Topic: Power to destroy vis--vis Power to Build

SISON vs. ANCHETA

G.R. No. L-59431 July 25, 1984
FACTS:
The challenged posed is a suit for
declaratory relief or prohibition on the validity of
Section 1 of Batas PambansaBlg. 135. The assailed
provision further amends Sec. 21 of the NIRC of 1977,
which provides for the rate tax on residents or
citizens on (a) taxable compensation income, (b)
taxable net income, (c) royalties, prizes, and other
winnings, (d) interests from bank deposits and yield
or any other monetary benefit from deposit
substitutes and from trust fund and similar
arrangements, (e) dividends and share from individual
partner in the net profits of taxable partnership, (f)
adjusted gross income.
Sison, as taxpayer, alleged that its provision
(Section 1) unduly discriminated against him by the
imposition of higher rates upon his income as a
professional, that it amounts to class legislation, and
that it transgresses against the equal protection and
due process clauses of the Constitution as well as the
rule requiring uniformity in taxation.
ISSUE:
Whether BP 135 violates the due process
and equal protection clauses, and the rule on
uniformity in taxation?
RULING:
There is a need for proof of such persuasive
character as would lead to a conclusion that there
was a violation of the due process and equal
protection clauses. Absent such showing, the
presumption of validity must prevail. Equality and
uniformity in taxation means that all taxable articles
or kinds of property of the same class shall be taxed
at the same rate. The taxing power has the authority
to make reasonable and natural classifications for
purposes of taxation. Where the differentiation
conforms to the practical dictates of justice and
equity, similar to the standards of equal protection, it
is not discriminatory within the meaning of the clause
and is therefore uniform. Taxpayers may be
classified into different categories, such as recipients
of compensation income as against professionals.
Recipients of compensation income are not entitled
to make deductions for income tax purposes as there
is no practically no overhead expense, while
professionals and businessmen have no uniform costs
or expenses necessary to produce their income. There
is ample justification to adopt the gross system of
income taxation to compensation income, while
continuing the system of net income taxation as
regards professional and business income.

As to the POWER TO TAX is the POWER TO

DESTROY- It is the imposition of a tax so high so as to
produce the effect of making the Business
unprofitable for the purpose of promoting public
health .e.g. Cigarette Business

Topic: Power to destroy vis--vis Power to Build

PHILIPPINE HEALTH CARE PROVIDERS VS. CIR
G.R. NO. 167330
SEPTEMBER 18, 2009

FACTS:
Philippine Health Care Providers, Inc. is a
domestic corporation whose primary purpose is "[t]o
establish, maintain, conduct and operate a prepaid
group practice health care delivery system or a health
maintenance organization to take care of the sick and
disabled persons enrolled in the health care plan and
to provide for the administrative, legal, and financial
responsibilities of the organization." Individuals
enrolled in its health care programs pay an annual
membership fee and are entitled to various
preventive, diagnostic and curative medical services
provided by its duly licensed physicians, specialists
and other professional technical staff participating in
the group practice health delivery system at a
hospital or clinic owned, operated or accredited by it.
January 27, 2000: Commissioner of Internal
Revenue (CIR) sent petitioner a formal demand
letter and the corresponding assessment notices
demanding the payment of deficiency taxes, including
surcharges and interest, for the taxable years 1996
and 1997 in the total amount of P224,702,641.18.
ISSUE:
1.

WON the State has properly exercised its

power to tax and is not used arbitrarily

HELD:
THE POWER TO TAX IS THE POWER TO DESTROY
As a general rule, the power to tax is an incident of
sovereignty and is unlimited in its range,
acknowledging in its very nature no limits, so that
security against its abuse is to be found only in the
responsibility of the legislature which imposes the tax
[51]
on the constituency who is to pay it.
So potent
indeed is the power that it was once opined that the
[52]
power to tax involves the power to destroy.

Petitioner claims that the assessed DST to date

[53]
which amounts to P376 million is way beyond its
[54]
net worth of P259 million. Respondent never
disputed these assertions. Given the realities on the
ground, imposing the DST on petitioner would be
highly oppressive. It is not the purpose of the
government to throttle private business. On the
contrary, the government ought to encourage private
[55]
enterprise. Petitioner, just like any concern
organized for a lawful economic activity, has a right to
[56]
maintain a legitimate business.
As aptly held
[57]
in Roxas, et al. v. CTA, et al.:
The power of taxation is
sometimes called also the power
to destroy. Therefore it should be
exercised with caution to
minimize injury to the proprietary
rights of a taxpayer. It must be
exercised fairly, equally and
uniformly, lest the tax collector
kill the hen that lays the golden
[58]
egg.
Legitimate enterprises enjoy the constitutional
protection not to be taxed out of existence. Incurring
losses because of a tax imposition may be an
acceptable consequence but killing the business of an
entity is another matter and should not be allowed. It
is counter-productive and ultimately subversive of the
nations thrust towards a better economy which will
[59]
ultimately benefit the majority of our people.

distrait and levy. Algue, however, filed a petition for

review with the Court of Tax Appeals.
ISSUE:
Whether the assessment was reasonable?
RULING:
Taxes are the lifeblood of the government
and so should be collected without unnecessary
hindrance. Every person who is able to pay must
contribute his share in the running of the
government. The Government, for his part, is
expected to respond in the form of tangible and
intangible benefits intended to improve the lives of
the people and enhance their moral and material
values. This symbiotic relationship is the rationale of
taxation and should dispel the erroneous notion that
is an arbitrary method of exaction by those in the seat
of power.
Tax collection, however, should be made in
accordance with law as any arbitrariness will negate
the very reason for government itself. For all the
awesome power of the tax collector, he may still be
stopped in his tracks if the taxpayer can demonstrate
that the law has not been observed. Herein, the
claimed deduction (pursuant to Section 30 [a] [1] of
the Tax Code and Section 70 [1] of Revenue
Regulation 2: as to compensation for personal
services) had been legitimately by Algue Inc. It has
further proven that the payment of fees was
reasonable and necessary in light of the efforts
exerted by the payees in inducing investors (in VOICP)
to involve themselves in an experimental enterprise
or a business requiring millions of pesos. The
assessment was not reasonable.

Topic: Importance of Taxation & the Lifeblood

Doctrine
COMMISSIONER vs. ALGUE
G.R. no. L-28890 February 17, 1988
FACTS:
The Philippine Sugar Estate Development
Company (PSEDC) appointed Algue Inc. as its agent,
authorizing it to sell its land, factories, and oil
manufacturing process. The Vegetable Oil Investment
Corporation (VOICP) purchased PSEDC properties. For
the sale, Algue received a commission of P125,000
and it was from this commission that it paid Guevara,
et. al. organizers of the VOICP, P75,000 in
promotional fees. In 1965, Algue received an
assessment from the Commissioner of Internal
Revenue in the amount of P83,183.85 as delinquency
income tax for years 1958amd 1959. Algue filed a
protest or request for reconsideration which was not
acted upon by the Bureau of Internal Revenue(BIR).
The counsel for Algue had to accept the warrant of

Topic: Importance of Taxation & the Lifeblood

Doctrine
NAPOCOR vs. CITY OF CABANATUAN
G.R. No. 149110, April 9, 2003
Facts:

NPC, a GOCC, created under CA 120 as

amended, selling electric power, was assessed by the
City of Cabanatuan for franchise tax pursuant to sec.
37 of Ordinance No. 165-92. NPC refused to pay the
tax assessment on the grounds that the City of
Cabanatuan has no authority to impose tax
on government entities and also that it is exempted
as a non-profitorganization. For its part, the

City government alleged that NPCs exemption from

local taxes has been repealed by sec. 193 of RA 7160.
Issue:
Whether NPC is liable to pay an annual
franchise tax to the City government

Held:
One of the most significant provisions of the
LGC is the removal of the blanket exclusion of
instrumentalities
and
agencies
of
the
national government from the coverage of local
taxation. Although as a general rule, LGUs cannot
impose taxes, fees or charges of any kind on the
National Government,
its
agencies
and
instrumentalities, this rule now admits an exception,
i.e., when specific provisions of the LGC authorize the
LGUs to impose taxes, fees or charges on the
aforementioned
entities.
As commonly used, a franchise tax is "a tax
on the privilege of transacting business in the state
and exercising corporate franchises granted by the
state." It is not levied on the corporation simply for
existing as a corporation, upon its property or its
income, but on its exercise of the rights or privileges
granted to it by the government. Hence, a
corporation need not pay franchise tax from the time
it ceased to do business and exercise its franchise. It is
within this context that the phrase "tax on businesses
enjoying a franchise" in section 137 of the LGC should
be interpreted and understood. Verily, to determine
whether the petitioner is covered by the franchise tax
in question, the following requisites should concur:
(1) that petitioner has a "franchise" in the sense of a
secondary or special franchise; and (2) that it is
exercising its rights or privileges under this franchise
within
the
territory
of
the
respondent
city government.
NPC fulfills both requisites. To stress, a
franchise tax is imposed based not on the ownership
but on the exercise by the corporation of a privilege
to do business. The taxable entity is the corporation
which exercises the franchise, and not the individual
stockholders. By virtue of its charter, petitioner was
created as a separate and distinct entity from the
NationalGovernment. It can sue and be sued under its
own name, and can exercise all the powers of a
corporation
under
the
Corporation
Code.
We also do not find merit in the petitioner's
contention that its tax exemptions under its charter
subsist despite the passage of the LGC.

As a rule, tax exemptions are construed

strongly against the claimant. Exemptions must be
shown to exist clearly and categorically, and
supported by clear legal provisions. In the case at bar,
the petitioner's sole refuge is section 13 of Rep. Act
No. 6395 exempting from, among others, "all income
taxes, franchise taxes and realty taxes to be paid to
the National Government, its provinces, cities,
municipalities and other government agencies and
instrumentalities."
It is worth mentioning that section 192 of
the LGC empowers the LGUs, through ordinances duly
approved, to grant tax exemptions, initiatives or
reliefs.77 But in enacting section 37 of Ordinance No.
165-92 which imposes an annual franchise tax
"notwithstanding any exemption granted by law or
other
special
law,"
the
respondent
city governmentclearly did not intend to exempt the
petitioner
from
the
coverage
thereof.
Doubtless, the power to tax is the most
effective instrument to raise needed revenues
to finance and support myriad activities of the
local government units for the delivery of basic
services essential to the promotion of the general
welfare and the enhancement of peace, progress, and
prosperity of the people. As this Court observed in
the Mactan case, "theoriginal 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."
With the added burden of devolution, it is even more
imperative forgovernment entities to share in the
requirements of development, fiscal or otherwise,
by paying taxes or other charges due from them.

Topic: Objectives of Taxation: Regulation

PHILIPPINE AIRLINES vs. EDU
G.R. No. L- 41383 August 15, 1988
FACTS:
PAL is a corporation organized and existing
under the laws of the Philippines and engaged in the
air transportation business under a legislative
franchise, Act No. 42739, as amended by Republic Act
Nos. 25) and 269.1 Under its franchise, PAL is exempt
from the payment of taxes. On the strength of an
opinion of the Secretary of Justice (Op. No. 307, series
of 1956) PAL has, since 1956, not been paying motor
vehicle registration fees.
Sometime in 1971, however, appellee
Commissioner Romeo F. Elevate issued a regulation

requiring all tax exempt entities, among them PAL to

pay motor vehicle registration fees.
Despite PAL's protestations, the appellee
refused to register the appellant's motor vehicles
unless the amounts imposed under Republic Act 4136
were paid. The appellant thus paid, under protest, the
amount of P19, 529.75 as registration fees of its
motor vehicles.
PAL demanding a refund of the amounts paid,
invoking the ruling in Calalang v. Lorenzo (97 Phil. 212
[1951]) where it was held that motor vehicle
registration fees are in reality taxes from the payment
of which PAL is exempt by virtue of its legislative
franchise.
Appellee Edu denied the request for refund
basing his action on the decision in Republic v.
Philippine Rabbit Bus Lines, Inc., (32 SCRA 211, March
30, 1970) to the effect that motor vehicle registration
fees are regulatory exceptional and not revenue
measures and, therefore, do not come within the
exemption granted to PAL under its franchise. Hence,
PAL filed the complaint against Land Transportation
Commission after paying under protest.
ISSUE:
Whether or not motor vehicle registration is
considered tax?
RULING:
Yes, motor vehicle registration fees are now
considered revenue or tax measures. This case
reversed the doctrine in the Philippine Rabbit Bus
Lines to the effect that registration fees are
regulatory exactions and not revenues. Revised
Motor Vehicle Law itself now regards those fees as
taxes, for it provides that "no other taxes or fees than
those prescribed in this Act shall be imposed," thus
implying that the charges therein imposedthough
called feesare of the category of taxes. The
provision is contained in section 70, of subsection (b),
of the law, as amended by section 17 of Republic Act
587, which reads:
Sec. 70(b) No other taxes or fees than those
prescribed in this Act shall be imposed for the
registration or operation or on the ownership of any
motor vehicle, or for the exercise of the profession of
chauffeur, by any municipal corporation, the
provisions of any city charter to the contrary
notwithstanding: Provided, however, That any
provincial board, city or municipal council or board, or
other competent authority may exact and collect such
reasonable and equitable toll fees for the use of such
bridges and ferries, within their respective
jurisdiction, as may be authorized and approved by
the Secretary of Public Works and Communications,
and also for the use of such public roads, as may be
authorized by the President of the Philippines upon
the recommendation of the Secretary of Public Works

and Communications, but in none of these cases, shall

any toll fee." be charged or collected until and unless
the approved schedule of tolls shall have been posted
levied, in a conspicuous place at such toll station.
Fees may be properly regarded as taxes
even though they also serve as an instrument of
regulation. It is possible for an exaction to be both tax
and regulation. License fees are charges looked to as
a source of revenue as well as a means of regulation
(Sonzinky v. U.S., 300 U.S. 506) This is true, for
example, of automobile license fees. In such case, the
fees may properly be regarded as taxes even though
they also serve as an instrument of regulation. If the
purpose is primarily revenue, or if revenue is at least
one of the real and substantial purposes, then the
exaction is properly called a tax. (1955 CCH Fed. tax
Course, Par. 3101, citing Cooley on Taxation (2nd Ed.)
592, 593; Calalang v. Lorenzo. 97 Phil. 213-214) Lutz v.
Araneta 98 Phil. 198.) These exactions are sometimes
called regulatory taxes. (See Secs. 4701, 4711, 4741,
4801, 4811, 4851, and 4881, U.S. Internal Revenue
Code of 1954, which classify taxes on tobacco and
alcohol as regulatory taxes.) (Umali, Reviewer in
Taxation, 1980, pp. 12-13, citing Cooley on Taxation,
2nd Edition, 591-593).
Indeed, taxation may be made the
implement of the state's police power. If the purpose
is primarily revenue, or if revenue is, at least, one of
the real and substantial purposes, then the exaction is
properly called a tax (Umali, Id.) Such is the case of
motor vehicle registration fees. The conclusions
become inescapable in view of Section 70(b) of Rep.
Act 587 quoted in the Calalang case. The same
provision appears as Section 591-593) in the Land
Transportation code. It is patent there from that the
legislators had in mind a regulatory tax as the law
refers to the imposition on the registration, operation
or ownership of a motor vehicle as a "tax or fee."
Though nowhere in Rep. Act 4136 does the law
specifically state that the imposition is a tax, Section
591-593) speaks of "taxes." or fees ... for the
registration or operation or on the ownership of any
motor vehicle, or for the exercise of the profession of
chauffeur ..." making the intent to impose a tax more
apparent. Thus, even Rep. Act 5448 cited by the
respondents, speak of an "additional" tax," where the
law could have referred to an original tax and not one
in addition to the tax already imposed on the
registration, operation, or ownership of a motor
vehicle under Rep. Act 41383. Simply put, if the
exaction under Rep. Act 4136 were merely a
regulatory fee, the imposition in Rep. Act 5448 need
not be an "additional" tax. Rep. Act 4136 also speaks
of other "fees," such as the special permit fees for
certain types of motor vehicles (Sec. 10) and
additional fees for change of registration (Sec. 11).
These are not to be understood as taxes because such
fees are very minimal to be revenue-raising. Thus,

they are not mentioned by Sec. 591-593 of the Code

as taxes like the motor vehicle registration fee and
chauffers' license fee. Such fees are to go into the
expenditures of the Land Transportation Commission.
It is quite apparent that vehicle registration fees were
originally simple exceptional intended only for rigidly
purposes in the exercise of the State's police powers.
Over the years, however, as vehicular traffic exploded
in number and motor vehicles became absolute
necessities without which modem life as we know it
would stand still, Congress found the registration of
vehicles a very convenient way of raising much
needed revenues. A registration payment as fees,
their nature has become that of "taxes."
In pursuant to the Land Transportation and
Traffic Code, taxes can be intended for additional
revenues of government even if one fifth or less of
the amount collected is set aside for the operating
expenses of the agency administering the program.
Topic: Objectives of Taxation: Regulation
TIO vs. VIDEOGRAM REGULATORY BOARD
151
S
208
FACTS:
Petitioner, on his own behalf and
purportedly on behalf of other videogram operators
adversely affected, assailed the constitutionality of
Presidential Decree No. 1987 entitled An Act
Creating the Videogram Regulatory Board with
broad powers to regulate and supervise the
videogram industry.
Petitioner questioned the constitutionality
of the decree on the grounds that: (a) Section 10
thereof, which imposes a tax of 30% on the gross
receipts payable to the local government is a rider
and the same is not germane to the subject matter
thereof; (b) the tax imposed is harsh, confiscatory,
oppressive and/or in unlawful restraint to trade in
violation of the due process clause of the
Constitution; (c) there is undue delegation of power.

answer the need for regulating the video industry,

particularly because of the rampant film piracy, the
flagrant violation of intellectual property rights, and
the proliferation of pornographic video tapes and
while it was also an objective of the Decree to protect
the movie industry, the tax remains a valid
imposition.
The public purpose of a tax may legally exist
even if the motive which impelled the legislature to
impose the tax was to favor one industry over the
other.
It is inherent in the power to tax that a state be free
to select the subjects of taxation, and it has been
repeatedly held that inequities which result from a
singling out of one particular class for taxation or
exemption infringe no constitutional limitation.
Taxation has been made the implement of the states
police power.
With regard to the issue that the Decree
contains an undue delegation of legislative power,
there is really no delegation of the power to legislate
but merely a conferment functions of authority or
discretion as to its execution, enforcement, and
implementation.
It is important to note that only
congressional power or competence, not the wisdom
of the action taken, may be the basis for declaring a
statute invalid. The principle of separation of powers
has in the main wisely allocated the respective
authority to each department and confined its
jurisdiction to such a sphere. The attack on the
validity of the challenged provision likewise insofar as
there may be objections, even if valid and cogent on
its
wisdom
cannot
be
sustained.
Topic: Concept of Allowable Deductions: Deduction
vs. Tax Credit
COMMISSIONER OF INTERNAL REVENUE vs.
CENTRAL LUZON DRUG CORPORATION
G.R. No. 159647 April 15, 2005
FACTS:

ISSUE:
Whether or not the assailed Decree is
unconstitutional?
RULING:
The power to impose taxes is one so
unlimited in force and so searching in extent, that the
courts scarcely venture to declare that it is subject to
any restrictions whatever, except such as rest in the
discretion of the authority which exercises it. In
imposing a tax, the legislature acts upon its
constituents. This is, in general, a sufficient security
against erroneous and oppressive taxation.
On the other hand, the levy of the 30% tax
is for public purpose. It was imposed primarily to

Respondent is a domestic corporation

primarily engaged in retailing of medicines and other
pharmaceutical products. Respondent granted twenty
(20%) percent sales discount to qualified senior
citizens on their purchases of medicines pursuant to
Republic Act No. 7432 and its Implementing Rules and
Regulations. For the said period, the amount
allegedly representing the 20% sales discount granted
by respondent to qualified senior citizens totaled
P904,769.00.
On April 15, 1997, respondent filed its
Annual Income Tax Return for taxable year 1996
declaring therein that it incurred net losses from its
operations.

On January 16, 1998, respondent filed with

petitioner a claim for tax refund/credit in the amount
of P904,769.00 allegedly arising from the 20% sales
discount granted by respondent to qualified senior
citizens in compliance with R.A. 7432. Unable to
obtain affirmative response from petitioner,
respondent elevated its claim to the Court of Tax
Appeals. The CTA, in its assailed resolution, ordered
herein petitioner to issue a Tax Credit Certificate in
favor of respondent. On appeal, the CA affirmed in
toto the Resolution of the Court of Tax Appeals.
ISSUE:
Whether respondent, despite incurring a
net loss, may still claim the 20 percent sales discount
as a tax credit?
RULING:
Such credit can be claimed, even though an
establishment operates at a loss.
Since a tax credit is used to reduce directly the tax
that is due, there ought to be a tax liability before the
tax credit can be applied. Without that liability, any
tax credit application will be useless. There will be no
reason for deducting the latter when there is, to
begin with, no existing obligation to the
government. However, as will be presented shortly,
the existence of a tax credit or its grant by law is not
the same as the availment or use of such
credit. While the grant is mandatory, the availment
or use is not.
If a net loss is reported by, and no other
taxes are currently due from, a business
establishment, there will obviously be no tax liability
against which any tax credit can be applied. For the
establishment to choose the immediate availment of
a
tax
credit
will
be
premature
and
impracticable. Nevertheless, the irrefutable fact
remains that, under RA 7432, Congress has granted
without conditions a tax credit benefit to all covered
establishments.
Although this tax credit benefit is available, it need
not be used by losing ventures, since there is no tax
liability that calls for its application. Neither can it be
reduced to nil by the quick yet callow stroke of an
administrative pen, simply because no reduction of
taxes can instantly be effected. By its nature, the tax
credit may still be deducted from a future, not a
present, tax liability, without which it does not have
any use. In the meantime, it need not move. But it
breathes.
Topic: Inherent Limitations: Public Purpose
PASCUAL vs. SECRETARY OF PUBLIC WORKS
110
SCRA
331
FACTS:

Petitioner Wenceslao Pascual, as Provincial

Governor of Rizal, instituted this action for
declaratory relief, with injunction, upon the ground
that Republic Act No. 920, entitled "An Act
Appropriating Funds for Public Works", approved on
June 20, 1953, contained, in section 1-C (a) thereof,
an item (43[h]) of P85,000.00 "for the construction,
reconstruction, repair, extension and improvement"
of Pasig feeder road terminals. The time of the
passage and approval of said Act, the aforementioned
feeder roads were "nothing but projected and
planned subdivision roads, not yet constructed, . . .
within the Antonio Subdivision . . . situated at . . .
Pasig, Rizal", which projected feeder roads "do not
connect any government property or any important
premises to the main highway"; that the
aforementioned Antonio Subdivision (as well as the
lands on which said feeder roads were to be
construed) were private properties of respondent
Jose C. Zulueta, who, at the time of the passage and
approval of said Act, was a member of the Senate of
the Philippines.
Respondent Zulueta, addressed a letter to
the Municipal Council of Pasig, Rizal, offering to
donate said projected feeder roads to the
municipality of Pasig, Rizal; the offer was accepted by
the council, subject to the condition "that the donor
would submit a plan of the said roads and agree to
change the names of two of them"; that no deed of
donation in favor of the municipality of Pasig was,
however, executed.
ISSUE:
Whether or not the contested item of
Republic Act No. 920 be declared null and void.
Whether or not the alleged deed of donation of the
feeder
roads
in
question
be
"declared
unconstitutional and, therefor, illegal?
RULING:
It is a general rule that the legislature is
without power to appropriate public revenue for
anything but a public purpose. It is the essential
character of the direct object of the expenditure
which must determine its validity as justifying a tax,
and not the magnitude of the interest to be affected
nor the degree to which the general advantage of the
community, and thus the public welfare, may be
ultimately benefited by their promotion. Incidental to
the public or to the state, which results from the
promotion of private interest and the prosperity of
private enterprises or business, does not justify their
aid by the use public money.
The rule is set forth in Corpus Juris
Secundum in the following language: In accordance
with the rule that the taxing power must be exercised
for public purposes only, discussed supra sec. 14,
money raised by taxation can be expended only for

public purposes and not for the advantage of private

individuals. Generally, under the express or implied
provisions of the constitution, public funds may be
used only for public purpose. The right of the
legislature to appropriate funds is correlative with its
right to tax, and, under constitutional provisions
against taxation except for public purposes and
prohibiting the collection of a tax for one purpose and
the devotion thereof to another purpose, no
appropriation of state funds can be made for other
than for a public purpose.
The test of the constitutionality of a statute
requiring the use of public funds is whether the
statute is designed to promote the public interest, as
opposed to the furtherance of the advantage of
individuals, although each advantage to individuals
might incidentally serve the public.
The validity of a statute depends upon the
powers of Congress at the time of its passage or
approval, not upon events occurring, or acts
performed, subsequently thereto, unless the latter
consists of an amendment of the organic law,
removing, with retrospective operation, the
constitutional limitation infringed by said statute.
Referring to the P85,000.00 appropriation for the
projected feeder roads in question, the legality
thereof depended upon whether said roads were
public or private property when the bill, which, latter
on, became Republic Act 920, was passed by
Congress, or, when said bill was approved by the
President and the disbursement of said sum became
effective, or on June 20, 1953 (see section 13 of said
Act). Inasmuch as the land on which the projected
feeder roads were to be constructed belonged then
to respondent Zulueta, the result is that said
appropriation sought a private purpose, and hence,
was null and void. The donation to the Government,
over five (5) months after the approval and effectivity
of said Act, made, according to the petition, for the
purpose of giving a "semblance of legality", or
legalizing, the appropriation in question, did not cure
its aforementioned basic defect. Consequently, a
judicial nullification of said donation need not
precede the declaration of unconstitutionality of said
appropriation.
Again, Article 1421 of our Civil Code, like
many other statutory enactments, is subject to
exceptions. For instance, the creditors of a party to an
illegal contract may, under the conditions set forth in
Article 1177 of said Code, exercise the rights and
actions of the latter, except only those which are
inherent in his person, including therefore, his right to
the annulment of said contract, even though such
creditors are not affected by the same, except
indirectly, in the manner indicated in said legal
provision.
Again, it is well-stated that the validity of a
statute may be contested only by one who will

sustain a direct injury in consequence of its

enforcement. Yet, there are many decisions nullifying,
at the instance of taxpayers, laws providing for the
disbursement of public funds, upon the theory that
"the expenditure of public funds by an officer of the
State for the purpose of administering an
unconstitutional act constitutes a misapplication of
such funds," which may be enjoined at the request of
a taxpayer.Although there are some decisions to the
contrary, the prevailing view in the United States is
stated in the American Jurisprudence as follows:
In the determination of the degree of
interest essential to give the requisite standing to
attack the constitutionality of a statute, the general
rule is that not only persons individually affected, but
also taxpayers, have sufficient interest in preventing
the illegal expenditure of moneys raised by taxation
and may therefore question the constitutionality of
statutes requiring expenditure of public moneys.
Hence, it is our considered opinion that the
circumstances surrounding this case sufficiently
justify petitioners action in contesting the
appropriation and donation in question; that this
action should not have been dismissed by the lower
court; and that the writ of preliminary injunction
should have been maintained.
Topic: Inherent Limitation: Public Purpose
LUTZ vs. ARANETA
G.R. No. L-7859
December 22, 1955
FACTS:
Promulgated in 1940, the law in question
opens (section 1) with a declaration of emergency,
due to the threat to our industry by the imminent
imposition of export taxes upon sugar as provided in
the Tydings-McDuffie Act, and the "eventual loss of
its preferential position in the United States market";
wherefore, the national policy was expressed "to
obtain a readjustment of the benefits derived from
the sugar industry by the component elements
thereof" and "to stabilize the sugar industry so as to
prepare it for the eventuality of the loss of its
preferential position in the United States market and
the imposition of the export taxes."
In section 2, Commonwealth Act 567
provides for an increase of the existing tax on the
manufacture of sugar, on a graduated basis, on each
picul of sugar manufactures; while section 3 levies on
owners or persons in control of lands devoted to the
cultivation of sugar cane and ceded to others for a
consideration, on lease or otherwise.
Plaintiff, Walter Lutz, in his capacity as
Judicial Administrator of the Intestate Estate of
Antonio Jayme Ledesma, seeks to recover from the
Collector of Internal Revenue the sum of P14,666.40
paid by the estate as taxes, under section 3 of the Act,

for the crop years 1948-1949 and 1949-1950; alleging

that such tax is unconstitutional and void, being
levied for the aid and support of the sugar industry
exclusively, which in plaintiff's opinion is not a public
purpose for which a tax may be constitutionally
levied. The action having been dismissed by the Court
of First Instance, the plaintiffs appealed the case
directly to this Court
ISSUE:
Whether or not taxes imposed by
Commonwealth Act No. 567, otherwise known as the
Sugar Adjustment Act is legal?
RULING:
As the protection and promotion of the
sugar industry is a matter of public concern the
Legislature may determine within reasonable bounds
what is necessary for its protection and expedient for
its promotion. Here, the legislative must be allowed
full play, subject only to the test of reasonableness;
and it is not contended that the means provided in
section 6 of Commonwealth Act No. 567 bear no
relation to the objective pursued or are oppressive in
character. If objective and methods are alike
constitutionally valid, no reason is seen why the state
may not levy taxes to raise funds for their prosecution
and attainment.
Taxation may be made the
implement of the state's police power.
It is inherent in the power to tax that a state
be free to select the subjects of taxation, and it has
been repeatedly held that "inequalities which result
from a singling out of one particular class for taxation
or exemption infringe no constitutional limitation

This
appeal
puts
in
issue
the
constitutionality of Republic Act 1635,as amended by
2
Republic Act 2631, which provides as follows:
To help raise funds for the Philippine
Tuberculosis Society, the Director of Posts shall order
for the period from August nineteen to September
thirty every year the printing and issue of semi-postal
stamps of different denominations with face value
showing the regular postage charge plus the
additional amount of five centavos for the said
purpose, and during the said period, no mail matter
shall be accepted in the mails unless it bears such
semi-postal stamps: Provided, That no such additional
charge of five centavos shall be imposed on
newspapers. The additional proceeds realized from
the sale of the semi-postal stamps shall constitute a
special fund and be deposited with the National
Treasury to be expended by the Philippine
Tuberculosis Society in carrying out its noble work to
prevent and eradicate tuberculosis.
The respondent Postmaster General, in
implementation of the law, thereafter issued four (4)
administrative orders numbered 3 (June 20, 1958), 7
(August 9, 1958), 9 (August 28, 1958), and 10 (July 15,
1960). All these administrative orders were issued
with the approval of the respondent Secretary of
Public Works and Communications.
ISSUE:
Whether or not RA 1635 as amended by RA
2631 and the four Administrative orders violates the
equal protection clause of the Constitution as well as
the rule of uniformity and equality of taxation?
RULING:

Topic: Inherent Limitations: Public Purpose

GOMEZ vs. PALOMAR
G.R. No. L-23645
October 29, 1968
FACTS:
On September l5, 1963 the petitioner
Benjamin P. Gomez mailed a letter at the post office
in San Fernando, Pampanga. Because this letter,
addressed to a certain Agustin Aquino of 1014
Dagohoy Street, Singalong, Manila did not bear the
special anti-TB stamp required by the statute, it was
returned to the petitioner.
In view of this development, the petitioner
brought suit for declaratory relief in the Court of First
Instance of Pampanga, to test the constitutionality of
the statute, as well as the implementing
administrative orders issued, contending that it
violates the equal protection clause of the
Constitution as well as the rule of uniformity and
equality of taxation.
The lower court declared the statute and
the orders unconstitutional.

It is settled that the legislature has the

inherent power to select the subjects of taxation and
to grant exemptions. This power has aptly been
described as "of wide range and flexibility. Indeed, it
is said that in the field of taxation, more than in other
areas, the legislature possesses the greatest freedom
in classification. The reason for this is that
traditionally, classification has been a device for
fitting tax programs to local needs and usages in
order to achieve an equitable distribution of the tax
burden.
The classification is based on considerations
of administrative convenience. For it is now a settled
principle of law that consideration of practical
administrative convenience and cost in the
administration of tax laws afford adequate ground for
imposing a tax on a well recognized and defined class.
In the case of the anti-TB stamps, undoubtedly, the
single most important and influential consideration
that led the legislature to select mail users as subjects
of the tax is the relative ease and convenience of
collecting the tax through the post offices. The small
amount of five centavos does not justify the great

expense and inconvenience of collecting through the

regular means of collection. On the other hand, by
placing the duty of collection on postal authorities the
tax was made almost self-enforcing, with as little cost
and as little inconvenience as possible.
The eradication of a dreaded disease is a
public purpose, but if by public purpose the petitioner
means benefit to a taxpayer as a return for what he
pays, then it is sufficient answer to say that the only
benefit to which the taxpayer is constitutionally
entitled is that derived from his enjoyment of the
privileges of living in an organized society, established
and safeguarded by the devotion of taxes to public
purposes. Any other view would preclude the levying
of taxes except as they are used to compensate for
the burden on those who pay them and would involve
the abandonment of the most fundamental principle
of government that it exists primarily to provide
for the common good.
Nor is the rule of uniformity and equality of
taxation infringed by the imposition of a flat rate
rather than a graduated tax. A tax need not be
measured by the weight of the mail or the extent of
the service rendered. We have said that
considerations of administrative convenience and
cost afford an adequate ground for classification. The
same considerations may induce the legislature to
impose a flat tax which in effect is a charge for the
transaction, operating equally on all persons within
the class regardless of the amount involved.
Topic: Inherent Limitations: Inherently Legislative
PEPSI-COLA vs. MUNICIPALITY OF TANAUAN
G.R No. L-31156 February 27, 1976
FACTS:
Pepsi-Cola Bottling Company of the
Philippines, Inc., commenced a complaint for the
court to declare Section 2 of Republic Act No. 2264
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.
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 the acting Municipal Treasurer of Tanauan,
Leyte, as per his letter addressed to the Manager of
the Pepsi-Cola 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, 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." 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.
The tax imposed in both Ordinances Nos. 23
and 27 is denominated as "municipal production tax.'
ISSUE:
Whether or not the Municipal Ordinances
are valid?
RULING:
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 to 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.
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.

Topic: Inherent Limitations: Coverage, Object,

Nature, Extent, Situs
PEPSI-COLA vs. CITY OF BUTUAN
G.R No. L-22814 August 28, 1968
FACTS:
Pepsis warehouse in the City of Butuan
serves as a storage for its products the "Pepsi-Cola"
soft drinks for sale to customers in the City of Butuan
and all the municipalities in the Province of Agusan.
These "Pepsi-Cola Cola" soft drinks are bottled in
Cebu City and shipped to the Butuan City warehouse

of plaintiff for distribution and sale in the City of

Butuan and all municipalities of Agusan. .
On August 16, 1960, the City of Butuan
enacted Ordinance No. 110 which was subsequently
amended by Ordinance No. 122. That Ordinance No.
110 as amended, imposes a tax on any person,
association, etc., of P0.10 per case of 24 bottles of
Pepsi-Cola and the plaintiff paid under protest the
amount of P4,926.63 from August 16 to December
31, 1960 and the amount of P9,250.40 from January 1
to July 30, 1961.
The plaintiff then filed the foregoing
complaint for the recovery of the total amount of
P14,177.03 paid under protest and those that if may
later on pay until the termination of this case on the
ground that Ordinance No. 110 as amended of the
City of Butuan is illegal, that the tax imposed is
excessive and that it is unconstitutional.
ISSUE:
Whether or not Ordinance No. 122 is
unconstitutional?
RULING:
It is true that the uniformity essential to the
valid exercise of the power of taxation does not
require identity or equality under all circumstances,
or negate the authority to classify the objects of
taxation. The classification made in the exercise of
this authority, to be valid, must, however, be
reasonable and this requirement is not deemed
satisfied unless: (1) it is based upon substantial
distinctions which make real differences; (2) these are
germane to the purpose of the legislation or
ordinance; (3) the classification applies, not only to
present conditions, but, also, to future conditions
substantially identical to those of the present; and (4)
the classification applies equally all those who belong
to the same class.
These conditions are not fully met by the
ordinance in question. Indeed, if its purpose was
merely to levy a burden upon the sale of soft drinks or
carbonated beverages, there is no reason why sales
thereof by sealers other than agents or consignees of
producers or merchants established outside the City
of Butuan should be exempt from the tax.
Topic: Tax Exemption of the Government
LIGHT RAIL TRANSIT AUTHORITY vs. CENTRAL
BOARD OF ASSESSMENT
GR NO. 127316
October 12, 2000
FACTS:
The LRTA is a government-owned and
controlled corporation created and organized under
Executive Order No. 603, dated July 12, 1980
primarily responsible for the construction, operation,

maintenance and/or lease of light rail transit system

in the Philippines, giving due regard to the reasonable
requirements of the public transportation of the
country'. By reason of Executive Order 603, LRTA
acquired real properties constructed structural
improvements, such as buildings, carriageways,
passenger terminal stations, and installed various
kinds of machinery and equipment and facilities for
the purpose of its operations;
For an effective maintenance, operation
and management, it entered into a Contract of
Management with the Meralco Transit Organization
in which the latter undertook to manage, operate and
maintain the Light Rail Transit System owned by the
LRTA subject to the specific stipulations contained in
said agreement, including payments of a
management fee and real property taxes.That it
commenced its operations in 1984, and that
sometime that year, Respondent-Appellee City
Assessor of Manila assessed the real properties of
petitioner, consisting of lands, buildings, carriageways
and passenger terminal stations, machinery and
equipment which he considered real property under
the Real Property Tax Code, to commence with the
year 1985;That petitioner paid its real property taxes
on all its real property holdings, except the
carriageways and passenger terminal stations
including the land where it is constructed on the
ground that the same are not real properties under
the Real Property Tax Code, and if the same are real
property, these are for public use/purpose, therefore,
exempt from realty taxation, which claim was denied
by the Respondent-Appellee City Assessor of Manila;
and Petitioner, aggrieved by the action of the
Respondent-Appellee City Assessor, filed an appeal
with the Local Board of Assessment Appeals of
Manila. Appellee, herein, after due hearing, in its
resolution dated June 26, 1992, denied petitioner's
appeal, and declared that carriageways and
passenger terminal stations are improvements,
therefore, are real property under the Code, and not
exempt from the payment of real property tax.
ISSUE:
Whether or not petitioner is exempt from
payment of real property taxes?
RULING:
In any event, there is another legal
justification for upholding the assailed CA Decision.
Under the Real Property Tax Code, real property
"owned by the Republic of the Philippines or any of its
political subdivisions and any government-owned or
controlled corporation so exempt by its charter,
provided, however, that this exemption shall not
apply to real property of the abovenamed entities the
beneficial use of which has been granted, for
consideration or otherwise, to a taxable person."

Executive Order No. 603, the charter of

petitioner, does not provide for any real estate tax
exemption in its favor. Its exemption is limited to
direct and indirect taxes, duties or fees in connection
with the importation of equipment not locally
available, as the following provision shows:
"ARTICLE 4
TAX AND DUTY EXEMPTIONS
Sec. 8.Equipment, Machineries, Spare Parts and Other
Accessories and Materials. - The importation of
equipment, machineries, spare parts, accessories and
other materials, including supplies and services, used
directly in the operations of the Light Rails Transit
System, not obtainable locally on favorable terms, out
of any funds of the authority including, as stated in
Section 7 above, proceeds from foreign loans credits
or indebtedness, shall likewise be exempted from all
direct and indirect taxes, customs duties, fees,
imposts, tariff duties, compensating taxes, wharfage
fees and other charges and restrictions, the
provisions of existing laws to the contrary
notwithstanding."
Even granting that the national government
indeed owns the carriageways and terminal stations,
the exemption would not apply because their
beneficial use has been granted to petitioner, a
taxable entity.
Taxation is the rule and exemption is the
exception. Any claim for tax exemption is strictly
construed against the claimant. LRTA has not shown
its eligibility for exemption; hence, it is subject to the
tax.
Topic: Tax Exemption of the Government
MACTAN CEBU INTERNATIONAL AIRPORT vs.
MARCOS
G.R. No. 120082 September 11, 1996
FACTS:
MCIAA was created by virtue of Republic
Act 6958. Since the time of its creation, MCIAA
enjoyed the privilege of exemption from payment of
realty taxes in accordance with Section 14 of its
Charter. However on 11 October 1994, the Office of
the Treasurer of Cebu, demanded for the payment of
realty taxes on several parcels of land belonging to
the petitioner. Petitioner objected to such demand
for payment as baseless and unjustified. It also
asserted that it is an instrumentality of the
government performing a governmental functions,
which puts limitations on the taxing powers of local
government units. It nonetheless stands in the same
footing as an agency or instrumentality of the
national government by the very nature of its powers
and functions. The City refused to cancel and set
aside petitioners realty tax account, insisting that the
MCIAA is a government controlled corporation whose

tax exemption privilege has been withdrawn by virtue

of Sections 193 and 234 of the Local Government
Code, and not an instrumentality of the government
but merely a government owned corporation
performing proprietary functions. MCIAA paid its tax
account under protest when City is about to issue a
warrant of levy against the MCIAAs properties.
On 29 December 1994, MCIAA filed a
Petition of Declaratory Relief with the Cebu Regional
Trial Court contending that the taxing power of local
government units do not extend to the levy of taxes
or fees on an instrumentality of the national
government. It contends that by the nature of its
powers and functions, it has the footing of an agency
or instrumentality of the national government; which
claim the City rejects. On 22 March 1995, the trial
court dismissed the petition, citing that close reading
of the LGC provides the express cancellation and
withdrawal of tax exemptions of Government Owned
and Controlled Corporations. MCIAAs motion for
reconsideration having been denied by the trial court
in its 4 May 1995 order, the petitioner filed the
instant petition.
ISSUE:
Whether the MCIAA is exempted from
realty taxes?
RULING:
Tax statutes are construed strictly against
the government and liberally in favor of the taxpayer.
But since taxes are paid for civilized society, or are the
lifeblood of the nation, the law frowns against
exemptions from taxation and statutes granting tax
exemptions are thus construed strictissimijuris
against the taxpayer and liberally in favor of the
taxing authority. A claim of exemption from tax
payments must be clearly shown and based on
language in the law too plain to be mistaken. Elsewise
stated, taxation is the rule, exemption therefrom is
the exception. However, if the grantee of the
exemption is a political subdivision or instrumentality,
the rigid rule of construction does not apply because
the practical effect of the exemption is merely to
reduce the amount of money that has to be handled
by the government in the course of its operations.
Further, since taxation is the rule and exemption
therefrom the exception, the exemption may be
withdrawn at the pleasure of the taxing authority.
The only exception to this rule is where the
exemption was granted to private parties based on
material consideration of a mutual nature, which then
becomes contractual and is thus covered by the nonimpairment clause of the Constitution.
MCIAA is a taxable person under its
Charter (RA 6958), and was only exempted from the
payment of real property taxes. The grant of the
privilege only in respect of this tax is conclusive proof

of the legislative intent to make it a taxable person

subject to all taxes, except real property tax. Since
Republic Act 7160 or the Local Government Code
expressly provides that All general and special laws,
acts, city charters, decrees, executive orders,
proclamations and administrative regulations, or part
of parts thereof which are inconsistent with any of
the provisions of this Code are hereby repealed or
modified accordingly. With that repealing clause in
the LGC, the tax exemption provided for in RA 6958
had been expressly repealed by the provisions of the
LGC. Therefore, MCIAA has to pay the assessed realty
tax of its properties effective after January 1, 1992
until the present.
Topic: Tax Exemption of the Government
MANILA INTERNATIONAL AIRPORT AUTHORIT vs.
CITY OF PARAAQUE
G.R. No. 155650 July 20, 2006
FACTS:
Petitioner Manila International Airport
Authority operates the Ninoy Aquino International
Airport Complex in Paraaque City under Executive
Order No. 903, issued on 21 July 1983 by then
President Ferdinand E. Marcos. As operator of the
international airport, MIAA administers the land,
improvements and equipment within the NAIA
Complex, including the runways and buildings.
On 21 March 1997, the Office of the
Government Corporate Counsel (OGCC) issued
Opinion No. 061. The OGCC opined that the Local
Government Code of 1991 withdrew the exemption
from real estate tax granted to MIAA under Section
21 of the MIAA Charter.
On 17 July 2001, the City of Paraaque,
through its City Treasurer, issued notices of levy and
warrants of levy on the Airport Lands and Buildings
threatened to sell at public auction the Airport Lands
and Buildings should MIAA fail to pay the real estate
tax delinquency.
On 1 October 2001, MIAA filed with the
Court of Appeals an original petition for prohibition
and also points out that Section 21 of the MIAA
Charter specifically exempts MIAA from the payment
of real estate tax. MIAA insists that it is also exempt
from real estate tax under Section 234 of the Local
Government Code because the Airport Lands and
Buildings are owned by the Republic. To justify the
exemption, MIAA invokes the principle that the
government cannot tax itself. MIAA points out that
the reason for tax exemption of public property is
that its taxation would not inure to any public
advantage, since in such a case the tax debtor is also
the tax creditor.
ISSUE:

Whether the Airport Lands and Buildings of

MIAA are exempt from real estate tax under existing
laws?
RULING:
MIAA's Airport Lands and Buildings are
exempt from real estate tax imposed by local
governments.
First, MIAA is not a government-owned or
controlled corporation but an instrumentality of the
National Government and thus exempt from local
taxation. Second, the real properties of MIAA are
owned by the Republic of the Philippines and thus
exempt from real estate tax.
Since MIAA is neither a stock nor a nonstock corporation, MIAA does not qualify as a
government-owned or controlled corporation. MIAA
is a government instrumentality vested with
corporate powers to perform efficiently its
governmental functions. MIAA is like any other
government instrumentality, the only difference is
that MIAA is vested with corporate powers.
Another rule is that a tax exemption is strictly
construed against the taxpayer claiming the
exemption. However, when Congress grants an
exemption to a national government instrumentality
from local taxation, such exemption is construed
liberally in favor of the national government
instrumentality.
There is also no reason for local
governments
to
tax
national
government
instrumentalities for rendering essential public
services to inhabitants of local governments. The only
exception is when the legislature clearly intended to
tax government instrumentalities for the delivery of
essential public services for sound and compelling
policy considerations. There must be express
language in the law empowering local governments
to tax national government instrumentalities. Any
doubt whether such power exists is resolved against
local governments.
The Airport Lands and Buildings are devoted
to public use because they are used by the public for
international and domestic travel and transportation.
The fact that the MIAA collects terminal fees and
other charges from the public does not remove the
character of the Airport Lands and Buildings as
properties for public use. The operation by the
government of a tollway does not change the
character of the road as one for public use. Someone
must pay for the maintenance of the road, either the
public indirectly through the taxes they pay the
government, or only those among the public who
actually use the road through the toll fees they pay
upon using the road. The tollway system is even a
more efficient and equitable manner of taxing the
public for the maintenance of public roads.

Topic: Tax Exemption of the Government

MIAAvs.COURT OF APPEALS, CITY OF PARAAQUE

G.R. No. 155650
July 20, 2006
Facts:
On 17 July 2001, the City of Paraaque,
through its City Treasurer, issued notices of levy and
warrants of levy on the Airport Lands and Buildings.
The Mayor of the City of Paraaque threatened to sell
at public auction the Airport Lands and Buildings
should MIAA fail to pay the real estate tax
delinquency. MIAA thus sought a clarification of
OGCC Opinion No. 061. On 9 August 2001, the OGCC
issued Opinion No. 147 clarifying OGCC Opinion No.
061. The OGCC pointed out that Section 206 of the
Local Government Code requires persons exempt
from real estate tax to show proof of exemption.
MIAA also points out that Section 21 of the MIAA
Charter specifically exempts MIAA from the payment
of real estate tax. MIAA insists that it is also exempt
from real estate tax under Section 234 of the Local
Government Code because the Airport Lands and
Buildings are owned by the Republic. To justify the
exemption, MIAA invokes the principle that the
government cannot tax itself. MIAA points out that
the reason for tax exemption of public property is
that its taxation would not inure to any public
advantage, since in such a case the tax debtor is also
the tax creditor. Respondents invoke Section 193 of
the Local Government Code, which expressly
withdrew the tax exemption privileges of
"government-owned and-controlled corporations"
upon the effectivity of the Local Government Code.
Respondents also argue that a basic rule of statutory
construction is that the express mention of one
person, thing, or act excludes all others. An
international airport is not among the exceptions
mentioned in Section 193 of the Local Government
Code. Thus, respondents assert that MIAA cannot
claim that the Airport Lands and Buildings are exempt
from real estate tax.
Issue:
Whether the Airport Lands and Buildings of MIAA are
exempt from real estate tax under existing laws. If so
exempt, then the real estate tax assessments issued
by the City of Paraaque, and all proceedings taken
pursuant to such assessments, are void. In such
event, the other issues raised in this petition become
moot.
Ruling:

We rule that MIAA's Airport Lands and Buildings are

exempt from real estate tax imposed by local
governments.
First, MIAA is not a government-owned or controlled
corporation but an instrumentality of the National
Government and thus exempt from local
taxation. Second, the real properties of MIAA
are owned by the Republic of the Philippines and
thus exempt from real estate tax.
1. MIAA is Not a Government-Owned or Controlled
Corporation
Respondents argue that MIAA, being a governmentowned or controlled corporation, is not exempt from
real estate tax. Respondents claim that the deletion
of the phrase "any government-owned or controlled
so exempt by its charter" in Section 234(e) of the
Local Government Code withdrew the real estate tax
exemption of government-owned or controlled
corporations. The deleted phrase appeared in Section
40(a) of the 1974 Real Property Tax Code
enumerating the entities exempt from real estate tax.
2. Airport Lands and Buildings of MIAA are Owned
by the Republic
a. Airport Lands and Buildings are of Public
Dominion
The Airport Lands and Buildings of MIAA are property
of public dominion and therefore owned by the
State or the Republic of the Philippines.
No one can dispute that properties of public
dominion mentioned in Article 420 of the Civil Code,
like "roads, canals, rivers, torrents, ports and bridges
constructed by the State," are owned by the
State. The term "ports" includes seaports and
airports. The MIAA Airport Lands and Buildings
constitute a "port" constructed by the State. Under
Article 420 of the Civil Code, the MIAA Airport Lands
and Buildings are properties of public dominion and
thus owned by the State or the Republic of the
Philippines.
Under Article 420 of the Civil Code, the Airport Lands
and Buildings of MIAA, being devoted to public use,
are properties of public dominion and thus owned by
the State or the Republic of the Philippines. Article
420 specifically mentions "ports x xx constructed by
the State," which includes public airports and
seaports, as properties of public dominion and owned
by the Republic. As properties of public dominion
owned by the Republic, there is no doubt whatsoever

that the Airport Lands and Buildings are expressly

exempt from real estate tax under Section 234(a) of
the Local Government Code. This Court has also
repeatedly ruled that properties of public dominion
are not subject to execution or foreclosure sale.

temporarily suspended the processing and approval

of all land use conversion applications. By reason
thereof, petitioner claims that there is an actual slow
down of housing projects, which, in turn, aggravated
the housing shortage, unemployment and illegal
squatting problems to the substantial prejudice not
only of the petitioner and its members but more so of
the whole nation.
Issues:
1.

Topic: Constitutional Limitations: Due Process Clause

CREBA vs. THE SECRETARY OF AGRARIAN REFORM
G.R. No. 183409
June 18, 2010
Facts:
The Secretary of Agrarian Reform issued
"Omnibus Rules and Procedures Governing
Conversion of Agricultural Lands to Non-Agricultural
Uses," which consolidated all existing implementing
guidelines related to land use conversion. The
aforesaid rules embraced all private agricultural lands
regardless of tenurial arrangement and commodity
produced, and all untitled agricultural lands and
agricultural lands reclassified by Local Government
Units (LGUs) into non-agricultural uses after 15 June
1988. Subsequently, on 30 March 1999, the Secretary
of Agrarian Reform issued DAR AO No. 01-99, entitled
"Revised Rules and Regulations on the Conversion of
Agricultural Lands to Non-agricultural Uses,"
amending and updating the previous rules on land
use conversion. Its coverage includes the following
agricultural lands, to wit: (1) those to be converted to
residential, commercial, industrial, institutional and
other non-agricultural purposes; (2) those to be
devoted to another type of agricultural activity such
as livestock, poultry, and fishpond the effect of
which is to exempt the land from the Comprehensive
Agrarian Reform Program (CARP) coverage; (3) those
to be converted to non-agricultural use other than
that previously authorized; and (4) those reclassified
to residential, commercial, industrial, or other nonagricultural uses on or after the effectivity of Republic
5
Act No. 6657 on 15 June 1988 pursuant to Section
6
7
20 of Republic Act No. 7160 and other pertinent
laws and regulations, and are to be converted to such
uses.
To address the unabated conversion of
prime agricultural lands for real estate development,
the Secretary of Agrarian Reform further issued
Memorandum No. 88 on 15 April 2008, which

2.

WHETHER [DAR AO NO. 01-02, AS

AMENDED] VIOLATE[S] THE DUE PROCESS
AND EQUAL PROTECTION CLAUSE[S] OF THE
CONSTITUTION.
WHETHER MEMORANDUM NO. 88 IS A
9
VALID EXERCISE OF POLICE POWER.

Ruling:
The petition was dismissed. The authority of
the Secretary of Agrarian Reform to include "lands
not reclassified as residential, commercial, industrial
or other non-agricultural uses before 15 June 1988" in
the definition of agricultural lands finds basis in
jurisprudence. In Ros v. Department of Agrarian
39
Reform, this Court has enunciated that after the
passage of Republic Act No. 6657, agricultural lands,
though reclassified, have to go through the process of
conversion, jurisdiction over which is vested in the
DAR. However, agricultural lands, which are already
reclassified before the effectivity of Republic Act No.
6657 which is 15 June 1988, are exempted from
40
conversion. It bears stressing that the said date of
effectivity of Republic Act No. 6657 served as the cutoff period for automatic reclassifications or rezoning
of agricultural lands that no longer require any DAR
41
conversion clearance or authority. It necessarily
follows that any reclassification made thereafter can
be the subject of DARs conversion authority. Having
recognized the DARs conversion authority over lands
reclassified after 15 June 1988, it can no longer be
argued that the Secretary of Agrarian Reform was
wrongfully given the authority and power to include
"lands not reclassified as residential, commercial,
industrial or other non-agricultural uses before 15
June 1988" in the definition of agricultural lands. Such
inclusion does not unduly expand or enlarge the
definition of agricultural lands; instead, it made clear
what are the lands that can be the subject of DARs
conversion authority, thus, serving the very purpose
of the land use conversion provisions of Republic Act
No. 6657.It is clear from the aforesaid distinction
between reclassification and conversion that
agricultural lands though reclassified to residential,
commercial, industrial or other non-agricultural uses
must still undergo the process of conversion before

they can be used for the purpose to which they are

intended.
The petitioners argument that DAR
Memorandum No. 88 is unconstitutional, as it
suspends the land use conversion without any basis,
stands on hollow ground.
It bears emphasis that said Memorandum
No. 88 was issued upon the instruction of the
President in order to address the unabated
conversion of prime agricultural lands for real estate
development because of the worsening rice shortage
in the country at that time. Such measure was made
in order to ensure that there are enough agricultural
lands in which rice cultivation and production may be
carried into. The issuance of said Memorandum No.
88 was made pursuant to the general welfare of the
public, thus, it cannot be argued that it was made
without any basis.
Topic: Constitutional Limitations: Due Process Clause
COCA-COLA BOTTLERS PHILIPPINES, INC. vs. CA and
MS. LYDIA GERONIMO
G.R. No. 110295 October 18, 1993
FACTS:
Private respondent was the proprietress of
Kindergarten Wonderland Canteen in Dagupan City.
In August 1989, some parents of the students
complained to her that the Coke and Sprite soft drinks
sold by her contained fiber-like matter and other
foreign substances. She brought the said bottles for
examination to DOH and it was found out that the
soft drinks are adulterated. As a result, her per day
sales of soft drinks severely plummeted that she had
to close her shop on 12 December 1989 for losses.
She demanded damages from petitioner before the
RTC which dismissed the same on motion by
petitioner based on the ground of Prescription. On
appeal, the CA annulled the orders of the RTC.
ISSUE:
WON the action for damages by the proprietress
against the soft drinks manufacturer should be
treated as one for breach of implied warranty under
article 1561 of the CC which prescribes after six
months from delivery of the thing sold.
RULING:
Petition Denied.
The SC agrees with the CAs conclusion that the cause
of action in the case at bar is found on quasi-delict

under Article 1146 of the CC which prescribes in four

years and not on breach of warranty under article
1562 of the same code. This is supported by the
allegations in the complaint which makes reference to
the reckless and negligent manufacture of
"adulterated food items intended to be sold for public
consumption."
Topic: Constitutional Limitations: Due Process Clause
VILLEGAS vs. HIU CHIONG TSAI PAO HO
G.R No. L-29646 November 10, 1978
FACTS:
On 22 February 1968, Ordinance 6537 was
passed by the Municipal Board of Manila and signed
by Manila Mayor Antonio J. Villegas on March 27,
1968. Ordinance 6537, entitled An ordinance making
it unlawful for any person not a citizen of the
Philippines to be employed in any place of
employment or to be engaged in any kind of trade,
business or occupation within the City of Manila
without first securing an employment permit from
the mayor of Manila; and for other purposes. Law
prohibits aliens from employment and trade in the
City of Manila without the requisite mayors permit).
Exceptions to law are persons employed in the
diplomatic or consular missions of foreign countries,
or in the technical assistance programs of both the
Philippine Government and any foreign government,
and those working in their respective households, and
members of religious orders or congregations, sect or
denomination, who are not paid monetarily or in
kind. Permit fee is P50. Penalty is imprisonment of 3
to 6 months or fine of P100-200, or both.
On 4 May 1968, HiuChiong Tsai Pao Ho, who
was employed in Manila, filed a petition, with the CFI
Manila (Civil Case 72797), praying for (1) the issuance
of the writ of preliminary injunction and restraining
order to stop the implementation of the ordinance,
and (2) judgment to declare the ordinance null and
void.
On 24 May 1968, Judge Francisco Arca (CFI
Manila, Branch I) issued the writ of preliminary
injunction and on 17 September 1968, the Judge
rendered a decision declaring the ordinance null and
void, and the preliminary injunction is made
permanent. Mayor Villegas filed a petition for
certiorari to review the decision of the CFI.
ISSUES:
1. Whether or not there is a violation of due
process and equal protection clauses?
2. Whether or not there was an illegal
delegation of legislative powers?
3. Whether or not there is a violation of the
principle of Uniformity of Taxation?

RULING:
1. Due process and equal protection clauses
The ordinance is arbitrary, oppressive and
unreasonable, being applied only to aliens who are
thus, deprived of their rights to life, liberty and
property and therefore, violates the due process and
equal protection clauses of the Constitution.
Requiring a person, before he can be employed, to
get a permit from the City Mayor of Manila, who may
withhold or refuse it at will is tantamount to denying
him the basic right of the people in the Philippines to
engage in a means of livelihood. Once an alien is
admitted by the State within its territory, he cannot
be deprived of life without due process of law,
including the means of livelihood. The shelter of
protection under the due process and equal
protection clause is given to all persons, both aliens
and citizens.
2. Police Power, illegal delegation of legislative
powers
The ordinance does not lay down any
criterion or standard to guide the Mayor in the
exercise of his discretion, thus conferring upon the
mayor arbitrary and unrestricted powers. The
ordinance does not provide a standard to guide or
limit the mayors action, expresses no purpose to be
attained by requiring a permit, and enumerates no
conditions for its grant or refusal.
3. Uniformity of Taxation, discriminatory and violative
The ordinances purpose is clearly to raise
money under the guise of regulation by exacting P50
from aliens who have been cleared for employment.
The amount is unreasonable and excessive because it
fails to consider differences in situation among aliens
required to pay it, i.e. being casual, permanent, fulltime, part-time, rank-an-file or executive.
Topic: Constitutional Limitations: Due Process Clause
CITY OF BAGUIO vs. DE LEON
Gr. No. 24756
October 31, 1968
FACTS:
In this appeal, a lower court decision
upholding the validity of an ordinance 1 of the City of
Baguio imposing a license fee on any person, firm,
entity or corporation doing business in the City of
Baguio is assailed by defendant-appellant Fortunato
de Leon. He was held liable as a real estate dealer
with a property therein worth more than P10,000,
but not in excess of P50,000, and therefore obligated
to pay under such ordinance the P50 annual fee. That
is the principal question. In addition, there has been a
firm and unyielding insistence by defendant-appellant
of the lack of jurisdiction of the City Court of Baguio,
where the suit originated, a complaint having been

filed against him by the City Attorney of Baguio for his

failure to pay the amount of P300 as license fee
covering the period from the first quarter of 1958 to
the fourth quarter of 1962, allegedly, in spite of
repeated demands. Nor was defendant-appellant
agreeable to such a suit being instituted by the City
Treasurer without the consent of the Mayor, which
for him was indispensable. The lower court was of a
different mind.
It declared the above ordinance as
amended, valid and subsisting, and held defendantappellant liable for the fees therein prescribed as a
real estate dealer. Hence, this appeal. Assume the
validity of such ordinance, and there would be no
question about the liability of defendant-appellant for
the above license fee, it being shown in the partial
stipulation of facts, that he was "engaged in the
rental of his property in Baguio" deriving income
therefrom during the period covered by the first
quarter of 1958 to the fourth quarter of 1962.
ISSUE:
Whether or not the ordinance is valid?
RULING:
The challenged ordinance cannot be
considered ultra vires as there is more than ample
statutory authority for the enactment thereof.
Nonetheless, its validity on constitutional grounds is
challenged because of the allegation that it imposed
double taxation, which is repugnant to the due
process clause, and that it violated the requirement
of uniformity. We do not view the matter 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 or 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 grounds." 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 de grace 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, 9 we quoted with approval this
excerpt from a leading American decision: 10
"Where, as here, Congress has clearly expressed its
intention, the statute must be sustained even though
double taxation results."
At any rate, it has been expressly affirmed by us that
such an "argument against double taxation may not
be invoked where one tax is imposed by the state and
the other is imposed by the city . . ., it being widely

recognized that there is nothing inherently obnoxious

in the requirement that license fees or taxes be
exacted with respect to the same occupation, calling
or activity by both the state and the political
subdivisions thereof. The above would clearly indicate
how lacking in merit is this argument based on double
taxation.
Now, as to the claim that there was a
violation of the rule of uniformity established by the
Constitution. According to the challenged ordinance,
a real estate dealer who leases property worth
P50,000 or above must pay an annual fee of P100. If
the property is worth P10,000 but not over P50,000,
then he pays P50 and P24 if the value is less than
P10,000. On its face, therefore, the above ordinance
cannot be assailed as violative of the constitutional
requirement of uniformity. A tax is considered
uniform when it operates with the same force and
effect in every place where the subject may be
found."
It is thus apparent from the above that in
much the same way that the plea of double taxation
is unavailing, the allegation that there was a violation
of the principle of uniformity is inherently lacking in
persuasiveness. There is no need to pass upon the
other allegations to assail the validity of the above
ordinance, it being maintained that the license fees
therein imposed "is excessive, unreasonable and
oppressive" and that there is a failure to observe the
mandate of equal protection. A reading of the
ordinance will readily disclose their inherent lack of
plausibility.
Topic: Constitutional Limitations: Due Process
Clause
SISON vs. ANCHETA
G.R. No. L-59431 July 25, 1984
FACTS:
The challenged posed is a suit for
declaratory relief or prohibition on the validity of
Section 1 of Batas PambansaBlg. 135. The assailed
provision further amends Sec. 21 of the NIRC of 1977,
which provides for the rate tax on residents or
citizens on (a) taxable compensation income, (b)
taxable net income, (c) royalties, prizes, and other
winnings, (d) interests from bank deposits and yield
or any other monetary benefit from deposit
substitutes and from trust fund and similar
arrangements, (e) dividends and share from individual
partner in the net profits of taxable partnership, (f)
adjusted gross income.
Sison, as taxpayer, alleged that its provision
(Section 1) unduly discriminated against him by the
imposition of higher rates upon his income as a
professional, that it amounts to class legislation, and
that it transgresses against the equal protection and

due process clauses of the Constitution as well as the

rule requiring uniformity in taxation.
ISSUE:
Whether BP 135 violates the due process
and equal protection clauses, and the rule on
uniformity in taxation?
RULING:
There is a need for proof of such persuasive
character as would lead to a conclusion that there
was a violation of the due process and equal
protection clauses. Absent such showing, the
presumption of validity must prevail. Equality and
uniformity in taxation means that all taxable articles
or kinds of property of the same class shall be taxed
at the same rate. The taxing power has the authority
to make reasonable and natural classifications for
purposes of taxation. Where the differentiation
conforms to the practical dictates of justice and
equity, similar to the standards of equal protection, it
is not discriminatory within the meaning of the clause
and is therefore uniform. Taxpayers may be
classified into different categories, such as recipients
of compensation income as against professionals.
Recipients of compensation income are not entitled
to make deductions for income tax purposes as there
is no practically no overhead expense, while
professionals and businessmen have no uniform costs
or expenses necessary to produce their income. There
is ample justification to adopt the gross system of
income taxation to compensation income, while
continuing the system of net income taxation as
regards professional and business income.

Topic: Constitutional Limitations: Due Process Clause

COMMISSIONER OF INTERNAL REVENUE vs. CA &
FORTUNE TOBACCO CORP.
G.R. No. 119322 June 4, 1996
FACTS:
A task force was created on June 1, 1993 to
investigate tax liabilities of manufacturers engaged in
tax evasion schemes. On July 1, 1993, the CIR issued
Rev. Memo Circ. No. 37-93 which reclassified certain
cigarette brands manufactured by private respondent
Fortune Tobacco Corp. (Fortune) as foreign brands
subject to a higher tax rate. On August 3, 1993,
Fortune questioned the validity of said reclassification
as being violative of the right to due process and
equal protection of laws. The CTA, on September 8,
1993 resolved that said reclassification was of
doubtful legality and enjoined its enforcement.
In the meantime, on August 3, 1993,
Fortune was assessed deficiency income, ad valorem

and VAT for 1992 with payment due within 30 days

from receipt. On September 12, 1993, private
respondent moved for reconsideration of said
assessment. Meanwhile on September 7, 1993, the
Commissioner filed a complaint with the DOJ against
private respondent Fortune, its corporate officers and
9 other corporations and their respective corporate
officers for alleged fraudulent tax evasion for nonpayment of the correct income, ad valorem and VAT
for 1992. The complaint was referred to the DOJ Task
Force on revenue cases which found sufficient basis
to further investigate the charges against Fortune.
A subpoena was issued on September 8, 1993
directing private respondent to submit their counteraffidavits. But it filed a verified motion to dismiss or
alternatively, a motion to suspend but was denied
and thus treated as their counter-affidavit. All
motions filed thereafter were denied.
On January 4, 1994, private respondents
filed a petition for certiorari and prohibition with
prayer for preliminary injunction praying the CIRs
complaint and prosecutors orders be dismissed/set
aside or alternatively, that the preliminary
investigation be suspended pending determination by
CIR
of
Fortunes
motion
for
reconsideration/reinvestigation of the August 13,
1993 assessment of taxes due.
The trial court granted the petition for a writ of
preliminary injunction to enjoin the preliminary
investigation on the complaint for tax evasion
pending before the DOJ, ruling that the tax liability of
private respondents first be settled before any
complaint for fraudulent tax evasion can be initiated.
ISSUE:
Whether or not the basis of private
respondents tax liability should first be settled before
any complaint for fraudulent tax evasion can be
initiated?
RULING:
Fraud cannot be presumed.
If there was fraud on willful attempt to
evade payment of ad valorem taxes by private
respondent through the manipulation of the
registered wholesale price of the cigarettes, it must
have been with the connivance of cooperation of
certain BIR officials and employees who supervised
and monitored Fortunes production activities to see
to it that the correct taxes were paid. But there is no
allegation, much less evidence, of BIR personnels
malfeasance at the very least, there is the
presumption that BIR personnel performed their
duties in the regular course in ensuring that the
correct taxes were paid by Fortune.
Before the tax liabilities of Fortune are finally
determined, it cannot be correctly asserted that
private respondents have willfully attempted to

evade or defeat any tax under Secs. 254 and 256,

1997 NIRC. The fact that a tax is due must first be
proved.
Topic: Constitutional Limitations: Due Process Clause
COMMISSIONER OF INTERNAL REVENUE vs.
LHUILLIER PAWNSHOP, INC..
G.R. No. 150947 July 15, 2003
FACTS:
CIR Jose U. Ong issued Revenue
Memorandum Order No. 15-91 imposing a 5% lending
investors tax on pawnshops; thus:
A restudy of P.D. [No.] 114 shows that the
principal activity of pawnshops is lending money at
interest and incidentally accepting a "pawn" of
personal property delivered by the pawner to the
pawnee as security for the loan. Clearly, this makes
pawnshop business akin to lending investors business
activity which is broad enough to encompass the
business of lending money at interest by any person
whether natural or juridical. Such being the case,
pawnshops shall be subject to the 5% lending
investors tax based on their gross income pursuant
to Section 116 of the Tax Code, as amended.
This RMO was clarified by Revenue
Memorandum Circular No. 43-91. Since pawnshops
are considered as lending investors, they also become
subject to documentary stamp taxes prescribed in
Title VII of the Tax Code. BIR Ruling No. 325-88 is
hereby revoked.
Pursuant to these issuances, the BIR issued
Assessment Notice No. 81-PT-13-94-97-9-118 against
Lhuillier demanding payment of deficiency
percentage tax in the sum of P3,360,335.11 for 1994
inclusive of interest and surcharges. Lhuillier filed an
administrative protest with the Office of the Revenue
Regional Director contending that (1) neither the Tax
Code nor the VAT Law expressly imposes 5%
percentage tax on the gross income of pawnshops; (2)
pawnshops are different from lending investors,
which are subject to the 5% percentage tax under the
specific provision of the Tax Code; (3) RMO No. 15-91
is not implementing any provision of the Internal
Revenue laws but is a new and additional tax measure
on pawnshops, which only Congress could enact; (4)
RMO No. 15-91 impliedly amends the Tax Code and is
therefore taxation by implication, which is proscribed
by law; and (5) RMO No. 15-91 is a "class legislation"
because it singles out pawnshops among other
lending and financial operations.
Lhuillier, on the other hand, maintains that
before and after the amendment of the Tax Code by
E.O. No. 273, which took effect on 1 January 1988,
pawnshops and lending investors were subjected to
different tax treatments. Pawnshops were required to
pay an annual fixed tax of only P1,000, while lending

investors were subject to a 5% percentage tax on

their gross income in addition to their fixed annual
taxes. Accordingly, during the period from April 1982
up to December 1990, the CIR consistently ruled that
a pawnshop is not a lending investor and should not
therefore be required to pay percentage tax on its
gross income.
ISSUE:
Are pawnshops considered "lending
investors" for the purpose of the imposition of the
lending investors tax?
RULING:
RMO No. 15-91 and RMC No. 43-91 were issued
in accordance with the power of the CIR to make
rulings and opinions in connection with the
implementation of internal revenue laws, which was
bestowed by then Section 245 of the NIRC of 1977, as
6
amended by E.O. No. 273. Such power of the CIR
cannot be controverted. However, the CIR cannot, in
the exercise of such power, issue administrative
rulings or circulars not consistent with the law sought
to be applied. Indeed, administrative issuances must
not override, supplant or modify the law, but must
remain consistent with the law they intend to carry
out. Only Congress can repeal or amend the law.
While it is true that pawnshops are engaged in
the business of lending money, they are not
considered "lending investors" for the purpose of
imposing the 5% percentage taxes. The definition of
lending investors found in Section 157 (u) of the NIRC
of 1986 is not found in the NIRC of 1977, as amended
by E.O. No. 273, where Section 116 invoked by the
CIR is found. However, both the NIRC of 1986 and the
NIRC of 1977 dealt with pawnshops and lending
investors differently. Verily then, it was the intent of
Congress to deal with both subjects differently.
Hence, we must likewise interpret the statute to
conform with such legislative intent.
Further, if pawnshops were covered within the
term lending investor, there would have been no
need to introduce such amendment to include
owners of pawnshops. At any rate, such proposed
amendment was not adopted. Instead, the approved
bill which became R.A. No. 7716repealed Section 116
of NIRC of 1977, as amended, which was the basis of
RMO No. 15-91 and RMC No. 43-91. Since Section 116
of the NIRC of 1977, which breathed life on the
questioned administrative issuances, had already
been repealed, RMO 15-91 and RMC 43-91, which
depended upon it, are deemed automatically
repealed. Hence, even granting that pawnshops are
included within the term lending investors, the
assessment from 27 May 1994 onward would have no
leg to stand on. Adding to the invalidity of the RMC
No. 43-91 and RMO No. 15-91 is the absence of
publication. While the rule-making authority of the

CIR is not doubted, like any other government

agency, the CIR may not disregard legal requirements
or applicable principles in the exercise of quasilegislative powers.
A legislative rule is in the nature of subordinate
legislation, designed to implement a primary
legislation by providing the details thereof. An
interpretative rule, on the other hand, is designed to
provide guidelines to the law which the
administrative agency is in charge of enforcing. When
an administrative rule is merely interpretative in
nature, its applicability needs nothing further than its
bare issuance, for it gives no real consequence more
than what the law itself has already prescribed.
When, on the other hand, the administrative rule
goes beyond merely providing for the means that can
facilitate or render least cumbersome the
implementation of the law but substantially increases
the burden of those governed, it behooves the agency
to accord at least to those directly affected a chance
to be heard, and thereafter to be duly informed,
before that new issuance is given the force and effect
of law.
RMO No. 15-91 and RMC No. 43-91 cannot be
viewed simply as implementing rules or corrective
measures revoking in the process the previous rulings
of past Commissioners. Specifically, they would have
been amendatory provisions applicable to
pawnshops. Without these disputed CIR issuances,
pawnshops would not be liable to pay the 5%
percentage tax, considering that they were not
specifically included in Section 116 of the NIRC of
1977, as amended. In so doing, the CIR did not simply
interpret the law. The due observance of the
requirements of notice, hearing, and publication
should not have been ignored.
Topic: Constitutional Limitations: Equal Protection
Clause

ABAKADA Guro Party List vs. Ermita

G.R. No. 168056 September 1, 2005
FACTS:
Before R.A. No. 9337 took effect,
petitioners ABAKADA GURO Party List, et al., filed a
petition for prohibition on May 27, 2005 questioning
the constitutionality of Sections 4, 5 and 6 of R.A. No.
9337, amending Sections 106, 107 and 108,
respectively, of the National Internal Revenue Code
(NIRC). Section 4 imposes a 10% VAT on sale of goods
and properties, Section 5 imposes a 10% VAT on
importation of goods, and Section 6 imposes a 10%
VAT on sale of services and use or lease of properties.
These questioned provisions contain a uniform
proviso
authorizing
the
President,
upon

recommendation of the Secretary of Finance, to raise

the VAT rate to 12%, effective January 1, 2006, after
specified conditions have been satisfied. Petitioners
argue that the law is unconstitutional.
ISSUES:
1.

Whether or not there is a violation of

Article VI, Section 24 of the
Constitution.

2.

Whether or not there is undue

delegation of legislative power in
violation of Article VI Sec 28(2) of the
Constitution.

3.

Whether or not there is a violation of

the due process and equal protection
under Article III Sec. 1 of the
Constitution.

HELD:
1. Since there is no question that the
revenue bill exclusively originated in the House of
Representatives, the Senate was acting within its
constitutional power to introduce amendments to the
House bill when it included provisions in Senate Bill
No. 1950 amending corporate income taxes,
percentage, and excise and franchise taxes.
2. There is no undue delegation of
legislative power but only of the discretion as to the
execution of a law. This is constitutionally permissible.
Congress does not abdicate its functions or unduly
delegate power when it describes what job must be
done, who must do it, and what is the scope of his
authority; in our complex economy that is frequently
the only way in which the legislative process can go
forward.
3. The power of the State to make
reasonable and natural classifications for the
purposes of taxation has long been established.
Whether it relates to the subject of taxation, the kind
of property, the rates to be levied, or the amounts to
be raised, the methods of assessment, valuation and
collection, the States power is entitled to
presumption of validity. As a rule, the judiciary will
not interfere with such power absent a clear showing
of unreasonableness, discrimination, or arbitrariness.