Republic of the Philippines SUPREME COURT Manila EN BANC

G.R. No. L-31156 February 27, 1976 PEPSI-COLA BOTTLING COMPANY OF THE PHILIPPINES, INC., plaintiff-appellant, vs. MUNICIPALITY OF TANAUAN, LEYTE, THE MUNICIPAL MAYOR, ET AL., defendant appellees. Sabido, Sabido & Associates for appellant. Provincial Fiscal Zoila M. Redona & Assistant Provincial Fiscal Bonifacio R Matol and Assistant Solicitor General Conrado T. Limcaoco & Solicitor Enrique M. Reyes for appellees. MARTIN, J.: This is an appeal from the decision of the Court of First Instance of Leyte in its Civil Case No. 3294, which was certified to Us by the Court of Appeals on October 6, 1969, as involving only pure questions of law, challenging the power of taxation delegated to municipalities under the Local Autonomy Act (Republic Act No. 2264, as amended, June 19, 1959). On February 14, 1963, the plaintiff-appellant, Pepsi-Cola Bottling Company of the Philippines, Inc., commenced a complaint with preliminary injunction before the Court of First Instance of Leyte for that court to declare Section 2 of Republic Act No. 2264. 1 otherwise known as the Local Autonomy Act, unconstitutional as an undue delegation of taxing authority as well as to declare Ordinances Nos. 23 and 27, series of 1962, of the municipality of Tanauan, Leyte, null and void. On July 23, 1963, the parties entered into a Stipulation of Facts, the material portions of which state that, first, both Ordinances Nos. 23 and 27 embrace or cover the same subject matter and the production tax rates imposed therein are practically the same, and second, that on January 17, 1963, the acting Municipal Treasurer of Tanauan, Leyte, as per his letter addressed to the Manager of the PepsiCola Bottling Plant in said municipality, sought to enforce compliance by the latter of the provisions of said Ordinance No. 27, series of 1962. Municipal Ordinance No. 23, of Tanauan, Leyte, which was approved on September 25, 1962, levies and collects "from soft drinks producers and manufacturers a tai of one-sixteenth (1/16) of a centavo for every bottle of soft drink corked." 2 For the purpose of computing the taxes due, the person, firm, company or corporation producing soft drinks shall submit to the Municipal Treasurer a monthly report, of the total number of bottles produced and corked during the month. 3 On the other hand, Municipal Ordinance No. 27, which was approved on October 28, 1962, levies and collects "on soft drinks produced or manufactured within the territorial jurisdiction of this municipality a tax of ONE CENTAVO (P0.01) on each gallon (128 fluid ounces, U.S.) of volume capacity." 4 For the purpose of computing the taxes due, the person, fun company, partnership, corporation or plant producing soft drinks shall submit to the Municipal Treasurer a monthly report of the total number of gallons produced or manufactured during the month. 5 The tax imposed in both Ordinances Nos. 23 and 27 is denominated as "municipal production tax.' On October 7, 1963, the Court of First Instance of Leyte rendered judgment "dismissing the complaint and upholding the constitutionality of [Section 2, Republic Act No. 2264] declaring Ordinance Nos. 23 and 27 legal and constitutional; ordering the plaintiff to pay the taxes due under the oft the said Ordinances; and to pay the costs." From this judgment, the plaintiff Pepsi-Cola Bottling Company appealed to the Court of Appeals, which, in turn, elevated the case to Us pursuant to Section 31 of the Judiciary Act of 1948, as amended. There are three capital questions raised in this appeal: 1. Is Section 2, Republic Act No. 2264 an undue delegation of power, confiscatory and oppressive? 2. Do Ordinances Nos. 23 and 27 constitute double taxation and impose percentage or specific taxes? 3. Are Ordinances Nos. 23 and 27 unjust and unfair?

1. The power of taxation is an essential and inherent attribute of sovereignty, belonging as a matter of right to every independent government, without being expressly conferred by the people. 6 It is a power that is purely legislative and which the central legislative body cannot delegate either to the executive or judicial department of the government without infringing upon the theory of separation of powers. The exception, however, lies in the case of municipal corporations, to which, said theory does not apply. Legislative powers may be delegated to local governments in respect of matters of local concern. 7 This is sanctioned by immemorial practice. 8 By necessary implication, the legislative power to create political corporations for purposes of local self-government carries with it the power to confer on such local governmental agencies the power to tax. 9 Under the New Constitution, local governments are granted the autonomous authority to create their own sources of revenue and to levy taxes. Section 5, Article XI provides: "Each local government unit shall have the power to create its sources of revenue and to levy taxes, subject to such limitations as may be provided by law." Withal, it cannot be said that Section 2 of Republic Act No. 2264 emanated from beyond the sphere of the legislative power to enact and vest in local governments the power of local taxation. The plenary nature of the taxing power thus delegated, contrary to plaintiff-appellant's pretense, would not suffice to invalidate the said law as confiscatory and oppressive. In delegating the authority, the State is not limited 6 the exact measure of that which is exercised by itself. When it is said that the taxing power may be delegated to municipalities and the like, it is meant that there may be delegated such measure of power to impose and collect taxes as the legislature may deem expedient. Thus, municipalities may be permitted to tax subjects which for reasons of public policy the State has not deemed wise to tax for more general purposes. 10 This is not to say though that the constitutional injunction against deprivation of property without due process of law may be passed over under the guise of the taxing power, except when the taking of the property is in the lawful exercise of the taxing power, as when (1) the tax is for a public purpose; (2) the rule on uniformity of taxation is observed; (3) either the person or property taxed is within the jurisdiction of the government levying the tax; and (4) in the assessment and collection of certain kinds of taxes notice and opportunity for hearing are provided. 11 Due process is usually violated where the tax imposed is for a private as distinguished from a public purpose; a tax is imposed on property outside the State, i.e., extraterritorial taxation; and arbitrary or oppressive methods are used in assessing and collecting taxes. But, a tax does not violate the due process clause, as applied to a particular taxpayer, although the purpose of the tax will result in an injury rather than a benefit to such taxpayer. Due process does not require that the property subject to the tax or the amount of tax to be raised should be determined by judicial inquiry, and a notice and hearing as to the amount of the tax and the manner in which it shall be apportioned are generally not necessary to due process of law. 12 There is no validity to the assertion that the delegated authority can be declared unconstitutional on the theory of double taxation. It must be observed that the delegating authority specifies the limitations and enumerates the taxes over which local taxation may not be exercised. 13 The reason is that the State has exclusively reserved the same for its own prerogative. Moreover, double taxation, in general, is not forbidden by our fundamental law, since We have not adopted as part thereof the injunction against double taxation found in the Constitution of the United States and some states of the Union. 14 Double taxation becomes obnoxious only where the taxpayer is taxed twice for the benefit of the same governmental entity 15 or by the same jurisdiction for the same purpose, 16 but not in a case where one tax is imposed by the State and the other by the city or municipality. 17 2. The plaintiff-appellant submits that Ordinance No. 23 and 27 constitute double taxation, because these two ordinances cover the same subject matter and impose practically the same tax rate. The thesis proceeds from its assumption that both ordinances are valid and legally enforceable. This is not so. As earlier quoted, Ordinance No. 23, which was approved on September 25, 1962, levies or collects from soft drinks producers or manufacturers a tax of one-sixteen (1/16) of a centavo for .every bottle corked, irrespective of the volume contents of the bottle used. When it was discovered that the producer or manufacturer could increase the volume contents of the bottle and still pay the same tax rate, the Municipality of Tanauan enacted Ordinance No. 27, approved on October 28, 1962, imposing a tax of one centavo (P0.01) on each gallon (128 fluid ounces, U.S.) of volume capacity. The difference between the two ordinances clearly lies in the tax rate of the soft drinks produced: in Ordinance No. 23, it was 1/16 of a centavo for every bottle corked; in Ordinance No. 27, it is one centavo (P0.01) on each gallon (128 fluid ounces, U.S.) of volume capacity. The intention of the Municipal Council of Tanauan in enacting Ordinance No. 27 is thus clear: it was intended as a plain substitute for the prior Ordinance No. 23, and operates as a repeal of the latter, even without words to that effect. 18 Plaintiff-appellant in its brief admitted that defendants-appellees are only seeking to enforce Ordinance No. 27, series of 1962. Even the stipulation of facts confirms the fact that the Acting Municipal Treasurer of Tanauan, Leyte sought t6 compel compliance by the plaintiff-appellant of the provisions of said Ordinance No. 27, series of 1962. The aforementioned admission shows that only Ordinance No. 27, series of 1962 is being enforced by defendants-appellees. Even the Provincial Fiscal, counsel for defendants-appellees admits in his brief "that Section 7 of Ordinance No. 27, series of 1962 clearly repeals Ordinance No. 23 as the provisions of the latter are inconsistent with the provisions of the former." That brings Us to the question of whether the remaining Ordinance No. 27 imposes a percentage or a specific tax. Undoubtedly, the taxing authority conferred on local governments under Section 2, Republic Act No. 2264, is broad enough as to extend to almost "everything, accepting those which are mentioned therein." As long as the text levied under the authority of a city or municipal ordinance is not within the exceptions and limitations in the law, the same comes within the ambit of the general rule, pursuant to the rules of exclucion attehus and exceptio firmat regulum in cabisus non excepti 19 The limitation applies, particularly, to the prohibition against municipalities and municipal districts to impose "any percentage tax or other taxes in any form based thereon nor impose taxes on articles subject to specific tax except gasoline, under the provisions of the National Internal Revenue Code." For purposes of this particular limitation, a municipal ordinance which prescribes a set ratio between the amount of the tax and the volume of sale of the taxpayer imposes a sales tax and is null and void for being outside the power of the municipality to enact. 20 But, the imposition of "a tax of one centavo (P0.01) on each gallon (128 fluid ounces, U.S.) of volume capacity" on all soft drinks produced or manufactured under Ordinance No. 27 does not partake of the nature of a percentage tax on sales, or other taxes in any form based thereon. The tax is levied on the produce (whether sold or not) and not on the sales. The volume capacity of the taxpayer's production of soft drinks is considered solely for purposes of determining the tax rate on the products, but there is not set ratio between the volume of sales and the amount of the tax. 21

Nor can the tax levied be treated as a specific tax. Specific taxes are those imposed on specified articles, such as distilled spirits, wines, fermented liquors, products of tobacco other than cigars and cigarettes, matches firecrackers, manufactured oils and other fuels, coal, bunker fuel oil, diesel fuel oil, cinematographic films, playing cards, saccharine, opium and other habit-forming drugs. 22 Soft drink is not one of those specified. 3. The tax of one (P0.01) on each gallon (128 fluid ounces, U.S.) of volume capacity on all softdrinks, produced or manufactured, or an equivalent of 1- centavos per case, 23 cannot be considered unjust and unfair. 24 an increase in the tax alone would not support the claim that the tax is oppressive, unjust and confiscatory. Municipal corporations are allowed much discretion in determining the reates of imposable taxes. 25 This is in line with the constutional policy of according the widest possible autonomy to local governments in matters of local taxation, an aspect that is given expression in the Local Tax Code (PD No. 231, July 1, 1973). 26 Unless the amount is so excessive as to be prohibitive, courts will go slow in writing off an ordinance as unreasonable. 27 Reluctance should not deter compliance with an ordinance such as Ordinance No. 27 if the purpose of the law to further strengthen local autonomy were to be realized. 28 Finally, the municipal license tax of P1,000.00 per corking machine with five but not more than ten crowners or P2,000.00 with ten but not more than twenty crowners imposed on manufacturers, producers, importers and dealers of soft drinks and/or mineral waters under Ordinance No. 54, series of 1964, as amended by Ordinance No. 41, series of 1968, of defendant Municipality, 29 appears not to affect the resolution of the validity of Ordinance No. 27. Municipalities are empowered to impose, not only municipal license taxes upon persons engaged in any business or occupation but also to levy for public purposes, just and uniform taxes. The ordinance in question (Ordinance No. 27) comes within the second power of a municipality. ACCORDINGLY, the constitutionality of Section 2 of Republic Act No. 2264, otherwise known as the Local Autonomy Act, as amended, is hereby upheld and Municipal Ordinance No. 27 of the Municipality of Tanauan, Leyte, series of 1962, re-pealing Municipal Ordinance No. 23, same series, is hereby declared of valid and legal effect. Costs against petitioner-appellant. SO ORDERED. Castro, C.J., Teehankee, Barredo, Makasiar, Antonio, Esguerra, Muoz Palma, Aquino and Concepcion, Jr., JJ., concur. Separate Opinions FERNANDO, J., concurring: The opinion of the Court penned by Justice Martin is impressed with a scholarly and comprehensive character. Insofar as it shows adherence to tried and tested concepts of the law of municipal taxation, I am only in agreement. If I limit myself to concurrence in the result, it is primarily because with the article on Local Autonomy found in the present Constitution, I feel a sense of reluctance in restating doctrines that arose from a different basic premise as to the scope of such power in accordance with the 1935 Charter. Nonetheless it is well-nigh unavoidable that I do so as I am unable to share fully what for me are the nuances and implications that could arise from the approach taken by my brethren. Likewise as to the constitutional aspect of the thorny question of double taxation, I would limit myself to what has been set forth in City of Baguio v. De Leon. 1 1. The present Constitution is quite explicit as to the power of taxation vested in local and municipal corporations. It is therein specifically provided: "Each local government unit shall have the power to create its own sources of revenue and to levy taxes subject to such limitations as may be provided by law. 2 That was not the case under the 1935 Charter. The only limitation then on the authority, plenary in character of the national government, was that while the President of the Philippines was vested with the power of control over all executive departments, bureaus, or offices, he could only . It exercise general supervision over all local governments as may be provided by law ... 3 As far as legislative power over local government was concerned, no restriction whatsoever was placed on the Congress of the Philippines. It would appear therefore that the extent of the taxing power was solely for the legislative body to decide. It is true that in 1939, there was a statute that enlarged the scope of the municipal taxing power. 4 Thereafter, in 1959 such competence was further expanded in the Local Autonomy Act. 5 Nevertheless, as late as December of 1964, five years after its enactment of the Local Autonomy Act, this Court, through Justice Dizon, in Golden Ribbon Lumber Co. v. City of Butuan, 6 reaffirmed the traditional concept in these words: "The rule is well-settled that municipal corporations, unlike sovereign states, after clothed with no power of taxation; that its charter or a statute must clearly show an intent to confer that power or the municipal corporation cannot assume and exercise it, and that any such power granted must be construed strictly, any doubt or ambiguity arising from the terms of the grant to be resolved against the municipality." 7 Taxation, according to Justice Parades in the earlier case of Tan v. Municipality of Pagbilao, 8 "is an attribute of sovereignty which municipal corporations do not enjoy." 9 That case left no doubt either as to weakness of a claim "based merely by inferences, implications and deductions, [as they have no place in the interpretation of the power to tax of a municipal corporation." 10 As the conclusion reached by the Court finds support in such grant of the municipal taxing power, I concur in the result. 2. As to any possible infirmity based on an alleged double taxation, I would prefer to rely on the doctrine announced by this Court in City of Baguio v. De Leon. 11 Thus: "As to why double taxation is not violative of due process, Justice Holmes made clear in this language: 'The objection to the taxation as double may be laid down on one side. ... The 14th Amendment [the due process clause) no more forbids double taxation than it does doubling the amount of a tax, short of (confiscation or proceedings unconstitutional on other grouse With that decision rendered at a time when American sovereignty in the Philippines was recognized, it possesses more than just a persuasive

effect. To some, it delivered the coup justice to the bogey of double taxation as a constitutional bar to the exercise of the taxing power. It would seem though that in the United States, as with us, its ghost, as noted by an eminent critic, still stalks the juridical stage. 'In a 1947 decision, however, we quoted with approval this excerpt from a leading American decision: 'Where, as here, Congress has clearly expressed its intention, the statute must be sustained even though double taxation results. 12 So I would view the issues in this suit and accordingly concur in the result.
Footnotes
1 "Sec. 2. Taxation. Any provision of law to the contrary notwithstanding, all chartered cities, municipalities and municipal districts shall have authority to impose municipal license taxes or fees upon persons engaged in any occupation or business, or exercising private in chartered cities, municipalities and municipal districts by requiring them to secure licenses 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 service rendered by the city, municipality or municipal district; to regulate and impose reasonable for services rendered in connection with any business, profession 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 any newspaper engaged in the printing and publication of any newspaper, magazine, review or bulletin appearing at regular interval and having fixed prices 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 on wharves owned by the national government, tonnage and all other kinds of customs fees, charges and dues; (j) Taxes of any kind on banks, insurance companies, and persons paying franchise tax: (k) Taxes on premiums paid by owners of property who obtain insurance directly with foreign insurance companies; and (i) Taxes, fees or levies, of any kind, which in effect impose a burden on exports of Philippine finished, manufactured or processed products and products of Philippine cottage industries. 2 Section 2. 3 Section 3. 4 Section 2. 5 Section 3. 6 Cooley, The Law of Taxation, Vol. 1, Fourth Edition, 149-150. 7 Pepsi-Cola Bottling Co. of the Phil., Inc. vs. City of Butuan, L-22814, August 28, 1968, 24 SCRA 793-96. 8 Rubi v. Prov. Brd. of Mindoro, 39 Phil. 702 (1919). 9 Cooley, ante at 190. 10 Idem at 198-200.

11 Malcolm, Philippine Constitutional Law, 513-14. 12 Cooley ante at 334. 13 See footnote 1. 14 Pepsi-Cola Bottling Co. of the Phil. Inc. vs. City of Butuan, 1, 2S 1 4, August 28, 1968, 24 SCRA 793-96. See Sec. 22, Art. VI, 1935 Constitution and Sec. 17 (1), Art. VIII, 1973 Constitution. 15 Commissioner of Internal Revenue v. Lednicky L- 18169, July 31, 1964, 11 SCRA 609. 16 SMB, Inc. v. City of Cebu, L-20312, February 26, 1972, 43 SCRA 280. 17 Punzalan v. Mun. Bd of City of Manila, 50 O.G. 2485; manufacturers Life Ins. Co. v. Meer, 89 Phil. 351 (1951). 18 McQuillin. Municipal Corporations, 3rd. Ed., Vol. 6, at 206.-210. 19 Villanueva v. City of Iloilo, L-26521, December 28, 1968, 26 SCRA 585-86; Nin Bay Mining Co. v. Mun. of Roxas, Palawan, L-20125, July 20, 1965, 14 SCRA 663-64. 20 Arabay, Inc. v. CFI of Zamboanga del Norte, et al., L-27684, September 10, 1975. 21 SMB, Inc. v. City of Cebu, ante, Footnote 16. 22 Shell Co. of P.I. Ltd. v. Vao, 94 Phil. 394-95 (1954); Sections 123-148, NIRC; RA No. 953, Narcotic Drugs Law, June 20, 1953. 23 Brief, defendants-appellees, at 14. A regular bottle of Pepsi-Cola soft drinks contains 8 oz., or 192 oz. per case of 24 bottles; a family-size contains 26 oz., or 312 oz. per case of 12 bottles. 24 See Pepsi-Cola Bottling Co. of the Phil., Inc. v. City of Butuan, ante, Footnote 14, where the tax rate is P.10 per case of 24 bottles; City of Bacolod v. Gruet, L-18290, January 31, 1963, 7 SCRA 168-69, where the tax is P.03 on every case of bottled Coca-Coal. 25 Northern Philippines Tobacco Corp. v. Mun. of Agoo, La Union, L-26447, January 30, 1971, 31 SCRA 308. 26 William Lines, Inc. v. City of Ozamis, L-350048, April 23, 1974, 56 SCRA 593, Second Division, per Fernando, J. 27 Victorias Milling Co. v. Mun. of Victorias, L-21183, September 27, 1968, 25 SCRa 205. 28 Procter & Gamble Trading Co. v. Mun. of Medina, Misamis Oriental, L-29125, January 31, 1973, 43 SCRA 133-34. 29 Subject of plaintiff-appellant's Motion for Admission and consideration of Essential Newly Dissevered Evidence, dated April 30, 1969. FERNANDO, J. 1 L-24756, October 31, 1968, 25 SCRA 938. 2 Article XI, Section 5 of the present Constitution. 3 Article VII, Section 10 of the 1935 Constitution. 4 Commonwealth Act 472 entitled: "An Act Revising the General Authority of Municipal Councils and Municipal District Councils to Levy Taxes, Subject to Certain Limitations." 5 Republic Act No. 2264. 6 L-18534, December 24,1964,12 SCRA 611. 7 Ibid, 619. Cf. Cuunjieng v. Potspone, 42 Phil. 818 (1922); De Linan v. Municipal Council of Daet, 44 Phil. 792 (1923); Arquiza Luta v. Municipality of Zamboanga, 50 Phil. 748 (1927; Hercules Lumber Co. v. Zamboanga, 55 Phil. 653 (1931); Yeo Loby v. Zamboanga, 55 Phil. 656 (1931); People v. Carreon, 65 Phil. 588 (1939); Yap Tak Wing v. Municipal Board, 68 Phil. 511 (1939); Eastern Theatrical Co. v. Alfonso 83 Phil. 852 (1949); De la Rosa v. City of Baguio, 91 Phil. 720 (I!)52); Medina v. City of Baguio, 91 Phil. 854 (1952); Standard-Vacuum Oil Co. v. Antigua, 96 Phil. 909 (1955); Municipal Government of Pagsanjan v. Reyes, 98 Phil. 654 (1956), We Wa Yu v. City of Lipa, Phil. 975 (1956); Municipality of Cotabato v. Santos, 105 Phil. 963 (1959).

8 L-14264, April 30, 1963, 7 SCRA 887. 9 Ibid, 892. 10 Ibid. 11 L-24756, October 31, 1968, 25 SCRA 938. 12 Ibid, 943-944.

Republic of the Philippines SUPREME COURT Manila EN BANC

G.R. No. L-21183

September 27, 1968

VICTORIAS MILLING CO., INC., plaintiff-appellant, vs. THE MUNICIPALITY OF VICTORIAS, PROVINCE OF NEGROS OCCIDENTAL, defendant-appellant. Hilado & Hilado for plaintiff-appellant. The Provincial Fiscal of Negros Occidental for defendant-appellant. SANCHEZ, J.: This case calls into question the validity of Ordinance No. 1, series of 1956, of the Municipality of Victorias, Negros Occidental. The disputed ordinance was approved by the municipal Council of Victorias on September 22, 1956 by way of an amendment to two municipal ordinances separately imposing license taxes on operators of sugar centrals 1 and sugar refineries. 2 The changes were: with respect to sugar centrals, by increasing the rates of license taxes; and as to sugar refineries, by increasing the rates of license taxes as well as the range of graduated schedule of annual output capacity. Ordinance No. 1 3 is labeled "An Ordinance Amending Ordinance No. 25, Series of 1953 and Ordinance No. 18, Series of 1947 on Sugar Central by Increasing the Rates on Sugar Refinery Mill by Increasing the Range of Graduated Schedule on Capacity Annual Output Respectively". It was, as the ordinance itself states, enacted pursuant to the taxing power conferred by Commonwealth Act 472. By Section 1 of the Ordinance: "Any person, corporation or other forms of companies, operating sugar central or engage[d] in the manufacture of centrifugal sugar shall be required to pay the following annual municipal license tax, payable quarterly, to wit: . . ." Section 1 referred to prescribes a wide range of schedule. It starts with a sugar central with mill having an annual output capacity of not less than 50,000 piculs of centrifugal sugar, in which case an annual municipal license tax of P1,000.00 is provided. Depending upon the annual output capacity the schedule of taxes continues with P2,000.00 progressively upward in twelve other grades until an output capacity of 1,500,001 piculs or more shall have been reached. For this, the annual tax is P40,000.00. The tax on sugar refineries is likewise calibrated with similar rates. It also starts with P1,000.00 for a refinery with mill having an annual output capacity of not less than 25,000 bags of 100 lbs. of refined sugar. Then, it continues with the second bracket of from 25,001 bags to 75,000 bags of 100 lbs. Here, the municipal license tax is P1,500.00. Then follow the other rates in the graduated scale with the ceiling placed at a capacity of 1,750,001 bags or more. The annual municipal license tax for the last mentioned output capacity is P40,000.00. Of importance are the provisions of Section 1(m) relating to sugar centrals and Section 2(m) covering sugar refineries with specific reference to the maximum annual license tax, viz: Section No. 1 Any person, corporation or other forms of Companies, operating Sugar Central or engage[d] in the manufacture of centrifugal sugar shall be required to pay the following annual municipal license tax, payable quarterly, to wit: xxx xxx xxx

(m) Sugar Central with mill having a capacity of producing an annual output of from 1,500,001 piculs or more shall be required to pay an annual municipal license tax of P40,000.00. Section No. 2 Any person, corporation or other forms of Companies shall be required to pay an annual municipal license tax for the operation of Sugar Refinery Mill at the following rates: xxx xxx xxx

(m) Sugar Refinery with mill having a capacity of producing an annual output of from 1,750,001 bags of 100 lbs. or more shall be required to pay an annual municipal license tax of P40,000.00. For, the production of plaintiff Victorias Milling Co., Inc. in both its sugar central and its sugar refinery located in the Municipality of Victorias comes within these items in the schedule. Plaintiff filed suit below 4 to ask for judgment declaring Ordinance No. 1, series of 1956, null and void; ordering the refund of all license taxes paid and to be paid under protest; directing the officials of Victorias and the Province of Negros Occidental to observe, during the pendency of the action, the provisions of section 357 of the Revised Manual of Instructions to Treasurers of Provinces, Cities

and Municipalities, 1954 edition, 5 regarding the treatment of license taxes paid under protest by virtue of a disputed ordinance; and other reliefs. 6 The reasons put forth by plaintiff are that: (a) the ordinance exceeds the amounts fixed in Provincial Circular 12-A issued by the Finance Department on February 27, 1940; (b) it is discriminatory since it singles out plaintiff which is the only operator of a sugar central and a sugar refinery within the jurisdiction of defendant municipality; (c) it constitutes double taxation; and (d) the national government has preempted the field of taxation with respect to sugar centrals or refineries. Upon the complaint as supplemented and amended, and the answer thereto, and following hearing on the merits, the trial court rendered its judgment. After declaring that "[t]here is no doubt that" the ordinance in question refers to license taxes or fees," and that "[i]t is settled that a license tax should be limited to the cost of licensing, regulating and surveillance," 7 the trial court ruled that said license taxes in dispute are unreasonable, 8 and held that: "If the defendant has the power to tax the plaintiff for purposes of revenue, it may do so by proper municipal legislation, but not in the guise of a license tax." 9 The court added: "The Court is not, however, prepared to order the refund of all the license taxes paid by the plaintiff under protest and amounting, up to the second quarter of 1960, to P280,000.00, considering that the plaintiff appears to have agreed to the payment of the license taxes at the rates fixed prior to Ordinance No. 1, series of 1956; that the defendant had evidently not complied with the provisions of Section 357 of the Revised Manual of Instructions to Treasurers of Provinces, Cities and Municipalities, 1954 Edition, as the plaintiff herein seeks an order enjoining the defendant and its appropriate officials to carry out said provisions; that the financial position of the defendant would surely be disrupted if ordered to refund, while the plaintiff may perhaps easily forego or forget what it had already parted with". 10 It disposes of the suit in the following manner: WHEREFORE, judgment is rendered (a) declaring that Ordinance No. 1, series of 1956, of the municipality of Victorias, Negros Occidental, is invalid; (b) ordering all officials of the defendant to observe the provisions of Section 357 of the Revised Manual of Instructions to Treasurers of Provinces, Cities and Municipalities, 1954 Edition, with particular reference to any license taxes paid by the plaintiff under said Ordinance No. 1, series of 1956, after notice of this decision; and (c) ordering the defendant to refund to the plaintiff any and all such license taxes paid under protest after notice of this decision. 11 Both plaintiff and defendant appealed direct to this Court. Plaintiff questions that portion of the decision denying the refund of the license taxes paid under protest in the amount of P280,000 covering the period from the first quarter of 1957 to the second quarter of 1960; and balked at the court's order limiting refund to "any and all such license taxes paid under protest after notice of this decision." Defendant, upon the other hand, challenges the correctness of the court's decision invalidating Ordinance No. 1, series of 1956. The questions raised in the appeals will be discussed in their proper sequence. 1. We first grapple with the threshold question: Was Ordinance No. 1, series of 1956, passed by defendant's municipal council as a regulatory enactment or as a revenue measure? The trial court says, and plaintiff seconds, that the amounts set forth in the ordinance in question did exceed the cost of licensing, regulating and surveillance, and that defendant cannot impose a tax for revenue in the guise of a police or a regulatory measure. Our finding, however, is the other way.1awphl.nt The ordinance itself recites that its source of taxing power emanates from Commonwealth Act 472, Section 1 of which reads: Section 1. A municipal council or municipal district council shall have authority to impose municipal license taxes upon persons engaged in any occupation or business, or exercising privileges in the municipality or municipal district, by requiring them to secure licenses at rates fixed by the municipal council, or municipal district council, and to collect fees and charges for services rendered by the municipality or municipal district and shall otherwise have power to levy for public local purposes, and for school purposes, including teachers' salaries, just and uniform taxes other than percentage taxes and taxes on specified articles. Under the statute just quoted and pertinent jurisprudence, a municipality is authorized to impose three kinds of licenses: (1) license for regulation of useful occupations or enterprises; (2) license for restriction or regulation of non-useful occupations or enterprises; and (3) license for revenue. 12 The first two easily fall within the broad police power granted under the general welfare clause. 13 The third class, however, is for revenue purposes. It is not a license fee, properly speaking, and yet it is generally so termed. It rests on the taxing power. That taxing power must be expressly conferred by statute upon the municipality. 14 It is so granted under Commonwealth Act 472. To be recalled at this point is that Ordinance No. 1, series of 1956, is but an amendment of Ordinance No. 18, series of 1947, in reference to refineries, and Ordinance No. 25, series of 1953, covering sugar centrals. Ordinance No. 18 imposes "municipal taxes on persons, firms or corporations operating refinery mills in this municipality." 15 Ordinance No. 25 speaks of municipal taxes "relative to the output of the sugar centrals." 16 What are these taxes for? Resolution No. 60 of the municipal council of Victorias, 17 adopted also on September 22, 1956 in conjunction with Ordinance No. 1, series of 1956, furnishes a ready answer. It reads in part:

WHEREAS, the Municipal Treasurer informed the Municipal Council of the revenue of the Municipality and the heavy obligations which confront it because of the implementation of Minimum Wage Law on the salaries and wages it pays to its municipal employees and laborers thus greatly draining the Municipal Treasury; WHEREAS, this local administration is committed to the plan of ameliorating the deplorable situation existing in the barrios, sitios and rural areas by giving them essential and necessary facilities calculated to improve conditions thereat thru improvements of roads and feeder roads; WHEREAS, one of the causes of the municipality's financial difficulty is low rates of municipal taxes imposed by some of the ordinances enacted by the local legislative body; WHEREAS, [in] . . . the ordinances known as Ordinance No. 25, Series of 1953, dealing on the operation of Sugar Central, and Ordinance No. 18, Series of 1947, which exclusively deals with the operation of Sugar Refinery Mill, the rates so given are rates suggested and determined by the Provincial Circular No. 12-A, dated February 27, 1940 issued by the Department of Finance as regards to Sugar Centrals; WHEREAS, the Municipal Council has come to the conclusion that the rates provided for in such ordinances are no longer adequate if made in keeping with the present high cost of living; WHEREAS, the Municipal Council has also taken cognizance of the fact that the price of sugar per picul today is more than twice its pre-war average price; . . . . 18 Given the purposes just mentioned, we find no warrant in logic to give our assent to the view that the ordinance in question is solely for regulatory purpose. Plain is the meaning conveyed. The ordinance is for raising money. To say otherwise is to misread the purpose of the ordinance.1awphl.nt We should not hang so heavy a meaning on the use of the term "municipal license tax". This does not necessarily connote the idea that the tax is imposed as the lower court would want it to mean a revenue measure in the guise of a license tax. For really, this runs counter to the declared purpose to make money. Besides, the term "license tax" has not acquired a fixed meaning. It is often "used indiscriminately to designate impositions exacted for the exercise of various privileges." 19 It does not refer solely to a license for regulation. In many instances, it refers to "revenue-raising exactions on privileges or activities." 20 On the other hand, license fees are commonly called taxes. But, legally speaking, the latter are "for the purpose of raising revenues," in contrast to the former which are imposed "in the exercise of police power for purposes of regulation." 21 We accordingly say that the designation given by the municipal authorities does not decide whether the imposition is properly a license tax or a license fee. The determining factors are the purpose and effect of the imposition as may be apparent from the provisions of the ordinance. 22 Thus, "[w]hen no police inspection, supervision, or regulation is provided, nor any standard set for the applicant 23 to establish, or that he agrees to attain or maintain, but any and all persons engaged in the business designated, without qualification or hindrance, may come, and a license on payment of the stipulated sum will issue, to do business, subject to no prescribed rule of conduct and under no guardian eye, but according to the unrestrained judgment or fancy of the applicant and licensee, the presumption is strong that the power of taxation, and not the police power, is being exercised." 24 Precisely because of these considerations the present imposition must be treated as a levy for revenue purposes. A quick glance at the big amount of maximum annual tax set forth in the ordinance, P40,000.00 for sugar centrals, and P40,000.00 for sugar refineries, will readily convince one that the tax is really a revenue tax. And then, we read in the ordinance nothing which would as much as indicate that the tax imposed is merely for police inspection, supervision or regulation. Our view that the tax imposed by the ordinance is for revenue purposes finds support in judicial pronouncements which have gained foothold in this jurisdiction. In Standard Vacuum vs. Antigua, 25 this Court had occasion to pass upon a similar ordinance. In categorical terms, we there stated: "We are satisfied that the graduated license tax imposed by the ordinance in question is an occupation tax, imposed not under the police or regulatory power of the municipality but by virtue of its taxing power for purposes of revenue, and is in accordance with the last part of Section 1 of Commonwealth Act No. 472. It is, therefore, valid." 26 The present case is not to be analogized with Panaligan vs. City of Tacloban cited in the decision below. 27 For there, the inspection fee sought to be collected upon every head of specified animals to be transported out of the City of Tacloban (P2.00 per hog, P10.00 per cow and 20.00 per carabao) was in reality an export tax specifically withheld from municipal taxing power under Section 2287 of the Revised Administrative Code. So also do we say that the cases of Pacific Commercial Co. vs. Romualdez, 28 Lacson vs. City of Bacolod, 29 and Santos vs. Municipal Government of Caloocan, 30 used by plaintiff as references, are entirely inopposite. In Pacific Commercial, the tax involved on frozen meat was nullified because tax measures on cold stores were not then within the legislative grant to the City of Manila. In Lacson, the City of Bacolod taxed every admission ticket sold in the moviehouses. And justification for this imposition was moored to

the general welfare clause of the city charter. This Court held the ordinance ultra vires for the reason that the authority to tax cannot be derived from the general welfare clause. In Santos, the taxes in controversy were internal organs fees, meat inspection fees and corral fees, separate from the slaughter or slaughterhouse fees. In annulling the taxes there questioned, this Court declared: "[W]hen the Council ordained the payment of internal organs fees, meat inspection fees and corral fees, aside from the slaughter or slaughterhouse fees, it overstepped the limits of its statutory grant [Sec. 1, C.A. 655]. Only one fee was allowed by that law to be charged and that was slaughter or slaughterhouse fees." In the cases cited then, the tax ordinances did not find plain and clear statutory prop. Such infirmity is not present here. We, accordingly, rule that Ordinance No. 1, series of 1956, of the Municipality of Victorias, was promulgated not in the exercise of the municipality's regulatory power but as a revenue measure a tax on occupation or business. The authority to impose such tax is backed by the express grant of power in Section 1 of Commonwealth Act 472. 2. Not that the disputed ordinance lacks the imprimatur of the Secretary of Finance required in paragraph 2, Section 4, of Commonwealth Act 472. This legal provision necessitates such approval "[w]henever the rate of fixed municipal license taxes on businesses not excepted in this Act or otherwise covered by the preceding paragraph and subject to the fixed annual tax imposed in section one hundred eighty-two of the National Internal Revenue Law, is in excess of fifty pesos per annum; . . . ." The ordinance here challenged was recommended by the Provincial Board of Negros Occidental in its resolution (No. 1864) of October 26, 1956. 31 And, the Undersecretary of Finance in his letter to the municipal council of Victorias on December 18, 1956 approved said ordinance. But considering that it is amendatory in nature, that approval was coupled with the mandate that the ordinance "should take effect at the beginning of the ensuing calendar year [1957] pursuant to Section 2309 of the Revised Administrative Code." 32 3. Plaintiff argues that the municipality is bereft of authority to enact the ordinance in question because the national government "had preempted it from entering the field of taxation of sugar centrals and sugar refineries." 33 Plaintiff seeks refuge in Section 189 of the National Internal Revenue Code which subjects proprietors or operators of sugar centrals or sugar refineries to percentage tax. The implausibility of this position is at once apparent. We are not dealing here with percentage tax. Rather, we are concerned with a tax specifically for operators of sugar centrals and sugar refineries. The rates imposed are based on the maximum annual output capacity. Which is not a percentage. Because it is not a share. Nor is it a tax based on the amount of the proceeds realized out of the sale of sugar, centrifugal or refined. 34 What can be said at most is that the national government has preempted the field of percentage taxation. Section 1 of Commonwealth Act 472, while granting municipalities power to levy taxes, expressly removes from them the power to exact "percentage taxes". It is correct to say that preemption in the matter of taxation simply refers to an instance where the national government elects to tax a particular area, impliedly withholding from the local government the delegated power to tax the same field. This doctrine primarily rests upon the intention of Congress. 35 Conversely, should Congress allow municipal corporations to cover fields of taxation it already occupies, then the doctrine of preemption will not apply. In the case at bar, Section 4(1) of Commonwealth Act 472 clearly and specifically allows municipal councils to tax persons engaged in "the same businesses or occupation" on which "fixed internal revenue privilege taxes" are "regularly imposed by the National Government." With certain exceptions specified in Section 3 of the same statute. Our case does not fall within the exceptions. It would therefore be futile to argue that Congress exclusively reserved to the national government the right to impose the disputed taxes. We rule that there is no preemption. 4. Petitioner advances the theory that the ordinance is excessive. An ordinance carries with it the presumption of validity. The question of reasonableness though is open to judicial inquiry. Much should be left thus to the discretion of municipal authorities. Courts will go slow in writing off an ordinance as unreasonable unless the amount is so excessive as to be prohibitive, arbitrary, unreasonable, oppressive, or confiscatory. 36 A rule which has gained acceptance is that factors relevant to such an inquiry are the municipal conditions as a whole and the nature of the business made subject to imposition. 37 Plaintiff has however not sufficiently proven that, taking these factors together, the license taxes are unreasonable. The presumption of validity subsists. For, plaintiff has limited itself to insisting that the amounts levied exceed the cost of regulation and that the municipality has adequate funds for the alleged purposes as evidenced by the municipality's cash surplus for the fiscal year ending 1956.

The cost of regulation cannot be taken as a gauge, if the municipality really intended to enact a revenue ordinance. For, "if the charge exceeds the expense of issuance of a license and costs of regulation, it is a tax." 38 And if it is, and it is validly imposed, as in this case, "the rule that license fees for regulation must bear a reasonable relation to the expense of the regulation has no application." 39 And then, a cash surplus alone cannot stop a municipality from enacting a revenue ordinance increasing license taxes in anticipation of municipal needs. Discretion to determine the amount of revenue required for the needs of the municipality is lodged with the municipal authorities. Again, judicial intervention steps in only when there is a flagrant, oppressive and excessive abuse of power by said municipal authorities. 40 Not that defendant municipality was without reason. On February 27, 1940, the Secretary of Finance, later President, Manuel A. Roxas, issued Provincial Circular 12-A. In that circular, the then Finance Secretary stated that his "Department has reached the conclusion that a tax on the basis of one centavo for every picul of annual output capacity of sugar centrals ... would be just and reasonable." At that time, the price of sugar was around P6.00 per picul. Sixteen years later 1956 when Ordinance No. 1 was approved, the market quotation for export sugar ranged from P12.00 to P15.00 per picul. 41 And yet, since then the rate per output capacity of a sugar central in Ordinance No. 1 was merely from one centavo to two centavos. There is a statement in the municipality's brief 42 that thereafter the price of sugar had never gone below P16.00 per picul; instead it had gone up. The reasonableness of the ordinance may not be disputed. It is not confiscatory. There was misapprehension in the decision below in its statement that the increase of rates for refineries was 2,000%. We should not overlook the fact that the original maximum rate covering refineries in Ordinance No. 18, series of 1947, was P2,000.00; but that was only for a refinery with an output capacity of 90,000 or more sacks. Under Section 2(c) of Ordinance No. 1, series of 1956, where the refineries have an output capacity of from 75,001 bags to 100,000 bags, the tax remains at P2,000.00. From here on, the ordinance provides for ten more scales for the graduation of the tax depending upon the output capacity (P3,000.00, P4,000.00, P5,000.00, P10,000.00, P15,000.00, P20,000.00, P25,000.00, P30,000.00, P35,000.00 and P40,000.00). But it is only where a refinery has an output capacity of 1,750,001 or more bags that the present ordinance imposes a tax of P40,000.00. The happenstance that plaintiff's refinery is in the last bracket calling upon it to pay P40,000.00 per annum does not make the ordinance in question unreasonable. Neither may we tag the ordinance with excessiveness if we consider the capital invested by plaintiff in both its sugar central and sugar refinery and its annual income from both. Plaintiff's capital investment in the sugar central and sugar refinery is more or less P26,000,000.00. 43 And here are its annual net income: for the year 1956 P3,852,910; for the year 1957 P3,854,520; for the year 1958 P7,230,493; for the year 1959 P5,951,187; and for the year 1960 P7,809,250. 44 If these figures mean anything at all, they show that the ordinance in question is neither confiscatory nor unjust and unreasonable. 5. Upon the averment that in the Municipality of Victorias plaintiff is the only operator of a sugar central and sugar refinery, plaintiff now presses its argument that Ordinance No. 1, series of 1956, is discriminatory. The ordinance does not single out Victorias as the only object of the ordinance. Said ordinance is made to apply to any sugar central or sugar refinery which may happen to operate in the municipality. So it is, that the fact that plaintiff is actually the sole operator of a sugar central and a sugar refinery does not make the ordinance discriminatory. Argument along the same lines was rejected in Shell Co. of P.I., Ltd. vs. Vao, 45 this Court holding that the circumstance "that there is no other person in the locality who exercises" the occupation designated as installation manager "does not make the ordinance discriminatory and hostile, inasmuch as it is and will be applicable to any person or firm who exercises such calling or occupation." And in Ormoc Sugar Company, Inc. vs. Municipal Board of Ormoc City, 46 declaratory relief was sought to test the validity of a municipal ordinance which provides a city tax of twenty centavos per picul of centrifugal sugar and one per centum on the gross sale of its derivatives and by-products "produced by the Ormoc Sugar Company, Incorporated, or by any other sugar mill in Ormoc City." Mr. Justice Enrique Fernando, delivering the opinion of this Court, declared that the ordinance did not suffer "from a constitutional or statutory infirmity." And yet, in Ormoc, it is to be observed that Section 1 of the ordinance spelled out Ormoc Sugar Company, Incorporated specifically by name. Not even the name of plaintiff herein was ever mentioned in the ordinance now disputed. No discrimination exists. 6. As infirm is plaintiff's stand that its business is not confined to the Municipality of Victorias. It suffices that plantiff engages in a business or occupation subject to an exaction by the municipality within the territorial boundaries of that municipality. Plaintiff's sugar central and sugar refinery are located within the Municipality of Victorias. In this central and refinery, plaintiff manufactures centrifugal sugar and refined sugar, respectively. But plaintiff insists that plaintiff's sugar milling and refining operations are not wholly performed within the territorial limits of Victorias. According to plaintiff, transportation of canes from plantation to the mill site, operation and maintenance of telephone system, inspection of crop progress and other related activities, are conducted not only in defendant's municipality but also in the municipalities of Cadiz, Manapla, Sagay and Saravia as well. 47 We fail to see the relevance of these facts. Because, if we follow plaintiff's ratiocination, neither Victorias nor any of the municipalities just adverted to would be able to impose the tax. One thing certain, of course, is that the tax is imposed upon the business of operating a sugar central and a sugar refinery. And the situs of that business is precisely the Municipality of Victorias.

7. Plaintiff finally impleads double taxation. Its reason is that in computing the amount of taxes to be paid by the sugar refinery the cost of the raw sugar coming from the sugar central is not deducted; ergo, plaintiff is taxed twice on the raw sugar. Double taxation has been otherwise described as "direct duplicate taxation." 48 For double taxation to exist, "the same property must be taxed twice, when it should be taxed but once." 49 Double taxation has also been "defined as taxing the same person twice by the same jurisdiction for the same thing." 50 As stated in Manila Motor Company, Inc. vs. Ciudad de Manila, 51 there is double taxation "cuando la misma propiedad se sujeta a dos impuestos por la misma entidad o Gobierno, para el mismo fin y durante el mismo periodo de tiempo." With the foregoing precepts in mind, we find no difficulty in saying that plaintiff's argument on double taxation does not inspire assent. First. The two taxes cover two different objects. Section 1 of the ordinance taxes a person operating sugar centrals or engaged in the manufacture of centrifugal sugar. While under Section 2, those taxed are the operators of sugar refinery mills. One occupation or business is different from the other. Second. The disputed taxes are imposed on occupation or business. Both taxes are not on sugar. The amount thereof depends on the annual output capacity of the mills concerned, regardless of the actual sugar milled. Plaintiff's argument perhaps could make out a point if the object of taxation here were the sugar it produces, not the business of producing it. There is no double taxation. For the reasons given The judgment under review is hereby reversed; and Judgment is hereby rendered: (a) declaring valid and subsisting Ordinance No. 1, series of 1956, of the Municipality of Victorias, Province of Negros Occidental; and (b) dismissing plaintiff's complaint as supplemented and amended. Costs against plaintiff. So ordered. Concepcion, C.J., Reyes, J.B.L., Dizon, Makalintal, Zaldivar, Castro, Angeles, Fernando and Capistrano, JJ., concur.
Footnotes
1

Ordinance No. 25, series of 1953, Exhibit 3. Ordinance No. 18, series of 1947, Exhibit 2. Exhibit 1.

Civil Case No. 5565, Court of First Instance of Negros Occidental, entitled "Victorias Milling Co., Inc., Plaintiff, versus The Municipality of Victorias, Province of Negros Occidental, Defendant". The complaint was supplemented and amended.
5

". . . Section 357 of the Revised Manual of Instructions to Treasurers of Provinces, Cities and Municipalities, promulgated under the direction of the Auditor General, 1954 edition, ... provides that: 'Tax ordinance under controversy. Until declared illegal or void by a competent court, or otherwise revoked by the council or board from which it originated or which exercised authority over the same, a tax ordinance will be enforced in accordance with its provisions. Collection of taxes therein prescribed will be made even if the legality of the same should be impugned or any of its provisions be challenged or be under controversy. All protested collections, however, provided that the fact of said protest is made to appear on the receipt wherein payment has been acknowledged, will be taken up in the accounts as Undistributed Income, B-3-1. Upon final determination of the protest, a reversion entry will then be made, either by debiting the collection to the corresponding revenue account or crediting Cash if the protest has been considered in favor of the protestant and the amount protested is to be returned to him.'" Record on Appeal, pp. 11-12.
6

Record on Appeal, pp. 12-14. Id., p. 70. Id., p. 72. Id., p. 73. Id. Id., pp. 73-74. See: Cu Unjieng vs. Patstone, 42 Phil. 818, 828-830.

10

11

12

13

"Sec. 2238. General power of council to enact ordinances and make regulations. The municipal council shall enact such ordinances and make such regulations, not repugnant to law, as may be necessary to carry into effect and discharge the powers and duties conferred upon it by law and such as shall seem necessary and proper to provide for the health and safety, promote the prosperity, improve the morals, peace, good order, comfort, and convenience of the municipality and the inhabitants thereof, and for the protection of property therein." Revised Administrative Code.
14

Section 2287, Revised Administrative Code; Cu Unjieng vs. Patstone, supra, at p. 831; Pacific Commercial Co. vs. Romualdez, 49 Phil. 917, 926; City of Iloilo vs. Villanueva, 105 Phil. 337, 340; People vs. Felisarta, L-15346, June 29, 1962.
15

Emphasis supplied. Emphasis supplied. Exhibit G. Emphasis supplied. McQuillin, Municipal Corporations, 3rd. ed., Vol. 9, Chapter 26, p. 62. Ibid. Compaia General de Tabacos de Filipinas vs. City of Manila, L-16619, June 29, 1963. 19 R.C.L., pp. 951-952. Applicant for permit or license to do business. 19 R.C.L., p. 952; emphasis supplied. 96 Phil. 909, 911. Same ruling: Municipality of Cotabato vs. Santos, 105 Phil. 963, 966. L-9319, September 27, 1957; Plaintiff's Brief as Appellant, p. 22; Record on Appeal, p. 70. Supra, at p. 926; Plaintiff's Brief as Appellee, p. 47. L-15892, April 23, 1962; Plaintiff's Brief as Appellee, pp. 23, 26. L-15807, April 22, 1963; Plaintiff's Brief as Appellee, p. 47. Exhibit 6-A. Exhibit 6. Plaintiff's Brief as Appellant, p. 42. See: Shell Co. of P.I., Ltd. vs. Vao, 94 Phil, 389, 394-395. Plaintiff's Brief as Appellant, pp. 43-44, citing Yorkley on Municipal Corporations, p. 361. 64 C.J.S., pp. 646-647. McQuillin, op. cit., p. 65. Ibid. p. 29. Ibid., p. 71. 38 Am. Jur., p. 42. Resolution 1864 dated October 26, 1956 of the Provincial Board, Exhibit 6-A.

16

17

18

19

20

21

22

23

24

25

26

27

28

29

30

31

32

33

34

35

36

37

38

39

40

41

42

At p. 36. Tr. (Antenero), p. 83. Exhibit 8. Supra, at p. 393. See also: Cooley on Taxation, 4th ed., Vol. I, p. 747. L-24322, July 21, 1967; 1967C Phild. 116, 119. Plaintiff's Brief as Appellant, pp. 36-37. Cooley, op. cit., p. 475. Ibid., citing Attorney General vs. Supervisors of Sanilac County, 71 Mich. 16, 38 N.W. 639. Ibid., citing Harvey Coal & Coke Co. vs. Dillon, 59 W. Va. 605, 53 S.E. 928. 72 Phil. 336, 339, citing Cooley on Taxation, Vol. I, pp. 475-479; emphasis supplied.

43

44

45

46

47

48

49

50

51

Republic of the Philippines SUPREME COURT Manila FIRST DIVISION

G.R. No. L-28138 August 13, 1986 MATALIN COCONUT CO., INC., petitioner-appellee, vs. THE MUNICIPAL COUNCIL OF MALABANG, LANAO DEL SUR, AMIR M. BALINDONG and HADJI PANGILAMUN MANALOCON, MUNICIPAL MAYOR and MUNICIPAL TREASURER OF MALABANG, LANAO DEL SUR, respondents-appellants. PURAKAN PLANTATION COMPANY, intervenor-appellee. YAP, J.: On August 24, 1966, the Municipal Council of Malabang, Lanao del Sur, invoking the authority of Section 2 of Republic Act No. 2264, otherwise known as the Local Autonomy Act, enacted Municipal Ordinance No. 45-46, entitled "AN ORDINANCE IMPOSING A POLICE INSPECTION FEE OF P.30 PER SACK OF CASSAVA STARCH PRODUCED AND SHIPPED OUT OF THE MUNICIPALITY OF MALABANG AND IMPOSING PENALTIES FOR VIOLATIONS THEREOF." The ordinance made it unlawful for any person, company or group of persons "to ship out of the Municipality of Malabang, cassava starch or flour without paying to the Municipal Treasurer or his authorized representatives the corresponding fee fixed by (the) ordinance." It imposed a "police inspection fee" of P.30 per sack of cassava starch or flour, which shall be paid by the shipper before the same is transported or shipped outside the municipality. Any person or company or group of individuals violating the ordinance "is liable to a fine of not less than P100.00, but not more than P1,000.00, and to pay Pl.00 for every sack of flour being illegally shipped outside the municipality, or to suffer imprisonment of 20 days, or both, in the discretion of the court. The validity of the ordinance was challenged by the Matalin Coconut, Inc. in a petition for declaratory relief filed with the then Court of First Instance of Lanao del Sur against the Municipal Council, the Municipal Mayor and the Municipal Treasurer of Malabang, Lanao del Sur. Alleging among others that the ordinance is not only ultra vires, being violative of Republic Act No. 2264, but also unreasonable, oppressive and confiscatory, the petitioner prayed that the ordinance be declared null and void ab initio, and that the respondent Municipal Treasurer be ordered to refund the amounts paid by petitioner under the ordinance. The petitioner also prayed that during the pendency of the action, a preliminary injunction be issued enjoining the respondents from enforcing the ordinance. The application for preliminary injunction, however, was denied by the trial court; instead respondent Municipal Treasurer was ordered to allow payment of the taxes imposed by the ordinance under protest. Claiming that it was also adversely affected by the ordinance, Purakan Plantation Company was granted leave to intervene in the action. The intervenor alleged that while its cassava flour factory was situated in another municipality, i.e., Balabagan, Lanao del Sur, it had to transport the cassava starch and flour it produced to the seashore through the Municipality of Malabang for loading in coastwise vessels; that the effect of the enactment of Ordinance No. 45-46, is that intervenor had to refrain from transporting its products through the Municipality of Malabang in order to ship them by sea to other places. After trial, the Court a quo rendered a decision declaring the municipal ordinance in question null and void; ordering the respondent Municipal Treasurer to refund to the petitioner the payments it made under the said ordinance from September 27, 1966 to May 2, 1967, amounting to P 25,500.00, as well as all payments made subsequently thereafter; and enjoining and prohibiting the respondents, their agents or deputies, from collecting the tax of P.30 per bag on the cassava flour or starch belonging to intervenor, Purakan Plantation Company, manufactured or milled in the Municipality of Balabagan, but shipped out through the Municipality of Malabang. After the promulgation of the decision, the Trial Court issued a writ of preliminary mandatory injunction, upon motion of petitioner, requiring the respondent Municipal Treasurer to deposit with the Philippine National Bank, Iligan Branch, in the name of the Municipality of Malabang, whatever amounts the petitioner had already paid or shall pay pursuant to the ordinance in question up to and until final termination of the case; the deposit was not to be withdrawn from the said bank without any order from the court. On motion for reconsideration by respondents, the writ was subsequently modified on July 20, 1967, to require the deposit only of amounts paid from the effectivity of the writ up to and until the final termination of the suit. From the decision of the trial court, the respondents appealed to this Court. A motion to dismiss appeal filed by petitioner-appellee, was denied by this court in its resolution of October 31, 1967. Subsequently, respondents-appellants filed a motion to dissolve the writ of preliminary mandatory injunction issued by the trial court on July 20, 1967. This motion was also denied by this Court on January 10, 1968. Of the assignments of error raised by the appellants in their Brief, only the following need be discussed: (1) that the trial court erred in adjudicating the money claim of the petitioner in an action for declaratory relief; and (2) that the trial court erred in declaring the municipal ordinance in question null and void.

The respondents-appellants maintain that it was error for the trial court, in an action for declaratory relief, to order the refund to petitioner-appellee of the amounts paid by the latter under the municipal ordinance in question. It is the contention of respondentsappellants that in an action for declaratory relief, all the court can do is to construe the validity of the ordinance in question and declare the rights of those affected thereby. The court cannot declare the ordinance illegal and at the same time order the refund to petitioner of the amounts paid under the ordinance, without requiring petitioner to file an ordinary action to claim the refund after the declaratory relief judgment has become final. Respondents maintain that under Rule 64 of the Rules of Court, the court may advise the parties to file the proper pleadings and convert the hearing into an ordinary action, which was not done in this case. We find no merit in such contention. Under Sec. 6 of Rule 64, the action for declaratory relief may be converted into an ordinary action and the parties allowed to file such pleadings as may be necessary or proper, if before the final termination of the case "a breach or violation of an...ordinance, should take place." In the present case, no breach or violation of the ordinance occurred. The petitioner decided to pay "under protest" the fees imposed by the ordinance. Such payment did not affect the case; the declaratory relief action was still proper because the applicability of the ordinance to future transactions still remained to be resolved, although the matter could also be threshed out in an ordinary suit for the recovery of taxes paid (Shell Co. of the Philippines, Ltd. vs. Municipality of Sipocot, L12680, March 20, 1959). In its petition for declaratory relief, petitioner-appellee alleged that by reason of the enforcement of the municipal ordinance by respondents it was forced to pay under protest the fees imposed pursuant to the said ordinance, and accordingly, one of the reliefs prayed for by the petitioner was that the respondents be ordered to refund all the amounts it paid to respondent Municipal Treasurer during the pendency of the case. The inclusion of said allegation and prayer in the petition was not objected to by the respondents in their answer. During the trial, evidence of the payments made by the petitioner was introduced. Respondents were thus fully aware of the petitioner's claim for refund and of what would happen if the ordinance were to be declared invalid by the court. Respondents' contention, if sustained, would in effect require a separate suit for the recovery of the fees paid by petitioner under protest. Multiplicity of suits should not be allowed or encouraged and, in the context of the present case, is clearly uncalled for and unnecessary. The main issue to be resolve in this case whether not Ordinance No. 45-66 enacted by respondent Municipal Council of Malabang, Lanao del Sur, is valid. The respondents-appellants contend that the municipality has the power and authority to approve the ordinance in question pursuant to Section 2 of the Local Autonomy Act (Republic Act No. 2264). Since the enactment of the Local Autonomy Act, a liberal rule has been followed by this Court in construing municipal ordinances enacted pursuant to the taxing power granted under Section 2 of said law. This Court has construed the grant of power to tax under the above-mentioned provision as sufficiently plenary to cover "everything, excepting those which are mentioned" therein, subject only to the limitation that the tax so levied is for public purposes, just and uniform (Nin Bay Mining Company vs. Municipality of Roxas, Province of Palawan, 14 SCRA 661; C.N. Hodges vs. Municipal Board, Iloilo City, et al., 19 SCRA 28). We agree with the finding of the trial court that the amount collected under the ordinance in question partakes of the nature of a tax, although denominated as "police inspection fee" since its undeniable purpose is to raise revenue. However, we cannot agree with the trial court's finding that the tax imposed by the ordinance is a percentage tax on sales which is beyond the scope of the municipality's authority to levy under Section 2 of the Local Autonomy Act. Under the said provision, municipalities and municipal districts are prohibited from imposing" any percentage tax on sales or other taxes in any form based thereon. " The tax imposed under the ordinance in question is not a percentage tax on sales or any other form of tax based on sales. It is a fixed tax of P.30 per bag of cassava starch or flour "shipped out" of the municipality. It is not based on sales. However, the tax imposed under the ordinance can be stricken down on another ground. According to Section 2 of the abovementioned Act, the tax levied must be "for public purposes, just and uniform" (Emphasis supplied.) As correctly held by the trial court, the so-called "police inspection fee" levied by the ordinance is "unjust and unreasonable." Said the court a quo: ... It has been proven that the only service rendered by the Municipality of Malabang, by way of inspection, is for the policeman to verify from the driver of the trucks of the petitioner passing by at the police checkpoint the number of bags loaded per trip which are to be shipped out of the municipality based on the trip tickets for the purpose of computing the total amount of tax to be collect (sic) and for no other purpose. The pretention of respondents that the police, aside from counting the number of bags shipped out, is also inspecting the cassava flour starch contained in the bags to find out if the said cassava flour starch is fit for human consumption could not be given credence by the Court because, aside from the fact that said purpose is not so stated in the ordinance in question, the policemen of said municipality are not competent to determine if the cassava flour starch are fit for human consumption. The further pretention of respondents that the trucks of the petitioner hauling the bags of cassava flour starch from the mill to the bodega at the beach of Malabang are escorted by a policeman from the police checkpoint to the beach for the purpose of protecting the truck and its cargoes from molestation by undesirable elements could not also be given credence by the Court because it has been shown, beyond doubt, that the petitioner has not asked for the said police protection because there has been no occasion where its trucks have been molested, even for once, by bad elements from the police checkpoint to the bodega at the beach, it is solely for the purpose of verifying the correct number of bags of cassava flour starch loaded on the trucks of the petitioner as stated in the trip tickets, when unloaded at its bodega at the beach. The imposition, therefore, of a police inspection fee of P.30 per bag, imposed by said ordinance is unjust and unreasonable.

The Court finally finds the inspection fee of P0.30 per bag, imposed by the ordinance in question to be excessive and confiscatory. It has been shown by the petitioner, Matalin Coconut Company, Inc., that it is merely realizing a marginal average profit of P0.40, per bag, of cassava flour starch shipped out from the Municipality of Malabang because the average production is P15.60 per bag, including transportation costs, while the prevailing market price is P16.00 per bag. The further imposition, therefore, of the tax of P0.30 per bag, by the ordinance in question would force the petitioner to close or stop its cassava flour starch milling business considering that it is maintaining a big labor force in its operation, including a force of security guards to guard its properties. The ordinance, therefore, has an adverse effect on the economic growth of the Municipality of Malabang, in particular, and of the nation, in general, and is contrary to the economic policy of the government. Having found the ordinance in question to be invalid, we find it unnecessary to rule on the other errors assigned by the appellants. WHEREFORE, petition is dismissed. The decision of the court a quo is hereby affirmed. No costs. SO ORDERED. Narvasa, Melencio-Herrera, Cruz and Paras, JJ., concur.

Republic of the Philippines SUPREME COURT Manila THIRD DIVISION

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 above-mentioned 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., L- 8255, 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 SEVENUP PEPSICOLA TOTAL TAX DUE

1968

Jul to Dec

39,340

49,060

88,400

P8,840

1969

Jan. to Dec.

81,240

87,660

168,90 0

16,890

1970

Jan. to Dec.

79,389

89,211

168,60 0

16,600

1971

Jan. to Dec.

80,670

88,480

169,15 0

16,915

TOTAL

280,639

314,41 1

595,05 0

P 59,505

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. Fernan, C.J., Feliciano and Bidin, JJ., concur. Gutierrez, Jr., J., took no part.

THIRD DIVISION [G.R. No. 126232. November 27, 1998] THE PROVINCE OF BULACAN, ROBERTO M. PAGDANGANAN, FLORENCE CHAVEZ, and MANUEL DJ SIAYNGCO in their capacity as PROVINCIAL GOVERNOR, PROVINCIAL TREASURER, PROVINCIAL LEGAL ADVISE, respectively, petitioners, vs. THE HONORABLE COURT OF APPEALS (FORMER SPECIAL 12TH DIVISION), PUBLIC CEMENT CORPORATION, respondents. DECISION ROMERO, J.: Before us is a petition for certiorari seeking the reversal of the decision of the Court of Appeals dated September 27, 1995 declaring petitioner without authority to levy taxes on stones, sand, gravel, earth and other quarry resources extracted from private lands, as well as the August 26, 1996 resolution of the appellate court denying its motion for reconsideration. The facts are as follows: On June 26, 1992, the Sangguniang Panlalawigan of Bulacan passed Provincial Ordinance No. 3, known as "An ordinance Enacting the Revenue Code of the Bulacan Province," which was to take effect on July 1, 1992, section 21 of the ordinance provides as follows: Section 21. Imposition of Tax. There is hereby levied and collected a tax of 10% of the fair market value in the locality per cubic meter of ordinary stones, sand, gravel, earth and other quarry resources, such, but not limited to marble, granite, volcanic cinders, basalt, tuff and rock phosphate, extracted from public lands or from beds of seas, lakes, rivers, streams, creeks and other public waters within its territorial jurisdiction. (Italics ours) Pursuant thereto, the Provincial Treasurer of Bulacan, in a letter dated November 11, 1993, assessed private respondent Republic Cement Corporation (hereafter Republic Cement) P2,524,692.13 for extracting limestone, shale and silica from several parcels of private land in the province during the third quarter of 1992 until the second quarter of 1993. Believing that the province, on the basis of above-said ordinance, had no authority to impose taxes on quarry resources extracted from private lands, Republic Cement formally contested the same on December 23, 1993. The same was, however, denied by the Provincial Treasurer on January 17, 1994. Republic Cement, consequently filed a petition for declaratory relief with the Regional Trial Court of Bulacan on February 14, 1994. The province filed a motion to dismiss Republic Cement's petition, which was granted by the trial court on May 13, 1993, which ruled that declaratory relief was improper, allegedly because a breach of the ordinance had been committed by Republic Cement. On July 11, 1994, Republic Cement filed a petition for certiorari with the Supreme Court seeking to reverse the trial court's dismissal of their petition. The Court, in a resolution dated July 27, 1994, referred the same to the Court of Appeals, where it was docketed as CA G.R. SP No. 34915. The appellate court required petitioners to file a comment, which they did on September 7, 1994. In the interim, the Province of Bulacan issued a warrant of levy against Republic Cement, allegedly because of its unpaid tax liabilities. Negotiations between Republic Cement and petitioners resulted in an agreement and modus vivendi on December 12, 1994, whereby Republic Cement agreed to pay under protest P1,262,346.00, 50% of the tax assessed by petitioner, in exchange for the lifting of the warrant of levy. Furthermore, Republic Cement and petitioners agreed to limit the issue for resolution by the Court of Appeals to the question as to whether or not the provincial government could impose and/or assess taxes on quarry resources extracted by Republic Cement from private lands pursuant to Section 21 of the Provincial Ordinance No. 3. This agreement and modus vivendi were embodied in a joint manifestation and motion signed by Governor Roberto Pagdanganan, on behalf of the Province of Bulacan, by Provincial Treasurer Florence Chavez, and by Provincial Legal Officer Manuel Siayngco, as petitioner's counsel and filed with the Court of Appeals on December 13, 1994. In a resolution dated December 29, 1994, the appellate court approved the same and limited the issue to be resolved to the question whether or not the provincial government could impose taxes on stones, sand, gravel, earth and other quarry resources extracted from private lands. After due trial, the Court of Appeals, on September 27, 1995, rendered the following judgment: WHEREFORE, judgment is hereby rendered declaring the Province of Bulacan under its Provincial Ordinance No. 3 entitled "An Ordinance Enacting the Revenue Code of Bulacan Province" to be without legal authority to impose and assess taxes on quarry resources extracted by RCC from private lands, hence the interpretation of Respondent Treasurer of Chapter II, Article D, Section 21 of the Ordinance, and the assessment made by the Province of Bulacan against RCC is null and void. Petitioner's motion for reconsideration, as well as their supplemental motion for reconsideration, was denied by the appellate court on august 26, 1996, hence this appeal. Petitioner's claim that the Court of Appeals erred in:

1.

NOT HAVING OUTRIGHTLY DISMISSED THE SUBJECT PETITION ON THE GROUND THAT THE SAME IS NOT THE APPROPRIATE REMEDY FROM THE TRIAL COURT'S GRANT OF THE PRIVATE RESPONDENTS' (HEREIN PETITIONER) MOTION TO DISMISS; NOT DISMISSING THE SUBJECT PETITION FOR BEING VIOLATIVE OF CIRCULAR 2-90 ISSUED BY THE SUPREME COURT; NOT DISMISSING THE PETITION FOR REVIEW ON THE GROUND THAT THE TRIAL COURT'S ORDER OF MAY 13, 1994 HAD LONG BECOME FINAL AND EXECUTORY; GOING BEYOND THE PARAMETERS OF ITS APPELLATE JURISDICTION IN RENDERING THE SEPTEMBER 27, 1995 DECISION; HOLDING THAT PRIVATE RESPONDENT (HEREIN PETITIONER) ARE ESTOPPED FROM RAISING THE PROCEDURAL ISSUE IN THE MOTION FOR RECONSIDERATION; THE INTERPRETATION OF SECTION 134 OF THE LOCAL GOVERNMENT CODE AS STATED IN THE SECOND TO THE LAST PARAGRAPH OF PAGE 5 OF ITS SEPTEMBER 27, 1995 DECISION; SUSTAINING THE ALLEGATIONS OF HEREIN RESPONDENT WHICH UNJUSTLY DEPRIVED PETITIONER THE POWER TO CREATE ITS OWN SOURCES OF REVENUE; DECLARING THAT THE ASSESSMENT MADE BY THE PROVINCE OF BULACAN AGAINST RCC AS NULL AND VOID WHICH IN EFFECT IS A COLLATERAL ATTACK ON PROVINCIAL ORDINANCE NO. 3; AND FAILING TO CONSIDER THE REGALIAN DOCTRINE IN FAVOR OF THE LOCAL GOVERNMENT.

2. 3. 4. 5. 6. 7. 8. 9.

The issues raised by petitioners are devoid of merit. The number and diversity of errors raised by appellants impel us, however, to discuss the points raised seriatim. In their first assignment of error, petitioners contend that instead of filing a petition for certiorari with the Supreme Court, Republic Cement should have appealed from the order of the trial court dismissing their petition. Citing Martinez vs. CA, they allege that a motion to dismiss is a final order, the remedy against which is not a petition for certiorari, but an appeal, regardless of the questions sought to be raised on appeal, whether of fact or of law, whether involving jurisdiction or grave abuse of discretion of the trial court. Petitioners' argument is misleading. While it is true that the remedy against a final order is an appeal, and not a petition for certiorari, the petition referred to is a petition for certiorari under Rule 65. As stated in Martinez, the party aggrieved does not have the option to substitute the special civil action for certiorari under Rule 65 for the remedy of appeal. The existence and availability of the right of appeal are antithetical to the availment of the special civil action for certiorari. Republic Cement did not, however, file a petition for certiorari under Rule 65, but an appeal by certiorari under Rule 45. Even law students know that certiorari under Rule 45 is a mode of appeal, an appeal from the Regional Trial Court being taken in either of two ways (a) by writ of error (involving questions of fact and law) and (b) by certiorari (limited only to issues of law), with an appeal by certiorari being brought to the Supreme Court, there being no provision of law for taking appeals by certiorari to the Court of Appeals. It is thus clearly apparent that Republic Cement correctly contested the trial court's order of dismissal by filing an appeal by certiorari under Rule 45. In fact, petitioners, in their second assignment of error, admit that a petition for review on certiorari under Rule 45 is available to a party aggrieved by an order granting a motion to dismiss. They claim, however, that Republic Cement could not avail of the same allegedly because the latter raised issues of fact, which is prohibited, Rule 45 providing that "(t)he petition shall raise only questions of law which must be distinctly set forth." In this respect, petitioners claim that Republic Cement's petition should have been dismissed by the appellate court, Circular 2-90 providing: 4. Erroneous Appeals. - An appeal taken to either the Supreme Court or the Court of Appeals by the wrong or inappropriate mode shall be dismissed. xxx xxx xxx

d) No transfer of appeals erroneously taken. -- No transfers of appeals erroneously taken to the Supreme Court or to the Court of Appeals to whichever of these Tribunals has appropriate appellate jurisdiction will be allowed; continued ignorance or wilful disregard of the law on appeals will not be tolerated. Petitioners even fault the Court for referring Republic Cement's petition to the Court of Appeals, claiming that the same should have been dismissed pursuant to Circular 2-90. Petitioners conveniently overlook the other provisions of Circular 2-90, specifically 4b) thereof, which provides: b) Raising factual issues in appeal by certiorari. - Although submission of issues of fact in an appeal by certiorari taken to the Supreme Court from the regional trial court is ordinarily proscribed, the Supreme Court nonetheless retains the option, in the exercise of its sound discretion and considering the attendant circumstances, either itself to take cognizance of and decide such issues or to refer them to the Court of Appeals for determination.

As can be clearly adduced from the foregoing, when an appeal by certiorari under Rule 45 erroneously raises factual issues, the Court has the option to refer the petition to the Court of Appeals. The exercise by the Court of this option may not now be questioned by petitioners. As the trial court's order was properly appealed by Republic Cement, the trial court's May 13, 1994 order never became final and executory, rendering petitioner's third assignment of error moot and academic. Petitioners' fourth and fifth assignment of errors are likewise without merit. Petitioners assert that the Court of Appeals could only rule on the propriety of the trial court's dismissal of Republic Cement's petition for declaratory relief, allegedly because that was the sole relief sought by the latter in its petition for certiorari. Petitioners claim that the appellate court overstepped its jurisdiction when it declared null and void the assessment made by the Province of Bulacan against Republic Cement. Petitioners gloss over the fact that, during the proceedings before the Court of Appeals, they entered into an agreement and modus vivendi whereby they limited the issue for resolution to the question as to whether or not the provincial government could impose and/or assess taxes on stones, sand, gravel, earth and other quarry resources extracted by Republic Cement from private lands. This agreement and modus vivendi were approved by the appellate court on December 29, 1994. All throughout the proceedings, petitioners never questioned the authority of the Court of Appeals to decide this issue, an issue which it brought itself within the purview of the appellate court. Only when an adverse decision was rendered by the Court of Appeals did petitioners question the jurisdiction of the former. Petitioners are barred by the doctrine of estoppel from contesting the authority of the Court of Appeals to decide the instant case, as this Court has consistently held that "(a) party cannot invoke the jurisdiction of a court to secure affirmative relief against his opponent and after obtaining or failing to obtain such relief, repudiate or question that same jurisdiction." The Supreme Court frowns upon the undesirable practice of a party submitting his case for decision and then accepting the judgment, only if favorable, and attacking it for lack of jurisdiction when adverse. In a desperate attempt to ward off defeat, petitioners now repudiate the above-mentioned agreement and modus vivendi, claiming that the same was not binding in the Province of Bulacan, not having been authorized by the Sangguniang Panlalawigan of Bulacan. While it is true that the Provincial Governor can enter into contract and obligate the province only upon authority of the sangguniang panlalawigan, the same is inapplicable to the case at bar. The agreement and modus vivendi may have been signed by petitioner Roberto Pagdanganan, as Governor of the Province of Bulacan, without authorization from the sangguniang panlalawigan, but it was also signed by Manuel Siayngco, the Provincial Legal Officer, in his capacity as such, and as counsel of petitioners. It is a well-settled rule that all proceedings in court to enforce a remedy, to bring a claim, demand, cause of action or subject matter of a suit to hearing, trial, determination, judgment and execution are within the exclusive control of the attorney. With respect to such matters of ordinary judicial procedure, the attorney needs no special authority to bind his client. Such questions as what action or pleading to file, where and when to file it, what are its formal requirements, what should be the theory of the case, what defenses to raise, how may the claim or defense be proved, when to rest the case, as well as those affecting the competency of a witness, the sufficiency, relevancy, materiality or immateriality of certain evidence and the burden of proof are within the authority of the attorney to decide. Whatever decision an attorney makes on any of these procedural questions, even if it adversely affects a client's case, will generally bind a client. The agreement and modus vivendi signed by petitioner's counsel is binding upon petitioners, even if the Sanggunian had not authorized the same, limitation of issues being a procedural question falling within the exclusive authority of the attorney to decide. In any case, the remaining issues raised by petitioner are likewise devoid of merit, a province having no authority to impose taxes on stones, sand, gravel, earth and other quarry resources extracted from private lands. The pertinent provisions of the Local Government Code are as follows: Sec. 134. Scope of Taxing Powers. - Except as otherwise provided in this Code, the province may levy only the taxes, fees, and charges as provided in this Article. Sec. 138. Tax on Sand, Gravel and Other Quarry Resources. - The province may levy and collect not more than ten percent (10%) of fair market value in the locality per cubic meter of ordinary stones, sand, gravel, earth, and other quarry resources, as defined under the National Internal Revenue Code, as amended, extracted from public lands or from the beds of seas, lakes, rivers, streams, creeks, and other public waters within its territorial jurisdiction. xxx xxx x x x (Italics supplied)

The appellate court, on the basis of Section 134, ruled that a province was empowered to impose taxes only on sand, gravel, and other quarry resources extracted from public lands, its authority to tax being limited by said provision only to those taxes, fees and charges provided in Article One, Chapter 2, Title One of Book II of the Local Government Code. On the other hand, petitioners claim that Sections 129 and 186 of the Local Government Code authorizes the province to impose taxes other than those specifically enumerated under the Local Government Code.

The Court of Appeals erred in ruling that a province can impose only the taxes specifically mentioned under the Local Government Code. As correctly pointed out by petitioners, Section 186 allows a province to levy taxes other than those specifically enumerated under the Code, subject to the conditions specified therein. This finding, nevertheless, affords cold comfort to petitioners as they are still prohibited from imposing taxes on stones, sand, gravel, earth and other quarry resources extracted from private lands. The tax imposed by the Province of Bulacan is an excise tax, being a tax upon the performance, carrying on, or exercise of an activity. The Local Government Code provides: Section 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

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

A province may not, therefore, levy excise taxes on articles already taxed by the National Internal Revenue Code. Unfortunately for petitioners, the National Internal Revenue Code provides: Section 151. - Mineral Products. (A) Rates of Tax. - There shall be levied, assessed and collected on minerals, mineral products and quarry resources, excise tax as follows: xxx xxx xxx

(2) On all nonmetallic minerals and quarry resources, a tax of two percent (2%) based on the actual market value of the gross output thereof at the time of removal, in case of those locally extracted or produced; or the values used by the Bureau of Customs in determining tariff and customs duties, net of excise tax and value-added tax, in the case of importation. xxx xxx xxx

(B) [Definition of Terms]. - For purposes of this Section, the termxxx xxx xxx

(4) Quarry resources shall mean any common stone or other common mineral substances as the Director of the Bureau of Mines and Geo-Sciences may declare to be quarry resources such as, but not restricted to, marl, marble, granite, volcanic cinders, basalt, tuff and rock phosphate; Provided, That they contain no metal or metals or other valuable minerals in economically workable quantities. It is clearly apparent from the above provision that the National Internal Revenue Code levies a tax on all quarry resources, regardless of origin, whether extracted from public or private land. Thus, a province may not ordinarily impose taxes on stones, sand, gravel, earth and other quarry resources, as the same are already taxed under the National Internal Revenue Code. The province can, however, impose a tax on stones, sand, gravel, earth and other quarry resources extracted from public land because it is expressly empowered to do so under the Local Government Code. As to stones, sand, gravel, earth and other quarry resources extracted from private land, however, it may not do so, because of the limitation provided by Section 133 of the Code in relation to Section 151 of the National Internal Revenue Code. Given the above disquisition, petitioners cannot claim that the appellate court unjustly deprived them of the power to create their sources of revenue, their assessment of taxes against Republic Cement being ultra vires, traversing as it does the limitations set by the Local Government Code. Petitioners likewise aver that the appellate court's declaration of nullity of its assessment against Republic Cement is a collateral attack on Provincial Ordinance No. 3, which is prohibited by public policy. Contrary to petitioners' claim, the legality of the ordinance was never questioned by the Court of Appeals. Rather, what the appellate court questioned was petitioners' assessment of taxes on Republic Cement on the basis of Provincial Ordinance No. 3, not the ordinance itself.

Furthermore, Section 21 of Provincial Ordinance No. 3 is practically only a reproduction of Section 138 of the Local Government Code. A cursory reading of both would show that both refer to ordinary sand, stone, gravel, earth and other quarry resources extracted from public lands. Even if we disregard the limitation set by Section 133 of the Local Government Code, petitioners may not impose taxes on stones, sand, gravel, earth and other quarry resources extracted from private lands on the basis of Section 21 of Provincial Ordinance No. 3 as the latter clearly applies only to quarry resources extracted from public lands. Petitioners may not invoke the Regalian doctrine to extend the coverage of their ordinance to quarry resources extracted from private lands, for taxes, being burdens, are not to be presumed beyond what the applicable statute expressly and clearly declares, tax statutes being construed strictissimi juris against the government. WHEREFORE, premises considered, the instant petition is DISMISSED for lack of merit and the decision of the Court of Appeals is hereby AFFIRMED in toto. Costs against petitioner. SO ORDERED. Narvasa, C.J. (Chairman), Kapunan, Purisima, and Pardo, JJ., concur.
237 SCRA 575 (1994) citing Bell Carpets vs. CA, 185 SCRA 35 (1990). Del Pozo vs. Penaco, 167 SCRA 577 (1988). Petition for Certiorari, p. 6. Section 1, Rule 45, Rules of Court. Lee vs. Presiding Judge, 145 SCRA 408 (1986). Zamboanga Electric Cooperative, Inc. vs. Buat, 243 SCRA 47 (1995). LOCAL GOVERNMENT CODE, Section 465. Belendres vs. Lopez Sugar Central Mill Co., 97 Phil. 100 (1955). See Sec. 23, Rule 138, Rules of Court. AGPALO, LEGAL ETHICS, 5th Ed., p. 249 LOCAL GOVERNMENT CODE, Sections 135-141. Section 129. Power to Create Sources of Revenue.-- Each local government unit shall exercise its power to create its own sources of revenue and to levy taxes, fees, and charges subject to the provisions herein, consistent with the basic policy of local autonomy. Such taxes, fees, and charges shall accrue exclusively to the local government units. Section 186. Power To Levy Other Taxes, Fees or Charges.-- Local government units may exercise the power to levy taxes, fees or charges on any base or subject not otherwise specifically enumerated herein or taxed under the provisions of the National Internal Revenue Code, as amended, or other applicable laws: Provided, That the taxes, fees, or charges shall not be unjust, excessive, oppressive, confiscatory or contrary to declared national policy: Provided, further, That the ordinance levying such taxes, fees or charges shall not be enacted without any prior public hearing conducted for the purpose. Cordero vs. Conda, 18 SCRA 341 (1966). See San Miguel Brewery vs. Magno, 21 SCRA 292 (1967). Republic v. IAC, 196 SCRA 335 (1991).

SECOND DIVISION [G.R. No. 125948. December 29, 1998] FIRST PHILIPPINE INDUSTRIAL CORPORATION, petitioner, vs. COURT OF APPEALS, HONORABLE PATERNO V. TAC-AN, BATANGAS CITY and ADORACION C. ARELLANO, in her official capacity as City Treasurer of Batangas, respondents. DECISION MARTINEZ, J.: This petition for review on certiorari assails the Decision of the Court of Appeals dated November 29, 1995, in CA-G.R. SP No. 36801, affirming the decision of the Regional Trial Court of Batangas City, Branch 84, in Civil Case No. 4293, which dismissed petitioners' complaint for a business tax refund imposed by the City of Batangas. Petitioner is a grantee of a pipeline concession under Republic Act No. 387, as amended, to contract, install and operate oil pipelines. The original pipeline concession was granted in 1967 and renewed by the Energy Regulatory Board in 1992. Sometime in January 1995, petitioner applied for a mayor's permit with the Office of the Mayor of Batangas City. However, before the mayor's permit could be issued, the respondent City Treasurer required petitioner to pay a local tax based on its gross receipts for the fiscal year 1993 pursuant to the Local Government Code. The respondent City Treasurer assessed a business tax on the petitioner amounting to P956,076.04 payable in four installments based on the gross receipts for products pumped at GPS-1 for the fiscal year 1993 which amounted to P181,681,151.00. In order not to hamper its operations, petitioner paid the tax under protest in the amount of P239,019.01 for the first quarter of 1993. On January 20, 1994, petitioner filed a letter-protest addressed to the respondent City Treasurer, the pertinent portion of which reads: "Please note that our Company (FPIC) is a pipeline operator with a government concession granted under the Petroleum Act. It is engaged in the business of transporting petroleum products from the Batangas refineries, via pipeline, to Sucat and JTF Pandacan Terminals. As such, our Company is exempt from paying tax on gross receipts under Section 133 of the Local Government Code of 1991 x x x x "Moreover, Transportation contractors are not included in the enumeration of contractors under Section 131, Paragraph (h) of the Local Government Code. Therefore, the authority to impose tax 'on contractors and other independent contractors' under Section 143, Paragraph (e) of the Local Government Code does not include the power to levy on transportation contractors. "The imposition and assessment cannot be categorized as a mere fee authorized under Section 147 of the Local Government Code. The said section limits the imposition of fees and charges on business to such amounts as may be commensurate to the cost of regulation, inspection, and licensing. Hence, assuming arguendo that FPIC is liable for the license fee, the imposition thereof based on gross receipts is violative of the aforecited provision. The amount of P956,076.04 (P239,019.01 per quarter) is not commensurate to the cost of regulation, inspection and licensing. The fee is already a revenue raising measure, and not a mere regulatory imposition." On March 8, 1994, the respondent City Treasurer denied the protest contending that petitioner cannot be considered engaged in transportation business, thus it cannot claim exemption under Section 133 (j) of the Local Government Code. On June 15, 1994, petitioner filed with the Regional Trial Court of Batangas City a complaint for tax refund with prayer for a writ of preliminary injunction against respondents City of Batangas and Adoracion Arellano in her capacity as City Treasurer. In its complaint, petitioner alleged, inter alia, that: (1) the imposition and collection of the business tax on its gross receipts violates Section 133 of the Local Government Code; (2) the authority of cities to impose and collect a tax on the gross receipts of "contractors and independent contractors" under Sec. 141 (e) and 151 does not include the authority to collect such taxes on transportation contractors for, as defined under Sec. 131 (h), the term "contractors" excludes transportation contractors; and, (3) the City Treasurer illegally and erroneously imposed and collected the said tax, thus meriting the immediate refund of the tax paid. Traversing the complaint, the respondents argued that petitioner cannot be exempt from taxes under Section 133 (j) of the Local Government Code as said exemption applies only to "transportation contractors and persons engaged in the transportation by hire and common carriers by air, land and water." Respondents assert that pipelines are not included in the term "common carrier" which refers solely to ordinary carriers such as trucks, trains, ships and the like. Respondents further posit that the term "common carrier" under the said code pertains to the mode or manner by which a product is delivered to its destination. On October 3, 1994, the trial court rendered a decision dismissing the complaint, ruling in this wise: "xxx Plaintiff is either a contractor or other independent contractor.

xxx the exemption to tax claimed by the plaintiff has become unclear. It is a rule that tax exemptions are to be strictly construed against the taxpayer, taxes being the lifeblood of the government. Exemption may therefore be granted only by clear and unequivocal provisions of law. "Plaintiff claims that it is a grantee of a pipeline concession under Republic Act 387, (Exhibit A) whose concession was lately renewed by the Energy Regulatory Board (Exhibit B). Yet neither said law nor the deed of concession grant any tax exemption upon the plaintiff. "Even the Local Government Code imposes a tax on franchise holders under Sec. 137 of the Local Tax Code. Such being the situation obtained in this case (exemption being unclear and equivocal) resort to distinctions or other considerations may be of help: 1. That the exemption granted under Sec. 133 (j) encompasses only common carriers so as not to overburden the riding public or commuters with taxes. Plaintiff is not a common carrier, but a special carrier extending its services and facilities to a single specific or "special customer" under a "special contract." The Local Tax Code of 1992 was basically enacted to give more and effective local autonomy to local governments than the previous enactments, to make them economically and financially viable to serve the people and discharge their functions with a concomitant obligation to accept certain devolution of powers, x x x So, consistent with this policy even franchise grantees are taxed (Sec. 137) and contractors are also taxed under Sec. 143 (e) and 151 of the Code."

2.

Petitioner assailed the aforesaid decision before this Court via a petition for review. On February 27, 1995, we referred the case to the respondent Court of Appeals for consideration and adjudication. On November 29, 1995, the respondent court rendered a decision affirming the trial court's dismissal of petitioner's complaint. Petitioner's motion for reconsideration was denied on July 18, 1996. Hence, this petition. At first, the petition was denied due course in a Resolution dated November 11, 1996. Petitioner moved for a reconsideration which was granted by this Court in a Resolution of January 20, 1997. Thus, the petition was reinstated. Petitioner claims that the respondent Court of Appeals erred in holding that (1) the petitioner is not a common carrier or a transportation contractor, and (2) the exemption sought for by petitioner is not clear under the law. There is merit in the petition. A "common carrier" may be defined, broadly, as one who holds himself out to the public as engaged in the business of transporting persons or property from place to place, for compensation, offering his services to the public generally. Article 1732 of the Civil Code defines a "common carrier" as "any person, corporation, firm or association engaged in the business of carrying or transporting passengers or goods or both, by land, water, or air, for compensation, offering their services to the public." The test for determining whether a party is a common carrier of goods is: 1. He must be engaged in the business of carrying goods for others as a public employment, and must hold himself out as ready to engage in the transportation of goods for person generally as a business and not as a casual occupation; He must undertake to carry goods of the kind to which his business is confined; He must undertake to carry by the method by which his business is conducted and over his established roads; and The transportation must be for hire.

2. 3. 4.

Based on the above definitions and requirements, there is no doubt that petitioner is a common carrier. It is engaged in the business of transporting or carrying goods, i.e. petroleum products, for hire as a public employment. It undertakes to carry for all persons indifferently, that is, to all persons who choose to employ its services, and transports the goods by land and for compensation. The fact that petitioner has a limited clientele does not exclude it from the definition of a common carrier. In De Guzman vs. Court of Appeals we ruled that: "The above article (Art. 1732, Civil Code) makes no distinction between one whose principal business activity is the carrying of persons or goods or both, and one who does such carrying only as an ancillary activity (in local idiom, as a 'sideline'). Article 1732 x x x avoids making any distinction between a person or enterprise offering transportation service on a regular or scheduled basis and one offering such service on an occasional, episodic or unscheduled basis. Neither does Article 1732 distinguish between a carrier offering its services to the 'general public,' i.e., the general community or population, and one who offers services or solicits business only from a narrow segment of the general population. We think that Article 1877 deliberately refrained from making such distinctions.

So understood, the concept of 'common carrier' under Article 1732 may be seen to coincide neatly with the notion of 'public service,' under the Public Service Act (Commonwealth Act No. 1416, as amended) which at least partially supplements the law on common carriers set forth in the Civil Code. Under Section 13, paragraph (b) of the Public Service Act, 'public service' includes: 'every person that now or hereafter may own, operate, manage, or control in the Philippines, for hire or compensation, with general or limited clientele, whether permanent, occasional or accidental, and done for general business purposes, any common carrier, railroad, street railway, traction railway, subway motor vehicle, either for freight or passenger, or both, with or without fixed route and whatever may be its classification, freight or carrier service of any class, express service, steamboat, or steamship line, pontines, ferries and water craft, engaged in the transportation of passengers or freight or both, shipyard, marine repair shop, wharf or dock, ice plant, icerefrigeration plant, canal, irrigation system gas, electric light heat and power, water supply and power petroleum, sewerage system, wire or wireless communications systems, wire or wireless broadcasting stations and other similar public services.' "(Underscoring Supplied) Also, respondent's argument that the term "common carrier" as used in Section 133 (j) of the Local Government Code refers only to common carriers transporting goods and passengers through moving vehicles or vessels either by land, sea or water, is erroneous. As correctly pointed out by petitioner, the definition of "common carriers" in the Civil Code makes no distinction as to the means of transporting, as long as it is by land, water or air. It does not provide that the transportation of the passengers or goods should be by motor vehicle. In fact, in the United States, oil pipe line operators are considered common carriers. Under the Petroleum Act of the Philippines (Republic Act 387), petitioner is considered a "common carrier." Thus, Article 86 thereof provides that: "Art. 86. Pipe line concessionaire as a common carrier. - A pipe line shall have the preferential right to utilize installations for the transportation of petroleum owned by him, but is obligated to utilize the remaining transportation capacity pro rata for the transportation of such other petroleum as may be offered by others for transport, and to charge without discrimination such rates as may have been approved by the Secretary of Agriculture and Natural Resources." Republic Act 387 also regards petroleum operation as a public utility. Pertinent portion of Article 7 thereof provides: "that everything relating to the exploration for and exploitation of petroleum x x and everything relating to the manufacture, refining, storage, or transportation by special methods of petroleum, is hereby declared to be a public utility." (Underscoring Supplied) The Bureau of Internal Revenue likewise considers the petitioner a "common carrier." In BIR Ruling No. 069-83, it declared: "x x x since [petitioner] is a pipeline concessionaire that is engaged only in transporting petroleum products, it is considered a common carrier under Republic Act No. 387 x x x. Such being the case, it is not subject to withholding tax prescribed by Revenue Regulations No. 13-78, as amended." From the foregoing disquisition, there is no doubt that petitioner is a "common carrier" and, therefore, exempt from the business tax as provided for in Section 133 (j), of the Local Government Code, to wit: "Section 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 (j) xxx xxx

Taxes on the gross receipts of transportation contractors and persons engaged in the transportation of passengers or freight by hire and common carriers by air, land or water, except as provided in this Code."

The deliberations conducted in the House of Representatives on the Local Government Code of 1991 are illuminating: "MR. AQUINO (A). Thank you, Mr. Speaker. Mr. Speaker, we would like to proceed to page 95, line 1. It states : "SEC.121 [now Sec. 131]. Common Limitations on the Taxing Powers of Local Government Units." x x x MR. AQUINO (A.). Thank you Mr. Speaker. Still on page 95, subparagraph 5, on taxes on the business of transportation. This appears to be one of those being deemed to be exempted from the taxing powers of the local government units. May we know the reason why the transportation business is being excluded from the taxing powers of the local government units?

MR. JAVIER (E.). Mr. Speaker, there is an exception contained in Section 121 (now Sec. 131), line 16, paragraph 5. It states that local government units may not impose taxes on the business of transportation, except as otherwise provided in this code. Now, Mr. Speaker, if the Gentleman would care to go to page 98 of Book II, one can see there that provinces have the power to impose a tax on business enjoying a franchise at the rate of not more than one-half of 1 percent of the gross annual receipts. So, transportation contractors who are enjoying a franchise would be subject to tax by the province. That is the exception, Mr. Speaker. What we want to guard against here, Mr. Speaker, is the imposition of taxes by local government units on the carrier business. Local government units may impose taxes on top of what is already being imposed by the National Internal Revenue Code which is the so-called "common carriers tax." We do not want a duplication of this tax, so we just provided for an exception under Section 125 [now Sec. 137] that a province may impose this tax at a specific rate. MR. AQUINO (A.). Thank you for that clarification, Mr. Speaker. x x x It is clear that the legislative intent in excluding from the taxing power of the local government unit the imposition of business tax against common carriers is to prevent a duplication of the so-called "common carrier's tax." Petitioner is already paying three (3%) percent common carrier's tax on its gross sales/earnings under the National Internal Revenue Code. To tax petitioner again on its gross receipts in its transportation of petroleum business would defeat the purpose of the Local Government Code. WHEREFORE, the petition is hereby GRANTED. The decision of the respondent Court of Appeals dated November 29, 1995 in CAG.R. SP No. 36801 is REVERSED and SET ASIDE. SO ORDERED. Bellosillo, (Chairman), Puno, and Mendoza, JJ., concur.
Rollo, pp. 90-94. Decision of the Energy Regulatory Board in ERB Case No. 92-94, renewing the Pipeline Concession of petitioner First Philippine Industrial Corporation, formerly known as Meralco Securities Industrial Corporation , (Rollo, pp. 95-100). Sec. 143. Tax on Business. The municipality may impose taxes on the following business: xxx xxx xxx (e) On contractors and other independent contractors, in accordance with the following schedule: With gross receipts for the preceding Amount of Tax Per Annum Calendar year in the amount: xxx xxx P2,000,000.00 or more at a rate not exceeding fifty Percent (50%) of one (1%) Letter Protest dated January 20, 1994, Rollo, pp. 110-111. Letter of respondent City Treasurer, Rollo, p. 112. Complaint, Annex "C", Rollo, pp. 51-56. Rollo, pp. 51-57. Answer, Annex "J", Rollo, pp. 122-127. RTC Decision, Rollo, pp. 58-62. Rollo, p. 84. CA-G.R. SP No.36801; Penned by Justice Jose C. De la Rama and concurred in by Justice Jaime M. Lantin and Justice Eduardo G. Montenegro; Rollo, pp. 33-47. Rollo, p. 49.

Resolution dated November 11, 1996 excerpts of which are hereunder quoted: "The petition is unmeritorious. "As correctly ruled by respondent appellate court, petitioner is not a common carrier as it is not offering its services to the public. "Art. 1732 of the Civil Code defines Common Carriers as: persons, corporations, firms or association engaged in the business of carrying or transporting passengers or goods or both, by land, water, or air, for compensation, offering their services to the public. "We sustain the view that petitioner is a special carrier. Based on the facts on hand, it appears that petitioner is not offering its services to the public. "We agree with the findings of the appellate court that the claim for exemption from taxation must be strictly construed against the taxpayer. The present understanding of the concept of "common carriers" does not include carriers of petroleum using pipelines. It is highly unconventional to say that the business of transporting petroleum through pipelines involves "common carrier" business. The Local Government Code intended to give exemptions from local taxation to common carriers transporting goods and passengers through moving vehicles or vessels and not through pipelines. The term common carrier under Section 133 (j) of the Local Government Code must be given its simple and ordinary or generally accepted meaning which would definitely not include operators of pipelines." G.R. No. 125948 (First Philippine Industrial Corporation vs. Court of Appeals, et. al.)- Considering the grounds of the motion for reconsideration, dated December 23, 1996, filed by counsel for petitioner, of the resolution of November 11, 1996 which denied the petition for review on certiorari, the Court Resolved: (a) (b) to GRANT the motion for reconsideration and to REINSTATE the petition; and to require respondent to COMMENT on the petition, within ten (10) days from notice.

Agbayani, Commercial Laws of the Phil., 1983 Ed., Vol. 4, p. 5. 168 SCRA 617-618 [1998]. Giffin v. Pipe Lines, 172 Pa. 580, 33 Alt. 578; Producer Transp. Co. v. Railroad Commission, 241 US 228, 64 L ed 239, 40 S Ct 131. Journal and Record of the House of Representatives, Fourth Regular Session, Volume 2, pp. 87-89, September 6, 1990; Underscoring Ours. Annex "D" of Petition, Rollo, pp. 101-109.

Republic of the Philippines SUPREME COURT Manila THIRD DIVISION

G.R. No. 127708 March 25, 1999 CITY GOVERNMENT OF SAN PABLO, LAGUNA, CITY TREASURER OF SAN PABLO, LAGUNA and THE SANGGUNIANG PANGLUNSOD OF SAN PABLO, LAGUNA, petitioners, vs. HONORABLE BIENVENIDO V. REYES, in his capacity as Presiding Judge, Regional Trial Court, Branch 29, San Pablo City and the MANILA ELECTRIC COMPANY, respondents. GONZAGA-REYES, J.: This is a petition under Rule 45 of the Rules of Court to review on a pure question of law the decision of the Regional Trial Court (RTC) of San Pablo City, Branch 29 in Civil Case No. SP-4359(96), entitled "Manila Electric Company vs. City of San Pablo, Laguna, City Treasurer of San Pablo Laguna, and the Sangguniang Panglunsod of San Pablo City, Laguna." The RTC declared the imposition of a franchise tax under Section 2.09 Article D of Ordinance No. 56 otherwise known as the Revenue Code of the City of San Pablo as ineffective and void insofar as the respondent MERALCO is concerned for being violative of Act No. 3648, Republic Act No. 2340 and PD 551. The RTC also granted MERALCO'S claim for refund of franchise taxes paid under protest. The following antecedent facts are undisputed: Act No. 3648 granted the Escudero Electric Service Company a legislative franchise to maintain and operate an electric light and power system in the City of San Pablo and nearby municipalities. Section 10 of Act No. 3648 provides: . . . In consideration of the franchise and rights hereby granted, the grantee shall pay unto the municipal treasury of each municipality in which it is supplying electric current to the public under this franchise, a tax equal to two percentum of the gross earnings from electric current sold or supplied under this franchise in each said municipality. Said tax shall be due and payable quarterly and shall be in lieu of any and all taxes of any kind nature or description levied, established or collected by any authority whatsoever, municipal, provincial or insular, now or in the future, on its poles, wires, insulator, switches, transformers, and structures, installations, conductors, and accessories placed in and over and under all public property, including public streets and highways, provincial roads, bridges and public squares, and on its franchise, rights. privileges, receipts, revenues and profits from which taxes the grantee is hereby expressly exempted. Escudero's franchise was transferred to the plaintiff (herein respondent) MERALCO under Republic Act No. 2340. Presidential Decree No. 551 was enacted on September 11, 1974. Section 1 thereof provides the following: Sec. 1. Any provision of law or local ordinance to the contrary notwithstanding, the franchise tax payable by all grantees of franchise to generate, distribute and sell electric current for light, heat and power shall be two percent (2%) of their gross receipts received from the sale of electric current and from transactions incident to the generation, distribution and sale of electric current. Such franchise tax shall be payable to the Commissioner of Internal Revenue of his duly authorized representative on or before the twentieth day of the month following the end of each calendar quarter or month as may be provided in the respective franchise or pertinent municipal regulation and shall, any provision of the Local Tax Code or any other law to the contrary notwithstanding, be in lieu of all taxes and assessments of whatever nature imposed by any national or local authority on earnings, receipts, income and privilege of generation, distribution and sale of electric current. Republic Act No. 7160, otherwise known as the "Local Government Code of 1991" (hereinafter referred to as LGC) took effect on January 1, 1992. The said Code authorizes the province/city to impose a tax on business 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 realized within its jurisdiction. On October 5, 1992, the Sangguniang Panglunsod of San Pablo City enacted Ordinance No. 56, otherwise known as the Revenue Code of the City of San Pablo. The said Ordinance took effect on October 30, 1992. 1 Sec. 2.09, Article D of said Ordinance provides:

Sec. 2.09. Franchise Tax There is hereby imposed a tax on business enjoying a franchise, at a rate of fifty percent (50%) of one percent (1%) of the cross annual receipts, which shall include both cash sales and sales on account realized during the preceding calendar year within the city. Pursuant to the above-quoted Section 2.09, the petitioner City Treasurer sent to private respondent a letter demanding payment of the aforesaid franchise tax. From 1994 to 1996, private respondent paid "under protest" a total amount of P1,857,711.67. 2 The private respondent subsequently filed this action before the Regional Trial Court to declare Ordinance No. 56 null and void insofar as it imposes the franchise tax upon private respondent MERALCO 3 and to claim for a refund of the taxes paid. The Court ruled in favor of MERALCO and upheld its argument that the LGC did not expressly or impliedly repeal the tax exemption/incentive enjoyed by it under its charter The dispositive portion of the decision reads: WHEREFORE, the imposition of a franchise tax under Sec. 2.09, Article D of Ordinance No. 56 otherwise known as the Revenue Code of the City of San Pablo, is declared ineffective and null and void insofar as the plaintiff MERALCO is concerned for being of Republic Act. No. 2340, PD 551, and Republic Act No. 7160 and defendants are ordered to refund to the plaintiff the amount of ONE MILLION EIGHT HUNDRED FIFTY SEVEN THOUSAND SEVEN HUNDRED ELEVEN & 67/100 (P1,857,711.67) and such other amounts as may have been paid by the plaintiff under said Revenue Ordinance No. 56 after the filling of the complaint. 4 SO ORDERED. Its motion for records for reconsideration having been denied by the trial court. 5 the petitioners filed the instant petition with this Court raising pure question of law based on the following grounds: I. RESPONDENT JUDGE GRAVELY ERRED IN HOLDING THAT ACT NO. 3648, REPUBLIC ACT NO 2340 AND PRESIDENTIAL DECREE NO. 551, AS AMENDED, INSOFAR AS THEY GRANT TAX INCENTIVES, PRIVILEGES AND IMMUNITIES TO PRIVATE RESPONDENT, HAVE NOT BEEN REPEALED BY REPUBLIC ACT NO. 7160. II. RESPONDENT JUDGE GRAVELY ERRED IN RULING THAT SECTION 193 OF REPUBLIC ACT NO. 7160 HAS NOT WITHDRAWN THE TAX INCENTIVES, PRIVILEGES AND IMMUNITIES BEING ENJOYED BY THE PRIVATE RESPONDENT UNDER ACT NO. 3648 REPUBLIC ACT NO. 2340 AND PRESIDENTIAL DECREE NO. 551 AS AMENDED. III. RESPONDENT JUDGE GRAVELY ERRED IN HOLDING THAT THE FRANCHISE TAX IN QUESTION CONSTITUTES AN IMPAIRMENT OF THE CONTRACT BETWEEN THE GOVERNMENT AND PRIVATE RESPONDENT. Petitioners' position is that RA 7160 (LGC) expressly repealed Act No. 3648, Republic Act No. 2340 and Presidential Decree 551 and that pursuant to the provisions of Sections 137 and 193 of the LGC, the province or city now has the power to impose a franchise tax on a business enjoying a franchise. Petitioners rely on the ruling in the case of Mactan Cebu International Airport Authority vs. Marcos 6 where the Supreme Court held that the exemption from real property tax granted to Mactan Cebu International Airport Authority under its charter has been withdrawn upon the effectivity of the LGC. In addition, the petitioners cite in their Memorandum dated December 8, 1993 an administrative interpretation made by the Bureau of Local Government Finance of the Department of Finance in its 3rd indorsement dated February 15, 1994 to the effect that the earlier ruling of the Department of Finance that holders of franchise which contain the phrase "in lieu of all taxes" proviso are exempt from the payment of any kind of tax is no longer applicable upon the effectivity of the LGC in view of the withdrawal of tax exemption privileges as provided in Sections 193 and 234 thereof. We resolve to reverse the court a quo. The pivotal issue is whether the City of San Pablo may impose a local franchise tax pursuant to the LGC upon the Manila Electric Company which pays a tax equal to two percent of its gross receipts in lieu of all taxes and assessments of whatever nature imposed by any national or local authority on savings or income. It is necessary to reproduce the pertinent provisions of the LGC. Sec. 137 Franchise Tax Notwithstanding any exemption granted by any law or other special law, the province may impose a tax on business 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 receipts, or realized, within its territorial jurisdiction. . . .

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. Sec. 193 Withdrawal of Tax Exemption Privileges Unless otherwise provided in this Code, tax exemptions or incentives granted to, or presently enjoyed by all persons, whether natural or juridical, including government-owned or controlled corporations, except local water districts, cooperatives duly registered under R.A. 6938, non- stock and non-profit hospitals and educational institutions, are hereby withdrawn upon the effectivity of this Code. Sec. 534 (f) Repealing Clause All general and special law, acts, city charters, decrees, executive orders, proclamation 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. Sec. 534 (f), the repealing clause of the LGC, provides that all general and special laws, act, city charters, decrees, executive orders, proclamations and administrative regulations or parts thereof which are inconsistent with any of the provisions of the Code are hereby repealed or modified accordingly. This clause partakes of the nature of a general repealing clause. 7 It is certainly not an express repealing clause because it fails to designate the specific act or acts identified by number or title, that are intended to be repealed. 8 Was there an implied repeal by Republic Act No. 7160 of the MERALCO franchise insofar as the latter imposes a 2% tax "in lieu of all taxes and assessments of whatever nature"? We rule affirmatively. We are mindful of the established rule that repeals by implication are not favored as laws are presumed to be passed with deliberation and full knowledge of all laws existing on the subject. A general law cannot be construed to have repealed a special law by mere implication unless the intent to repeal or alter is manifest 9 and it must be convincingly demonstrated that the two laws are so clearly repugnant and patently inconsistent that they cannot co-exist. 10 It is our view that petitions correctly rely on the 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. Sec. 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 untus est exclusio alterius. 11 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 year based on the incoming receipts realized within its territorial jurisdiction. The legislative purpose to withdraw tax privileges enjoy under existing law or charter is clearly manifested by the language used in Sections 137 end 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. It is true that the phrase "in lieu of all taxes" found in special franchises has been held in several cases to exempt the franchise holder from payment of tax on its corporate franchise imposed of the Internal Revenue Code, as the charter is in the nature of a private contract and the exemption is part of the inducement for the acceptance of the franchise, and that the imposition of another franchise tax by the local authority would constitute an impairment of contract between the government and the corporation. 12 But these "magic words" contained in the phrase "shall be in lieu of all taxes'' 13 have to give way to the peremptory language of the LGC specifically providing for the withdrawal of such exemption privileges. Accordingly in Mactan Cebu International Airport Authority vs.Marcos. 14 this Court held that Section 193 of the LGC prescribes the general rule, viz., the tax exemption or incentives, granted to or presently enjoyed by natural or juridical persons are withdrawn upon the effectivity of the LGC except with respect to those entities expressly

enumerated. In the same vein, We must hold that the express withdrawal upon effectivity of the LGC of all exemptions except only as provided therein, can no longer be invoked by Meralco to disclaim liability for the local tax. Private respondents further argue that the "in lieu of" provision contained in PD 551, Act. No. 3648 and RA 2340 does not partake of the nature of an exemption, but is a "commutative tax". This contention was raised but was not upheld in Cagayan Electric Power and Light Co. Inc. vs. Commissioner of Internal Revenue 15 wherein the Supreme Court stated: . . . Congress could impair petitioner's legislative franchise by making it liable for income tax from which heretofore it was exempted by virtue of the exemption provided for in section 3 of its franchise . . . . . . Republic Act No. 5431, in amending section 24 of the Tax Code by subjecting to income tax all corporate tax payers not expressly exempted therein and in section 27 of the Code, had the effect of withdrawing petitioner's exemption from income tax . . . Private respondent's invocation of the non-impairment clause of the Constitution is accordingly unavailing. The LGC was enacted in pursuance of the constitutional policy to ensure autonomy to local governments 16 and to enable them to attain fullest development as self-reliant communities. 17 Thus in Mactan Cebu International Airport Authority vs. Marcos, supra, this Court pointed out, in upholding the withdrawal of the real estate tax exemption previously enjoyed by the Mactan Cebu International Airport Authority, as follows: Note that as reproduced in Section 234 (a) the phrase ''and any government-owned 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, especially in light of the general provision on withdrawal of tax exemption privileges in Section 193 and the special provision on withdrawal of exemption from payment of real property taxes in the last paragraph of Section 234. These policy considerations are consistent with the State policy to ensure autonomy to local governments and the objective of the LGC that they enjoy genuine and meaningful local autonomy to enable them to attain their fullest development as self-reliant communities and make them effective partners in the attainment of national goals. The power to tax is the most effective instrument to raise needed revenues to finance and support myriad activities 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 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, and there was a need for these entities to share in the requirements of development, fiscal or otherwise, by paying the taxes and other charges due from them. 18 The Court therein concluded that: 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. 19 The power to tax is primarily vested in 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. 20 Thus Article X, Section 5 of the Constitution reads: Sec. 5 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 Governments. The important legal effect of Section 5 is that henceforth, in interpreting statutory provision on municipal fiscal powers, doubts will have to resolved in favor of municipal corporations. 21 There is further basis for tire conclusion that the non-impairment of contract clause cannot be invoked to uphold Meralco's exemption from the local tax. Escudero Electric Co. was originally given the legislative franchise under Act. 3648 to operate an electric light and power system in the City of San Pablo and nearby municipalities. The term of the franchise under Act. No. 3648 is a period of fifty years from the Act's approval in 1929. The said law provided that the franchise is granted upon the condition that it shall be subject to amendment, or repeal by the Congress of the United States. 22 Under the 1935. 23 the 1973 24 and the 1987 25 Constitutions, no franchise or right shall be granted except under the condition that it shall be subject to amendment, alteration or repeal by the National Assembly when the public interest so requires. With or without the reservation clause, franchises are subject to alterations through a reasonable exercise of the police power; they are also subject to alteration by the power to tax, which like police power cannot be contracted away. 26 Finally, while the matter is not of controlling significance, the Court notes that whereas the original Escudero franchise exempted the franchise holder from all taxes levied or collected "now or in the future" 27 this phrase is noticeably omitted in the counterpart provision of P.D. 551; that said omission is intended not to foreclose future taxes may reasonably be deduced by statutory construction.

WHEREFORE, the instant petition is GRANTED. The decision of the Regional Trial Court of San Pablo City, appealed from is hereby reversed and set aside and the complaint of MERALCO is hereby DISMISSED. No pronouncement as to costs. SO ORDERED. Romero, Vitug, Panganiban and Purisima, JJ., concur.
Footnotes 1 Petition for Review, p. 3. 2 Ibid., p. 4 and Respondent's Memorandum, p. 3. 3 Petition for Review, p. 4 and Respondent's Memorandum, p. 4. 4 Ibid. 5 Order of January 10, 1996, p. 41, Rollo. 6 261 SCRA 667, [1996]. 7 Ty vs. Trampe, 250 SCRA 500 at 512 [1995]. 8 Mecano vs. Commission on Audit, 216 SCRA 500 at 504 [1992]; Berces Sr., vs. Guingona, Jr., 241 SCRA 539 at 544 [1995]. 9 Laguna Lake Development Authority vs. Court of Appeals, 251 SCRA 42 at 56 [1995]. 10 Villegas vs. Subido, 41 SCRA 190 at 197 [1971]; Mecano vs. Commission on Audit, Supra. 11 Commissioner of Customs vs. Court of Tax Appeals, 224 SCRA 665 at pp. 669-670, [1993]. 12 Cotabato Light and Power Co. vs. City of Cotabato, 32 SCRA 231; Commissioner of Internal Revenue vs. Lingayan Gulf Electric Power Co. 164 SCRA 27 at 34 [1988]; Province of Misamis Oriental vs. Cagayan Electric Power and Light Co., Inc., 181 SCRA 38 at 43 [1990]. 13 Province of Misamis Oriental vs. Cagayan Electric Power and Light Co., Inc., Supra, at p. 42. 14 Supra. 15 138 SCRA 629 at p. 631. 16 Sec. 25, Art. II and 2, Art. X Constitution. 17 2 (a) Local Government Code of 1991. 18 Mactan Cebu International Airport Authority vs. Marcos, p. 690. 19 Ibid., p. 692. 20 Isagani A. Cruz, Constitutional Law, (1991) at p. 84 21 Bernas, The Constitution of the Philippines, 1st ed. p. 381. 22 Act No. 3648, 12. 23 Art. XIV, 8. 24 Art. XIV, 5. 25 Art. XII, 11.

26 Bernas, Supra, p. 341. 27 10, Act No. 3648.

EN BANC [G.R. No. 132988. July 19, 2000] AQUILINO Q. PIMENTEL JR., petitioner, vs. Hon. ALEXANDER AGUIRRE in his capacity as Executive Secretary, Hon. EMILIA BONCODIN in her capacity as Secretary of the Department of Budget and Management, respondents. ROBERTO PAGDANGANAN, intervenor. DECISION PANGANIBAN, J.: The Constitution vests the President with the power of supervision, not control, over local government units (LGUs). Such power enables him to see to it that LGUs and their officials execute their tasks in accordance with law. While he may issue advisories and seek their cooperation in solving economic difficulties, he cannot prevent them from performing their tasks and using available resources to achieve their goals. He may not withhold or alter any authority or power given them by the law. Thus, the withholding of a portion of internal revenue allotments legally due them cannot be directed by administrative fiat. The Case Before us is an original Petition for Certiorari and Prohibition seeking (1) to annul Section 1 of Administrative Order (AO) No. 372, insofar as it requires local government units to reduce their expenditures by 25 percent of their authorized regular appropriations for non-personal services; and (2) to enjoin respondents from implementing Section 4 of the Order, which withholds a portion of their internal revenue allotments. On November 17, 1998, Roberto Pagdanganan, through Counsel Alberto C. Agra, filed a Motion for Intervention/Motion to Admit Petition for Intervention, attaching thereto his Petition in Intervention joining petitioner in the reliefs sought. At the time, intervenor was the provincial governor of Bulacan, national president of the League of Provinces of the Philippines and chairman of the League of Leagues of Local Governments. In a Resolution dated December 15, 1998, the Court noted said Motion and Petition. The Facts and the Arguments On December 27, 1997, the President of the Philippines issued AO 372. Its full text, with emphasis on the assailed provisions, is as follows: "ADMINISTRATIVE ORDER NO. 372 ADOPTION OF ECONOMY MEASURES IN GOVERNMENT FOR FY 1998 WHEREAS, the current economic difficulties brought about by the peso depreciation requires continued prudence in government fiscal management to maintain economic stability and sustain the country's growth momentum; WHEREAS, it is imperative that all government agencies adopt cash management measures to match expenditures with available resources; NOW, THEREFORE, I, FIDEL V. RAMOS, President of the Republic of the Philippines, by virtue of the powers vested in me by the Constitution, do hereby order and direct: SECTION 1. All government departments and agencies, including state universities and colleges, government-owned and controlled corporations and local governments units will identify and implement measures in FY 1998 that will reduce total

expenditures for the year by at least 25% of authorized regular appropriations for non-personal services items, along the following suggested areas: 1. Continued implementation of the streamlining policy on organization and staffing by deferring action on the following: a. b. c. d. Operationalization of new agencies; Expansion of organizational units and/or creation of positions; Filling of positions; and Hiring of additional/new consultants, contractual and casual personnel, regardless of funding source.

2. Suspension of the following activities: a. b. c. d. Implementation of new capital/infrastructure projects, except those which have already been contracted out; Acquisition of new equipment and motor vehicles; All foreign travels of government personnel, except those associated with scholarships and trainings funded by grants; Attendance in conferences abroad where the cost is charged to the government except those clearly essential to Philippine commitments in the international field as may be determined by the Cabinet; Conduct of trainings/workshops/seminars, except those conducted by government training institutions and agencies in the performance of their regular functions and those that are funded by grants; Conduct of cultural and social celebrations and sports activities, except those associated with the Philippine Centennial celebration and those involving regular competitions/events; Grant of honoraria, except in cases where it constitutes the only source of compensation from government received by the person concerned; Publications, media advertisements and related items, except those required by law or those already being undertaken on a regular basis; Grant of new/additional benefits to employees, except those expressly and specifically authorized by law; and Donations, contributions, grants and gifts, except those given by institutions to victims of calamities.

e.

f.

g.

h.

i. j.

3. Suspension of all tax expenditure subsidies to all GOCCs and LGUs 4. Reduction in the volume of consumption of fuel, water, office supplies, electricity and other utilities 5. Deferment of projects that are encountering significant implementation problems 6. Suspension of all realignment of funds and the use of savings and reserves SECTION 2. Agencies are given the flexibility to identify the specific sources of cost-savings, provided the 25% minimum savings under Section 1 is complied with. SECTION 3. A report on the estimated savings generated from these measures shall be submitted to the Office of the President, through the Department of Budget and Management, on a quarterly basis using the attached format. SECTION 4. Pending the assessment and evaluation by the Development Budget Coordinating Committee of the emerging fiscal situation, the amount equivalent to 10% of the internal revenue allotment to local government units shall be withheld. SECTION 5. The Development Budget Coordination Committee shall conduct a monthly review of the fiscal position of the National Government and if necessary, shall recommend to the President the imposition of additional reserves or the lifting of previously imposed reserves.

SECTION 6. This Administrative Order shall take effect January 1, 1998 and shall remain valid for the entire year unless otherwise lifted. DONE in the City of Manila, this 27th day of December, in the year of our Lord, nineteen hundred and ninety-seven." Subsequently, on December 10, 1998, President Joseph E. Estrada issued AO 43, amending Section 4 of AO 372, by reducing to five percent (5%) the amount of internal revenue allotment (IRA) to be withheld from the LGUs. Petitioner contends that the President, in issuing AO 372, was in effect exercising the power of control over LGUs. The Constitution vests in the President, however, only the power of general supervision over LGUs, consistent with the principle of local autonomy. Petitioner further argues that the directive to withhold ten percent (10%) of their IRA is in contravention of Section 286 of the Local Government Code and of Section 6, Article X of the Constitution, providing for the automatic release to each of these units its share in the national internal revenue. The solicitor general, on behalf of the respondents, claims on the other hand that AO 372 was issued to alleviate the "economic difficulties brought about by the peso devaluation" and constituted merely an exercise of the President's power of supervision over LGUs. It allegedly does not violate local fiscal autonomy, because it merely directs local governments to identify measures that will reduce their total expenditures for non-personal services by at least 25 percent. Likewise, the withholding of 10 percent of the LGUs IRA does not violate the statutory prohibition on the imposition of any lien or holdback on their revenue shares, because such withholding is "temporary in nature pending the assessment and evaluation by the Development Coordination Committee of the emerging fiscal situation." The Issues The Petition submits the following issues for the Court's resolution: "A. Whether or not the president committed grave abuse of discretion [in] ordering all LGUS to adopt a 25% cost reduction program in violation of the LGU[']S fiscal autonomy "B. Whether or not the president committed grave abuse of discretion in ordering the withholding of 10% of the LGU[']S IRA"

In sum, the main issue is whether (a) Section 1 of AO 372, insofar as it "directs" LGUs to reduce their expenditures by 25 percent; and (b) Section 4 of the same issuance, which withholds 10 percent of their internal revenue allotments, are valid exercises of the President's power of general supervision over local governments. Additionally, the Court deliberated on the question whether petitioner had the locus standi to bring this suit, despite respondents' failure to raise the issue. However, the intervention of Roberto Pagdanganan has rendered academic any further discussion on this matter. The Court's Ruling The Petition is partly meritorious. Main Issue: Validity of AO 372 Insofar as LGUs Are Concerned Before resolving the main issue, we deem it important and appropriate to define certain crucial concepts: (1) the scope of the President's power of general supervision over local governments and (2) the extent of the local governments' autonomy. Scope of President's Power of Supervision Over LGUs Section 4 of Article X of the Constitution confines the President's power over local governments to one of general supervision. It reads as follows: "Sec. 4. The President of the Philippines shall exercise general supervision over local governments. x x x"

This provision has been interpreted to exclude the power of control. In Mondano v. Silvosa, the Court contrasted the President's power of supervision over local government officials with that of his power of control over executive officials of the national government. It was emphasized that the two terms -- supervision and control -- differed in meaning and extent. The Court distinguished them as follows: "x x x In administrative law, supervision means overseeing or the power or authority of an officer to see that subordinate officers perform their duties. If the latter fail or neglect to fulfill them, the former may take such action or step as prescribed by law to make

them perform their duties. Control, on the other hand, means the power of an officer to alter or modify or nullify or set aside what a subordinate officer ha[s] done in the performance of his duties and to substitute the judgment of the former for that of the latter." In Taule v. Santos, we further stated that the Chief Executive wielded no more authority than that of checking whether local governments or their officials were performing their duties as provided by the fundamental law and by statutes. He cannot interfere with local governments, so long as they act within the scope of their authority. "Supervisory power, when contrasted with control, is the power of mere oversight over an inferior body; it does not include any restraining authority over such body," we said. In a more recent case, Drilon v. Lim, the difference between control and supervision was further delineated. Officers in control lay down the rules in the performance or accomplishment of an act. If these rules are not followed, they may, in their discretion, order the act undone or redone by their subordinates or even decide to do it themselves. On the other hand, supervision does not cover such authority. Supervising officials merely see to it that the rules are followed, but they themselves do not lay down such rules, nor do they have the discretion to modify or replace them. If the rules are not observed, they may order the work done or redone, but only to conform to such rules. They may not prescribe their own manner of execution of the act. They have no discretion on this matter except to see to it that the rules are followed. Under our present system of government, executive power is vested in the President. The members of the Cabinet and other executive officials are merely alter egos. As such, they are subject to the power of control of the President, at whose will and behest they can be removed from office; or their actions and decisions changed, suspended or reversed. In contrast, the heads of political subdivisions are elected by the people. Their sovereign powers emanate from the electorate, to whom they are directly accountable. By constitutional fiat, they are subject to the Presidents supervision only, not control, so long as their acts are exercised within the sphere of their legitimate powers. By the same token, the President may not withhold or alter any authority or power given them by the Constitution and the law. Extent of Local Autonomy Hand in hand with the constitutional restraint on the President's power over local governments is the state policy of ensuring local autonomy. In Ganzon v. Court of Appeals, we said that local autonomy signified "a more responsive and accountable local government structure instituted through a system of decentralization." The grant of autonomy is intended to "break up the monopoly of the national government over the affairs of local governments, x x x not x x x to end the relation of partnership and interdependence between the central administration and local government units x x x." Paradoxically, local governments are still subject to regulation, however limited, for the purpose of enhancing self-government. Decentralization simply means the devolution of national administration, not power, to local governments. Local officials remain accountable to the central government as the law may provide. The difference between decentralization of administration and that of power was explained in detail in Limbona v. Mangelin as follows: "Now, autonomy is either decentralization of administration or decentralization of power. There is decentralization of administration when the central government delegates administrative powers to political subdivisions in order to broaden the base of government power and in the process to make local governments 'more responsive and accountable,' and 'ensure their fullest development as selfreliant communities and make them more effective partners in the pursuit of national development and social progress.' At the same time, it relieves the central government of the burden of managing local affairs and enables it to concentrate on national concerns. The President exercises 'general supervision' over them, but only to 'ensure that local affairs are administered according to law.' He has no control over their acts in the sense that he can substitute their judgments with his own. Decentralization of power, on the other hand, involves an abdication of political power in the favor of local government units declared to be autonomous. In that case, the autonomous government is free to chart its own destiny and shape its future with minimum intervention from central authorities. According to a constitutional author, decentralization of power amounts to 'self-immolation,' since in that event, the autonomous government becomes accountable not to the central authorities but to its constituency." Under the Philippine concept of local autonomy, the national government has not completely relinquished all its powers over local governments, including autonomous regions. Only administrative powers over local affairs are delegated to political subdivisions. The purpose of the delegation is to make governance more directly responsive and effective at the local levels. In turn, economic, political and social development at the smaller political units are expected to propel social and economic growth and development. But to enable the country to develop as a whole, the programs and policies effected locally must be integrated and coordinated towards a common national goal. Thus, policy-setting for the entire country still lies in the President and Congress. As we stated in Magtajas v. Pryce Properties Corp., Inc., municipal governments are still agents of the national government. The Nature of AO 372 Consistent with the foregoing jurisprudential precepts, let us now look into the nature of AO 372. As its preambular clauses declare, the Order was a "cash management measure" adopted by the government "to match expenditures with available resources," which were

presumably depleted at the time due to "economic difficulties brought about by the peso depreciation." Because of a looming financial crisis, the President deemed it necessary to "direct all government agencies, state universities and colleges, government-owned and controlled corporations as well as local governments to reduce their total expenditures by at least 25 percent along suggested areas mentioned in AO 372. Under existing law, local government units, in addition to having administrative autonomy in the exercise of their functions, enjoy fiscal autonomy as well. Fiscal autonomy means that local governments have the power to create their own sources of revenue in addition to their equitable share in the national taxes released by the national government, as well as the power to allocate their resources in accordance with their own priorities. It extends to the preparation of their budgets, and local officials in turn have to work within the constraints thereof. They are not formulated at the national level and imposed on local governments, whether they are relevant to local needs and resources or not. Hence, the necessity of a balancing of viewpoints and the harmonization of proposals from both local and national officials, who in any case are partners in the attainment of national goals. Local fiscal autonomy does not however rule out any manner of national government intervention by way of supervision, in order to ensure that local programs, fiscal and otherwise, are consistent with national goals. Significantly, the President, by constitutional fiat, is the head of the economic and planning agency of the government, primarily responsible for formulating and implementing continuing, coordinated and integrated social and economic policies, plans and programs for the entire country. However, under the Constitution, the formulation and the implementation of such policies and programs are subject to "consultations with the appropriate public agencies, various private sectors, and local government units." The President cannot do so unilaterally. Consequently, the Local Government Code provides: "x x x [I]n the event the national government incurs an unmanaged public sector deficit, the President of the Philippines is hereby authorized, upon the recommendation of [the] Secretary of Finance, Secretary of the Interior and Local Government and Secretary of Budget and Management, and subject to consultation with the presiding officers of both Houses of Congress and the presidents of the liga, to make the necessary adjustments in the internal revenue allotment of local government units but in no case shall the allotment be less than thirty percent (30%) of the collection of national internal revenue taxes of the third fiscal year preceding the current fiscal year x x x." There are therefore several requisites before the President may interfere in local fiscal matters: (1) an unmanaged public sector deficit of the national government; (2) consultations with the presiding officers of the Senate and the House of Representatives and the presidents of the various local leagues; and (3) the corresponding recommendation of the secretaries of the Department of Finance, Interior and Local Government, and Budget and Management. Furthermore, any adjustment in the allotment shall in no case be less than thirty percent (30%) of the collection of national internal revenue taxes of the third fiscal year preceding the current one. Petitioner points out that respondents failed to comply with these requisites before the issuance and the implementation of AO 372. At the very least, they did not even try to show that the national government was suffering from an unmanageable public sector deficit. Neither did they claim having conducted consultations with the different leagues of local governments. Without these requisites, the President has no authority to adjust, much less to reduce, unilaterally the LGU's internal revenue allotment. The solicitor general insists, however, that AO 372 is merely directory and has been issued by the President consistent with his power of supervision over local governments. It is intended only to advise all government agencies and instrumentalities to undertake costreduction measures that will help maintain economic stability in the country, which is facing economic difficulties. Besides, it does not contain any sanction in case of noncompliance. Being merely an advisory, therefore, Section 1 of AO 372 is well within the powers of the President. Since it is not a mandatory imposition, the directive cannot be characterized as an exercise of the power of control. While the wordings of Section 1 of AO 372 have a rather commanding tone, and while we agree with petitioner that the requirements of Section 284 of the Local Government Code have not been satisfied, we are prepared to accept the solicitor general's assurance that the directive to "identify and implement measures x x x that will reduce total expenditures x x x by at least 25% of authorized regular appropriation" is merely advisory in character, and does not constitute a mandatory or binding order that interferes with local autonomy. The language used, while authoritative, does not amount to a command that emanates from a boss to a subaltern. Rather, the provision is merely an advisory to prevail upon local executives to recognize the need for fiscal restraint in a period of economic difficulty. Indeed, all concerned would do well to heed the President's call to unity, solidarity and teamwork to help alleviate the crisis. It is understood, however, that no legal sanction may be imposed upon LGUs and their officials who do not follow such advice. It is in this light that we sustain the solicitor general's contention in regard to Section 1. Withholding a Part of LGUs' IRA Section 4 of AO 372 cannot, however, be upheld. A basic feature of local fiscal autonomy is the automatic release of the shares of LGUs in the national internal revenue. This is mandated by no less than the Constitution. The Local Government Code specifies further that the release shall be made directly to the LGU concerned within five (5) days after every quarter of the year and "shall not be subject to any lien or holdback that may be imposed by the national government for whatever purpose." As a rule, the term "shall" is a word of command that must be given a compulsory meaning. The provision is, therefore, imperative.

Section 4 of AO 372, however, orders the withholding, effective January 1, 1998, of 10 percent of the LGUs' IRA "pending the assessment and evaluation by the Development Budget Coordinating Committee of the emerging fiscal situation" in the country. Such withholding clearly contravenes the Constitution and the law. Although temporary, it is equivalent to a holdback, which means "something held back or withheld, often temporarily." Hence, the "temporary" nature of the retention by the national government does not matter. Any retention is prohibited. In sum, while Section 1 of AO 372 may be upheld as an advisory effected in times of national crisis, Section 4 thereof has no color of validity at all. The latter provision effectively encroaches on the fiscal autonomy of local governments. Concededly, the President was well-intentioned in issuing his Order to withhold the LGUs IRA, but the rule of law requires that even the best intentions must be carried out within the parameters of the Constitution and the law. Verily, laudable purposes must be carried out by legal methods. Refutation of Justice Kapunan's Dissent Mr. Justice Santiago M. Kapunan dissents from our Decision on the grounds that, allegedly, (1) the Petition is premature; (2) AO 372 falls within the powers of the President as chief fiscal officer; and (3) the withholding of the LGUs IRA is implied in the President's authority to adjust it in case of an unmanageable public sector deficit. First, on prematurity. According to the Dissent, when "the conduct has not yet occurred and the challenged construction has not yet been adopted by the agency charged with administering the administrative order, the determination of the scope and constitutionality of the executive action in advance of its immediate adverse effect involves too remote and abstract an inquiry for the proper exercise of judicial function." This is a rather novel theory -- that people should await the implementing evil to befall on them before they can question acts that are illegal or unconstitutional. Be it remembered that the real issue here is whether the Constitution and the law are contravened by Section 4 of AO 372, not whether they are violated by the acts implementing it. In the unanimous en banc case Taada v. Angara, this Court held that when an act of the legislative department is seriously alleged to have infringed the Constitution, settling the controversy becomes the duty of this Court. By the mere enactment of the questioned law or the approval of the challenged action, the dispute is said to have ripened into a judicial controversy even without any other overt act. Indeed, even a singular violation of the Constitution and/or the law is enough to awaken judicial duty. Said the Court: "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.' Once a 'controversy as to the application or interpretation of a constitutional provision is raised before this Court x x x , it becomes a legal issue which the Court is bound by constitutional mandate to decide.' xxx xxx xxx

"As this Court has repeatedly and firmly emphasized in many cases, 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." In the same vein, the Court also held in Tatad v. Secretary of the Department of Energy: "x x x Judicial power includes not only the duty of the courts to settle actual controversies involving rights which are legally demandable and enforceable, but also the duty to determine whether or not there has been grave abuse of discretion amounting to lack or excess of jurisdiction on the part of any branch or instrumentality of government. The courts, as guardians of the Constitution, have the inherent authority to determine whether a statute enacted by the legislature transcends the limit imposed by the fundamental law. Where the statute violates the Constitution, it is not only the right but the duty of the judiciary to declare such act unconstitutional and void." By the same token, when an act of the President, who in our constitutional scheme is a coequal of Congress, is seriously alleged to have infringed the Constitution and the laws, as in the present case, settling the dispute becomes the duty and the responsibility of the courts. Besides, the issue that the Petition is premature has not been raised by the parties; hence it is deemed waived. Considerations of due process really prevents its use against a party that has not been given sufficient notice of its presentation, and thus has not been given the opportunity to refute it. Second, on the President's power as chief fiscal officer of the country. Justice Kapunan posits that Section 4 of AO 372 conforms with the President's role as chief fiscal officer, who allegedly "is clothed by law with certain powers to ensure the observance of safeguards and auditing requirements, as well as the legal prerequisites in the release and use of IRAs, taking into account the constitutional and statutory mandates." He cites instances when the President may lawfully intervene in the fiscal affairs of LGUs.

Precisely, such powers referred to in the Dissent have specifically been authorized by law and have not been challenged as violative of the Constitution. On the other hand, Section 4 of AO 372, as explained earlier, contravenes explicit provisions of the Local Government Code (LGC) and the Constitution. In other words, the acts alluded to in the Dissent are indeed authorized by law; but, quite the opposite, Section 4 of AO 372 is bereft of any legal or constitutional basis. Third, on the President's authority to adjust the IRA of LGUs in case of an unmanageable public sector deficit. It must be emphasized that in striking down Section 4 of AO 372, this Court is not ruling out any form of reduction in the IRAs of LGUs. Indeed, as the President may make necessary adjustments in case of an unmanageable public sector deficit, as stated in the main part of this Decision, and in line with Section 284 of the LGC, which Justice Kapunan cites. He, however, merely glances over a specific requirement in the same provision -- that such reduction is subject to consultation with the presiding officers of both Houses of Congress and, more importantly, with the presidents of the leagues of local governments. Notably, Justice Kapunan recognizes the need for "interaction between the national government and the LGUs at the planning level," in order to ensure that "local development plans x x x hew to national policies and standards." The problem is that no such interaction or consultation was ever held prior to the issuance of AO 372. This is why the petitioner and the intervenor (who was a provincial governor and at the same time president of the League of Provinces of the Philippines and chairman of the League of Leagues of Local Governments) have protested and instituted this action. Significantly, respondents do not deny the lack of consultation. In addition, Justice Kapunan cites Section 287 of the LGC as impliedly authorizing the President to withhold the IRA of an LGU, pending its compliance with certain requirements. Even a cursory reading of the provision reveals that it is totally inapplicable to the issue at bar. It directs LGUs to appropriate in their annual budgets 20 percent of their respective IRAs for development projects. It speaks of no positive power granted the President to priorly withhold any amount. Not at all. WHEREFORE, the Petition is GRANTED. Respondents and their successors are hereby permanently PROHIBITED from implementing Administrative Order Nos. 372 and 43, respectively dated December 27, 1997 and December 10, 1998, insofar as local government units are concerned. SO ORDERED. Davide, Jr., C.J., Bellosillo, Melo, Puno, Vitug, Mendoza, Quisumbing, Pardo, Buena, Gonzaga-Reyes, and De Leon, Jr., JJ., concur. Kapunan, J., see dissenting opinion. Purisima, and Ynares-Santiago, JJ., join J. Kapunan in his dissenting opinion. DISSENTING OPINION KAPUNAN, J.: In striking down as unconstitutional and illegal Section 4 of Administrative Order No. 372 ("AO No. 372"), the majority opinion posits that the President exercised power of control over the local government units ("LGU), which he does not have, and violated the provisions of Section 6, Article X of the Constitution, which states: SEC. 6. Local government units shall have a just share, as determined by law, in the national taxes which shall be automatically released to them. and Section 286(a) of the Local Government Code, which provides: SEC. 286. Automatic Release of Shares. - (a) The share of each local government unit shall be released, without need of any further action, directly to the provincial, city, municipal or barangay treasurer, as the case may be, on a quarterly basis within five (5) days after the end of each quarter, and which shall not be subject to any lien or holdback that may be imposed by the national government for whatever purpose. The share of the LGUs in the national internal revenue taxes is defined in Section 284 of the same Local Government Code, to wit: SEC. 284. Allotment of Internal Revenue Taxes. - Local government units shall have a share in the national internal revenue taxes based on the collection of the third fiscal year preceding the current fiscal year as follows: (a) On the first year of the effectivity of this Code, thirty percent (30%); (b) On the second year, thirty-five (35%) percent; and

(c) On the third year and thereafter, forty percent (40%). Provided, That in the event that the national government incurs an unmanageable public sector deficit, the President of the Philippines is hereby authorized, upon the recommendation of Secretary of Finance, Secretary of Interior and Local Government and Secretary of Budget and Management, and subject to consultation with the presiding officers of both Houses of Congress and the presidents of the liga, to make the necessary adjustments in the internal revenue allotment of local government units but in no case shall the allotment be less than thirty percent (30%) of the collection of national internal revenue taxes of the third fiscal year preceding the current fiscal year: Provided, further, That in the first year of the effectivity of this Code, the local government units shall, in addition to the thirty percent (30%) internal revenue allotment which shall include the cost of devolved functions for essential public services, be entitled to receive the amount equivalent to the cost of devolved personal services. xxx The majority opinion takes the view that the withholding of ten percent (10%) of the internal revenue allotment ("IRA") to the LGUs pending the assessment and evaluation by the Development Budget Coordinating Committee of the emerging fiscal situation as called for in Section 4 of AO No. 372 transgresses against the above-quoted provisions which mandate the "automatic" release of the shares of the LGUs in the national internal revenue in consonance with local fiscal autonomy. The pertinent portions of AO No. 372 are reproduced hereunder: ADMINISTRATIVE ORDER NO. 372 ADOPTION OF ECONOMY MEASURES IN GOVERNMENT FOR FY 1998 WHEREAS, the current economic difficulties brought about by the peso depreciation requires continued prudence in government fiscal management to maintain economic stability and sustain the countrys growth momentum; WHEREAS, it is imperative that all government agencies adopt cash management measures to match expenditures with available resources; NOW THEREFORE, I, FIDEL V. RAMOS, President of the Republic of the Philippines, by virtue of the powers vested in me by the Constitution, do hereby order and direct: SECTION 1. All government departments and agencies, including x x x local government units will identify and implement measures in FY 1998 that will reduce total appropriations for non-personal services items, along the following suggested areas: xxx SECTION 4. Pending the assessment and evaluation by the Development Budget Coordinating Committee of the emerging fiscal situation the amount equivalent to 10% of the internal revenue allotment to local government units shall be withheld. xxx Subsequently, on December 10, 1998, President Joseph E. Estrada issued Administrative Order No. 43 (AO No. 43), amending Section 4 of AO No. 372, by reducing to five percent (5%) the IRA to be withheld from the LGUs, thus: ADMINISTRATIVE ORDER NO. 43 AMENDING ADMINISTRATIVE ORDER NO. 372 DATED 27 DECEMBER 1997 ENTITLED "ADOPTION OF ECONOMY MEASURES IN GOVERNMENT FOR FY 1998" WHEREAS, Administrative Order No. 372 dated 27 December 1997 entitled "Adoption of Economy Measures in Government for FY 1998" was issued to address the economic difficulties brought about by the peso devaluation in 1997; WHEREAS, Section 4 of Administrative Order No. 372 provided that the amount equivalent to 10% of the internal revenue allotment to local government units shall be withheld; and, WHEREAS, there is a need to release additional funds to local government units for vital projects and expenditures. NOW, THEREFORE, I, JOSEPH EJERCITO ESTRADA, President of the Republic of the Philippines, by virtue of the powers vested in me by law, do hereby order the reduction of the withheld Internal Revenue Allotment (IRA) of local government units from ten percent to five percent. The five percent reduction in the IRA withheld for 1998 shall be released before 25 December 1998.

DONE in the City of Manila, this 10th day of December, in the year of our Lord, nineteen hundred and ninety eight. With all due respect, I beg to disagree with the majority opinion. Section 4 of AO No. 372 does not present a case ripe for adjudication. The language of Section 4 does not conclusively show that, on its face, the constitutional provision on the automatic release of the IRA shares of the LGUs has been violated. Section 4, as worded, expresses the idea that the withholding is merely temporary which fact alone would not merit an outright conclusion of its unconstitutionality, especially in light of the reasonable presumption that administrative agencies act in conformity with the law and the Constitution. Where the conduct has not yet occurred and the challenged construction has not yet been adopted by the agency charged with administering the administrative order, the determination of the scope and constitutionality of the executive action in advance of its immediate adverse effect involves too remote and abstract an inquiry for the proper exercise of judicial function. Petitioners have not shown that the alleged 5% IRA share of LGUs that was temporarily withheld has not yet been released, or that the Department of Budget and Management (DBM) has refused and continues to refuse its release. In view thereof, the Court should not decide as this case suggests an abstract proposition on constitutional issues. The President is the chief fiscal officer of the country. He is ultimately responsible for the collection and distribution of public money: SECTION 3. Powers and Functions. - The Department of Budget and Management shall assist the President in the preparation of a national resources and expenditures budget, preparation, execution and control of the National Budget, preparation and maintenance of accounting systems essential to the budgetary process, achievement of more economy and efficiency in the management of government operations, administration of compensation and position classification systems, assessment of organizational effectiveness and review and evaluation of legislative proposals having budgetary or organizational implications.1 In a larger context, his role as chief fiscal officer is directed towards "the nation's efforts at economic and social upliftment"2 for which more specific economic powers are delegated. Within statutory limits, the President can, thus, fix "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,3 as he is also responsible for enlisting the country in international economic agreements.4 More than this, to achieve "economy and efficiency in the management of government operations," the President is empowered to create appropriation reserves,5 suspend expenditure appropriations,6 and institute cost reduction schemes.7 As chief fiscal officer of the country, the President supervises fiscal development in the local government units and ensures that laws are faithfully executed.8 For this reason, he can set aside tax ordinances if he finds them contrary to the Local Government Code.9 Ordinances cannot contravene statutes and public policy as declared by the national govemment.10 The goal of local economy is not to "end the relation of partnership and inter-dependence between the central administration and local government units,"11 but to make local governments "more responsive and accountable" [to] "ensure their fullest development as self-reliant communities and make them more effective partners in the pursuit of national development and social progress."12 The interaction between the national government and the local government units is mandatory at the planning level. Local development plans must thus hew to "national policies and standards13 as these are integrated into the regional development plans for submission to the National Economic Development Authority. "14 Local budget plans and goals must also be harmonized, as far as practicable, with "national development goals and strategies in order to optimize the utilization of resources and to avoid duplication in the use of fiscal and physical resources."15 Section 4 of AO No. 372 was issued in the exercise by the President not only of his power of general supervision, but also in conformity with his role as chief fiscal officer of the country in the discharge of which he is clothed by law with certain powers to ensure the observance of safeguards and auditing requirements, as well as the legal prerequisites in the release and use of IRAs, taking into account the constitutional16 and statutory17 mandates. However, the phrase "automatic release" of the LGUs' shares does not mean that the release of the funds is mechanical, spontaneous, self-operating or reflex. IRAs must first be determined, and the money for their payment collected.18 In this regard, administrative documentations are also undertaken to ascertain their availability, limits and extent. The phrase, thus, should be used in the context of the whole budgetary process and in relation to pertinent laws relating to audit and accounting requirements. In the workings of the budget for the fiscal year, appropriations for expenditures are supported by existing funds in the national coffers and by proposals for revenue raising. The money, therefore, available for IRA release may not be existing but merely inchoate, or a mere expectation. It is not infrequent that the Executive Department's proposals for raising revenue in the form of proposed legislation may not be passed by the legislature. As such, the release of IRA should not mean release of absolute amounts based merely on mathematical computations. There must be a prior determination of what exact amount the local government units are actually entitled in light of the economic factors which affect the fiscal situation in the country. Foremost of these is where, due to an unmanageable public sector deficit, the President may make the necessary adjustments in the IRA of LGUs. Thus, as expressly provided in Article 284 of the Local Government Code: x x x (I)n the event that the national government incurs an unmanageable public sector deficit, the President of the Philippines is hereby authorized, upon the recommendation of Secretary of Finance, Secretary of Interior and Local Government and Secretary of Budget and Management and subject to consultation with the presiding officers of both Houses of Congress and the presidents of the "liga," to make the necessary adjustments in the internal revenue allotment

of local government units but in no case shall the allotment be less than thirty percent (30%) of the collection of national internal revenue taxes of the third fiscal year preceding the current fiscal year. x x x. Under the aforecited provision, if facts reveal that the economy has sustained or will likely sustain such "unmanageable public sector deficit," then the LGUs cannot assert absolute right of entitlement to the full amount of forty percent (40%) share in the IRA, because the President is authorized to make an adjustment and to reduce the amount to not less than thirty percent (30%). It is, therefore, impractical to immediately release the full amount of the IRAs and subsequently require the local government units to return at most ten percent (10%) once the President has ascertained that there exists an unmanageable public sector deficit. By necessary implication, the power to make necessary adjustments (including reduction) in the IRA in case of an unmanageable public sector deficit, includes the discretion to withhold the IRAs temporarily until such time that the determination of the actual fiscal situation is made. The test in determining whether one power is necessarily included in a stated authority is: "The exercise of a more absolute power necessarily includes the lesser power especially where it is needed to make the first power effective."19 If the discretion to suspend temporarily the release of the IRA pending such examination is withheld from the President, his authority to make the necessary IRA adjustments brought about by the unmanageable public sector deficit would be emasculated in the midst of serious economic crisis. In the situation conjured by the majority opinion, the money would already have been gone even before it is determined that fiscal crisis is indeed happening. The majority opinion overstates the requirement in Section 286 of the Local Government Code that the IRAs "shall not be subject to any lien or holdback that may be imposed by the national government for whatever purpose" as proof that no withholding of the release of the IRAs is allowed albeit temporary in nature. It is worthy to note that this provision does not appear in the Constitution. Section 6, Art X of the Constitution merely directs that LGUs "shall have a just share" in the national taxes "as determined by law" and which share shall be automatically released to them. This means that before the LGUs share is released, there should be first a determination, which requires a process, of what is the correct amount as dictated by existing laws. For one, the Implementing Rules of the Local Government Code allows deductions from the IRAs, to wit: Article 384. Automatic Release of IRA Shares of LGUs: xxx (c) The IRA share of LGUs shall not be subject to any lien or hold back that may be imposed by the National Government for whatever purpose unless otherwise provided in the Code or other applicable laws and loan contract on project agreements arising from foreign loans and international commitments, such as premium contributions of LGUs to the Government Service Insurance System and loans contracted by LGUs under foreign-assisted projects. Apart from the above, other mandatory deductions are made from the IRAs prior to their release, such as: (1) total actual cost of devolution and the cost of city-funded hospitals;20 and (2) compulsory contributions21 and other remittances.22 It follows, therefore, that the President can withhold portions of IRAs in order to set-off or compensate legitimately incurred obligations and remittances of LGUs. Significantly, Section 286 of the Local Government Code does not make mention of the exact amount that should be automatically released to the LGUs. The provision does not mandate that the entire 40% share mentioned in Section 284 shall be released. It merely provides that the "share" of each LGU shall be released and which "shall not be subject to any lien or holdback that may be imposed by the national government for whatever purpose." The provision on automatic release of IRA share should, thus, be read together with Section 284, including the proviso on adjustment or reduction of IRAs, as well as other relevant laws. It may happen that the share of the LGUs may amount to the full forty percent (40%) or the reduced amount of thirty percent (30%) as adjusted without any law being violated. In other words, all that Section 286 requires is the automatic release of the amount that the LGUs are rightfully and legally entitled to, which, as the same section provides, should not be less than thirty percent (30%) of the collection of the national revenue taxes. So that even if five percent (5%) or ten percent (10%) is either temporarily or permanently withheld, but the minimum of thirty percent (30%) allotment for the LGUs is released pursuant to the President's authority to make the necessary adjustment in the LGUS' share, there is still full compliance with the requirements of the automatic release of the LGUs' share. Finally, the majority insists that the withholding of ten percent (10%) or five percent (5%) of the IRAs could not have been done pursuant to the power of the President to adjust or reduce such shares under Section 284 of the Local Government Code because there was no showing of an unmanageable public sector deficit by the national government, nor was there evidence that consultations with the presiding officers of both Houses of Congress and the presidents of the various leagues had taken place and the corresponding recommendations of the Secretary of Finance, Secretary of Interior and Local Government and the Budget Secretary were made. I beg to differ. The power to determine whether there is an unmanageable public sector deficit is lodged in the President. The President's determination, as fiscal manager of the country, of the existence of economic difficulties which could amount to "unmanageable public sector deficit" should be accorded respect. In fact, the withholding of the ten percent (10%) of the LGUs' share

was further justified by the current economic difficulties brought about by the peso depreciation as shown by one of the "WHEREASES" of AO No. 372.23 In the absence of any showing to the contrary, it is presumed that the President had made prior consultations with the officials thus mentioned and had acted upon the recommendations of the Secretaries of Finance, Interior and Local Government and Budget.24 Therefore, even assuming hypothetically that there was effectively a deduction of five percent (5%) of the LGUs' share, which was in accordance with the President's prerogative in view of the pronouncement of the existence of an unmanageable public sector deficit, the deduction would still be valid in the absence of any proof that the LGUs' allotment was less than the thirty percent (30%) limit provided for in Section 284 of the Local Government Code. In resume, the withholding of the amount equivalent to five percent (5%) of the IRA to the LGUs was temporary pending determination by the Executive of the actual share which the LGUs are rightfully entitled to on the basis of the applicable laws, particularly Section 284 of the Local Government Code, authorizing the President to make the necessary adjustments in the IRA of LGUs in the event of an unmanageable public sector deficit. And assuming that the said five percent (5%) of the IRA pertaining to the 1998 Fiscal Year has been permanently withheld, there is no showing that the amount actually released to the LGUs that same year was less than thirty percent (30%) of the national internal revenue taxes collected, without even considering the proper deductions allowed by law. WHEREFORE, I vote to DISMISS the petition.
1 Executive Order No. 292, Book IV, Title XVII, Chapter 1. 2 Garcia v. Corona, G.R. No. 132451, December 17, 1999. 3 1987 CONSTITUTION, Article VI, Section 28 (2). 4 Taada v. Angara, 272 SCRA 18 (1997). 5 Executive Order No. 292, Book VI, Chapter 5, Section 37. 6 Id., at Section 38. 7 Id., at Section 48. 8 San Juan v. CSC, 196 SCRA 69 (1991). 9 Drilon v. Lim, 235 SCRA 135 (1994). 10 Magtajas v. Pryce Properties Corp., Inc. and PAGCOR, 234 SCRA 255 (1994). 11 Ganzon v. CA, 200 SCRA 271, 286 (1991). 12 Id., at 287. 13 Rules and Regulations Implementing the Local Government code of 1991, Rule XXIII, Article 182 (1) (3). 14 Rules and Regulations Implementing the Local Government Code of 1991, Rule XXIII, Article 182 (j) (1) (2). 15 Rules and Regulations Implementing the Local Government Code of 1991, Rule XXXIV, Article 405 (b). 16 1987 CONSTITUTION, Art. X, Section 6. 17 Republic Act No. 7160, Title III, Section 286. 18 Hector De Leon, PHILIPPINE CONSTITUTIONAL LAW: PRINCIPLES AND CASES, p. 505 (1991). 19 Separate Opinion of J. Esguerra in Aquino v. Enrile, 59 SCRA 183 (1974). 20 Republic Act No. 8760 (General Appropriations ACT for FY 2000). 21 See Eexecutive Order No. 190 (1999), Directing The Department of Budget And Management To Remit directly The Contributions And Other Remittances Of Local Government Units To the Concerned National Government Agencies (NGA), Government Financial Institutions (GFI), And Government Owned And/Or Controlled Corporations (GOCC). 22 Republic Act No. 8760 (General Appropriations Act for FY 2000). Includes debt write-offs under Sec. 531 of the Local Government Code: Debt Relief for Local Government Units.-- xxx

(e) Recovery schemes for the national government.---xxx The national government is hereby authorized to deduct from the quarterly share of each local government unit in the internal revenue collections an amount to be determined on the basis of the amortization schedule of the local unit concerned: Provided, That such amount shall not exceed five percent (5%) of the monthly internal revenue allotment of the local government unit concerned. 23 WHEREAS, the current economic difficulties brought about by the peso depreciation requires continued prudence in government fiscal management to maintain economic stability and sustain the countrys growth momentum. 24 Section 3, Rule 131 of the RULES OF COURT provides: SEC. 3 Disputable presumptions. The following presumptions are satisfactory if uncontradicted, but may be contradicted and overcome by other evidence: xxx (m) That official duty has been regularly performed; xxx. Rollo, pp. 48-55. Ibid., pp. 56-75. This case was deemed submitted for decision on September 27, 1999, upon receipt by this Court of respondents' 10-page Memorandum, which was signed by Asst. Sol. Gen. Mariano M. Martinez and Sol. Ofelia B. Cajigal. Petitioner's Memorandum was filed earlier, on September 21, 1999. Intervenor failed, despite due notice, to submit a memorandum within the alloted time; thus, he is deemed to have waived the filing of one. Issues of mootness and locus standi were not raised by the respondents. However, the intervention of Roberto Pagdanganan, as explained in the main text, has stopped any further discussion of petitioner's standing. On the other hand, by the failure of respondents to raise mootness as an issue, the Court thus understands that the main issue is still justiciable. In any case, respondents are deemed to have waived this defense or, at the very least, to have submitted the Petition for resolution on the merits, for the future guidance of the government, the bench and the bar. 97 Phil. 143, May 30, 1955; per Padilla, J. Ibid., pp. 147-148. Reiterated in Ganzon v. Kayanan, 104 Phil. 484 (1985); Ganzon v. Court of Appeals, 200 SCRA 271, August 5, 1991; Taule v. Santos, 200 SCRA 512, August 12, 1991. Ibid.; citing Pelaez v. Auditor General, 15 SCRA 569, December 24, 1965; Hebron v. Reyes, 104 Phil. 175 (1958); and Mondano v. Silvosa, supra. Ibid., p. 522; citing Hebron v. Reyes, ibid., per Concepcion, J. 235 SCRA 135, 142, August 4, 1994. 1, Art. VII of the Constitution. Joaquin G. Bernas, SJ, The 1987 Constitution of the Republic of the Philippines: A Commentary, 1996 ed., p. 739. The Constitution provides: "Sec. 25[, Art. II]. The State shall ensure the autonomy of local governments." "Sec. 2[, Art. X]. The territorial and political subdivisions shall enjoy local autonomy." 200 SCRA 271, 286, August 5, 1991, per Sarmiento, J.; citing 3, Art. X of the Constitution. Ibid. Ibid. 170 SCRA 786, 794-795, February 28, 1989, per Sarmiento, J. Citing 3, Art. X, 1987 Const. Citing 2, BP 337. Citing 4, Art. X, 1987 Const.

Citing BP 337; and Hebron v. Reyes, supra. Citing Hebron v. Reyes, supra. Citing Bernas, "Brewing storm over autonomy," The Manila Chronicle, pp. 4-5. 234 SCRA 255, 272, July 20,1994. San Juan v. Civil Service Commission, 196 SCRA 69, 79, April 19, 1991. 9, Art. XII of the Constitution. 3, Chapter 1, Subtitle C, Title II, Book V, EO 292 (Administrative Code of 1987). 284. See also Art. 379 of the Rules and Regulations Implementing the Local Government Code of 1991. 6 of Art. X of the Constitution reads: "Local government units shall have a just share, as determined by law, in the national taxes which shall be automatically released to them." 286 (a) provides: "Automatic Release of Shares. -- (a) The share of each local government unit shall be released, without need of any further action, directly to the provincial, city, municipal or barangay treasurer, as the case may be, on a quarterly basis within (5) days after the end of each quarter, and which shall not be subject to any lien or holdback that may be imposed by the national government for whatever purpose." Emphasis supplied. Ruben E. Agpalo, Statutory Construction, 1990 ed., p. 239. Webster's Third New International Dictionary, 1993 ed. 272 SCRA 18, May 2, 1997, per Panganiban, J. Citing Aquino Jr. v. Ponce Enrile, 59 SCRA 183, 196, September 17, 1974. Citing Guingona Jr. v. Gonzales, 219 SCRA 326, 337, March 1, 1993. Cf. Daza v. Singson, 180 SCRA 496, December 21, 1989. 281 SCRA 330, 347-48, November 5, 1997, per Puno, J. See Philippine National Bank v. Sayo, Jr., 292 SCRA 202, July 9, 1998; Vinta Maritime Co., Inc. v. NLRC, 284 SCRA 656, January 23, 1998. Footnotes omitted. "Sec. 287. Local Development Projects. -- Each local government unit shall appropriate in its annual budget no less than twenty percent (20%) of its annual internal revenue allotment for development projects. Copies of the development plans of local government units shall be furnished the Department of Interior and Local Government."

Republic of the Philippines SUPREME COURT Manila EN BANC

G.R. No. 152774

May 27, 2004

THE PROVINCE OF BATANGAS, represented by its Governor, HERMILANDO I. MANDANAS, petitioner, vs. HON. ALBERTO G. ROMULO, Executive Secretary and Chairman of the Oversight Committee on Devolution; HON. EMILIA BONCODIN, Secretary, Department of Budget and Management; HON. JOSE D. LINA, JR., Secretary, Department of Interior and Local Government, respondents. DECISION CALLEJO, SR., J.: The Province of Batangas, represented by its Governor, Hermilando I. Mandanas, filed the present petition for certiorari, prohibition and mandamus under Rule 65 of the Rules of Court, as amended, to declare as unconstitutional and void certain provisos contained in the General Appropriations Acts (GAA) of 1999, 2000 and 2001, insofar as they uniformly earmarked for each corresponding year the amount of five billion pesos (P5,000,000,000.00) of the Internal Revenue Allotment (IRA) for the Local Government Service Equalization Fund (LGSEF) and imposed conditions for the release thereof. Named as respondents are Executive Secretary Alberto G. Romulo, in his capacity as Chairman of the Oversight Committee on Devolution, Secretary Emilia Boncodin of the Department of Budget and Management (DBM) and Secretary Jose Lina of the Department of Interior and Local Government (DILG). Background On December 7, 1998, then President Joseph Ejercito Estrada issued Executive Order (E.O.) No. 48 entitled "ESTABLISHING A PROGRAM FOR DEVOLUTION ADJUSTMENT AND EQUALIZATION." The program was established to "facilitate the process of enhancing the capacities of local government units (LGUs) in the discharge of the functions and services devolved to them by the National Government Agencies concerned pursuant to the Local Government Code."1 The Oversight Committee (referred to as the Devolution Committee in E.O. No. 48) constituted under Section 533(b) of Republic Act No. 7160 (The Local Government Code of 1991) has been tasked to formulate and issue the appropriate rules and regulations necessary for its effective implementation.2 Further, to address the funding shortfalls of functions and services devolved to the LGUs and other funding requirements of the program, the "Devolution Adjustment and Equalization Fund" was created.3 For 1998, the DBM was directed to set aside an amount to be determined by the Oversight Committee based on the devolution status appraisal surveys undertaken by the DILG.4 The initial fund was to be sourced from the available savings of the national government for CY 1998.5 For 1999 and the succeeding years, the corresponding amount required to sustain the program was to be incorporated in the annual GAA.6 The Oversight Committee has been authorized to issue the implementing rules and regulations governing the equitable allocation and distribution of said fund to the LGUs.7 The LGSEF in the GAA of 1999 In Republic Act No. 8745, otherwise known as the GAA of 1999, the program was renamed as the LOCAL GOVERNMENT SERVICE EQUALIZATION FUND (LGSEF). Under said appropriations law, the amount of P96,780,000,000 was allotted as the share of the LGUs in the internal revenue taxes. Item No. 1, Special Provisions, Title XXXVI A. Internal Revenue Allotment of Rep. Act No. 8745 contained the following proviso: ... PROVIDED, That the amount of FIVE BILLION PESOS (P5,000,000,000) shall be earmarked for the Local Government Service Equalization Fund for the funding requirements of projects and activities arising from the full and efficient implementation of devolved functions and services of local government units pursuant to R.A. No. 7160, otherwise known as the Local Government Code of 1991: PROVIDED, FURTHER, That such amount shall be released to the local government units subject to the implementing rules and regulations, including such mechanisms and guidelines for the equitable allocations and distribution of said fund among local government units subject to the guidelines that may be prescribed by the Oversight Committee on Devolution as constituted pursuant to Book IV, Title III, Section 533(b) of R.A. No. 7160. The Internal Revenue Allotment shall be released directly by the Department of Budget and Management to the Local Government Units concerned. On July 28, 1999, the Oversight Committee (with then Executive Secretary Ronaldo B. Zamora as Chairman) passed Resolution Nos. OCD-99-003, OCD-99-005 and OCD-99-006 entitled as follows: OCD-99-005

RESOLUTION ADOPTING THE ALLOCATION SCHEME FOR THE PhP5 BILLION CY 1999 LOCAL GOVERNMENT SERVICE EQUALIZATION FUND (LGSEF) AND REQUESTING HIS EXCELLENCY PRESIDENT JOSEPH EJERCITO ESTRADA TO APPROVE SAID ALLOCATION SCHEME. OCD-99-006 RESOLUTION ADOPTING THE ALLOCATION SCHEME FOR THE PhP4.0 BILLION OF THE 1999 LOCAL GOVERNMENT SERVICE EQUALIZATION FUND AND ITS CONCOMITANT GENERAL FRAMEWORK, IMPLEMENTING GUIDELINES AND MECHANICS FOR ITS IMPLEMENTATION AND RELEASE, AS PROMULGATED BY THE OVERSIGHT COMMITTEE ON DEVOLUTION. OCD-99-003 RESOLUTION REQUESTING HIS EXCELLENCY PRESIDENT JOSEPH EJERCITO ESTRADA TO APPROVE THE REQUEST OF THE OVERSIGHT COMMITTEE ON DEVOLUTION TO SET ASIDE TWENTY PERCENT (20%) OF THE LOCAL GOVERNMENT SERVICE EQUALIZATION FUND (LGSEF) FOR LOCAL AFFIRMATIVE ACTION PROJECTS AND OTHER PRIORITY INITIATIVES FOR LGUs INSTITUTIONAL AND CAPABILITY BUILDING IN ACCORDANCE WITH THE IMPLEMENTING GUIDELINES AND MECHANICS AS PROMULGATED BY THE COMMITTEE. These OCD resolutions were approved by then President Estrada on October 6, 1999. Under the allocation scheme adopted pursuant to Resolution No. OCD-99-005, the five billion pesos LGSEF was to be allocated as follows: 1. The PhP4 Billion of the LGSEF shall be allocated in accordance with the allocation scheme and implementing guidelines and mechanics promulgated and adopted by the OCD. To wit: a. The first PhP2 Billion of the LGSEF shall be allocated in accordance with the codal formula sharing scheme as prescribed under the 1991 Local Government Code; b. The second PhP2 Billion of the LGSEF shall be allocated in accordance with a modified 1992 cost of devolution fund (CODEF) sharing scheme, as recommended by the respective leagues of provinces, cities and municipalities to the OCD. The modified CODEF sharing formula is as follows: Province : 40% Cities : 20% Municipalities : 40% This is applied to the P2 Billion after the approved amounts granted to individual provinces, cities and municipalities as assistance to cover decrease in 1999 IRA share due to reduction in land area have been taken out. 2. The remaining PhP1 Billion of the LGSEF shall be earmarked to support local affirmative action projects and other priority initiatives submitted by LGUs to the Oversight Committee on Devolution for approval in accordance with its prescribed guidelines as promulgated and adopted by the OCD. In Resolution No. OCD-99-003, the Oversight Committee set aside the one billion pesos or 20% of the LGSEF to support Local Affirmative Action Projects (LAAPs) of LGUs. This remaining amount was intended to "respond to the urgent need for additional funds assistance, otherwise not available within the parameters of other existing fund sources." For LGUs to be eligible for funding under the one-billion-peso portion of the LGSEF, the OCD promulgated the following: III. CRITERIA FOR ELIGIBILITY: 1. LGUs (province, city, municipality, or barangay), individually or by group or multi-LGUs or leagues of LGUs, especially those belonging to the 5th and 6th class, may access the fund to support any projects or activities that satisfy any of the aforecited purposes. A barangay may also access this fund directly or through their respective municipality or city. 2. The proposed project/activity should be need-based, a local priority, with high development impact and are congruent with the socio-cultural, economic and development agenda of the Estrada Administration, such as food security, poverty alleviation, electrification, and peace and order, among others.

3. Eligible for funding under this fund are projects arising from, but not limited to, the following areas of concern: a. delivery of local health and sanitation services, hospital services and other tertiary services; b. delivery of social welfare services; c. provision of socio-cultural services and facilities for youth and community development; d. provision of agricultural and on-site related research; e. improvement of community-based forestry projects and other local projects on environment and natural resources protection and conservation; f. improvement of tourism facilities and promotion of tourism; g. peace and order and public safety; h. construction, repair and maintenance of public works and infrastructure, including public buildings and facilities for public use, especially those destroyed or damaged by man-made or natural calamities and disaster as well as facilities for water supply, flood control and river dikes; i. provision of local electrification facilities; j. livelihood and food production services, facilities and equipment; k. other projects that may be authorized by the OCD consistent with the aforementioned objectives and guidelines; 4. Except on extremely meritorious cases, as may be determined by the Oversight Committee on Devolution, this portion of the LGSEF shall not be used in expenditures for personal costs or benefits under existing laws applicable to governments. Generally, this fund shall cover the following objects of expenditures for programs, projects and activities arising from the implementation of devolved and regular functions and services: a. acquisition/procurement of supplies and materials critical to the full and effective implementation of devolved programs, projects and activities; b. repair and/or improvement of facilities; c. repair and/or upgrading of equipment; d. acquisition of basic equipment; e. construction of additional or new facilities; f. counterpart contribution to joint arrangements or collective projects among groups of municipalities, cities and/or provinces related to devolution and delivery of basic services. 5. To be eligible for funding, an LGU or group of LGU shall submit to the Oversight Committee on Devolution through the Department of Interior and Local Governments, within the prescribed schedule and timeframe, a Letter Request for Funding Support from the Affirmative Action Program under the LGSEF, duly signed by the concerned LGU(s) and endorsed by cooperators and/or beneficiaries, as well as the duly signed Resolution of Endorsement by the respective Sanggunian(s) of the LGUs concerned. The LGU-proponent shall also be required to submit the Project Request (PR), using OCD Project Request Form No. 99-02, that details the following: (a) general description or brief of the project; (b) objectives and justifications for undertaking the project, which should highlight the benefits to the locality and the expected impact to the local program/project arising from the full and efficient implementation of social services and facilities, at the local levels; (c) target outputs or key result areas;

(d) schedule of activities and details of requirements; (e) total cost requirement of the project; (f) proponent's counterpart funding share, if any, and identified source(s) of counterpart funds for the full implementation of the project; (g) requested amount of project cost to be covered by the LGSEF. Further, under the guidelines formulated by the Oversight Committee as contained in Attachment - Resolution No. OCD-99-003, the LGUs were required to identify the projects eligible for funding under the one-billion-peso portion of the LGSEF and submit the project proposals thereof and other documentary requirements to the DILG for appraisal. The project proposals that passed the DILG's appraisal would then be submitted to the Oversight Committee for review, evaluation and approval. Upon its approval, the Oversight Committee would then serve notice to the DBM for the preparation of the Special Allotment Release Order (SARO) and Notice of Cash Allocation (NCA) to effect the release of funds to the said LGUs. The LGSEF in the GAA of 2000 Under Rep. Act No. 8760, otherwise known as the GAA of 2000, the amount of P111,778,000,000 was allotted as the share of the LGUs in the internal revenue taxes. As in the GAA of 1999, the GAA of 2000 contained a proviso earmarking five billion pesos of the IRA for the LGSEF. This proviso, found in Item No. 1, Special Provisions, Title XXXVII A. Internal Revenue Allotment, was similarly worded as that contained in the GAA of 1999. The Oversight Committee, in its Resolution No. OCD-2000-023 dated June 22, 2000, adopted the following allocation scheme governing the five billion pesos LGSEF for 2000: 1. The PhP3.5 Billion of the CY 2000 LGSEF shall be allocated to and shared by the four levels of LGUs, i.e., provinces, cities, municipalities, and barangays, using the following percentage-sharing formula agreed upon and jointly endorsed by the various Leagues of LGUs: For Provinces 26% or P 910,000,000 For Cities 23% or 805,000,000 For Municipalities 35% or 1,225,000,000 For Barangays 16% or 560,000,000 Provided that the respective Leagues representing the provinces, cities, municipalities and barangays shall draw up and adopt the horizontal distribution/sharing schemes among the member LGUs whereby the Leagues concerned may opt to adopt direct financial assistance or project-based arrangement, such that the LGSEF allocation for individual LGU shall be released directly to the LGU concerned; Provided further that the individual LGSEF shares to LGUs are used in accordance with the general purposes and guidelines promulgated by the OCD for the implementation of the LGSEF at the local levels pursuant to Res. No. OCD-99-006 dated October 7, 1999 and pursuant to the Leagues' guidelines and mechanism as approved by the OCD; Provided further that each of the Leagues shall submit to the OCD for its approval their respective allocation scheme, the list of LGUs with the corresponding LGSEF shares and the corresponding project categories if project-based; Provided further that upon approval by the OCD, the lists of LGUs shall be endorsed to the DBM as the basis for the preparation of the corresponding NCAs, SAROs, and related budget/release documents. 2. The remaining P1,500,000,000 of the CY 2000 LGSEF shall be earmarked to support the following initiatives and local affirmative action projects, to be endorsed to and approved by the Oversight Committee on Devolution in accordance with the OCD agreements, guidelines, procedures and documentary requirements: On July 5, 2000, then President Estrada issued a Memorandum authorizing then Executive Secretary Zamora and the DBM to implement and release the 2.5 billion pesos LGSEF for 2000 in accordance with Resolution No. OCD-2000-023. Thereafter, the Oversight Committee, now under the administration of President Gloria Macapagal-Arroyo, promulgated Resolution No. OCD-2001-29 entitled "ADOPTING RESOLUTION NO. OCD-2000-023 IN THE ALLOCATION,

IMPLEMENTATION AND RELEASE OF THE REMAINING P2.5 BILLION LGSEF FOR CY 2000." Under this resolution, the amount of one billion pesos of the LGSEF was to be released in accordance with paragraph 1 of Resolution No. OCD-200023, to complete the 3.5 billion pesos allocated to the LGUs, while the amount of 1.5 billion pesos was allocated for the LAAP. However, out of the latter amount, P400,000,000 was to be allocated and released as follows: P50,000,000 as financial assistance to the LAAPs of LGUs; P275,360,227 as financial assistance to cover the decrease in the IRA of LGUs concerned due to reduction in land area; and P74,639,773 for the LGSEF Capability-Building Fund. The LGSEF in the GAA of 2001 In view of the failure of Congress to enact the general appropriations law for 2001, the GAA of 2000 was deemed re-enacted, together with the IRA of the LGUs therein and the proviso earmarking five billion pesos thereof for the LGSEF. On January 9, 2002, the Oversight Committee adopted Resolution No. OCD-2002-001 allocating the five billion pesos LGSEF for 2001 as follows: Modified Codal Formula Priority Projects Capability Building Fund P 3.000 billion 1.900 billion .100 billion P 5.000 billion RESOLVED FURTHER, that the P3.0 B of the CY 2001 LGSEF which is to be allocated according to the modified codal formula shall be released to the four levels of LGUs, i.e., provinces, cities, municipalities and barangays, as follows: LGUs Provinces Cities Percentage 25 25 Amount P 0.750 billion 0.750 1.050 0.450 P 3.000 billion

Municipalities 35 Barangays 15 100

RESOLVED FURTHER, that the P1.9 B earmarked for priority projects shall be distributed according to the following criteria: 1.0 For projects of the 4th, 5th and 6th class LGUs; or 2.0 Projects in consonance with the President's State of the Nation Address (SONA)/summit commitments. RESOLVED FURTHER, that the remaining P100 million LGSEF capability building fund shall be distributed in accordance with the recommendation of the Leagues of Provinces, Cities, Municipalities and Barangays, and approved by the OCD. Upon receipt of a copy of the above resolution, Gov. Mandanas wrote to the individual members of the Oversight Committee seeking the reconsideration of Resolution No. OCD-2002-001. He also wrote to Pres. Macapagal-Arroyo urging her to disapprove said resolution as it violates the Constitution and the Local Government Code of 1991. On January 25, 2002, Pres. Macapagal-Arroyo approved Resolution No. OCD-2002-001. The Petitioner's Case The petitioner now comes to this Court assailing as unconstitutional and void the provisos in the GAAs of 1999, 2000 and 2001, relating to the LGSEF. Similarly assailed are the Oversight Committee's Resolutions Nos. OCD-99-003, OCD-99-005, OCD-99-006, OCD2000-023, OCD-2001-029 and OCD-2002-001 issued pursuant thereto. The petitioner submits that the assailed provisos in the GAAs and the OCD resolutions, insofar as they earmarked the amount of five billion pesos of the IRA of the LGUs for 1999, 2000 and 2001 for the LGSEF and imposed conditions for the release thereof, violate the Constitution and the Local Government Code of 1991.

Section 6, Article X of the Constitution is invoked as it mandates that the "just share" of the LGUs shall be automatically released to them. Sections 18 and 286 of the Local Government Code of 1991, which enjoin that the "just share" of the LGUs shall be "automatically and directly" released to them "without need of further action" are, likewise, cited. The petitioner posits that to subject the distribution and release of the five-billion-peso portion of the IRA, classified as the LGSEF, to compliance by the LGUs with the implementing rules and regulations, including the mechanisms and guidelines prescribed by the Oversight Committee, contravenes the explicit directive of the Constitution that the LGUs' share in the national taxes "shall be automatically released to them." The petitioner maintains that the use of the word "shall" must be given a compulsory meaning. To further buttress this argument, the petitioner contends that to vest the Oversight Committee with the authority to determine the distribution and release of the LGSEF, which is a part of the IRA of the LGUs, is an anathema to the principle of local autonomy as embodied in the Constitution and the Local Government Code of 1991. The petitioner cites as an example the experience in 2001 when the release of the LGSEF was long delayed because the Oversight Committee was not able to convene that year and no guidelines were issued therefor. Further, the possible disapproval by the Oversight Committee of the project proposals of the LGUs would result in the diminution of the latter's share in the IRA. Another infringement alleged to be occasioned by the assailed OCD resolutions is the improper amendment to Section 285 of the Local Government Code of 1991 on the percentage sharing of the IRA among the LGUs. Said provision allocates the IRA as follows: Provinces 23%; Cities 23%; Municipalities 34%; and Barangays 20%.8 This formula has been improperly amended or modified, with respect to the five-billion-peso portion of the IRA allotted for the LGSEF, by the assailed OCD resolutions as they invariably provided for a different sharing scheme. The modifications allegedly constitute an illegal amendment by the executive branch of a substantive law. Moreover, the petitioner mentions that in the Letter dated December 5, 2001 of respondent Executive Secretary Romulo addressed to respondent Secretary Boncodin, the former endorsed to the latter the release of funds to certain LGUs from the LGSEF in accordance with the handwritten instructions of President Arroyo. Thus, the LGUs are at a loss as to how a portion of the LGSEF is actually allocated. Further, there are still portions of the LGSEF that, to date, have not been received by the petitioner; hence, resulting in damage and injury to the petitioner. The petitioner prays that the Court declare as unconstitutional and void the assailed provisos relating to the LGSEF in the GAAs of 1999, 2000 and 2001 and the assailed OCD resolutions (Resolutions Nos. OCD-99-003, OCD-99-005, OCD-99-006, OCD-2000-023, OCD-2001-029 and OCD-2002-001) issued by the Oversight Committee pursuant thereto. The petitioner, likewise, prays that the Court direct the respondents to rectify the unlawful and illegal distribution and releases of the LGSEF for the aforementioned years and release the same in accordance with the sharing formula under Section 285 of the Local Government Code of 1991. Finally, the petitioner urges the Court to declare that the entire IRA should be released automatically without further action by the LGUs as required by the Constitution and the Local Government Code of 1991. The Respondents' Arguments The respondents, through the Office of the Solicitor General, urge the Court to dismiss the petition on procedural and substantive grounds. On the latter, the respondents contend that the assailed provisos in the GAAs of 1999, 2000 and 2001 and the assailed resolutions issued by the Oversight Committee are not constitutionally infirm. The respondents advance the view that Section 6, Article X of the Constitution does not specify that the "just share" of the LGUs shall be determined solely by the Local Government Code of 1991. Moreover, the phrase "as determined by law" in the same constitutional provision means that there exists no limitation on the power of Congress to determine what is the "just share" of the LGUs in the national taxes. In other words, Congress is the arbiter of what should be the "just share" of the LGUs in the national taxes. The respondents further theorize that Section 285 of the Local Government Code of 1991, which provides for the percentage sharing of the IRA among the LGUs, was not intended to be a fixed determination of their "just share" in the national taxes. Congress may enact other laws, including appropriations laws such as the GAAs of 1999, 2000 and 2001, providing for a different sharing formula. Section 285 of the Local Government Code of 1991 was merely intended to be the "default share" of the LGUs to do away with the need to determine annually by law their "just share." However, the LGUs have no vested right in a permanent or fixed percentage as Congress may increase or decrease the "just share" of the LGUs in accordance with what it believes is appropriate for their operation. There is nothing in the Constitution which prohibits Congress from making such determination through the appropriations laws. If the provisions of a particular statute, the GAA in this case, are within the constitutional power of the legislature to enact, they should be sustained whether the courts agree or not in the wisdom of their enactment. On procedural grounds, the respondents urge the Court to dismiss the petition outright as the same is defective. The petition allegedly raises factual issues which should be properly threshed out in the lower courts, not this Court, not being a trier of facts. Specifically, the petitioner's allegation that there are portions of the LGSEF that it has not, to date, received, thereby causing it (the petitioner) injury and damage, is subject to proof and must be substantiated in the proper venue, i.e., the lower courts. Further, according to the respondents, the petition has already been rendered moot and academic as it no longer presents a justiciable controversy. The IRAs for the years 1999, 2000 and 2001, have already been released and the government is now operating under the

2003 budget. In support of this, the respondents submitted certifications issued by officers of the DBM attesting to the release of the allocation or shares of the petitioner in the LGSEF for 1999, 2000 and 2001. There is, therefore, nothing more to prohibit. Finally, the petitioner allegedly has no legal standing to bring the suit because it has not suffered any injury. In fact, the petitioner's "just share" has even increased. Pursuant to Section 285 of the Local Government Code of 1991, the share of the provinces is 23%. OCD Nos. 99-005, 99-006 and 99-003 gave the provinces 40% of P2 billion of the LGSEF. OCD Nos. 2000-023 and 2001-029 apportioned 26% of P3.5 billion to the provinces. On the other hand, OCD No. 2001-001 allocated 25% of P3 billion to the provinces. Thus, the petitioner has not suffered any injury in the implementation of the assailed provisos in the GAAs of 1999, 2000 and 2001 and the OCD resolutions. The Ruling of the Court Procedural Issues Before resolving the petition on its merits, the Court shall first rule on the following procedural issues raised by the respondents: (1) whether the petitioner has legal standing or locus standi to file the present suit; (2) whether the petition involves factual questions that are properly cognizable by the lower courts; and (3) whether the issue had been rendered moot and academic. The petitioner has locus standi to maintain the present suit The gist of the question of 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."9 Accordingly, it has been held that the interest of a party assailing the constitutionality of a statute must be direct and personal. Such party must be able to show, not only that the law or any government act is invalid, but also that he has sustained or is in imminent 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 or act complained of.10 The Court holds that the petitioner possesses the requisite standing to maintain the present suit. The petitioner, a local government unit, seeks relief in order to protect or vindicate an interest of its own, and of the other LGUs. This interest pertains to the LGUs' share in the national taxes or the IRA. The petitioner's constitutional claim is, in substance, that the assailed provisos in the GAAs of 1999, 2000 and 2001, and the OCD resolutions contravene Section 6, Article X of the Constitution, mandating the "automatic release" to the LGUs of their share in the national taxes. Further, the injury that the petitioner claims to suffer is the diminution of its share in the IRA, as provided under Section 285 of the Local Government Code of 1991, occasioned by the implementation of the assailed measures. These allegations are sufficient to grant the petitioner standing to question the validity of the assailed provisos in the GAAs of 1999, 2000 and 2001, and the OCD resolutions as the petitioner clearly has "a plain, direct and adequate interest" in the manner and distribution of the IRA among the LGUs. The petition involves a significant legal issue The crux of the instant controversy is whether the assailed provisos contained in the GAAs of 1999, 2000 and 2001, and the OCD resolutions infringe the Constitution and the Local Government Code of 1991. This is undoubtedly a legal question. On the other hand, the following facts are not disputed: 1. The earmarking of five billion pesos of the IRA for the LGSEF in the assailed provisos in the GAAs of 1999, 2000 and reenacted budget for 2001; 2. The promulgation of the assailed OCD resolutions providing for the allocation schemes covering the said five billion pesos and the implementing rules and regulations therefor; and 3. The release of the LGSEF to the LGUs only upon their compliance with the implementing rules and regulations, including the guidelines and mechanisms, prescribed by the Oversight Committee. Considering that these facts, which are necessary to resolve the legal question now before this Court, are no longer in issue, the same need not be determined by a trial court.11 In any case, the rule on hierarchy of courts will not prevent this Court from assuming jurisdiction over the petition. The said rule may be relaxed when the redress desired cannot be obtained in the appropriate courts or where exceptional and compelling circumstances justify availment of a remedy within and calling for the exercise of this Court's primary jurisdiction.12 The crucial legal issue submitted for resolution of this Court entails the proper legal interpretation of constitutional and statutory provisions. Moreover, the "transcendental importance" of the case, as it necessarily involves the application of the constitutional principle on local autonomy, cannot be gainsaid. The nature of the present controversy, therefore, warrants the relaxation by this Court of procedural rules in order to resolve the case forthwith.

The substantive issue needs to be resolved notwithstanding the supervening events Granting arguendo that, as contended by the respondents, the resolution of the case had already been overtaken by supervening events as the IRA, including the LGSEF, for 1999, 2000 and 2001, had already been released and the government is now operating under a new appropriations law, still, there is compelling reason for this Court to resolve the substantive issue raised by the instant petition. Supervening events, whether intended or accidental, cannot prevent the Court from rendering a decision if there is a grave violation of the Constitution.13 Even in cases where supervening events had made the cases moot, the Court did not hesitate to resolve the legal or constitutional issues raised to formulate controlling principles to guide the bench, bar and public.14 Another reason justifying the resolution by this Court of the substantive issue now before it is the rule that courts will decide a question otherwise moot and academic if it is "capable of repetition, yet evading review."15 For the GAAs in the coming years may contain provisos similar to those now being sought to be invalidated, and yet, the question may not be decided before another GAA is enacted. It, thus, behooves this Court to make a categorical ruling on the substantive issue now. Substantive Issue As earlier intimated, the resolution of the substantive legal issue in this case calls for the application of a most important constitutional policy and principle, that of local autonomy.16 In Article II of the Constitution, the State has expressly adopted as a policy that: Section 25. The State shall ensure the autonomy of local governments. An entire article (Article X) of the Constitution has been devoted to guaranteeing and promoting the autonomy of LGUs. Section 2 thereof reiterates the State policy in this wise: Section 2. The territorial and political subdivisions shall enjoy local autonomy. Consistent with the principle of local autonomy, the Constitution confines the President's power over the LGUs to one of general supervision.17 This provision has been interpreted to exclude the power of control. The distinction between the two powers was enunciated in Drilon v. Lim:18 An officer in control lays down the rules in the doing of an act. If they are not followed, he may, in his discretion, order the act undone or re-done by his subordinate or he may even decide to do it himself. Supervision does not cover such authority. The supervisor or superintendent merely sees to it that the rules are followed, but he himself does not lay down such rules, nor does he have the discretion to modify or replace them. If the rules are not observed, he may order the work done or re-done but only to conform to the prescribed rules. He may not prescribe his own manner for doing the act. He has no judgment on this matter except to see to it that the rules are followed.19 The Local Government Code of 199120 was enacted to flesh out the mandate of the Constitution.21 The State policy on local autonomy is amplified in Section 2 thereof: Sec. 2. Declaration of Policy. (a) 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. Toward 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. Guided by these precepts, the Court shall now determine whether the assailed provisos in the GAAs of 1999, 2000 and 2001, earmarking for each corresponding year the amount of five billion pesos of the IRA for the LGSEF and the OCD resolutions promulgated pursuant thereto, transgress the Constitution and the Local Government Code of 1991. The assailed provisos in the GAAs of 1999, 2000 and 2001 and the OCD resolutions violate the constitutional precept on local autonomy Section 6, Article X of the Constitution reads: Sec. 6. Local government units shall have a just share, as determined by law, in the national taxes which shall be automatically released to them. When parsed, it would be readily seen that this provision mandates that (1) the LGUs shall have a "just share" in the national taxes; (2) the "just share" shall be determined by law; and (3) the "just share" shall be automatically released to the LGUs.

The Local Government Code of 1991, among its salient provisions, underscores the automatic release of the LGUs' "just share" in this wise: Sec. 18. Power to Generate and Apply Resources. Local government units shall have the power and authority to establish an organization that shall be responsible for the efficient and effective implementation of their development plans, program objectives and priorities; to create their own sources of revenue and to levy taxes, fees, and charges which shall accrue exclusively for their use and disposition and which shall be retained by them; to have a just share in national taxes which shall be automatically and directly released to them without need of further action; ... Sec. 286. Automatic Release of Shares. (a) The share of each local government unit shall be released, without need of any further action, directly to the provincial, city, municipal or barangay treasurer, as the case may be, on a quarterly basis within five (5) days after the end of each quarter, and which shall not be subject to any lien or holdback that may be imposed by the national government for whatever purpose. (b) Nothing in this Chapter shall be understood to diminish the share of local government units under existing laws. Webster's Third New International Dictionary defines "automatic" as "involuntary either wholly or to a major extent so that any activity of the will is largely negligible; of a reflex nature; without volition; mechanical; like or suggestive of an automaton." Further, the word "automatically" is defined as "in an automatic manner: without thought or conscious intention." Being "automatic," thus, connotes something mechanical, spontaneous and perfunctory. As such, the LGUs are not required to perform any act to receive the "just share" accruing to them from the national coffers. As emphasized by the Local Government Code of 1991, the "just share" of the LGUs shall be released to them "without need of further action." Construing Section 286 of the LGC, we held in Pimentel, Jr. v. Aguirre,22 viz: Section 4 of AO 372 cannot, however, be upheld. A basic feature of local fiscal autonomy is the automatic release of the shares of LGUs in the National internal revenue. This is mandated by no less than the Constitution. The Local Government Code specifies further that the release shall be made directly to the LGU concerned within five (5) days after every quarter of the year and "shall not be subject to any lien or holdback that may be imposed by the national government for whatever purpose." As a rule, the term "SHALL" is a word of command that must be given a compulsory meaning. The provision is, therefore, IMPERATIVE. Section 4 of AO 372, however, orders the withholding, effective January 1, 1998, of 10 percent of the LGUs' IRA "pending the assessment and evaluation by the Development Budget Coordinating Committee of the emerging fiscal situation" in the country. Such withholding clearly contravenes the Constitution and the law. Although temporary, it is equivalent to a holdback, which means "something held back or withheld, often temporarily." Hence, the "temporary" nature of the retention by the national government does not matter. Any retention is prohibited. In sum, while Section 1 of AO 372 may be upheld as an advisory effected in times of national crisis, Section 4 thereof has no color of validity at all. The latter provision effectively encroaches on the fiscal autonomy of local governments. Concededly, the President was well-intentioned in issuing his Order to withhold the LGUs' IRA, but the rule of law requires that even the best intentions must be carried out within the parameters of the Constitution and the law. Verily, laudable purposes must be carried out by legal methods.23 The "just share" of the LGUs is incorporated as the IRA in the appropriations law or GAA enacted by Congress annually. Under the assailed provisos in the GAAs of 1999, 2000 and 2001, a portion of the IRA in the amount of five billion pesos was earmarked for the LGSEF, and these provisos imposed the condition that "such amount shall be released to the local government units subject to the implementing rules and regulations, including such mechanisms and guidelines for the equitable allocations and distribution of said fund among local government units subject to the guidelines that may be prescribed by the Oversight Committee on Devolution." Pursuant thereto, the Oversight Committee, through the assailed OCD resolutions, apportioned the five billion pesos LGSEF such that: For 1999 P2 billion - allocated according to Sec. 285 LGC P2 billion - Modified Sharing Formula (Provinces 40%; Cities 20%; Municipalities 40%) P1 billion projects (LAAP) approved by OCD.24 For 2000 P3.5 billion Modified Sharing Formula (Provinces 26%;

Cities 23%; Municipalities 35%; Barangays 16%); P1.5 billion projects (LAAP) approved by the OCD.25 For 2001 P3 billion Modified Sharing Formula (Provinces 25%; Cities 25%; Municipalities 35%; Barangays 15%) P1.9 billion priority projects P100 million capability building fund.26 Significantly, the LGSEF could not be released to the LGUs without the Oversight Committee's prior approval. Further, with respect to the portion of the LGSEF allocated for various projects of the LGUs (P1 billion for 1999; P1.5 billion for 2000 and P2 billion for 2001), the Oversight Committee, through the assailed OCD resolutions, laid down guidelines and mechanisms that the LGUs had to comply with before they could avail of funds from this portion of the LGSEF. The guidelines required (a) the LGUs to identify the projects eligible for funding based on the criteria laid down by the Oversight Committee; (b) the LGUs to submit their project proposals to the DILG for appraisal; (c) the project proposals that passed the appraisal of the DILG to be submitted to the Oversight Committee for review, evaluation and approval. It was only upon approval thereof that the Oversight Committee would direct the DBM to release the funds for the projects. To the Court's mind, the entire process involving the distribution and release of the LGSEF is constitutionally impermissible. The LGSEF is part of the IRA or "just share" of the LGUs in the national taxes. To subject its distribution and release to the vagaries of the implementing rules and regulations, including the guidelines and mechanisms unilaterally prescribed by the Oversight Committee from time to time, as sanctioned by the assailed provisos in the GAAs of 1999, 2000 and 2001 and the OCD resolutions, makes the release not automatic, a flagrant violation of the constitutional and statutory mandate that the "just share" of the LGUs "shall be automatically released to them." The LGUs are, thus, placed at the mercy of the Oversight Committee. Where the law, the Constitution in this case, is clear and unambiguous, it must be taken to mean exactly what it says, and courts have no choice but to see to it that the mandate is obeyed.27 Moreover, as correctly posited by the petitioner, the use of the word "shall" connotes a mandatory order. Its use in a statute denotes an imperative obligation and is inconsistent with the idea of discretion.28 Indeed, the Oversight Committee exercising discretion, even control, over the distribution and release of a portion of the IRA, the LGSEF, is an anathema to and subversive of the principle of local autonomy as embodied in the Constitution. Moreover, it finds no statutory basis at all as the Oversight Committee was created merely to formulate the rules and regulations for the efficient and effective implementation of the Local Government Code of 1991 to ensure "compliance with the principles of local autonomy as defined under the Constitution."29 In fact, its creation was placed under the title of "Transitory Provisions," signifying its ad hoc character. According to Senator Aquilino Q. Pimentel, the principal author and sponsor of the bill that eventually became Rep. Act No. 7160, the Committee's work was supposed to be done a year from the approval of the Code, or on October 10, 1992.30 The Oversight Committee's authority is undoubtedly limited to the implementation of the Local Government Code of 1991, not to supplant or subvert the same. Neither can it exercise control over the IRA, or even a portion thereof, of the LGUs. That the automatic release of the IRA was precisely intended to guarantee and promote local autonomy can be gleaned from the discussion below between Messrs. Jose N. Nolledo and Regalado M. Maambong, then members of the 1986 Constitutional Commission, to wit: MR. MAAMBONG. Unfortunately, under Section 198 of the Local Government Code, the existence of subprovinces is still acknowledged by the law, but the statement of the Gentleman on this point will have to be taken up probably by the Committee on Legislation. A second point, Mr. Presiding Officer, is that under Article 2, Section 10 of the 1973 Constitution, we have a provision which states: The State shall guarantee and promote the autonomy of local government units, especially the barrio, to insure their fullest development as self-reliant communities. This provision no longer appears in the present configuration; does this mean that the concept of giving local autonomy to local governments is no longer adopted as far as this Article is concerned? MR. NOLLEDO. No. In the report of the Committee on Preamble, National Territory, and Declaration of Principles, that concept is included and widened upon the initiative of Commissioner Bennagen. MR. MAAMBONG. Thank you for that.

With regard to Section 6, sources of revenue, the creation of sources as provided by previous law was "subject to limitations as may be provided by law," but now, we are using the term "subject to such guidelines as may be fixed by law." In Section 7, mention is made about the "unique, distinct and exclusive charges and contributions," and in Section 8, we talk about "exclusivity of local taxes and the share in the national wealth." Incidentally, I was one of the authors of this provision, and I am very thankful. Does this indicate local autonomy, or was the wording of the law changed to give more autonomy to the local government units?31 MR. NOLLEDO. Yes. In effect, those words indicate also "decentralization" because local political units can collect taxes, fees and charges subject merely to guidelines, as recommended by the league of governors and city mayors, with whom I had a dialogue for almost two hours. They told me that limitations may be questionable in the sense that Congress may limit and in effect deny the right later on. MR. MAAMBONG. Also, this provision on "automatic release of national tax share" points to more local autonomy. Is this the intention? MR. NOLLEDO. Yes, the Commissioner is perfectly right.32 The concept of local autonomy was explained in Ganzon v. Court of Appeals33 in this wise: As the Constitution itself declares, local autonomy 'means a more responsive and accountable local government structure instituted through a system of decentralization.' The Constitution, as we observed, does nothing more than to break up the monopoly of the national government over the affairs of local governments and as put by political adherents, to "liberate the local governments from the imperialism of Manila." Autonomy, however, is not meant to end the relation of partnership and interdependence between the central administration and local government units, or otherwise, to usher in a regime of federalism. The Charter has not taken such a radical step. Local governments, under the Constitution, are subject to regulation, however limited, and for no other purpose than precisely, albeit paradoxically, to enhance self-government. As we observed in one case, decentralization means devolution of national administration but not power to the local levels. Thus: Now, autonomy is either decentralization of administration or decentralization of power. There is decentralization of administration when the central government delegates administrative powers to political subdivisions in order to broaden the base of government power and in the process to make local governments 'more responsive and accountable' and 'ensure their fullest development as self-reliant communities and make them more effective partners in the pursuit of national development and social progress.' At the same time, it relieves the central government of the burden of managing local affairs and enables it to concentrate on national concerns. The President exercises 'general supervision' over them, but only to 'ensure that local affairs are administered according to law.' He has no control over their acts in the sense that he can substitute their judgments with his own. Decentralization of power, on the other hand, involves an abdication of political power in the [sic] favor of local governments [sic] units declared to be autonomous. In that case, the autonomous government is free to chart its own destiny and shape its future with minimum intervention from central authorities. According to a constitutional author, decentralization of power amounts to 'selfimmolation,' since in that event, the autonomous government becomes accountable not to the central authorities but to its constituency.34 Local autonomy includes both administrative and fiscal autonomy. The fairly recent case of Pimentel v. Aguirre35 is particularly instructive. The Court declared therein that local fiscal autonomy includes the power of the LGUs to, inter alia, allocate their resources in accordance with their own priorities: Under existing law, local government units, in addition to having administrative autonomy in the exercise of their functions, enjoy fiscal autonomy as well. Fiscal autonomy means that local governments have the power to create their own sources of revenue in addition to their equitable share in the national taxes released by the national government, as well as the power to allocate their resources in accordance with their own priorities. It extends to the preparation of their budgets, and local officials in turn have to work within the constraints thereof. They are not formulated at the national level and imposed on local governments, whether they are relevant to local needs and resources or not ...36 Further, a basic feature of local fiscal autonomy is the constitutionally mandated automatic release of the shares of LGUs in the national internal revenue.37 Following this ratiocination, the Court in Pimentel struck down as unconstitutional Section 4 of Administrative Order (A.O.) No. 372 which ordered the withholding, effective January 1, 1998, of ten percent of the LGUs' IRA "pending the assessment and evaluation by the Development Budget Coordinating Committee of the emerging fiscal situation." In like manner, the assailed provisos in the GAAs of 1999, 2000 and 2001, and the OCD resolutions constitute a "withholding" of a portion of the IRA. They put on hold the distribution and release of the five billion pesos LGSEF and subject the same to the implementing rules and regulations, including the guidelines and mechanisms prescribed by the Oversight Committee from time to time. Like Section 4 of A.O. 372, the assailed provisos in the GAAs of 1999, 2000 and 2001 and the OCD resolutions effectively encroach on the fiscal autonomy enjoyed by the LGUs and must be struck down. They cannot, therefore, be upheld.

The assailed provisos in the GAAs of 1999, 2000 and 2001 and the OCD resolutions cannot amend Section 285 of the Local Government Code of 1991 Section 28438 of the Local Government Code provides that, beginning the third year of its effectivity, the LGUs' share in the national internal revenue taxes shall be 40%. This percentage is fixed and may not be reduced except "in the event the national government incurs an unmanageable public sector deficit" and only upon compliance with stringent requirements set forth in the same section: Sec. 284. ... Provided, That in the event that the national government incurs an unmanageable public sector deficit, the President of the Philippines is hereby authorized, upon recommendation of Secretary of Finance, Secretary of Interior and Local Government and Secretary of Budget and Management, and subject to consultation with the presiding officers of both Houses of Congress and the presidents of the liga, to make the necessary adjustments in the internal revenue allotment of local government units but in no case shall the allotment be less than thirty percent (30%) of the collection of the national internal revenue taxes of the third fiscal year preceding the current fiscal year; Provided, further That in the first year of the effectivity of this Code, the local government units shall, in addition to the thirty percent (30%) internal revenue allotment which shall include the cost of devolved functions for essential public services, be entitled to receive the amount equivalent to the cost of devolved personnel services. Thus, from the above provision, the only possible exception to the mandatory automatic release of the LGUs' IRA is if the national internal revenue collections for the current fiscal year is less than 40 percent of the collections of the preceding third fiscal year, in which case what should be automatically released shall be a proportionate amount of the collections for the current fiscal year. The adjustment may even be made on a quarterly basis depending on the actual collections of national internal revenue taxes for the quarter of the current fiscal year. In the instant case, however, there is no allegation that the national internal revenue tax collections for the fiscal years 1999, 2000 and 2001 have fallen compared to the preceding three fiscal years. Section 285 then specifies how the IRA shall be allocated among the LGUs: Sec. 285. Allocation to Local Government Units. The share of local government units in the internal revenue allotment shall be allocated in the following manner: (a) Provinces Twenty-three (23%) (b) Cities Twenty-three percent (23%); (c) Municipalities Thirty-four (34%); and (d) Barangays Twenty percent (20%). However, this percentage sharing is not followed with respect to the five billion pesos LGSEF as the assailed OCD resolutions, implementing the assailed provisos in the GAAs of 1999, 2000 and 2001, provided for a different sharing scheme. For example, for 1999, P2 billion of the LGSEF was allocated as follows: Provinces 40%; Cities 20%; Municipalities 40%.39 For 2000, P3.5 billion of the LGSEF was allocated in this manner: Provinces 26%; Cities 23%; Municipalities 35%; Barangays 26%.40 For 2001, P3 billion of the LGSEF was allocated, thus: Provinces 25%; Cities 25%; Municipalities 35%; Barangays 15%.41 The respondents argue that this modification is allowed since the Constitution does not specify that the "just share" of the LGUs shall only be determined by the Local Government Code of 1991. That it is within the power of Congress to enact other laws, including the GAAs, to increase or decrease the "just share" of the LGUs. This contention is untenable. The Local Government Code of 1991 is a substantive law. And while it is conceded that Congress may amend any of the provisions therein, it may not do so through appropriations laws or GAAs. Any amendment to the Local Government Code of 1991 should be done in a separate law, not in the appropriations law, because Congress cannot include in a general appropriation bill matters that should be more properly enacted in a separate legislation.42 A general appropriations bill is a special type of legislation, whose content is limited to specified sums of money dedicated to a specific purpose or a separate fiscal unit.43 Any provision therein which is intended to amend another law is considered an "inappropriate provision." The category of "inappropriate provisions" includes unconstitutional provisions and provisions which are intended to amend other laws, because clearly these kinds of laws have no place in an appropriations bill.44 Increasing or decreasing the IRA of the LGUs or modifying their percentage sharing therein, which are fixed in the Local Government Code of 1991, are matters of general and substantive law. To permit Congress to undertake these amendments through the GAAs, as

the respondents contend, would be to give Congress the unbridled authority to unduly infringe the fiscal autonomy of the LGUs, and thus put the same in jeopardy every year. This, the Court cannot sanction. It is relevant to point out at this juncture that, unlike those of 1999, 2000 and 2001, the GAAs of 2002 and 2003 do not contain provisos similar to the herein assailed provisos. In other words, the GAAs of 2002 and 2003 have not earmarked any amount of the IRA for the LGSEF. Congress had perhaps seen fit to discontinue the practice as it recognizes its infirmity. Nonetheless, as earlier mentioned, this Court has deemed it necessary to make a definitive ruling on the matter in order to prevent its recurrence in future appropriations laws and that the principles enunciated herein would serve to guide the bench, bar and public. Conclusion In closing, it is well to note that the principle of local autonomy, while concededly expounded in greater detail in the present Constitution, dates back to the turn of the century when President William McKinley, in his Instructions to the Second Philippine Commission dated April 7, 1900, ordered the new Government "to devote their attention in the first instance to the establishment of municipal governments in which the natives of the Islands, both in the cities and in the rural communities, shall be afforded the opportunity to manage their own affairs to the fullest extent of which they are capable, and subject to the least degree of supervision and control in which a careful study of their capacities and observation of the workings of native control show to be consistent with the maintenance of law, order and loyalty."45 While the 1935 Constitution had no specific article on local autonomy, nonetheless, it limited the executive power over local governments to "general supervision ... as may be provided by law."46 Subsequently, the 1973 Constitution explicitly stated that "[t]he State shall guarantee and promote the autonomy of local government units, especially the barangay to ensure their fullest development as self-reliant communities."47 An entire article on Local Government was incorporated therein. The present Constitution, as earlier opined, has broadened the principle of local autonomy. The 14 sections in Article X thereof markedly increased the powers of the local governments in order to accomplish the goal of a more meaningful local autonomy. Indeed, the value of local governments as institutions of democracy is measured by the degree of autonomy that they enjoy.48 As eloquently put by M. De Tocqueville, a distinguished French political writer, "[l]ocal assemblies of citizens constitute the strength of free nations. Township meetings are to liberty what primary schools are to science; they bring it within the people's reach; they teach men how to use and enjoy it. A nation may establish a system of free governments but without the spirit of municipal institutions, it cannot have the spirit of liberty."49 Our national officials should not only comply with the constitutional provisions on local autonomy but should also appreciate the spirit and liberty upon which these provisions are based.50 WHEREFORE, the petition is GRANTED. The assailed provisos in the General Appropriations Acts of 1999, 2000 and 2001, and the assailed OCD Resolutions, are declared UNCONSTITUTIONAL. SO ORDERED. ROMEO J. CALLEJO, SR. Associate Justice WE CONCUR: On official leave HILARIO G. DAVIDE, JR. Chief Justice On official leave REYNATO S. PUNO JOSE C. VITUG Associate Justice Associate Justice ARTEMIO V. PANGANIBAN LEONARDO A. QUISUMBING Associate Justice Associate Justice CONSUELO YNARES-SANTIAGO ANGELINA SANDOVAL-GUTIERREZ Associate Justice Associate Justice

ANTONIO T. CARPIO MA. ALICIA AUSTRIA-MARTINEZ Associate Justice Associate Justice RENATO C. CORONA CONCHITA CARPIO MORALES Associate Justice Associate Justice ADOLFO S. AZCUNA DANTE O. TINGA Associate Justice Associate Justice CERTIFICATION Pursuant to Section 13, Article VIII of the Constitution, it is hereby certified that the conclusions in the above decision were reached in consultation before the case was assigned to the writer of the opinion of the Court. JOSE C. VITUG Acting Chief Justice
Footnotes
1

Section 1, E.O. No. 48. Section 2, id. Section 4, id. Ibid. Id. Id. Id. Infra.

Baker v. Carr, 369 U.S. 186, 7 L.Ed. 2d 633 cited in, among others, Agan, Jr. v. PIATCO, G.R. Nos. 155001, 155547 and 155661, May 5, 2003 and Farias v. Executive Secretary, G.R. Nos. 147387 and 152161, December 10, 2003.
10

Agan, Jr. v. PIATCO, supra. Ibid. Id. 13 Chavez v. Public Estates Authority, 384 SCRA 152 (2002). Ibid, citing, among others, Salonga v. Pao, 134 SCRA 438 (1995).

11

12

14

15

Southern Pac. Terminal Co. v. ICC, 219 U.S. 498, 55 L.Ed. 310 (1911) cited in, among others, Viola v. Alunan III, 277 SCRA 409 (1997); Acop v. Guingona, Jr., 383 SCRA 577 (2002).
16

San Juan v. Civil Service Commission, 196 SCRA 69 (1991). Section 4, Article X. 235 SCRA 135 (1994). Id. at 142. Rep. Act No. 7160 was signed into law by then President Corazon C. Aquino on October 10, 1991. It took effect on January 1, 1992. Section 3, Article X reads:

17

18

19

20

21

Sec. 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, terms, salaries, powers and functions and duties of local officials, and all other matters relating to the organization and operation of local government units.
22

336 SCRA 201 (2000). Id. at 220-221. (Emphasis supplied.) Per OCD-99-005, 99-006, 99-003. Per OCD-2000-023 and 2001-029. Per OCD-2002-001. Quisumbing v. Manila Electric Co., 380 SCRA 195 (2002). Codoy v. Calugay, 312 SCRA 333 (1999). Section 533 of Rep. Act 7160 reads in part: Sec. 533. Formulation of Implementing Rules and Regulations. (a) Within one (1) month after the approval of this Code, the President shall convene the Oversight Committee as herein provided for. The said Committee shall formulate and issue the appropriate rules and regulations necessary for the efficient and effective implementation of any and all provisions of this Code, thereby ensuring compliance with the principles of local autonomy as defined under the Constitution. ... (c) The Committee shall submit its report and recommendation to the President within two (2) months after its organization. If the President fails to act within thirty (30) days from receipt thereof, the recommendation of the Oversight Committee shall be deemed approved. Thereafter, the Committee shall supervise the transfer of such powers and functions mandated under this Code to the local government units, together with the corresponding personnel, properties, assets and liabilities of the offices or agencies concerned, with the least possible disruptions to existing programs and projects. The Committee shall, likewise, recommend the corresponding appropriations necessary to effect the said transfer.

23

24

25

26

27

28

29

30

Pimentel, The Local Government Code of 1991: The Key to National Development, p. 576.

31

The Committee Report No. 21 submitted by the Committee on Local Governments of the Constitutional Commission, headed by Commissioner Jose N. Nolledo, proposed to incorporate the following provisions: SEC. 6. Each government unit shall have the power to create its own sources of revenue and to levy taxes, fees and charges subject to such guidelines as may be fixed by law. SEC. 7. Local governments shall have the power to levy and collect charges or contributions unique, distinct and exclusive to them. SEC. 8. Local taxes shall belong exclusively to local governments and they shall, likewise, be entitled to share in the proceeds of the exploitation and development of the national wealth within their respective areas. The share of local governments in the national taxes shall be released to them automatically.
32

3 RECORD OF THE CONSTITUTIONAL COMMISSION 231. 200 SCRA 271 (1991). Id. at 286-287. (Citations omitted.) Supra at note 22. Id. at 218. Id. at 220. The provision reads in part:

33

34

35

36

37

38

Sec. 284. Allotment of Internal Revenue Taxes. Local government units shall have a share in the national internal revenue taxes based on the collection of the third fiscal year preceding the current fiscal year as follows: (a) On the first year of the effectivity of this Code, thirty percent (30%); (b) On the second year, thirty-five percent (35%); and (c) On the third year and, thereafter, forty percent (40%).
39

Per OCD Res.-99-005, 99-006, 99-003. Per OCD-2000-023 and 2001-029. Per OCD-2002-001. Philippine Constitutional Association v. Enriquez, 235 SCRA 506 (1994). Ibid, citing Beckman, The Item Veto Power of the Executive, 31 Temple Law Quarterly 27 (1957). Id. Mendoza, From McKinley's Instructions to the New Constitution: Documents on the Philippine Constitutional System, pp. 67-68. Paragraph (1), Section 11, Article VII of the 1935 Constitution reads: Sec. 11(1). The President shall have control of all the executive departments, bureaus or offices, exercise general supervision over all local governments as may be provided by law, and take care that the laws be faithfully executed.

40

41

42

43

44

45

46

47

Section 10, Article II thereof. Sinco, Philippine Political Law, 10th ed., pp. 681-682. Ibid. San Juan v. Civil Service Commission, supra.

48

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SECOND DIVISION [G.R. No. 152675. April 28, 2004] BATANGAS POWER CORPORATION, petitioner, vs. BATANGAS CITY and NATIONAL POWER CORPORATION, respondents. [G.R. No. 152771. April 28, 2004] NATIONAL POWER CORPORATION, petitioner, vs. HON. RICARDO R. ROSARIO, in his capacity as Presiding Judge, RTC, Br. 66, Makati City; BATANGAS CITY GOVERNMENT; ATTY. TEODULFO DEGUITO, in his capacity as Chief Legal Officer, Batangas City; and BENJAMIN PARGAS, in his capacity as City Treasurer, Batangas City, respondents. DECISION PUNO, J.: Before us are two (2) consolidated petitions for review under Rule 45 of the Rules of Civil Procedure, seeking to set aside the rulings of the Regional Trial Court of Makati in its February 27, 2002 Decision in Civil Case No. 00-205. The facts show that in the early 1990s, the country suffered from a crippling power crisis. Power outages lasted 8-12 hours daily and power generation was badly needed. Addressing the problem, the government, through the National Power Corporation (NPC), sought to attract investors in power plant operations by providing them with incentives, one of which was through the NPCs assumption of payment of their taxes in the Build Operate and Transfer (BOT) Agreement. On June 29, 1992, Enron Power Development Corporation (Enron) and petitioner NPC entered into a Fast Track BOT Project. Enron agreed to supply a power station to NPC and transfer its plant to the latter after ten (10) years of operation. Section 11.02 of the BOT Agreement provided that NPC shall be responsible for the payment of all taxes that may be imposed on the power station, except income taxes and permit fees. Subsequently, Enron assigned its obligation under the BOT Agreement to petitioner Batangas Power Corporation (BPC). On September 13, 1992, BPC registered itself with the Board of Investments (BOI) as a pioneer enterprise. On September 23, 1992, the BOI issued a certificate of registration to BPC as a pioneer enterprise entitled to a tax holiday for a period of six (6) years. The construction of the power station in respondent Batangas City was then completed. BPC operated the station. On October 12, 1998, Batangas City (the city, for brevity), thru its legal officer Teodulfo A. Deguito, sent a letter to BPC demanding payment of business taxes and penalties, commencing from the year 1994 as provided under Ordinance XI or the 1992 Batangas City Tax Code. BPC refused to pay, citing its tax-exempt status as a pioneer enterprise for six (6) years under Section 133 (g) of the Local Government Code (LGC). On April 15, 1999, city treasurer Benjamin S. Pargas modified the citys tax claim and demanded payment of business taxes from BPC only for the years 1998-1999. He acknowledged that BPC enjoyed a 6-year tax holiday as a pioneer industry but its tax exemption period expired on September 22, 1998, six (6) years after its registration with the BOI on September 23, 1992. The city treasurer held that thereafter BPC became liable to pay its business taxes. BPC still refused to pay the tax. It insisted that its 6-year tax holiday commenced from the date of its commercial operation on July 16, 1993, not from the date of its BOI registration in September 1992. It furnished the city with a BOI letter wherein BOI designated July 16, 1993 as the start of BPCs income tax holiday as BPC was not able to immediately operate due to force majeure. BPC claimed that the local tax holiday is concurrent with the income tax holiday. In the alternative, BPC asserted that the city should collect the tax from the NPC as the latter assumed responsibility for its payment under their BOT Agreement. The matter was not put to rest. The city legal officer insisted that BPCs tax holiday has already expired, while the city argued that it directed its tax claim to BPC as it is the entity doing business in the city and hence liable to pay the taxes. The city alleged that it was not privy to NPCs assumption of BPCs tax payment under their BOT Agreement as the only parties thereto were NPC and BPC. BPC adamantly refused to pay the tax claims and reiterated its position. The city was likewise unyielding on its stand. On August 26, 1999, the NPC intervened. While admitting assumption of BPCs tax obligations under their BOT Agreement, NPC refused to pay BPCs business tax as it allegedly constituted an indirect tax on NPC which is a tax-exempt corporation under its Charter. In view of the deadlock, BPC filed a petition for declaratory relief with the Makati Regional Trial Court (RTC) against Batangas City and NPC, praying for a ruling that it was not bound to pay the business taxes imposed on it by the city. It alleged that under the BOT Agreement, NPC is responsible for the payment of such taxes but as NPC is exempt from taxes, both the BPC and NPC are not liable for its payment. NPC and Batangas City filed their respective answers.

On February 23, 2000, while the case was still pending, the city refused to issue a permit to BPC for the operation of its business unless it paid the assessed business taxes amounting to close to P29M. In view of this supervening event, BPC, whose principal office is in Makati City, filed a supplemental petition with the Makati RTC to convert its original petition into an action for injunction to enjoin the city from withholding the issuance of its business permit and closing its power plant. The city opposed on the grounds of lack of jurisdiction and lack of cause of action. The Supplemental Petition was nonetheless admitted by the Makati RTC. On February 27, 2002, the Makati RTC dismissed the petition for injunction. It held that: (1) BPC is liable to pay business taxes to the city; (2) NPCs tax exemption was withdrawn with the passage of R.A. No. 7160 (The Local Government Code); and, (3) the 6-year tax holiday granted to pioneer business enterprises starts on the date of registration with the BOI as provided in Section 133 (g) of R.A. No. 7160, and not on the date of its actual business operations. BPC and NPC filed with this Court a petition for review on certiorari assailing the Makati RTC decision. The petitions were consolidated as they impugn the same decision, involve the same parties and raise related issues. In G.R. No. 152771, the NPC contends: I RESPONDENT COURT ACTED WITH GRAVE ABUSE OF DISCRETION AMOUNTING TO LACK OR EXCESS OF JURISDICTION WHEN IT ARBITRARILY AND CAPRICIOUSLY RULED THAT PETITIONER NPC HAS LOST ITS TAX EXEMPTION PRIVILEGE BECAUSE SECTION 193 OF R.A. 7160 (LOCAL GOVERNMENT CODE) HAS WITHDRAWN SUCH PRIVILEGE DESPITE THE SETTLED JURISPRUDENCE THAT THE ENACTMENT OF A LEGISLATION, WHICH IS A GENERAL LAW, CANNOT REPEAL A SPECIAL LAW AND THAT SECTION 13 OF R.A. 6395 (NPC LAW) WAS NOT SPECIFICALLY MENTIONED IN THE REPEALING CLAUSE IN SECTION 534 OF R.A. 7160, AMONG OTHERS. II RESPONDENT COURT ACTED WITH GRAVE ABUSE OF DISCRETION AMOUNTING TO LACK OR EXCESS OF JURISDICTION WHEN IT ARBITRARILY AND CAPRICIOUSLY OMITTED THE CLEAR PROVISION OF SECTION 133, PARAGRAPH (O) OF R.A. 7160 WHICH EXEMPTS NATIONAL GOVERNMENT, ITS AGENCIES AND INSTRUMENTALITIES FROM THE IMPOSITION OF TAXES, FEES OR CHARGES OF ANY KIND. III RESPONDENT COURT ACTED WITH GRAVE ABUSE OF DISCRETION AMOUNTING TO LACK OR EXCESS OF JURISDICTION WHEN IT ERRONEOUSLY AND CAPRICIOUSLY ADMITTED BPCs SUPPLEMENTAL PETITION FOR INJUNCTION NOTWITHSTANDING THAT IT HAD NO JURISDICTION OVER THE PARTY (CITY GOVERNMENT OF BATANGAS) SOUGHT TO BE ENJOINED. In G.R. No. 152675, BPC also contends that the trial court erred: 1) in holding it liable for payment of business taxes even if it is undisputed that NPC has already assumed payment thereof; and, 2) in ruling that BPCs 6-year tax holiday commenced on the date of its registration with the BOI as a pioneer enterprise. The issues for resolution are: 1. whether BPCs 6-year tax holiday commenced on the date of its BOI registration as a pioneer enterprise or on the date of its actual commercial operation as certified by the BOI; 2. whether the trial court had jurisdiction over the petition for injunction against Batangas City; and, 3. whether NPCs tax exemption privileges under its Charter were withdrawn by Section 193 of the Local Government Code (LGC). We find no merit in the petition. On the first issue, petitioners BPC and NPC contend that contrary to the impugned decision, BPCs 6-year tax holiday should commence on the date of its actual commercial operations as certified to by the BOI, not on the date of its BOI registration. We disagree. Sec. 133 (g) of the LGC, which proscribes local government units (LGUs) from levying taxes on BOI-certified pioneer enterprises for a period of six years from the date of registration, applies specifically to taxes imposed by the local government, like the business tax imposed by Batangas City on BPC in the case at bar. Reliance of BPC on the provision of Executive Order

No. 226, specifically Section 1, Article 39, Title III, is clearly misplaced as the six-year tax holiday provided therein which commences from the date of commercial operation refers to income taxes imposed by the national government on BOIregistered pioneer firms. Clearly, it is the provision of the Local Government Code that should apply to the tax claim of Batangas City against the BPC. The 6-year tax exemption of BPC should thus commence from the date of BPCs registration with the BOI on July 16, 1993 and end on July 15, 1999. Anent the second issue, the records disclose that petitioner NPC did not oppose BPCs conversion of the petition for declaratory relief to a petition for injunction or raise the issue of the alleged lack of jurisdiction of the Makati RTC over the petition for injunction before said court. Hence, NPC is estopped from raising said issue before us. The fundamental rule is that a party cannot be allowed to participate in a judicial proceeding, submit the case for decision, accept the judgment only if it is favorable to him but attack the jurisdiction of the court when it is adverse. Finally, on the third issue, petitioners insist that NPCs exemption from all taxes under its Charter had not been repealed by the LGC. They argue that NPCs Charter is a special law which cannot be impliedly repealed by a general and later legislation like the LGC. They likewise anchor their claim of tax-exemption on Section 133 (o) of the LGC which exempts government instrumentalities, such as the NPC, from taxes imposed by local government units (LGUs), citing in support thereof the case of Basco v. PAGCOR. We find no merit in these contentions. The effect of the LGC on the tax exemption privileges of the NPC has already been extensively discussed and settled in the recent case of National Power Corporation v. City of Cabanatuan . In said case, this Court recognized the removal of the blanket exclusion of government instrumentalities from local taxation as one of the most significant provisions of the 1991 LGC. Specifically, we stressed that Section 193 of the LGC, an express and general repeal of all statutes granting exemptions from local taxes, withdrew the sweeping tax privileges previously enjoyed by the NPC under its Charter. We explained the rationale for this provision, thus: In recent years, the increasing social challenges of the times expanded the scope of state activity, and taxation has become a tool to realize social justice and the equitable distribution of wealth, economic progress and the protection of local industries as well as public welfare and similar objectives. Taxation assumes even greater significance with the ratification of the 1987 Constitution. Thenceforth, the power to tax is no longer vested exclusively on Congress; local legislative bodies are now given direct authority to levy taxes, fees and other charges pursuant to Article X, section 5 of the 1987 Constitution, viz: Section 5.- Each Local Government unit shall have the power to create its own sources of revenue, to levy taxes, fees and charges subject to such guidelines and limitations as the Congress may provide, consistent with the basic policy of local autonomy. Such taxes, fees and charges shall accrue exclusively to the Local Governments. This paradigm shift results from the realization that genuine development can be achieved only by strengthening local autonomy and promoting decentralization of governance. For a long time, the countrys 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. 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, x x x 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 x x x. To recall, prior to the enactment of the x x x Local Government Code x x x, various measures have been enacted to promote local autonomy. x x x 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. Considered as the most revolutionary piece of legislation on local autonomy, the LGC effectively deals with the fiscal constraints faced by LGUs. It widens the tax base of LGUs to include taxes which were prohibited by previous laws x x x. Neither can the NPC successfully rely on the Basco case as this was decided prior to the effectivity of the LGC, when there was still no law empowering local government units to tax instrumentalities of the national government. Consequently, when NPC assumed the tax liabilities of the BPC under their 1992 BOT Agreement, the LGC which removed NPCs tax exemption privileges had already been in effect for six (6) months. Thus, while BPC remains to be the entity doing business in said city, it is the NPC that is ultimately liable to pay said taxes under the provisions of both the 1992 BOT Agreement and the 1991 Local Government Code. IN VIEW WHEREOF, the petitions are DISMISSED. No costs. SO ORDERED.

Quisumbing, Austria-Martinez, Callejo, Sr., and Tinga, JJ., concur. G.R. No. 152771 Rollo, p. 66. In the amount of P34, 551, 543.96; G.R. No. 152675 Rollo, p. 60. Republic Act No. 7160 which took effect on January 1, 1992; See letter of BPC President Miguel T. Gaffud, Jr.; G.R. No. 152675 Rollo, p. 61. Amount of business tax assessed was lowered to P28, 689, 732.41 as of July 1999, based on the gross receipt of every preceding year; G.R. No. 152675 Rollo, p. 62. See BPC Letter, G.R. No. 152675 Rollo, p. 63. G.R. No. 152771 Rollo, p. 67; BOI cited Article 7 (14) of Executive Order 226 to support its decision to designate a later date. G.R. No. 152675 Rollo, p. 64. BPC Letter, dated July 21, 1999; G.R. No. 152675 Rollo, pp. 65-66. See Letter of City Legal Officer; G.R. No. 152675 Rollo, p. 67. See Letter of NPC OIC Comie P. Doromal, G.R. No. 152675 Rollo, pp. 68-70. Under Section 13, Republic Act No. 6395, as amended. Docketed as Civil Case No. 00-205 and raffled to RTC Branch 66, Makati City, presided by public respondent Judge Ricardo R. Rosario; G.R. No. 152771 Rollo, pp. 58-65. G.R. No. 152771 Rollo, pp. 89-94. G.R. No. 152771 Rollo, pp. 97-99. Decision, id., pp. 49-57. Docketed as G.R. No. 152675. October 2, 2002 Resolution, G.R. No. 152771 Rollo, p. 130. Otherwise known as the 1987 Omnibus Investment Code, as amended in 1995 by Republic Act No. 7918. Roxas vs. Court of Appeals, 391 SCRA 351 (2002). 197 SCRA 51 (1991). Promulgated April 9, 2003, G.R. No. 149110. 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. Section 534, the repealing clause of the LGC, also states that all general and special laws, acts, city charters, decrees, executive orders, proclamations and administrative regulations or parts thereof inconsistent with the provisions of this Code are repealed or modified accordingly. Supra.