we came out with this proposed revenue memorandum circular which we forwarded to the Secretary of Finance except that at that point in time, we went by the Republic Act 7654 in Section 1 which amended Section 142, C-1, it said, that on locally manufactured cigarettes which are currently classified and taxed at 55 percent. So we were saying that when this law took effect in July 3 and if we are going to come up with this revenue circular thereafter, then I think our action would really be subject to question but we feel that . . . Memorandum Circular Number 37-93 would really cover even similarly situated brands. And in fact, it was really because of the study, the short time that we were given to study the matter that we could not include all the rest of the other brands that would have been really classified as foreign brand if we went by the law itself. I am sure that by the reading of the law, you would without that ruling by Commissioner Tan they would really have been included in the definition or in the classification of foregoing brands. These brands that you referred to or just read to us and in fact just for your information, we really came out with a proposed revenue memorandum circular for those brands. (Emphasis supplied) (Exhibit "FF-2-C," pp. V-5 TO V-6, VI-1 to VI-3). xxx xxx xxx MS. CHATO. . . . But I do agree with you now that it cannot and in fact that is why I felt that we . . . I wanted to come up with a more extensive

coverage and precisely why I asked that revenue memorandum circular that would cover all those similarly situated would be prepared but because of the lack of time and I came out with a study of RA 7654, it would not have been possible to really come up with the reclassification or the proper classification of all brands that are listed there. . . (emphasis supplied) (Exhibit "FF-2d," page IX-1) xxx xxx xxx HON. DIAZ. But did you not consider that there are similarly situated? MS. CHATO. That is precisely why, Sir, after we have come up with this Revenue Memorandum Circular No. 37-93, the other brands came about the would have also clarified RMC 37-93 by I was saying really because of the fact that I was just recently appointed and the lack of time, the period that was allotted to us to come up with the right actions on the matter, we were really caught by the July 3 deadline. But in fact, We have already prepared a revenue memorandum circular clarifying with the other . . . does not yet, would have been a list of locally manufactured cigarettes bearing a foreign brand for excise tax purposes which would include all the other brands that were mentioned by the Honorable Chairman. (Emphasis supplied) (Exhibit "FF-2-d," par. IX-4). 18 All taken, the Court is convinced that the hastily promulgated RMC 37-93 has fallen short of a valid and effective administrative issuance. WHEREFORE, the decision of the Court of Appeals, sustaining that of the Court of Tax Appeals, is AFFIRMED. No costs. SO ORDERED. G.R. No. 120082 September 11, 1996 MACTAN CEBU INTERNATIONAL AIRPORT AUTHORITY, petitioner, vs. HON. FERDINAND J. MARCOS, in his capacity as the Presiding Judge of the Regional Trial Court, Branch 20, Cebu City, THE CITY OF CEBU, represented by its Mayor HON. TOMAS R. OSMEA, and EUSTAQUIO B. CESA, respondents.

DAVIDE, JR., J.: For review under Rule 45 of the Rules of Court on a pure question of law are the decision of 22 March 1995 1 of the Regional Trial Court (RTC) of Cebu City,

Branch 20, dismissing the petition for declaratory relief in Civil Case No. CEB16900 entitled "Mactan Cebu International Airport Authority vs. City of Cebu", and its order of 4, May 1995 2 denying the motion to reconsider the decision. We resolved to give due course to this petition for its raises issues dwelling on the scope of the taxing power of local government-owned and controlled corporations. The uncontradicted factual antecedents are summarized in the instant petition as follows: Petitioner Mactan Cebu International Airport Authority (MCIAA) was created by virtue of Republic Act No. 6958, mandated to "principally undertake the economical, efficient and effective control, management and supervision of the Mactan International Airport in the Province of Cebu and the Lahug Airport in Cebu City, . . . and such other Airports as may be established in the Province of Cebu . . . (Sec. 3, RA 6958). It is also mandated to: a) encourage, promote and develop international and domestic air traffic in the Central Visayas and Mindanao regions as a means of making the regions centers of international trade and tourism, and accelerating the development of the means of transportation and communication in the country; and b) upgrade the services and facilities of the airports and to formulate internationally acceptable standards of airport accommodation and service. Since the time of its creation, petitioner MCIAA enjoyed the privilege of exemption from payment of realty taxes in accordance with Section 14 of its Charter. Sec. 14. Tax Exemptions. The authority shall be exempt from realty taxes imposed by the National Government or any of its political subdivisions, agencies and instrumentalities . . . On October 11, 1994, however, Mr. Eustaquio B. Cesa, Officer-in-Charge, Office of the Treasurer of the City of Cebu, demanded payment for realty taxes on several parcels of land belonging to the petitioner (Lot Nos. 913-

G, 743, 88 SWO, 948-A, 989-A, 474, 109(931), I-M, 918, 919, 913-F, 941, 942, 947, 77 Psd., 746 and 991-A), located at Barrio Apas and Barrio Kasambagan, Lahug, Cebu City, in the total amount of P2,229,078.79. Petitioner objected to such demand for payment as baseless and unjustified, claiming in its favor the aforecited Section 14 of RA 6958 which exempt it from payment of realty taxes. It was also asserted that it is an instrumentality of the government performing governmental functions, citing section 133 of the Local Government Code of 1991 which puts limitations on the taxing powers of local government units: 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 barangay shall not extend to the levy of the following: a) . . . xxx xxx xxx o) Taxes, fees or charges of any kind on the National Government, its agencies and instrumentalities, and local government units. (Emphasis supplied) Respondent City refused to cancel and set aside petitioner's realty tax account, insisting that the MCIAA is a government-controlled corporation whose tax exemption privilege has been withdrawn by virtue of Sections 193 and 234 of the Local Governmental Code that took effect on January 1, 1992: Sec. 193. Withdrawal of Tax Exemption Privilege. Unless otherwise provided in this Code, tax exemptions or incentives granted to, or presently enjoyed by all persons whether natural or juridical, including government-owned or controlled corporations, except local water districts, cooperatives duly registered under RA No. 6938, non-stock, and non-profit hospitals and educational institutions, are hereby withdrawn upon the effectivity of this Code. (Emphasis supplied) xxx xxx xxx Sec. 234. Exemptions from Real Property taxes. . . . (a) . . .

xxx xxx xxx (c) . . . Except as provided herein, any exemption from payment of real property tax previously granted to, or presently enjoyed by all persons, whether natural or juridical, including government-owned or controlled corporations are hereby withdrawn upon the effectivity of this Code. As the City of Cebu was about to issue a warrant of levy against the properties of petitioner, the latter was compelled to pay its tax account "under protest" and thereafter filed a Petition for Declaratory Relief with the Regional Trial Court of Cebu, Branch 20, on December 29, 1994. MCIAA basically contended that the taxing powers of local government units do not extend to the levy of taxes or fees of any kind on an instrumentality of the national government. Petitioner insisted that while it is indeed a government-owned corporation, it nonetheless stands on the same footing as an agency or instrumentality of the national government. Petitioner insisted that while it is indeed a government-owned corporation, it nonetheless stands on the same footing as an agency or instrumentality of the national government by the very nature of its powers and functions. Respondent City, however, asserted that MACIAA is not an instrumentality of the government but merely a government-owned corporation performing proprietary functions As such, all exemptions previously granted to it were deemed withdrawn by operation of law, as provided under Sections 193 and 234 of the Local Government Code when it took effect on January 1, 1992. 3 The petition for declaratory relief was docketed as Civil Case No. CEB-16900. In its decision of 22 March 1995, 4 the trial court dismissed the petition in light of its findings, to wit: A close reading of the New Local Government Code of 1991 or RA 7160 provides the express cancellation and withdrawal of exemption of taxes by government owned and controlled corporation per Sections after the effectivity of said Code on January 1, 1992, to wit: [proceeds to quote Sections 193 and 234] Petitioners claimed that its real properties assessed by respondent City Government of Cebu are exempted from paying realty taxes in view of the exemption granted under RA 6958 to pay the same (citing Section 14 of RA 6958).

However, RA 7160 expressly provides that "All general and special laws, acts, city charters, decress [sic], 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." ([f], Section 534, RA 7160). With that repealing clause in RA 7160, it is safe to infer and state that the tax exemption provided for in RA 6958 creating petitioner had been expressly repealed by the provisions of the New Local Government Code of 1991. So that petitioner in this case has to pay the assessed realty tax of its properties effective after January 1, 1992 until the present. This Court's ruling finds expression to give impetus and meaning to the overall objectives of the New Local Government Code of 1991, RA 7160. "It is hereby declared the policy of the State that the territorial and political subdivisions of the State shall enjoy genuine and meaningful local autonomy to enable them to attain their fullest development as self-reliant communities and make them more effective partners in the attainment of national goals. Towards this end, the State shall provide for a more responsive and accountable local government structure instituted through a system of decentralization whereby local government units shall be given more powers, authority, responsibilities, and resources. The process of decentralization shall proceed from the national government to the local government units. . . . 5 Its motion for reconsideration having been denied by the trial court in its 4 May 1995 order, the petitioner filed the instant petition based on the following assignment of errors: I RESPONDENT JUDGE ERRED IN FAILING TO RULE THAT THE PETITIONER IS VESTED WITH GOVERNMENT POWERS AND FUNCTIONS WHICH PLACE IT IN THE SAME CATEGORY AS AN INSTRUMENTALITY OR AGENCY OF THE GOVERNMENT. II RESPONDENT JUDGE ERRED IN RULING THAT PETITIONER IS LIABLE TO PAY REAL PROPERTY TAXES TO THE CITY OF CEBU. Anent the first assigned error, the petitioner asserts that although it is a government-owned or controlled corporation it is mandated to perform functions in the same category as an instrumentality of Government. An instrumentality of Government is one created to perform governmental functions primarily to

promote certain aspects of the economic life of the people. 6 Considering its task "not merely to efficiently operate and manage the Mactan-Cebu International Airport, but more importantly, to carry out the Government policies of promoting and developing the Central Visayas and Mindanao regions as centers of international trade and tourism, and accelerating the development of the means of transportation and communication in the country," 7 and that it is an attached agency of the Department of Transportation and Communication (DOTC), 8 the petitioner "may stand in [sic] the same footing as an agency or instrumentality of the national government." Hence, its tax exemption privilege under Section 14 of its Charter "cannot be considered withdrawn with the passage of the Local Government Code of 1991 (hereinafter LGC) because Section 133 thereof specifically states that the taxing powers of local government units shall not extend to the levy of taxes of fees or charges of any kind on the national government its agencies and instrumentalities." As to the second assigned error, the petitioner contends that being an instrumentality of the National Government, respondent City of Cebu has no power nor authority to impose realty taxes upon it in accordance with the aforesaid Section 133 of the LGC, as explained in Basco vs. Philippine Amusement and Gaming Corporation; 9 Local governments have no power to tax instrumentalities of the National Government. PAGCOR is a government owned or controlled corporation with an original character, PD 1869. All its shares of stock are owned by the National Government. . . . PAGCOR has a dual role, to operate and regulate gambling casinos. The latter joke 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. (McCulloch v. Maryland, 4 Wheat 316, 4 L Ed. 579). This doctrine emanates from the "supremacy" of the National Government over local government. Justice Holmes, speaking for the Supreme Court, make references to the entire absence of power on the part of the States to touch, in that way (taxation) at least, the instrumentalities of the United States (Johnson v. Maryland, 254 US 51) and it can be agreed that no state or political

subdivision can regulate a federal instrumentality in such a way as to prevent it from consummating its federal responsibilities, or even to seriously burden it in the accomplishment of them. (Antieau Modern Constitutional Law, Vol. 2, p. 140) Otherwise mere creature 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 toll for regulation" (U.S. v. Sanchez, 340 US 42). The power to tax which was called by Justice Marshall as the "power to destroy" (McCulloch v. Maryland, supra) cannot be allowed to defeat an instrumentality or creation of the very entity which has the inherent power to wield it. (Emphasis supplied) It then concludes that the respondent Judge "cannot therefore correctly say that the questioned provisions of the Code do not contain any distinction between a governmental function as against one performing merely proprietary ones such that the exemption privilege withdrawn under the said Code would apply to all government corporations." For it is clear from Section 133, in relation to Section 234, of the LGC that the legislature meant to exclude instrumentalities of the national government from the taxing power of the local government units. In its comment respondent City of Cebu alleges that as local a government unit and a political subdivision, it has the power to impose, levy, assess, and collect taxes within its jurisdiction. Such power is guaranteed by the Constitution 10 and enhanced further by the LGC. While it may be true that under its Charter the petitioner was exempt from the payment of realty taxes, 11 this exemption was withdrawn by Section 234 of the LGC. In response to the petitioner's claim that such exemption was not repealed because being an instrumentality of the National Government, Section 133 of the LGC prohibits local government units from imposing taxes, fees, or charges of any kind on it, respondent City of Cebu points out that the petitioner is likewise a government-owned corporation, and Section 234 thereof does not distinguish between government-owned corporation, and Section 234 thereof does not distinguish between governmentowned corporation, and Section 234 thereof does not distinguish between government-owned or controlled corporations performing governmental and purely proprietary functions. Respondent city of Cebu urges this the Manila International Airport Authority is a governmental-owned corporation, 12 and to reject the application of Basco because it was "promulgated . . . before the enactment and the singing into law of R.A. No. 7160," and was not, therefore, decided "in the light of the spirit and intention of the framers of the said law. As a general rule, the power to tax is an incident of sovereignty and is unlimited in its range, acknowledging in its very nature no limits, so that security against its abuse is to be found only in the responsibility of the legislature which imposes the tax on the constituency who are to pay it. Nevertheless, effective limitations

thereon may be imposed by the people through their Constitutions. 13 Our Constitution, for instance, provides that the rule of taxation shall be uniform and equitable and Congress shall evolve a progressive system of taxation. 14 So potent indeed is the power that it was once opined that "the power to tax involves the power to destroy." 15 Verily, taxation is a destructive power which interferes with the personal and property for the support of the government. Accordingly, tax statutes must be construed strictly against the government and liberally in favor of the taxpayer. 16 But since taxes are what we pay for civilized society, 17 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 taxpayers and liberally in favor of the taxing authority. 18 A claim of exemption from tax payment must be clearly shown and based on language in the law too plain to be mistaken. 19 Elsewise stated, taxation is the rule, exemption therefrom is the exception. 20 However, if the grantee of the exemption is a political subdivision or instrumentality, the rigid rule of construction does not apply because the practical effect of the exemption is merely to reduce the amount of money that has to be handled by the government in the course of its operations.
21

The power to tax is primarily vested in the Congress; however, in our jurisdiction, it may be exercised by local legislative bodies, no longer merely by virtue of a valid delegation as before, but pursuant to direct authority conferred by Section 5, Article X of the Constitution. 22 Under the latter, the exercise of the power may be subject to such guidelines and limitations as the Congress may provide which, however, must be consistent with the basic policy of local autonomy. There can be no question that under Section 14 of R.A. No. 6958 the petitioner is exempt from the payment of realty taxes imposed by the National Government or any of its political subdivisions, agencies, and instrumentalities. Nevertheless, since taxation is the rule and exemption therefrom the exception, the exemption may thus be withdrawn at the pleasure of the taxing authority. The only exception to this rule is where the exemption was granted to private parties based on material consideration of a mutual nature, which then becomes contractual and is thus covered by the non-impairment clause of the Constitution. 23 The LGC, enacted pursuant to Section 3, Article X of the constitution provides for the exercise by local government units of their power to tax, the scope thereof or its limitations, and the exemption from taxation. Section 133 of the LGC prescribes the common limitations on the taxing powers of local government units as follows: Sec. 133. Common Limitations on the Taxing Power of Local Government Units. Unless otherwise provided herein, the exercise of the taxing

powers of provinces, cities, municipalities, and barangays shall not extend to the levy of the following: (a) Income tax, except when levied on banks and other financial institutions; (b) Documentary stamp tax; (c) Taxes on estates, "inheritance, gifts, legacies and other acquisitions mortis causa, except as otherwise provided herein (d) Customs duties, registration fees of vessels and wharfage on wharves, tonnage dues, and all other kinds of customs fees charges and dues except wharfage on wharves constructed and maintained by the local government unit concerned: (e) Taxes, fees and charges and other imposition upon goods carried into or out of, or passing through, the territorial jurisdictions of local government units in the guise or charges for wharfages, tolls for bridges or otherwise, or other taxes, fees or charges in any form whatsoever upon such goods or merchandise; (f) Taxes fees or charges on agricultural and aquatic products when sold by marginal farmers or fishermen; (g) Taxes on business enterprise certified to be the Board of Investment as pioneer or non-pioneer for a period of six (6) and four (4) years, respectively from the date of registration; (h) Excise taxes on articles enumerated under the National Internal Revenue Code, as amended, and taxes, fees or charges on petroleum products; (i) Percentage or value added tax (VAT) on sales, barters or exchanges or similar transactions on goods or services except as otherwise provided herein; (j) Taxes on the gross receipts of transportation contractor and person engage in the transportation of passengers of freight by hire and common carriers by air, land, or water, except as provided in this code;

(k) Taxes on premiums paid by ways reinsurance or retrocession; (l) Taxes, fees, or charges for the registration of motor vehicles and for the issuance of all kinds of licenses or permits for the driving of thereof, except, tricycles; (m) Taxes, fees, or other charges on Philippine product actually exported, except as otherwise provided herein; (n) Taxes, fees, or charges, on Countryside and Barangay Business Enterprise and Cooperatives duly registered under R.A. No. 6810 and Republic Act Numbered Sixty nine hundred thirty-eight (R.A. No. 6938) otherwise known as the "Cooperative Code of the Philippines; and (o) TAXES, FEES, OR CHARGES OF ANY KIND ON THE NATIONAL GOVERNMENT, ITS AGENCIES AND INSTRUMENTALITIES, AND LOCAL GOVERNMENT UNITS. (emphasis supplied) Needless to say the last item (item o) is pertinent in this case. The "taxes, fees or charges" referred to are "of any kind", hence they include all of these, unless otherwise provided by the LGC. The term "taxes" is well understood so as to need no further elaboration, especially in the light of the above enumeration. The term "fees" means charges fixed by law or Ordinance for the regulation or inspection of business activity, 24 while "charges" are pecuniary liabilities such as rents or fees against person or property. 25 Among the "taxes" enumerated in the LGC is real property tax, which is governed by Section 232. It reads as follows: Sec. 232. Power to Levy Real Property Tax. A province or city or a municipality within the Metropolitan Manila Area may levy on an annual ad valorem tax on real property such as land, building, machinery and other improvements not hereafter specifically exempted. Section 234 of LGC provides for the exemptions from payment of real property taxes and withdraws previous exemptions therefrom granted to natural and juridical persons, including government owned and controlled corporations, except as provided therein. It provides: Sec. 234. Exemptions from Real Property Tax. The following are exempted from payment of the real property tax:

(a) Real property owned by the Republic of the Philippines or any of its political subdivisions except when the beneficial use thereof had been granted, for reconsideration or otherwise, to a taxable person; (b) Charitable institutions, churches, parsonages or convents appurtenants thereto, mosques nonprofits or religious cemeteries and all lands, building and improvements actually, directly, and exclusively used for religious charitable or educational purposes; (c) All machineries and equipment that are actually, directly and exclusively used by local water districts and government-owned or controlled corporations engaged in the supply and distribution of water and/or generation and transmission of electric power; (d) All real property owned by duly registered cooperatives as provided for under R.A. No. 6938; and; (e) Machinery and equipment used for pollution control and environmental protection. Except as provided herein, any exemptions from payment of real property tax previously granted to or presently enjoyed by, all persons whether natural or juridical, including all government owned or controlled corporations are hereby withdrawn upon the effectivity of his Code. These exemptions are based on the ownership, character, and use of the property. Thus; (a) Ownership Exemptions. Exemptions from real property taxes on the basis of ownership are real properties owned by: (i) the Republic, (ii) a province, (iii) a city, (iv) a municipality, (v) a barangay, and (vi) registered cooperatives. (b) Character Exemptions. Exempted from real property taxes on the basis of their character are: (i) charitable institutions, (ii) houses and temples of prayer like churches, parsonages or convents appurtenant thereto, mosques, and (iii) non profit or religious cemeteries.

(c) Usage exemptions. Exempted from real property taxes on the basis of the actual, direct and exclusive use to which they are devoted are: (i) all lands buildings and improvements which are actually, directed and exclusively used for religious, charitable or educational purpose; (ii) all machineries and equipment actually, directly and exclusively used or by local water districts or by government-owned or controlled corporations engaged in the supply and distribution of water and/or generation and transmission of electric power; and (iii) all machinery and equipment used for pollution control and environmental protection. To help provide a healthy environment in the midst of the modernization of the country, all machinery and equipment for pollution control and environmental protection may not be taxed by local governments. 2. Other Exemptions Withdrawn. All other exemptions previously granted to natural or juridical persons including government-owned or controlled corporations are withdrawn upon the effectivity of the Code. 26 Section 193 of the LGC is the general provision on withdrawal of tax exemption privileges. It provides: 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 governmentowned, or controlled corporations, except local water districts, cooperatives duly registered under R.A. 6938, non stock and non profit hospitals and educational constitutions, are hereby withdrawn upon the effectivity of this Code. On the other hand, the LGC authorizes local government units to grant tax exemption privileges. Thus, Section 192 thereof provides: Sec. 192. Authority to Grant Tax Exemption Privileges. Local government units may, through ordinances duly approved, grant tax exemptions, incentives or reliefs under such terms and conditions as they may deem necessary. The foregoing sections of the LGC speaks of: (a) the limitations on the taxing powers of local government units and the exceptions to such limitations; and (b) the rule on tax exemptions and the exceptions thereto. The use of exceptions of provisos in these section, as shown by the following clauses:

(1) "unless otherwise provided herein" in the opening paragraph of Section 133; (2) "Unless otherwise provided in this Code" in section 193; (3) "not hereafter specifically exempted" in Section 232; and (4) "Except as provided herein" in the last paragraph of Section 234 initially hampers a ready understanding of the sections. Note, too, that the aforementioned clause in section 133 seems to be inaccurately worded. Instead of the clause "unless otherwise provided herein," with the "herein" to mean, of course, the section, it should have used the clause "unless otherwise provided in this Code." The former results in absurdity since the section itself enumerates what are beyond the taxing powers of local government units and, where exceptions were intended, the exceptions were explicitly indicated in the text. For instance, in item (a) which excepts the income taxes "when livied on banks and other financial institutions", item (d) which excepts "wharfage on wharves constructed and maintained by the local government until concerned"; and item (1) which excepts taxes, fees, and charges for the registration and issuance of license or permits for the driving of "tricycles". It may also be observed that within the body itself of the section, there are exceptions which can be found only in other parts of the LGC, but the section interchangeably uses therein the clause "except as otherwise provided herein" as in items (c) and (i), or the clause "except as otherwise provided herein" as in items (c) and (i), or the clause "excepts as provided in this Code" in item (j). These clauses would be obviously unnecessary or mere surplus-ages if the opening clause of the section were" "Unless otherwise provided in this Code" instead of "Unless otherwise provided herein". In any event, even if the latter is used, since under Section 232 local government units have the power to levy real property tax, except those exempted therefrom under Section 234, then Section 232 must be deemed to qualify Section 133. Thus, reading together Section 133, 232 and 234 of the LGC, we conclude that as a general rule, as laid down in Section 133 the taxing powers of local government units cannot extend to the levy of inter alia, "taxes, fees, and charges of any kind of the National Government, its agencies and instrumentalties, and local government units"; however, pursuant to Section 232, provinces, cities, municipalities in the Metropolitan Manila Area may impose the real property tax except on, inter alia, "real property owned by the Republic of the Philippines or any of its political subdivisions except when the beneficial used thereof has been granted, for consideration or otherwise, to a taxable person", as provided in item (a) of the first paragraph of Section 234.

As to tax exemptions or incentives granted to or presently enjoyed by natural or juridical persons, including government-owned and controlled corporations, Section 193 of the LGC prescribes the general rule, viz., they are withdrawn upon the effectivity of the LGC, except upon the effectivity of the LGC, except those granted to local water districts, cooperatives duly registered under R.A. No. 6938, non stock and non-profit hospitals and educational institutions, and unless otherwise provided in the LGC. The latter proviso could refer to Section 234, which enumerates the properties exempt from real property tax. But the last paragraph of Section 234 further qualifies the retention of the exemption in so far as the real property taxes are concerned by limiting the retention only to those enumerated there-in; all others not included in the enumeration lost the privilege upon the effectivity of the LGC. Moreover, even as the real property is owned by the Republic of the Philippines, or any of its political subdivisions covered by item (a) of the first paragraph of Section 234, the exemption is withdrawn if the beneficial use of such property has been granted to taxable person for consideration or otherwise. Since the last paragraph of Section 234 unequivocally withdrew, upon the effectivity of the LGC, exemptions from real property taxes granted to natural or juridical persons, including government-owned or controlled corporations, except as provided in the said section, and the petitioner is, undoubtedly, a governmentowned corporation, it necessarily follows that its exemption from such tax granted it in Section 14 of its charter, R.A. No. 6958, has been withdrawn. Any claim to the contrary can only be justified if the petitioner can seek refuge under any of the exceptions provided in Section 234, but not under Section 133, as it now asserts, since, as shown above, the said section is qualified by Section 232 and 234. In short, the petitioner can no longer invoke the general rule in Section 133 that the taxing powers of the local government units cannot extend to the levy of: (o) taxes, fees, or charges of any kind on the National Government, its agencies, or instrumentalities, and local government units. I must show that the parcels of land in question, which are real property, are any one of those enumerated in Section 234, either by virtue of ownership, character, or use of the property. Most likely, it could only be the first, but not under any explicit provision of the said section, for one exists. In light of the petitioner's theory that it is an "instrumentality of the Government", it could only be within be first item of the first paragraph of the section by expanding the scope of the terms Republic of the Philippines" to embrace . . . . . . "instrumentalities" and "agencies" or expediency we quote:

(a) real property owned by the Republic of the Philippines, or any 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. This view does not persuade us. In the first place, the petitioner's claim that it is an instrumentality of the Government is based on Section 133(o), which expressly mentions the word "instrumentalities"; and in the second place it fails to consider the fact that the legislature used the phrase "National Government, its agencies and instrumentalities" "in Section 133(o),but only the phrase "Republic of the Philippines or any of its political subdivision "in Section 234(a). The terms "Republic of the Philippines" and "National Government" are not interchangeable. The former is boarder and synonymous with "Government of the Republic of the Philippines" which the Administrative Code of the 1987 defines as the "corporate governmental entity though which the functions of the government are exercised through at the Philippines, including, saves as the contrary appears from the context, the various arms through which political authority is made effective in the Philippines, whether pertaining to the autonomous reason, the provincial, city, municipal or barangay subdivision or other forms of local government." 27 These autonomous regions, provincial, city, municipal or barangay subdivisions" are the political subdivision. 28 On the other hand, "National Government" refers "to the entire machinery of the central government, as distinguished from the different forms of local Governments." 29 The National Government then is composed of the three great departments the executive, the legislative and the judicial. 30 An "agency" of the Government refers to "any of the various units of the Government, including a department, bureau, office instrumentality, or government-owned or controlled corporation, or a local government or a distinct unit therein;" 31 while an "instrumentality" refers to "any agency of the National Government, not integrated within the department framework, vested with special functions or jurisdiction by law, endowed with some if not all corporate powers, administering special funds, and enjoying operational autonomy; usually through a charter. This term includes regulatory agencies, chartered institutions and government-owned and controlled corporations". 32 If Section 234(a) intended to extend the exception therein to the withdrawal of the exemption from payment of real property taxes under the last sentence of the said section to the agencies and instrumentalities of the National Government mentioned in Section 133(o), then it should have restated the wording of the latter. Yet, it did not Moreover, that Congress did not wish to expand the scope of the exemption in Section 234(a) to include real property owned by other instrumentalities or agencies of the government including government-owned

and controlled corporations is further borne out by the fact that the source of this exemption is Section 40(a) of P.D. No. 646, otherwise known as the Real Property Tax Code, which reads: Sec 40. Exemption from Real Property Tax. The exemption shall be as follows: (a) Real property owned by the Republic of the Philippines or any of its political subdivisions and any government-owned or controlled corporations so exempt by is charter: Provided, however, that this exemption shall not apply to real property of the above mentioned entities the beneficial use of which has been granted, for consideration or otherwise, to a taxable person. Note that as a reproduced in Section 234(a), the phrase "and any governmentowned or controlled corporation so exempt by its charter" was excluded. The justification for this restricted exemption in Section 234(a) seems obvious: to limit further tax exemption privileges, specially in light of the general provision on withdrawal of exemption from payment of real property taxes in the last paragraph of property taxes in the last paragraph of Section 234. These policy considerations are consistent with the State policy to ensure autonomy to local governments 33 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. 34 The power to tax is the most effective instrument to raise needed revenues to finance and support myriad activities of 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 similarly situated enterprises, and there was a need for this entities to share in the requirements of the development, fiscal or otherwise, by paying the taxes and other charges due from them. 35 The crucial issues then to be addressed are: (a) whether the parcels of land in question belong to the Republic of the Philippines whose beneficial use has been granted to the petitioner, and (b) whether the petitioner is a "taxable person". Section 15 of the petitioner's Charter provides:

Sec. 15. Transfer of Existing Facilities and Intangible Assets. All existing public airport facilities, runways, lands, buildings and other properties, movable or immovable, belonging to or presently administered by the airports, and all assets, powers, rights, interests and privileges relating on airport works, or air operations, including all equipment which are necessary for the operations of air navigation, acrodrome control towers, crash, fire, and rescue facilities are hereby transferred to the Authority: Provided however, that the operations control of all equipment necessary for the operation of radio aids to air navigation, airways communication, the approach control office, and the area control center shall be retained by the Air Transportation Office. No equipment, however, shall be removed by the Air Transportation Office from Mactan without the concurrence of the authority. The authority may assist in the maintenance of the Air Transportation Office equipment. The "airports" referred to are the "Lahug Air Port" in Cebu City and the "Mactan International AirPort in the Province of Cebu", 36 which belonged to the Republic of the Philippines, then under the Air Transportation Office (ATO). 37 It may be reasonable to assume that the term "lands" refer to "lands" in Cebu City then administered by the Lahug Air Port and includes the parcels of land the respondent City of Cebu seeks to levy on for real property taxes. This section involves a "transfer" of the "lands" among other things, to the petitioner and not just the transfer of the beneficial use thereof, with the ownership being retained by the Republic of the Philippines. This "transfer" is actually an absolute conveyance of the ownership thereof because the petitioner's authorized capital stock consists of, inter alia "the value of such real estate owned and/or administered by the airports." 38 Hence, the petitioner is now the owner of the land in question and the exception in Section 234(c) of the LGC is inapplicable. Moreover, the petitioner cannot claim that it was never a "taxable person" under its Charter. It was only exempted from the payment of real property taxes. The grant of the privilege only in respect of this tax is conclusive proof of the legislative intent to make it a taxable person subject to all taxes, except real property tax. Finally, even if the petitioner was originally not a taxable person for purposes of real property tax, in light of the forgoing disquisitions, it had already become even if it be conceded to be an "agency" or "instrumentality" of the Government, a taxable person for such purpose in view of the withdrawal in the last paragraph of Section 234 of exemptions from the payment of real property taxes, which, as earlier adverted to, applies to the petitioner.

Accordingly, the position taken by the petitioner is untenable. Reliance on Basco vs. Philippine Amusement and Gaming Corporation 39 is unavailing since it was decided before the effectivity of the LGC. Besides, nothing can prevent Congress from decreeing that even instrumentalities or agencies of the government performing governmental functions may be subject to tax. Where it is done precisely to fulfill a constitutional mandate and national policy, no one can doubt its wisdom. WHEREFORE, the instant petition is DENIED. The challenged decision and order of the Regional Trial Court of Cebu, Branch 20, in Civil Case No. CEB16900 are AFFIRMED. No pronouncement as to costs. SO ORDERED.

The petition is without merit.Petitioner has no basis in law. The provision of Section 229 is not applicable topetitioner, to wit:S e c t i o n 2 2 9 . R e c o v e r y o f T a x E r r o n e o u s l y o r I l l e g a l l y C o l l e c t e d . N o s u i t o r proceeding, shall be maintained in any court for the recovery of any nationalinternal revenue tax hereafter alleged to have been erroneously or illegallyassessed or collected, or of any penalty claimed to have been collected withoutauthority, or of any sum alleged to have been excessively or in any mannerwrongfully collected, until a claim for refund or credit has been duty filed with theCommissioner; but such suit or proceeding may be maintained, whether or notsuch tax, penalty, or sum has been paid under protest or duress.In any case, no such suit or proceeding shall be filed after the expiration of two (2)years from the date of payment of the tax or penalty regardless on anysupervening cause that may arise after payment: Provided, however, That theCommissioner may, even without a written claim therefor, refund or credit anytax, where on the face of the return upon which payment was made, suchpayment appears clearly to have been erroneously paid. (Emphasis supplied) The abovecited section speaks of taxes erroneously or illegally assessed orcollected, or of any penalty claimed to have been collected without authority, orof any sum alleged to have been excessively or in any manner wrongfullycollected. Undeniably, it is not proper for us to allow a claim for refund in favor of petitioner who, by law, is legally mandated to pay the taxes due from it. Theallegation of petitioner that the subject taxes it paid comes within the purview of an erroneous payment merely because said taxes, by virtue of a contract, are tobe assumed by NPC is unavailing.It is a basic principle in civil law that with certain exceptions not obtaining in thiscase, a contract can only bind the parties who had entered into it or theirsuccessors who assumed their personalities or their juridical positions, and that,as a consequence, such contract can neither favor nor prejudice a third person(Ouano vs. Court of Appeals, G.R. No. 95900, July 23, 1992). Article 1311 of theCivil Code of the Philippines provides that "Contracts take effect only between theparties, their assigns and heirs, except in case where the rights and obligationsarising from the contract are not transmissible by their nature, or by stipulation orby provision of law." This is the principle of relativity of contracts. CDHcaSIn the case at bar, it is undisputed that the contract was entered into only by andbetween the parties (NPC and herein

petitioner) and the herein respondent wasneither a party thereto nor was he aware of the provision thereof. Thus,respondent should not be made to observe the term of the contract between theparties, otherwise, the principle of relativity of contracts, long enshrined in oursubstantive laws, will be violated. The "assumption of taxes" clause in the Contract between the petitioner and NPC is not enough to put petitioner's case within the operation of Section 229 of the Tax Code. The payments of petitioner to respondent of the income taxes and theBPRT were made legally by it and the Contract is not enough ground to grantpetitioner's claim for refund. A contract is, as always, subordinate to the law.However, petitioner remedy, if any, is to seek a cash refund from NPC for theequivalent amount of the income taxes and branch profit remittance taxes it paidto the BIR. This remedy is recognized by the respondent himself when he issuedRevenue Memorandum Circular (RMC) No. 32-99, as amended by RevenueMemorandum Circular 42-99 dated June 2, 1999, which provides that "In caseswhere income taxes were previously paid directly by the Japanese contractors ornationals, the corresponding cash refund shall be recovered from the governmentexecuting agencies upon the presentation of proof of payment thereof by the Japanese contractors or nationals".International comity may not be invoked to evade our tax laws. Thus, theSupreme Court held:"It is too settled a rule in this jurisdiction, as to dispense with the need forcitations, that laws granting exemption from tax are construed strictissimi jurisagainst the taxpayer and liberally in favor of the taxing power. Taxation is the ruleand exemption is the exception. The burden of proof rests upon the party claimingexemption to prove that it is in fact covered by the exemption so claimed, whichonus petitioners have failed to discharge. Significantly, private respondents arenot even among the entities which, under Section 29(b)(7)(A) of the tax code, areentitled to exemption and which should indispensably be the party in interest inthis case. AaDSTHDefinitely, the taxability of a party cannot be blandly glossed over on the basis of a supposed "broad, pragmatic analysis" alone without substantial supportiveevidence, lest governmental operations suffer due to diminution of much neededfunds. Nor can we close this discussion without taking cognizance of petitioner'swarning, of pervasive relevance at this time, that while international comity isinvoked in this case on the nebulous representation that the funds involved in theloans are those of a foreign government, scrupulous care must be taken to avoidopening the floodgates to the violation of our tax laws. Otherwise, the mereexpedient of having a Philippine corporation enter into a contract for loans orother domestic securities with private foreign entities, which in turn will negotiateindependently with their governments, could be availed of to take advantage of the tax exemption law under discussion." Commissioner of Internal Revenue vs.Mitsubishi Metal Corporation, G.R. No. 54908, January 22, 1990, 181 SCRA 82. Tax exemptions must be strictly construed such that the exemption will not beheld to be conferred unless the terms under which it is granted clearly anddistinctly show that such was the intention of the parties (Philippine AcetyleneCo., Inc. v. Commissioner of Internal Revenue, G.R. No. L-19707, Aug. 17, 1967;Manila Electric Company vs. Vera, etc., G.R. No. L-29987, Oct. 22,1975; SurigaoConsolidated Mining Co., Inc. v. Collector of Internal Revenue, et al., G.R. No. L14878, December 26, 1963, all cited in Aban, Law of Basic Taxation of thePhilippines, p. 119). Tax exemptions are not presumed (Lealda Electric Co., Inc. v.Collector of Internal Revenue, G.R. No. L-16428, April 30, 1963). Tax refunds are inthe nature of tax exemptions. As such,

they are regarded as in derogation of sovereign authority and to be construed strictissimi juris against the personclaiming the exemption (Commissioner of Internal Revenue v. S.C. Johnson andSon, Inc., 309 SCRA 87 [1999]).In the light of the foregoing, we cannot conclude that the Exchange of Notesgrants tax exemption to petitioner. Hence, petitioner's claim for refund should bedenied for lack of merit.

G.R. No. L-52019 August 19, 1988 ILOILO BOTTLERS, INC., plaintiff-appellee, vs. CITY OF ILOILO, defendant-appellant. Efrain B. Trenas for plaintiff-appellee. Diosdado Garingalao for defendant-appellant.

CORTES, J.: The fundamental issue in this appeal is whether the Iloilo Bottlers, Inc. which had its bottling plant in Pavia, Iloilo, but which sold softdrinks in Iloilo City, is liable under Iloilo City tax Ordinance No. 5, series of 1960, as amended, which imposes a municipal license tax on distributors of soft-drinks. On July 12,1972, Iloilo Bottlers, Inc. filed a complaint docketed as Civil Case No. 9046 with the Court of First Instance of Iloilo praying for the recovery of the sum of P3,329.20, which amount allegedly constituted payments of municipal license taxes under Ordinance No. 5 series of 1960, as amended, that the company paid under protest. On November 15,1972, the parties submitted a partial stipulation of facts, the material portions of which state xxx xxx xxx 2. That plaintiff is engaged in the business of bottling softdrinks under the trade name of Pepsi Cola And 7-up and selling the same to its customers, with a bottling plant situated at Barrio Ungca Municipality of Pavia, Iloilo, Philippines and which is outside the jurisdiction of defendant; 3. That defendant enacted an ordinance on January 11, 1960 known as Ordinance No. 5, Series of 1960 which ordinance was successively

amended by Ordinance No. 28, Series of 1960; Ordinance No. 15, Series of 1964; and Ordinance No. 45, Series of 1964; which provides as follows: Section l. Any person, firm or corporation engaged in the distribution, manufacture or bottling of coca-cola, pepsi cola, tru-orange, seven-up and other soft drinks within the jurisdiction of the City of Iloilo, shall pay a municipal license tax of ten (P0.10) centavos for every case of twenty-four bottles; PROVIDED, HOWEVER, that softdrinks sold to the public at not more than five (P0.05) centavos per bottle shall pay a tax of one and one half (P0.015) (centavos) per case of twenty four bottles. Section 1-AFor purposes of this Ordinance, all deliveries and/or dispatches emanating or made at the plant and all goods or stocks taken out of the plant for distribution, sale or exchange irrespective (of) where it would take place shall be covered by the operation of this Ordinance. 4. That prior to September, 1966, Santiago Syjuco Inc., owned and operated a bottling plant at Muelle Loney Street, Iloilo City, which was doing business under the name of Seven-up Bottling Company of the Philippines and bottled the soft-drinks Pepsi-Cola and 7-up; however sometime on September 14,1966, Santiago Syjuco, Inc., informed all its employees that it (was) closing its Iloilo Plant due to financial losses and in fact closed the same and later sold the plant to the plaintiff Iloilo Bottlers, Inc. 5. That thereafter, plaintiff operated the said plant by bottling the soft drinks Pepsi-Cola and 7-up; however, sometime in July 1968, plaintiff closed said bottling plant at Muelle Loney, Iloilo City, and transferred its bottling operations to its new plant in Barrio Ungca, Municipality of Pavia, Province of Iloilo, and which is outside the jurisdiction of the City of Iloilo; 6. That from the time of (the) enactment (of the ordinance), the Seven Up Bottling Company of the Philippines under Santiago Syjuco Inc., had been religiously paying the defendant City of Iloilo the above- mentioned municipal license tax due therefrom for bottler because its bottling plant was then still situated at Muelle Loney St., Iloilo City; but the plaintiff stopped paying the municipal license tax (after) October 21, 1968 (when) it transferred its plant to Barrio Ungca Municipality of Pavia, Iloilo which is outside the jurisdiction of the City of Iloilo; 7. That sometime on July 31, 1969, the defendant demanded from the plaintiff the payment of the municipal license tax under the abovementioned ordinance, a xerox copy of the said letter is attached to the complaint as Annex "A" and made an integral part hereof by reference.

8. That plaintiff explained in a letter to the defendant that it could not anymore be liable to pay the municipal license fee because its bottling plant (was) not anymore inside the City of Iloilo, and that moreover, since it itself (sold) its own products to its (customers) directly, it could not be considered as a distributor in line with the doctrines enunciated by the Supreme Court in the cases of City of Manila vs. Bugsuk Lumber Co., L8255, July 11, 1957; Manila Trading & Supply Co., Inc. vs. City of Manila L-1 2156, April 29, 1959; Central Azucarera de Don Pedro vs. City of Manila et al., G.R. No. L7679, September 29,1955; Cebu Portland Cement vs. City of Manila and City Treasurer of Manila, L-1 4229,July 26,1960. A xerox copy of the said letter is attached as Annex "B" to the complaint and made an integral part hereof by reference. As a result of the said letter of the plaintiff, the defendant did not anymore press the plaintiff to pay the said municipal license tax; 9. That sometime on January 25, 1972, the defendant demanded from the plaintiff compliance with the said ordinance for 1972 in view of the fact that it was engaged in distribution of the softdrinks in the City of Iloilo, and it further demanded from the plaintiff payment of back taxes from the time it transferred its bottling plant to the Municipality of Pavia, Iloilo; 10. That the plaintiff demurred to the said demand of the defendant raising as its jurisdiction the reason that its bottling plant is situated outside the City of Iloilo and as bottler could not be considered as distributor under the said ordinance although it sells its product directly to the consumer, in line with the jurisprudence enunciated by the Supreme Court but due to insistence of the defendant, the plaintiff paid on April 20, 1972, the first quarter payment of the municipal licence tax in the sum of P3,329.20, under protest, and thereafter has been paying defendant every quarter under protest; 11. That on June l5, 1972,the defendant informed the plaintiff that it must pay all the taxes due since July, 1968 up to the last quarter of 1971, otherwise it shall be constrained to cancel the operation of the business of the plaintiff, and because of this threat, and so as not to occasion disruption of its business operation, the plaintiff under protest agreed to the payment of the back taxes, on staggered basis, which was acceded to by the defendant; 12. That as computed by the plaintiff the following are its softdrinks sold in Iloilo City since it transferred its bottling plant from the City of Iloilo to Barrio Ungca Pavia, Iloilo in July 1968, to wit: No. of Cases sold

S E V E N U P 1 9 6 8 J u l t o D e c J a n . t o D e c . J a n . t o D e c . 3 9 , 3 4 0

P E P S IC O L A 4 9 , 0 6 0

T O T A L

T A X D U E

8 8 , 4 0 0

P 8 , 8 4 0

1 9 6 9

8 1 , 2 4 0

8 7 , 6 6 0

1 6 8 , 9 0 0

1 6 , 8 9 0

1 9 7 0

7 9 , 3 8 9

8 9 , 2 1 1

1 6 8 , 6 0 0

1 6 , 6 0 0

1 9 7 1

J a n . t o D e c . T O T A L

8 0 , 6 7 0

8 8 , 4 8 0

1 6 9 , 1 5 0

1 6 , 9 1 5

2 8 0 , 6 3 9

3 1 4 , 4 1 1

5 9 5 , 0 5 0

P 5 9 , 5 0 5

13. That the plaintiff does not maintain any store or commercial establishment in the City of Iloilo from which it distributes its products, but by means of a fleet of delivery trucks, plaintiff distributes its products from its bottling plant at Barrio Ungca Municipality of Pavia, Iloilo, directly to its customers in the different towns of the Province of Iloilo as well as the City of Iloilo; 14. That the plaintiff is already paying the National Government a percentage Tax of 71/t, as manufacturer's sales tax on all the softdrinks it manufactures as follows: O.R. No. 4683995 - January, 1972 Sales P17,222.90 O.R. No. 5614767 - February " " 17,024.81 O.R. No. .5614870 - March " " 17,589.19 O.R. No. 5614891 - April " " 18,726.77 O.R. No. 5614897 - May " " 16,710.99 O.R. No. 5614935 - June " " 14,791.20 O.R. No. 5614967 - July " " 13,952.00

O.R. No. 5614973 - August " " 15,726.16 O.R. No. 56'L4999 - September " " 19,159.54 and is also paying the municipal license tax to the municipality of Pavia, Iloilo in the amount of P l0,000.00 every year, plus a municipal license tax for engaging in its business to the municipality of Pavia in its amount of P2,000.00 every year. xxx xxx xxx [Rollo, P. 10 (Record on Appeal, pp. 25-31)] On the basis of the above stipulations, the court a quo rendered on January 26, 1973 a decision in favor of Iloilo Bottlers, Inc. declaring the Corporation not liable under the ordinance and directing the City of Iloilo to pay the sum of' P3,329.20. The decision was amended in an Order dated March 15, 1973, so as to include the amounts paid by the company after the filing of the complaint. The City of Iloilo appealed to the Court of Appeals which certified the case to this Court. The tax ordinance imposes a tax on persons, firms, and corporations engaged in the business of: 1. distribution of soft-drinks 2. manufacture of soft-drinks, and 3. bottling of softdrinks within the territorial jurisdiction of the City of Iloilo. There is no question that after it transferred its plant to Pavia, Iloilo province, Iloilo Bottlers, Inc. no longer manufactured/bottled its softdrinks within Iloilo City. Thus, it cannot be taxed as one falling under the second or the third type of business. The resolution of this case therefore hinges on whether the company may be considered engaged in the distribution of softdrinks in Iloilo City, even after it had transferred its bottling plant to Pavia, so as to be within the purview of the ordinance. Iloilo Bottlers, Inc. disclaims liability on two grounds: First, it contends that since it is not engaged in the independent business of distributing soft-drinks, but that its activity of selling is merely an incident to, or is a necessary consequence of its main or principal business of bottling, then it is NOT liable under the city tax ordinance. Second, it claims that only manufacturers or bottlers having their plants inside the territorial jurisdiction of the city are covered by the ordinance.

The second ground is manifestly devoid of merit. It is clear from the ordinance that three types of activities are covered: (1) distribution, (2) manufacture and (3) bottling of softdrinks. A person engaged in any or all of these activities is subject to the tax. The first ground, however, merits serious consideration. This Court has always recognized that the right to manufacture implies the right to sell/distribute the manufactured products [See Central Azucarera de Don Pedro v. City of Manila and Sarmiento, 97 Phil. 627 (1955); Caltex (Philippines), Inc. v. City of Manila and Cudiamat, G.R. No. L-22764, July 28, 1969, 28 SCRA 840, 843.] Hence, for tax purposes, a manufacturer does not necessarily become engaged in the separate business of selling simply because it sells the products it manufactures. In certain cases, however, a manufacturer may also be considered as engaged in the separate business of selling its products. To determine whether an entity engaged in the principal business of manufacturing, is likewise engaged in the separate business of selling, its marketing system or sales operations must be looked into. In several cases [See Central Azucarera de Don Pedro v. City of Manila and Sarmiento, supra; Cebu Portland Cement Co. v. City of Manila and the City Treasurer, 108 Phil. 1063 (1960); Caltex (Philippines), Inc. v. City of Manila and Cudiamat, supra], this Court had occasion to distinguish two marketing systems: Under the first system, the manufacturer enters into sales transactions and invoices the sales at its main office where purchase orders are received and approved before delivery orders are sent to the company's warehouses, where in turn actual deliveries are made. No warehouse sales are made; nor are separate stores maintained where products may be sold independently from the main office. The warehouses only serve as storage sites and delivery points of the products earlier sold at the main office. Under the second system, sales transactions are entered into and perfected at stores or warehouses maintained by the company. Any one who desires to purchase the product may go to the store or warehouse and there purchase the merchandise. The stores and warehouses serve as selling centers. Entities operating under the first system are NOT considered engaged in the separate business of selling or dealing in their products, independent of their manufacturing business. Entities operating under the second system are considered engaged in the separate business of selling. In the case at bar, the company distributed its softdrinks by means of a fleet of delivery trucks which went directly to customers in the different places in lloilo province. Sales transactions with customers were entered into and sales were perfected and consummated by route salesmen. Truck sales were made independently of transactions in the main office. The delivery trucks were not used solely for the purpose of delivering

softdrinks previously sold at Pavia. They served as selling units. They were what were called, until recently, "rolling stores". The delivery trucks were therefore much the same as the stores and warehouses under the second marketing system. Iloilo Bottlers, Inc. thus falls under the second category above. That is, the corporation was engaged in the separate business of selling or distributing soft-drinks, independently of its business of bottling them. The tax imposed under Ordinance No. 5 is an excise tax. It is a tax on the privilege of distributing, manufacturing or bottling softdrinks. Being an excise tax, it can be levied by the taxing authority only when the acts, privileges or businesses are done or performed within the jurisdiction of said authority [Commissioner of Internal Revenue v. British Overseas Airways Corp. and Court of Appeals, G.R. Nos. 65773-74, April 30, 1987, 149 SCRA 395, 410.] Specifically, the situs of the act of distributing, bottling or manufacturing softdrinks must be within city limits, before an entity engaged in any of the activities may be taxed in Iloilo City. As stated above, sales were made by Iloilo Bottlers, Inc. in Iloilo City. Thus, We have no option but to declare the company liable under the tax ordinance. With the foregoing discussion, it becomes unnecessary to discuss the other issues raised by the parties. WHEREFORE, the appealed decision is hereby REVERSED. The complaint in Civil Case No. 9046 is ordered DISMISSED. No Costs. SO ORDERED. G.R. No. L-65773-74 April 30, 1987 COMMISSIONER OF INTERNAL REVENUE, petitioner, vs. BRITISH OVERSEAS AIRWAYS CORPORATION and COURT OF TAX APPEALS, respondents. Quasha, Asperilla, Ancheta, Pea, Valmonte & Marcos for respondent British Airways.

MELENCIO-HERRERA, J.: Petitioner Commissioner of Internal Revenue (CIR) seeks a review on certiorari of the joint Decision of the Court of Tax Appeals (CTA) in CTA Cases Nos. 2373 and 2561, dated 26 January 1983, which set aside petitioner's assessment of deficiency income taxes against respondent British Overseas Airways Corporation (BOAC) for the fiscal

years 1959 to 1967, 1968-69 to 1970-71, respectively, as well as its Resolution of 18 November, 1983 denying reconsideration. BOAC is a 100% British Government-owned corporation organized and existing under the laws of the United Kingdom It is engaged in the international airline business and is a member-signatory of the Interline Air Transport Association (IATA). As such it operates air transportation service and sells transportation tickets over the routes of the other airline members. During the periods covered by the disputed assessments, it is admitted that BOAC had no landing rights for traffic purposes in the Philippines, and was not granted a Certificate of public convenience and necessity to operate in the Philippines by the Civil Aeronautics Board (CAB), except for a nine-month period, partly in 1961 and partly in 1962, when it was granted a temporary landing permit by the CAB. Consequently, it did not carry passengers and/or cargo to or from the Philippines, although during the period covered by the assessments, it maintained a general sales agent in the Philippines Wamer Barnes and Company, Ltd., and later Qantas Airways which was responsible for selling BOAC tickets covering passengers and cargoes. 1 G.R. No. 65773 (CTA Case No. 2373, the First Case) On 7 May 1968, petitioner Commissioner of Internal Revenue (CIR, for brevity) assessed BOAC the aggregate amount of P2,498,358.56 for deficiency income taxes covering the years 1959 to 1963. This was protested by BOAC. Subsequent investigation resulted in the issuance of a new assessment, dated 16 January 1970 for the years 1959 to 1967 in the amount of P858,307.79. BOAC paid this new assessment under protest. On 7 October 1970, BOAC filed a claim for refund of the amount of P858,307.79, which claim was denied by the CIR on 16 February 1972. But before said denial, BOAC had already filed a petition for review with the Tax Court on 27 January 1972, assailing the assessment and praying for the refund of the amount paid. G.R. No. 65774 (CTA Case No. 2561, the Second Case) On 17 November 1971, BOAC was assessed deficiency income taxes, interests, and penalty for the fiscal years 1968-1969 to 1970-1971 in the aggregate amount of P549,327.43, and the additional amounts of P1,000.00 and P1,800.00 as compromise penalties for violation of Section 46 (requiring the filing of corporation returns) penalized under Section 74 of the National Internal Revenue Code (NIRC). On 25 November 1971, BOAC requested that the assessment be countermanded and set aside. In a letter, dated 16 February 1972, however, the CIR not only denied the BOAC request for refund in the First Case but also re-issued in the Second Case the deficiency income tax assessment for P534,132.08 for the years 1969 to 1970-71 plus P1,000.00 as compromise penalty under Section 74 of the Tax Code. BOAC's request

for reconsideration was denied by the CIR on 24 August 1973. This prompted BOAC to file the Second Case before the Tax Court praying that it be absolved of liability for deficiency income tax for the years 1969 to 1971. This case was subsequently tried jointly with the First Case. On 26 January 1983, the Tax Court rendered the assailed joint Decision reversing the CIR. The Tax Court held that the proceeds of sales of BOAC passage tickets in the Philippines by Warner Barnes and Company, Ltd., and later by Qantas Airways, during the period in question, do not constitute BOAC income from Philippine sources "since no service of carriage of passengers or freight was performed by BOAC within the Philippines" and, therefore, said income is not subject to Philippine income tax. The CTA position was that income from transportation is income from services so that the place where services are rendered determines the source. Thus, in the dispositive portion of its Decision, the Tax Court ordered petitioner to credit BOAC with the sum of P858,307.79, and to cancel the deficiency income tax assessments against BOAC in the amount of P534,132.08 for the fiscal years 1968-69 to 1970-71. Hence, this Petition for Review on certiorari of the Decision of the Tax Court. The Solicitor General, in representation of the CIR, has aptly defined the issues, thus: 1. Whether or not the revenue derived by private respondent British Overseas Airways Corporation (BOAC) from sales of tickets in the Philippines for air transportation, while having no landing rights here, constitute income of BOAC from Philippine sources, and, accordingly, taxable. 2. Whether or not during the fiscal years in question BOAC s a resident foreign corporation doing business in the Philippines or has an office or place of business in the Philippines. 3. In the alternative that private respondent may not be considered a resident foreign corporation but a non-resident foreign corporation, then it is liable to Philippine income tax at the rate of thirty-five per cent (35%) of its gross income received from all sources within the Philippines. Under Section 20 of the 1977 Tax Code: (h) the term resident foreign corporation engaged in trade or business within the Philippines or having an office or place of business therein. (i) The term "non-resident foreign corporation" applies to a foreign corporation not engaged in trade or business within the Philippines and not having any office or place of business therein

It is our considered opinion that BOAC is a resident foreign corporation. There is no specific criterion as to what constitutes "doing" or "engaging in" or "transacting" business. Each case must be judged in the light of its peculiar environmental circumstances. The term implies a continuity of commercial dealings and arrangements, and contemplates, to that extent, the performance of acts or works or the exercise of some of the functions normally incident to, and in progressive prosecution of commercial gain or for the purpose and object of the business organization. 2 "In order that a foreign corporation may be regarded as doing business within a State, there must be continuity of conduct and intention to establish a continuous business, such as the appointment of a local agent, and not one of a temporary character. 3 BOAC, during the periods covered by the subject - assessments, maintained a general sales agent in the Philippines, That general sales agent, from 1959 to 1971, "was engaged in (1) selling and issuing tickets; (2) breaking down the whole trip into series of trips each trip in the series corresponding to a different airline company; (3) receiving the fare from the whole trip; and (4) consequently allocating to the various airline companies on the basis of their participation in the services rendered through the mode of interline settlement as prescribed by Article VI of the Resolution No. 850 of the IATA Agreement." 4 Those activities were in exercise of the functions which are normally incident to, and are in progressive pursuit of, the purpose and object of its organization as an international air carrier. In fact, the regular sale of tickets, its main activity, is the very lifeblood of the airline business, the generation of sales being the paramount objective. There should be no doubt then that BOAC was "engaged in" business in the Philippines through a local agent during the period covered by the assessments. Accordingly, it is a resident foreign corporation subject to tax upon its total net income received in the preceding taxable year from all sources within the Philippines. 5 Sec. 24. Rates of tax on corporations. ... (b) Tax on foreign corporations. ... (2) Resident corporations. A corporation organized, authorized, or existing under the laws of any foreign country, except a foreign fife insurance company, engaged in trade or business within the Philippines, shall be taxable as provided in subsection (a) of this section upon the total net income received in the preceding taxable year from all sources within the Philippines. (Emphasis supplied) Next, we address ourselves to the issue of whether or not the revenue from sales of tickets by BOAC in the Philippines constitutes income from Philippine sources and, accordingly, taxable under our income tax laws. The Tax Code defines "gross income" thus:

"Gross income" includes gains, profits, and income derived from salaries, wages or compensation for personal service of whatever kind and in whatever form paid, or from profession, vocations, trades, business, commerce, sales, or dealings in property, whether real or personal, growing out of the ownership or use of or interest in such property; also from interests, rents, dividends, securities, or the transactions of any business carried on for gain or profile, or gains, profits, and income derived from any source whatever (Sec. 29[3]; Emphasis supplied) The definition is broad and comprehensive to include proceeds from sales of transport documents. "The words 'income from any source whatever' disclose a legislative policy to include all income not expressly exempted within the class of taxable income under our laws." Income means "cash received or its equivalent"; it is the amount of money coming to a person within a specific time ...; it means something distinct from principal or capital. For, while capital is a fund, income is a flow. As used in our income tax law, "income" refers to the flow of wealth. 6 The records show that the Philippine gross income of BOAC for the fiscal years 1968-69 to 1970-71 amounted to P10,428,368 .00. 7 Did such "flow of wealth" come from "sources within the Philippines", The source of an income is the property, activity or service that produced the income. 8 For the source of income to be considered as coming from the Philippines, it is sufficient that the income is derived from activity within the Philippines. In BOAC's case, the sale of tickets in the Philippines is the activity that produces the income. The tickets exchanged hands here and payments for fares were also made here in Philippine currency. The site of the source of payments is the Philippines. The flow of wealth proceeded from, and occurred within, Philippine territory, enjoying the protection accorded by the Philippine government. In consideration of such protection, the flow of wealth should share the burden of supporting the government. A transportation ticket is not a mere piece of paper. When issued by a common carrier, it constitutes the contract between the ticket-holder and the carrier. It gives rise to the obligation of the purchaser of the ticket to pay the fare and the corresponding obligation of the carrier to transport the passenger upon the terms and conditions set forth thereon. The ordinary ticket issued to members of the traveling public in general embraces within its terms all the elements to constitute it a valid contract, binding upon the parties entering into the relationship. 9 True, Section 37(a) of the Tax Code, which enumerates items of gross income from sources within the Philippines, namely: (1) interest, (21) dividends, (3) service, (4) rentals and royalties, (5) sale of real property, and (6) sale of personal property, does not mention income from the sale of tickets for international transportation. However, that does not render it less an income from sources within the Philippines. Section 37,

by its language, does not intend the enumeration to be exclusive. It merely directs that the types of income listed therein be treated as income from sources within the Philippines. A cursory reading of the section will show that it does not state that it is an all-inclusive enumeration, and that no other kind of income may be so considered. " 10 BOAC, however, would impress upon this Court that income derived from transportation is income for services, with the result that the place where the services are rendered determines the source; and since BOAC's service of transportation is performed outside the Philippines, the income derived is from sources without the Philippines and, therefore, not taxable under our income tax laws. The Tax Court upholds that stand in the joint Decision under review. The absence of flight operations to and from the Philippines is not determinative of the source of income or the site of income taxation. Admittedly, BOAC was an off-line international airline at the time pertinent to this case. The test of taxability is the "source"; and the source of an income is that activity ... which produced the income. 11 Unquestionably, the passage documentations in these cases were sold in the Philippines and the revenue therefrom was derived from a activity regularly pursued within the Philippines. business a And even if the BOAC tickets sold covered the "transport of passengers and cargo to and from foreign cities", 12 it cannot alter the fact that income from the sale of tickets was derived from the Philippines. The word "source" conveys one essential idea, that of origin, and the origin of the income herein is the Philippines. 13 It should be pointed out, however, that the assessments upheld herein apply only to the fiscal years covered by the questioned deficiency income tax assessments in these cases, or, from 1959 to 1967, 1968-69 to 1970-71. For, pursuant to Presidential Decree No. 69, promulgated on 24 November, 1972, international carriers are now taxed as follows: ... Provided, however, That international carriers shall pay a tax of 2- per cent on their cross Philippine billings. (Sec. 24[b] [21, Tax Code). Presidential Decree No. 1355, promulgated on 21 April, 1978, provided a statutory definition of the term "gross Philippine billings," thus: ... "Gross Philippine billings" includes gross revenue realized from uplifts anywhere in the world by any international carrier doing business in the Philippines of passage documents sold therein, whether for passenger, excess baggage or mail provided the cargo or mail originates from the Philippines. ... The foregoing provision ensures that international airlines are taxed on their income from Philippine sources. The 2- % tax on gross Philippine billings is an income tax. If it

had been intended as an excise or percentage tax it would have been place under Title V of the Tax Code covering Taxes on Business. Lastly, we find as untenable the BOAC argument that the dismissal for lack of merit by this Court of the appeal in JAL vs. Commissioner of Internal Revenue (G.R. No. L30041) on February 3, 1969, is res judicata to the present case. The ruling by the Tax Court in that case was to the effect that the mere sale of tickets, unaccompanied by the physical act of carriage of transportation, does not render the taxpayer therein subject to the common carrier's tax. As elucidated by the Tax Court, however, the common carrier's tax is an excise tax, being a tax on the activity of transporting, conveying or removing passengers and cargo from one place to another. It purports to tax the business of transportation. 14 Being an excise tax, the same can be levied by the State only when the acts, privileges or businesses are done or performed within the jurisdiction of the Philippines. The subject matter of the case under consideration is income tax, a direct tax on the income of persons and other entities "of whatever kind and in whatever form derived from any source." Since the two cases treat of a different subject matter, the decision in one cannot be res judicata to the other. WHEREFORE, the appealed joint Decision of the Court of Tax Appeals is hereby SET ASIDE. Private respondent, the British Overseas Airways Corporation (BOAC), is hereby ordered to pay the amount of P534,132.08 as deficiency income tax for the fiscal years 1968-69 to 1970-71 plus 5% surcharge, and 1% monthly interest from April 16, 1972 for a period not to exceed three (3) years in accordance with the Tax Code. The BOAC claim for refund in the amount of P858,307.79 is hereby denied. Without costs. SO ORDERED.

[C.T.A. CASE NO. 5310. November 18, 1998.]HOPEWELL POWER (PHILIPPINES) CORPORATION, petitioner, vs. COMMISSIONEROF INTERNAL REVENUE, respondent.D E C I S I O N This is a judicial claim for the refund of P24,864,781.58 allegedly representingerroneous payment of documentary stamp tax ("DST", for short) over loan andsecurity documents executed in Hong Kong on December 29, 1993.Petitioner is a corporation organized and existing under Philippine laws, withaddress at Suite 202, CTC Building, 2232 Roxas Boulevard, Pasay City. The facts are as hereunder stated. cdasiaOn December 29, 1993, petitioner, together with Hopewell Energy InternationalLimited, a company organized under the laws of Hong Kong, entered into aMortgage Trust Indenture ("MTI", for brevity) for the mortgage of their chattel andreal estate assets with the Bank America National Trust Company, a corporationorganized under the laws of New York, U.S.A. The execution of the MTI was done inHong Kong.On even date, petitioner paid under protest the abovesaid amount of DST withrespondent's Bureau in order to facilitate the registration of the MTI with theRegister of Deeds of Lucena, Province of Quezon. On the same day, therespondent's Bureau received from the petitioner a letter of request, dated July21, 1993, asking for confirmation on the tax exemption from DST of mortgagedocuments executed abroad.Consequently, on November 17, 1995, petitioner filed the requisite written claimfor refund with respondent's Bureau alleging

erroneous payment on account of the MTI's execution in Hong Kong.Due to the continued inaction of the respondent on its claim for refund and on itsrequest for confirmation, petitioner was constrained to elevate its case before thisCourt. Hence, the instant petition for review.At bar, petitioner contends, inter alia, that a DST, being an excise tax, does notattach to the execution of the documents in Hong Kong following respondent'sprevious rulings on the matter 1; that at the time the MTI was executed, theprevailing provisions of Section 173 of the Tax Code did not cover documentsexecuted abroad; and that, the subsequent enactment of Republic Act No. 7660which became effective on January 14, 1994, specifically addressed suchperceived loophole in the law 2 by making the execution of loan agreementsabroad subject to DST when the obligation or right arises from Philippine sourcesor the property is situated in the Philippines. In her Answer, respondent admitted the existence of Authority to Accept PaymentNo. 1140274 and its corresponding BIR Official Receipt No. 2319144L, both of which are dated December 29, 1993, and in payment for DST in the amount of P24,864,781.58.By way of special and affirmative defenses, however, respondent asserts, amongothers, that the DST in question was paid in accordance with Section 195 of the Tax Code and, therefore, not refundable; that petitioner failed to show proof thatthe documents subject of the DST were executed abroad; and that claims forrefund are construed strictly against the claimant, the same being in the nature of exemption from taxes.During the trial, petitioner offered in evidence a duly notarized copy of the MTIdocument, together with the authentication of the Philippine consul in Hong Kong.Respondent admitted the same, without any qualification, in her commentthereto.As We see it, the only issue remaining in the case at bar is purely legal, that is,whether or not the MTI document executed in Hong Kong is exempted from DST,being an excise tax.After a careful review of the attending facts, the disquisition of the parties and theprovisions of the Tax Code and jurisprudence in point, this Court rules in favor of the petitioner. LLpr The position of the respondent in its various rulings aforecited is in conformitywith the Honorable Supreme Court's dictum on the issue at bar in the case of Allied Thread Co., Inc. vs. City Mayor of Manila, 133 SCRA 338 at p. 343, to wit: The power to levy an excise upon the performance of an act or the engaging in anoccupation does not depend upon the domicile of the person subject to theexcise, nor upon the physical location of the property and in connection with theact or occupation taxed, but depends upon the place in which the act is performedor occupation engaged in. Thus, the gauge for taxability . . . does not depend on the location of the office,but attaches upon the place where the respective . . . transaction(s) is perfectedand consummated. (See Koppel (Phil) vs. Yatco, 77 Phil. 496 [1946].) (Emphasissupplied). Thus, inasmuch as the MTI was executed and signed in Hong Kong prior to theeffectivity of Republic Act No. 7660 on January 14, 1994, no DST is imposable onthe same in the Philippines. This conclusion is also in keeping with one of theinherent limitations of taxation, namely, that it may be exercised only within theterritorial jurisdiction of the taxing authority (51 Am. Jur. 88 as cited inCompendium of Tax Law and Jurisprudence by Vitug, 1993 ed.)Prescinding from the above, this Court sees Section 173 of the Tax Code, as amended by Republic Act No. 7660, as imposing DST, not directly anymore uponthe act or privilege of transacting documents, instruments, papers and loanagreements per se, but rather on the act or privilege of simply transacting on anyobligation or right arising from Philippine sources, or on any property situated inthe Philippines. Unlike before the amendment where the execution of thedocument, instrument, paper or loan agreement itself automatically gives rise

tothe imposition of DST, such execution is now deemed to be merely incidental.llcdWHEREFORE, in view of the foregoing, the instant Petition for Review is herebyGRANTED. Accordingly, respondent is hereby ORDERED to REFUND the amount of P24,864,781.58 to the petitioner immediately.SO ORDERED.(SGD.) ERNESTO D. ACOSTAPresiding JudgeWE CONCUR:(SGD.) ERNESTO D. ACOSTAPresiding Judge(SGD.) AMANCIO Q. SAGAAssociate JudgeFootnotes1.BIR Rulings Nos. 150-93, 068-93, 236-91, 072-91, 205-90, 147-90, 064-90,164-89, 143-89, 074-89, 069-89, 068-89, 046-89, 017-89, 016-89, 006-89, 00589,497-88, 488-88, 480-88, 388-88, 373-88, 290-88, 234-88, 030-88, 050-86 and008-83 (Petition, p. 3)2 . a s shown by congressional deliberation s on House Bill No. 7789 and S e n a t e Bill No. 1330 and the explanatory notes of House Bill No. 4821 and Senate Bill No.1308 (Annexes to the Petition).C o p y r i g h t 2 0 0 2 C D T e c h n o l o g i e s A s i a, I n c

for the development of the municipalities outside the City of Olongapo and theMunicipality of Subic, and other municipalities contiguous to the base areas." Thisphrase belies petitioner's assertion that SSEZ is indeed a tax-free territory. Theterm "in lieu of paying taxes" as used in the law does not constitute an absoluteexemption from taxation. While spared from national and local taxes, businessesand enterprises within the SSEZ are subjected to the said tax base on grossincome. No matter what legal jargon is used, the said taxes are in fact taxesimposed on businesses or enterprises operating within the SSEZ. Thus, it isincorrect to say that SSEZ is actually a tax-free territory.Individual aliens employed within the Subic Special Economic Zone (SSEZ) are notexempt from the awesome power of Philippine taxation especially so that theysourced out their earnings from within the Philippines. The secured area of SSEZ,which is virtually delineated in metes and bounds by Proclamation No. 532, issuedby the then President Fidel Ramos on February 1, 1995, is in reality part of theterritorial jurisdiction of the Philippines. To buttress the point that SSEZ is indeedwithin the Philippine jurisdiction, Section 12 (h) of RA 7227, actually placed thefenced-off area of SSEZ under the responsibility of the Philippine NationalGovernment, thus,"The defense of the zone and the security of its perimeters shall be theresponsibility of the National Government in coordination with the Subic BayMetropolitan Authority. The Subic Bay Metropolitan Authority shall provide andestablish its own internal security and fire-fighting forces."Such being the case, all subjects over which the Philippines can exercise dominionare necessarily objects of taxation. As such, all subjects of taxation within its jurisdiction are required to pay tax in exchange of the protection that the stategives (Commissioner of Internal Revenue vs. Algue, Inc., et al., L-28896, February17, 1988). Thus, the SSEZ, being within the territorial boundaries of thePhilippines, the aliens residing therein, who enjoy the benefits and protection fromthe said state are not exempt from contributing their share in the running of thegovernment. They have the bounden duty to surrender part of their hard-earnedincome to the taxing authorities. SAHaTcContrary to petitioner's assertion, the National Internal Revenue Code operateswith equal force and effect to all subjects within the territorial boundary of thePhilippines. Being a general law, it covers all persons, properties and privileges,which are found within its jurisdictional limit. With the enactment of RA 7227,there came an exception to the general rule. Being a special law, it prevails overthe general law but only in so far as a certain group of persons or things isconcerned. Since the law, in granting tax incentives, only made mention of businesses and enterprises within the SSEZ, it follows then that said RA 7227operates only on the said group. As no mention was made to individual

taxpayersbeing tax-exempt, it follows that they still fall within the ambit of the general lawpursuant to the maxim excepto firmat regulam in casibus non exceptis, a thingnot being excepted must be regarded as coming within the purview of the generalrule. Parenthetically, there is not much of a substantial difference between individualcitizen and an individual resident alien working in the Philippines as far as incometaxation is concerned. In fact, under the National Internal Revenue Code (NIRC) of 1997, both classes of individual taxpayers are similarly taxed under Section 24(A). The distinction lies only on the source of income to be taxed: While a residentcitizen is taxed on all income from within and without the Philippines, the residentalien is taxed only on income from within the Philippines.Proceeding now to the issue of whether herein petitioner is entitled to a refund of income taxes paid on compensation earned from working within the SSEZ, weanswer in the negative. As previously discussed, resident aliens within the SSEZare still subject to the NIRC as far as their income from within the Philippines isconcerned. Accordingly, no refund of the said tax can be granted to petitioner asthe said tax due the petitioner in the amount of P1,533,660.70 was correctlyremitted to the BIR.Anent the last issue of whether Section 12(c) of RA 7227 applies to petitioner,again, we rule in the negative. A close reading of Section 12 (c) would reveal thatthe exemption from taxes, local or national, is actually intended to benefit onlythose registered businesses and establishments operating within the territory andnot to individual taxpayers working within its parameters. The grant of saidincentive is premised on the fact that the influx of new investments in oureconomy could very well meet the country's avowed policy of acceleratingeconomic growth and development.As held by the Supreme Court in the case of Tiu vs. Court of Appeals, 301 SCRA278, January 20, 1999, thus:"From the above provisions of the law, it can easily be deduced that the realconcern of RA 7227 is to convert the lands formerly occupied by the US militarybases into economic or industrial areas. In furtherance of such objective, Congressdeemed it necessary to extend economic incentives to attract and encourageinvestors, both local and foreign. Among such enticements are: (1) a separatecustoms territory within the zone, (2) tax-and duty free importations, (3)restructured income tax rates on business enterprises within the zone, (4) noforeign exchange control, (5) liberalized regulations on banking and finance, and(6) the grant of resident status to certain investors and of working visas to certainforeign executives and workers" (emphasis supplied).It is clear from the foregoing that the purpose of the law is to attract andencourage investors who could spur economic growth and resultantly couldgenerate employment opportunities for the Filipinos. Nothing has been said aboutthe employees and personnel working thereat to be likewise tax-exempt on theircompensation income as no objective of national magnitude is actually realized if the law intends to exempt them from tax. Except for the privilege of granting aworking visa for said alien workers, the law is silent with regards to their taxability. To likewise exempt them from payment of taxes would be stretching the coverageof the law a little bit too far. This court cannot indulge in expansive construction and write into the law an exemption not therein set forth.If the law intended to exempt individuals employed within the SSEZ from taxes, itcould have expressly stated it in clear and unequivocal language. The exemptionfrom the common burden cannot be permitted to exist upon vague implication norcan it be made out of inference. Settled is the rule that he who claims anexemption from his share of the common burden in taxation must justify his claimby showing

that the legislature intended to exempt him by words too plain to bemistaken (Surigao Consolidated Mining Co., Inc. vs. Collector of Internal Revenue,et al., L-14878, December 26, 1963). Since RA 7227 does not specifically mentionthe granting of tax exemptions to individuals working within the SSEZ, then no taxrefund should be accorded to herein petitioner. The oftrepeated rule that "a refund partakes of the nature of a tax exemption andso it must be construed in strictissimi juris against the grantee and liberally infavor of the taxing power" deserves reiteration in this case.WHEREFORE, in view of the foregoing, the instant Petition for Review is herebyDENIED for lack of merit. TEAaDCSO ORDERED