G.R. No.

L-6093 February 24, 1954

THE SHELL CO. OF P.I., LTD., plaintiff-appellant,vs.E. E. VAO, as Municipal Treasurer of the Municipality of Cordova, Province of
Cebu, defendant-appellee.

PADILLA, J.:

The Municipal Council of Cordova, Province of Cebu, adopted the following ordinances: No. 10, series of 1946, which imposes an
annual tax of P150 on occupation or the exercise of the privilege of installation manager; No. 9, series of 1947, which imposes an
annual tax of P40 for local deposits in drums of combustible and inflammable materials and an annual tax of P200 for tin can
factories; and No. 11, series of 1948, which imposes an annual tax of P150 on tin can factories having a maximum output capacity of
30,000 tin cans. The Shell Co. of P.I. Ltd., a foreign corporation, filed suit for the refund of the taxes paid by it, on the ground that the
ordinances imposing such taxes are ultra vires. The defendant denies that they are so. The controversy was submitted for judgment
upon stipulation of facts which reads as follows:

The parties reserved the right to introduce parole evidence but no such evidence was submitted by either party. From the judgment
holding the ordinances valid and dismissing the complaint the plaintiff has appealed.

It is contended that as the municipal ordinance imposing an annual tax of P40 for "minor local deposit in drums of combustible and
inflammable materials," and of P200 "for tin factory" was adopted under and pursuant to section 2244 of the Revised Administrative
Code, which provides that the municipal council in the exercise of the regulative authority may require any person engaged in any
business or occupation, such as "storing combustible or explosive materials" or "the conducting of any other business of an
unwholesome, obnoxious, offensive, or dangerous character," to obtain a permit for which a reasonable fee, in no case to exceed
P10 per annum, may be charged, the annual tax of P40 and P200 are unauthorized and illegal. The permit and the fee referred to
may be required and charged by the Municipal Council of Cordova in the exercise of its regulative authority, whereas the ordinance
which imposes the taxes in question was adopted under and pursuant to the provisions of Commonwealth Act No. 472, which
authorizes municipal councils and municipal district councils "to impose 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," which shall be just and uniform but not "percentage taxes and taxes on specified
articles." Likewise, Ordinance No. 10, series of 1946, which imposes an annual tax of P150 on "installation manager" comes under
the provisions of Commonwealth Act No. 472. But it is claimed that "installation manager" is a designation made by the plaintiff and
such designation cannot be deemed to be a "calling" as defined in section 178 of the National Internal Revenue Code (Com. Act No.
466), and that the installation manager employed by the plaintiff is a salaried employee which may not be taxed by the municipal
council under the provisions of Commonwealth Act No. 472. This contention is without merit, because even if the installation
manager is a salaried employee of the plaintiff, still it is an occupation "and one occupation or line of business does not become
exempt by being conducted with some other occupation or business for which such tax has been paid'1 and the occupation tax must
be paid "by each individual engaged in a calling subject thereto."2 And pursuant to section 179 of the National Internal Revenue
Code, "The payment of . . . occupation tax shall not exempt any person from any tax, . . . provided by law or ordinance in places
where such . . . occupation in . . . regulated by municipal law, nor shall the payment of any such tax be held to prohibit any
municipality from placing a tax upon the same . . . occupation, for local purposes, where the imposition of such tax is authorized by
law." It is true that, according to the stipulation of facts, Ordinance No. 10, series of 1946, was approved by the Provincial Board of
Cebu in its Resolution No. 1070, series of 1946, and that it does not appear that it was approved by the Department of Finance, as
provided for and required in section 4, paragraph 2, of Commonwealth Act No. 472, the rate of municipal tax being in excess of P50
per annum. But at this point on the approval of the Department of Finance was not raised in the court below, it cannot be raised for
the first time on appeal. The issue joined by the parties in their pleadings and the point raised by the plaintiff is that the municipal
council was not empowered to adopt the ordinance and not that it was not approved by the Department of Finance. The fact that it
was not stated in the stipulation of facts justifies the presumption that the ordinance was approved in accordance with law.

The contention that the ordinance is discriminatory and hostile because there is no other person in the locality who exercises such
"designation" or occupation is also without merit, because the fact that there is no other person in the locality who exercises such a
"designation" or calling 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 named or designated as "installation manager."

Lastly, Ordinance No. 11, series of 1948, which imposes a municipal tax of P150 on tin can factories having a maximum annual
output capacity of 30,000 tin cans which, according to the stipulation of facts, was approved by the Provincial Board of Cebu and the
Department of Finance, is valid and lawful, because it is neither a percentage tax nor one on specified articles which are the only
exceptions provided in section 1, Commonwealth Act No. 472. Neither does it fall under any of the prohibitions provided for in
section 3 of the same Act. Specific taxes enumerated in the National Internal Revenue Code are those that are imposed upon "things
manufactured or produced in the Philippines for domestic sale or consumption" and upon "things imported from the United States
and foreign countries," such as distilled spirits, domestic denatured alcohol, fermented liquors, products of tobacco, cigars and
cigarettes, matches, mechanical lighters, firecrackers, skimmed milk, manufactured oils and other fuels, coal, bunker fuel oil, diesel
fuel oil, cinematographic films, playing cards, sacharine.3 And it is not a percentage tax because it is tax on business and the
maximum annual output capacity is not a percentage, because it is not a share or a tax based on the amount of the proceeds
realized out of the sale of the tin cans manufactured therein but on the business of manufacturing tin cans having a maximum
annual output capacity of 30,000 tin cans.

In an action for refund of municipal taxes claimed to have been paid and collected under an illegal ordinance, the real party in
interest is not the municipal treasurer but the municipality concerned that is empowered to sue and be sued.4

The judgment appealed from is hereby affirmed, with costs against the appellant.

g.r. No. 160756 March 9, 2010
CHAMBER OF REAL ESTATE AND BUILDERS ASSOCIATIONS, INC.,Petitioner vs THE HON. EXECUTIVe SECRETARY ALBERTO ROMULO,
THE HON. ACTING SECRETARY OFFINANCE JUANITA D. AMATONG,and THE HON. COMMISSIONER OFNTERNAL REVENUE GUILLERMO
PARAYNO, JR.,Respondents

CORONA, J.:
In this original petition for certiorari and mandamus,*1+ petitioner Chamber of Real Estate and Builders Associations, Inc. is
questioning the constitutionality of Section 27 (E) of Republic Act (RA) 8424[2] and the revenue regulations (RRs) issued by the
Bureau of Internal Revenue (BIR) to implement said provision and those involving creditable withholding taxes.[3]
Petitioner is an association of real estate developers and builders in the Philippines. It impleaded former Executive Secretary Alberto
Romulo, then acting Secretary of Finance Juanita D. Amatong and then Commissioner of Internal Revenue Guillermo Parayno, Jr. as
respondents.
Petitioner assails the validity of the imposition of minimum corporate income tax (MCIT) on corporations and creditable withholding
tax (CWT) on sales of real properties classified as ordinary assets.
Section 27(E) of RA 8424 provides for MCIT on domestic corporations and is implemented by RR 9-98. Petitioner argues that the
MCIT violates the due process clause because it levies income tax even if there is no realized gain.
Petitioner also seeks to nullify Sections 2.57.2(J) (as amended by RR 6-2001) and 2.58.2 of RR 2-98, and Section 4(a)(ii) and (c)(ii) of
RR 7-2003, all of which prescribe the rules and procedures for the collection of CWT on the sale of real properties categorized as
ordinary assets. Petitioner contends that these revenue regulations are contrary to law for two reasons: first, they ignore the
different treatment by RA 8424 of ordinary assets and capital assets and second, respondent Secretary of Finance has no authority
to collect CWT, much less, to base the CWT on the gross selling price or fair market value of the real properties classified as ordinary
assets.
Petitioner also asserts that the enumerated provisions of the subject revenue regulations violate the due process clause because,
like the MCIT, the government collects income tax even when the net income has not yet been determined. They contravene the
equal protection clause as well because the CWT is being levied upon real estate enterprises but not on other business enterprises,
more particularly those in the manufacturing sector.
The issues to be resolved are as follows:
(1) whether or not this Court should take cognizance of the present case;
(2) whether or not the imposition of the MCIT on domestic corporations is unconstitutional and
(3) whether or not the imposition of CWT on income from sales of real properties classified as ordinary assets under RRs 2-98, 6-
2001 and 7-2003, is unconstitutional.
Overview of the Assailed Provisions
Under the MCIT scheme, a corporation, beginning on its fourth year of operation, is assessed an MCIT of 2% of its gross income
when such MCIT is greater than the normal corporate income tax imposed under Section 27(A).[4] If the regular income tax is higher
than the MCIT, the corporation does not pay the MCIT. Any excess of the MCIT over the normal tax shall be carried forward and
credited against the normal income tax for the three immediately succeeding taxable years. Section 27(E) of RA 8424 provides:
Section 27 (E). [MCIT] on Domestic Corporations. -
(1) Imposition of Tax. A [MCIT] of two percent (2%) of the gross income as of the end of the taxable year, as defined herein, is
hereby imposed on a corporation taxable under this Title, beginning on the fourth taxable year immediately following the year in
which such corporation commenced its business operations, when the minimum income tax is greater than the tax computed under
Subsection (A) of this Section for the taxable year.
2) Carry Forward of Excess Minimum Tax. Any excess of the [MCIT] over the normal income tax as computed under Subsection
(A) of this Section shall be carried forward and credited against the normal income tax for the three (3) immediately succeeding
taxable years.
3) Relief from the [MCIT] under certain conditions. The Secretary of Finance is hereby authorized to suspend the imposition of
the [MCIT] on any corporation which suffers losses on account of prolonged labor dispute, or because of force majeure, or because
of legitimate business reverses.
The Secretary of Finance is hereby authorized to promulgate, upon recommendation of the Commissioner, the necessary rules and
regulations that shall define the terms and conditions under which he may suspend the imposition of the [MCIT] in a meritorious
case.
(4) Gross Income Defined. For purposes of applying the *MCIT+ provided under Subsection (E) hereof, the term gross income
shall mean gross sales less sales returns, discounts and allowances and cost of goods sold. Cost of goods sold shall include all
business expenses directly incurred to produce the merchandise to bring them to their present location and use.
For trading or merchandising concern, cost of goods sold shall include the invoice cost of the goods sold, plus import duties,
freight in transporting the goods to the place where the goods are actually sold including insurance while the goods are in transit.
For a manufacturing concern, cost of goods manufactured and sold shall include all costs of production of finished goods, such as
raw materials used, direct labor and manufacturing overhead, freight cost, insurance premiums and other costs incurred to bring the
raw materials to the factory or warehouse.
In the case of taxpayers engaged in the sale of service, gross income means gross receipts less sales returns, allowances, discounts
and cost of services. Cost of services shall mean all direct costs and expenses necessarily incurred to provide the services required
by the customers and clients including (A) salaries and employee benefits of personnel, consultants and specialists directly rendering
the service and (B) cost of facilities directly utilized in providing the service such as depreciation or rental of equipment used and
cost of supplies: Provided, however, that in the case of banks, cost of services shall include interest expense.
On August 25, 1998, respondent Secretary of Finance (Secretary), on the recommendation of the Commissioner of Internal
Revenue (CIR), promulgated RR 9-98 implementing Section 27(E

This provision was amended by RR 6-2001 on July 31, 2001:
Concept and Rationale of the MCIT
The MCIT on domestic corporations is a new concept introduced by RA 8424 to the Philippine taxation system. It came about as a
result of the perceived inadequacy of the self-assessment system in capturing the true income of corporations.[21] It was devised as
a relatively simple and effective revenue-raising instrument compared to the normal income tax which is more difficult to control
and enforce. It is a means to ensure that everyone will make some minimum contribution to the support of the public sector.
Domestic corporations owe their corporate existence and their privilege to do business to the government. They also benefit from
the efforts of the government to improve the financial market and to ensure a favorable business climate. It is therefore fair for the
government to require them to make a reasonable contribution to the public expenses.
Congress intended to put a stop to the practice of corporations which, while having large turn-overs, report minimal or negative net
income resulting in minimal or zero income taxes year in and year out, through under-declaration of income or over-deduction of
expenses otherwise called tax shelters.[23]
To further emphasize the corrective nature of the MCIT, the following safeguards were incorporated into the law:
First, recognizing the birth pangs of businesses and the reality of the need to recoup initial major capital expenditures, the
imposition of the MCIT commences only on the fourth taxable year immediately following the year in which the corporation
commenced its operations.[25] This grace period allows a new business to stabilize first and make its ventures viable before it is
subjected to the MCIT.[26]
Second, the law allows the carrying forward of any excess of the MCIT paid over the normal income tax which shall be credited
against the normal income tax for the three immediately succeeding years.[27]
Third, since certain businesses may be incurring genuine repeated losses, the law authorizes the Secretary of Finance to suspend the
imposition of MCIT if a corporation suffers losses due to prolonged labor dispute, force majeure and legitimate business
reverses.[28]

MCIT Is Not Violative of Due Process
Petitioner claims that the MCIT under Section 27(E) of RA 8424 is unconstitutional because it is highly oppressive, arbitrary and
confiscatory which amounts to deprivation of property without due process of law. It explains that gross income as defined under
said provision only considers the cost of goods sold and other direct expenses; other major expenditures, such as administrative and
interest expenses which are equally necessary to produce gross income, were not taken into account.[31] Thus, pegging the tax
base of the MCIT to a corporations gross income is tantamount to a confiscation of capital because gross income, unlike net income,
is not realized gain.*32+
We disagree.

Taxes are the lifeblood of the government. Without taxes, the government can neither exist nor endure. The exercise of taxing
power derives its source from the very existence of the State whose social contract with its citizens obliges it to promote public
interest and the common good.[33]



Taxation is an inherent attribute of sovereignty.[34] It is a power that is purely legislative.[35] Essentially, this means that in the
legislature primarily lies the discretion to determine the nature (kind), object (purpose), extent (rate), coverage (subjects) and situs
(place) of taxation.[36] It has the authority to prescribe a certain tax at a specific rate for a particular public purpose on persons or
things within its jurisdiction. In other words, the legislature wields the power to define what tax shall be imposed, why it should be
imposed, how much tax shall be imposed, against whom (or what) it shall be imposed and where it shall be imposed.
As a general rule, the power to tax is plenary and unlimited in its range, acknowledging in its very nature no limits, so that the
principal check against its abuse is to be found only in the responsibility of the legislature (which imposes the tax) to its constituency
who are to pay it.[37] Nevertheless, it is circumscribed by constitutional limitations. At the same time, like any other statute, tax
legislation carries a presumption of constitutionality.

The constitutional safeguard of due process is embodied in the fiat *no+ person shall be deprived of life, liberty or property without
due process of law. In Sison, Jr. v. Ancheta, et al.,*38+ we held that the due process clause may properly be invoked to invalidate, in
appropriate cases, a revenue measure[39] when it amounts to a confiscation of property.[40] But in the same case, we also
explained that we will not strike down a revenue measure as unconstitutional (for being violative of the due process clause) on the
mere allegation of arbitrariness by the taxpayer.[41] There must be a factual foundation to such an unconstitutional taint.[42] This
merely adheres to the authoritative doctrine that, where the due process clause is invoked, considering that it is not a fixed rule but
rather a broad standard, there is a need for proof of such persuasive character.[43]

Petitioner is correct in saying that income is distinct from capital.[44] Income means all the wealth which flows into the taxpayer
other than a mere return on capital. Capital is a fund or property existing at one distinct point in time while income denotes a flow
of wealth during a definite period of time.[45] Income is gain derived and severed from capital.[46] For income to be taxable, the
following requisites must exist:
(1) there must be gain;
(2) the gain must be realized or received and
(3) the gain must not be excluded by law or treaty from taxation.[47]

Certainly, an income tax is arbitrary and confiscatory if it taxes capital because capital is not income. In other words, it is income,
not capital, which is subject to income tax. However, the MCIT is not a tax on capital.
The MCIT is imposed on gross income which is arrived at by deducting the capital spent by a corporation in the sale of its goods, i.e.,
the cost of goods[48] and other direct expenses from gross sales. Clearly, the capital is not being taxed.
Furthermore, the MCIT is not an additional tax imposition. It is imposed in lieu of the normal net income tax, and only if the
normal income tax is suspiciously low. The MCIT merely approximates the amount of net income tax due from a corporation,
pegging the rate at a very much reduced 2% and uses as the base the corporations gross income.
Besides, there is no legal objection to a broader tax base or taxable income by eliminating all deductible items and at the same
time reducing the applicable tax rate.[49]
Statutes taxing the gross "receipts," "earnings," or "income" of particular corporations are found in many jurisdictions. Tax thereon
is generally held to be within the power of a state to impose; or constitutional, unless it interferes with interstate commerce or
violates the requirement as to uniformity of taxation.[50]
Absent any other valid objection, the assignment of gross income, instead of net income, as the tax base of the MCIT, taken with the
reduction of the tax rate from 32% to 2%, is not constitutionally objectionable.
Moreover, petitioner does not cite any actual, specific and concrete negative experiences of its members nor does it present
empirical data to show that the implementation of the MCIT resulted in the confiscation of their property.
In sum, petitioner failed to support, by any factual or legal basis, its allegation that the MCIT is arbitrary and confiscatory. The Court
cannot strike down a law as unconstitutional simply because of its yokes.[58] Taxation is necessarily burdensome because, by its
nature, it adversely affects property rights.*59+ The party alleging the laws unconstitutionality has the burden to demonstrate the
supposed violations in understandable terms.[60]
RR 9-98 Merely ClarifiesSection 27(E) of RA 8424

Petitioner alleges that RR 9-98 is a deprivation of property without due process of law because the MCIT is being imposed and
collected even when there is actually a loss, or a zero or negative taxable income:

No Deprivation of PropertyWithout Due Process
Petitioner avers that the imposition of CWT on GSP/FMV of real estate classified as ordinary assets deprives its members of their
property without due process of law because, in their line of business, gain is never assured by mere receipt of the selling price. As a
result, the government is collecting tax from net income not yet gained or earned.
Again, it is stressed that the CWT is creditable against the tax due from the seller of the property at the end of the taxable year. The
seller will be able to claim a tax refund if its net income is less than the taxes withheld. Nothing is taken that is not due so there is no
confiscation of property repugnant to the constitutional guarantee of due process. More importantly, the due process requirement
applies to the power to tax.[79] The CWT does not impose new taxes nor does it increase taxes.[80] It relates entirely to the method
and time of payment.
Petitioner protests that the refund remedy does not make the CWT less burdensome because taxpayers have to wait years and may
even resort to litigation before they are granted a refund.[81] This argument is misleading. The practical problems encountered in
claiming a tax refund do not affect the constitutionality and validity of the CWT as a method of collecting the tax.
Petitioner complains that the amount withheld would have otherwise been used by the enterprise to pay labor wages, materials,
cost of money and other expenses which can then save the entity from having to obtain loans entailing considerable interest
expense. Petitioner also lists the expenses and pitfalls of the trade which add to the burden of the realty industry: huge investments
and borrowings; long gestation period; sudden and unpredictable interest rate surges; continually spiraling
development/construction costs; heavy taxes and prohibitive up-front regulatory fees from at least 20 government agencies.*82+
Petitioners lamentations will not support its attack on the constitutionality of the CWT. Petitioners complaints are essentially
matters of policy best addressed to the executive and legislative branches of the government. Besides, the CWT is applied only on
the amounts actually received or receivable by the real estate entity. Sales on installment are taxed on a per-installment basis.[83]
Petitioners desire to utilize for its operational and capital expenses money earmarked for the payment of taxes may be a practical
business option but it is not a fundamental right which can be demanded from the court or from the government.
No Violation of Equal Protection
Petitioner claims that the revenue regulations are violative of the equal protection clause because the CWT is being levied only
on real estate enterprises. Specifically, petitioner points out that manufacturing enterprises are not similarly imposed a CWT on
their sales, even if their manner of doing business is not much different from that of a real estate enterprise. Like a manufacturing
concern, a real estate business is involved in a continuous process of production and it incurs costs and expenditures on a regular
basis. The only difference is that goods produced by the real estate business are house and lot units.*84+

Again, we disagree.
The equal protection clause under the Constitution means that no person or class of persons shall be deprived of the same
protection of laws which is enjoyed by other persons or other classes in the same place and in like circumstances.*85+ Stated
differently, all persons belonging to the same class shall be taxed alike. It follows that the guaranty of the equal protection of the
laws is not violated by legislation based on a reasonable classification. Classification, to be valid, must (1) rest on substantial
distinctions; (2) be germane to the purpose of the law; (3) not be limited to existing conditions only and (4) apply equally to all
members of the same class.[86]
The taxing power has the authority to make reasonable classifications for purposes of taxation.[87] Inequalities which result
from a singling out of one particular class for taxation, or exemption, infringe no constitutional limitation.[88] The real estate
industry is, by itself, a class and can be validly treated differently from other business enterprises.
Petitioner, in insisting that its industry should be treated similarly as manufacturing enterprises, fails to realize that what
distinguishes the real estate business from other manufacturing enterprises, for purposes of the imposition of the CWT, is not their
production processes but the prices of their goods sold and the number of transactions involved. The income from the sale of a real
property is bigger and its frequency of transaction limited, making it less cumbersome for the parties to comply with the withholding
tax scheme.
On the other hand, each manufacturing enterprise may have tens of thousands of transactions with several thousand customers
every month involving both minimal and substantial amounts. To require the customers of manufacturing enterprises, at present, to
withhold the taxes on each of their transactions with their tens or hundreds of suppliers may result in an inefficient and
unmanageable system of taxation and may well defeat the purpose of the withholding tax system.

Petitioner counters that there are other businesses wherein expensive items are also sold infrequently, e.g. heavy equipment,
jewelry, furniture, appliance and other capital goods yet these are not similarly subjected to the CWT.[89] As already discussed, the
Secretary may adopt any reasonable method to carry out its functions.[90] Under Section 57(B), it may choose what to subject to
CWT.
A reading of Section 2.57.2 (M) of RR 2-98 will also show that petitioners argument is not accurate. The sales of manufacturers who
have clients within the top 5,000 corporations, as specified by the BIR, are also subject to CWT for their transactions with said 5,000
corporations.[91]

Petitioner has miserably failed to discharge its burden of convincing the Court that the imposition of MCIT and CWT is
unconstitutional.

wHEREFORE, the petition is hereby DISMISSED.

G.R. No. 179579 February 1, 2012
COMMISSIONER OF CUSTOMS and the DISTRICT COLLECTOR OF THE PORT OF SUBIC, Petitioners, - versus -HYPERMIX FEEDS
CORPORATION, Respondent.
SERENO, J.:
The antecedent facts are as follows:

On 7 November 2003, petitioner Commissioner of Customs issued CMO 27-2003. Under the Memorandum, for tariff purposes,
wheat was classified according to the following: (1) importer or consignee; (2) country of origin; and (3) port of discharge.[5] The
regulation provided an exclusive list of corporations, ports of discharge, commodity descriptions and countries of origin. Depending
on these factors, wheat would be classified either as food grade or feed grade. The corresponding tariff for food grade wheat was
3%, for feed grade, 7%.

CMO 27-2003 further provided for the proper procedure for protest or Valuation and Classification Review Committee (VCRC) cases.
Under this procedure, the release of the articles that were the subject of protest required the importer to post a cash bond to cover
the tariff differential.[6]

A month after the issuance of CMO 27-2003, on 19 December 2003, respondent filed a Petition for Declaratory Relief[7] with the
Regional Trial Court (RTC) of Las Pias City. It anticipated the implementation of the regulation on its imported and perishable
Chinese milling wheat in transit from China.[8] Respondent contended that CMO 27-2003 was issued without following the mandate
of the Revised Administrative Code on public participation, prior notice, and publication or registration with the University of the
Philippines Law Center.

Respondent also alleged that the regulation summarily adjudged it to be a feed grade supplier without the benefit of prior
assessment and examination; thus, despite having imported food grade wheat, it would be subjected to the 7% tariff upon the
arrival of the shipment, forcing them to pay 133% more than was proper.

Furthermore, respondent claimed that the equal protection clause of the Constitution was violated when the regulation treated
non-flour millers differently from flour millers for no reason at all.

Lastly, respondent asserted that the retroactive application of the regulation was confiscatory in nature.

On 19 January 2004, the RTC issued a Temporary Restraining Order (TRO) effective for twenty (20) days from notice.[9]

Petitioners thereafter filed a Motion to Dismiss.[10] They alleged that: (1) the RTC did not have jurisdiction over the subject matter
of the case, because respondent was asking for a judicial determination of the classification of wheat; (2) an action for declaratory
relief was improper; (3) CMO 27-2003 was an internal administrative rule and not legislative in nature; and (4) the claims of
respondent were speculative and premature, because the Bureau of Customs (BOC) had yet to examine respondents products. They
likewise opposed the application for a writ of preliminary injunction on the ground that they had not inflicted any injury through the
issuance of the regulation; and that the action would be contrary to the rule that administrative issuances are assumed valid until
declared otherwise.

On 28 February 2005, the parties agreed that the matters raised in the application for preliminary injunction and the Motion to
Dismiss would just be resolved together in the main case. Thus, on 10 March 2005, the RTC rendered its Decision[11] without having
to resolve the application for preliminary injunction and the Motion to Dismiss.

The trial court ruled in favor of respondent, to wit:

WHEREFORE, in view of the foregoing, the Petition is GRANTED and the subject Customs Memorandum Order 27-2003 is declared
INVALID and OF NO FORCE AND EFFECT. Respondents Commissioner of Customs, the District Collector of Subic or anyone acting in
their behalf are to immediately cease and desist from enforcing the said Customs Memorandum Order 27-2003.

SO ORDERED.[12]





The RTC held that it had jurisdiction over the subject matter, given that the issue raised by respondent concerned the quasi-
legislative powers of petitioners. It likewise stated that a petition for declaratory relief was the proper remedy, and that respondent
was the proper party to file it. The court considered that respondent was a regular importer, and that the latter would be subjected
to the application of the regulation in future transactions.

With regard to the validity of the regulation, the trial court found that petitioners had not followed the basic requirements of
hearing and publication in the issuance of CMO 27-2003. It likewise held that petitioners had substituted the quasi-judicial
determination of the commodity by a quasi-legislative predetermination.*13+ The lower court pointed out that a classification
based on importers and ports of discharge were violative of the due process rights of respondent.

Dissatisfied with the Decision of the lower court, petitioners appealed to the CA, raising the same allegations in defense of CMO 27-
2003.[14] The appellate court, however, dismissed the appeal. It held that, since the regulation affected substantial rights of
petitioners and other importers, petitioners should have observed the requirements of notice, hearing and publication.

Hence, this Petition.

Going now to the content of CMO 27-3003, we likewise hold that it is unconstitutional for being violative of the equal protection
clause of the Constitution.

The equal protection clause means that no person or class of persons shall be deprived of the same protection of laws enjoyed by
other persons or other classes in the same place in like circumstances. Thus, the guarantee of the equal protection of laws is not
violated if there is a reasonable classification. For a classification to be reasonable, it must be shown that (1) it rests on substantial
distinctions; (2) it is germane to the purpose of the law; (3) it is not limited to existing conditions only; and (4) it applies equally to all
members of the same class.[22]

Unfortunately, CMO 27-2003 does not meet these requirements. We do not see how the quality of wheat is affected by who imports
it, where it is discharged, or which country it came from.

Thus, on the one hand, even if other millers excluded from CMO 27-2003 have imported food grade wheat, the product would still
be declared as feed grade wheat, a classification subjecting them to 7% tariff. On the other hand, even if the importers listed under
CMO 27-2003 have imported feed grade wheat, they would only be made to pay 3% tariff, thus depriving the state of the taxes due.
The regulation, therefore, does not become disadvantageous to respondent only, but even to the state.

It is also not clear how the regulation intends to monitor more closely wheat importations and thus prevent their misclassification.
A careful study of CMO 27-2003 shows that it not only fails to achieve this end, but results in the opposite. The application of the
regulation forecloses the possibility that other corporations that are excluded from the list import food grade wheat; at the same
time, it creates an assumption that those who meet the criteria do not import feed grade wheat. In the first case, importers are
unnecessarily burdened to prove the classification of their wheat imports; while in the second, the state carries that burden.

Petitioner Commissioner of Customs also went beyond his powers when the regulation limited the customs officers duties
mandated by Section 1403 of the Tariff and Customs Law, as amended. The law provides:

Section 1403. Duties of Customs Officer Tasked to Examine, Classify, and Appraise Imported Articles. The customs officer tasked
to examine, classify, and appraise imported articles shall determine whether the packages designated for examination and their
contents are in accordance with the declaration in the entry, invoice and other pertinent documents and shall make return in such a
manner as to indicate whether the articles have been truly and correctly declared in the entry as regard their quantity,
measurement, weight, and tariff classification and not imported contrary to law. He shall submit samples to the laboratory for
analysis when feasible to do so and when such analysis is necessary for the proper classification, appraisal, and/or admission into the
Philippines of imported articles.

Likewise, the customs officer shall determine the unit of quantity in which they are usually bought and sold, and appraise the
imported articles in accordance with Section 201 of this Code.

Failure on the part of the customs officer to comply with his duties shall subject him to the penalties prescribed under Section 3604
of this Code.

The provision mandates that the customs officer must first assess and determine the classification of the imported article
before tariff may be imposed. Unfortunately, CMO 23-2007 has already classified the article even before the customs officer had the
chance to examine it. In effect, petitioner Commissioner of Customs diminished the powers granted by the Tariff and Customs Code
with regard to wheat importation when it no longer required the customs officers prior examination and assessment of the proper
classification of the wheat.

It is well-settled that rules and regulations, which are the product of a delegated power to create new and additional legal provisions
that have the effect of law, should be within the scope of the statutory authority granted by the legislature to the administrative
agency. It is required that the regulation be germane to the objects and purposes of the law; and that it be not in contradiction to,
but in conformity with, the standards prescribed by law.[23]

In summary, petitioners violated respondents right to due process in the issuance of CMO 27-2003 when they failed to observe the
requirements under the Revised Administrative Code. Petitioners likewise violated respondents right to equal protection of laws
when they provided for an unreasonable classification in the application of the regulation. Finally, petitioner Commissioner of
Customs went beyond his powers of delegated authority when the regulation limited the powers of the customs officer to examine
and assess imported articles.

WHEREFORE, in view of the foregoing, the Petition is DENIED.