G.R. No.

L-28896 February 17, 1988

COMMISSIONER OF INTERNAL REVENUE, petitioner,
vs.
ALGUE, INC., and THE COURT OF TAX APPEALS, respondents.
Taxes are the lifeblood of the government and so should be collected without
unnecessary hindrance. On the other hand, such collection should be made in
accordance with law as any arbitrariness will negate the very reason for government
itself. It is therefore necessary to reconcile the apparently conflicting interests of the
authorities and the taxpayers so that the real purpose of taxation, which is the
promotion of the common good, may be achieved.
The main issue in this case is whether or not the Collector of Internal Revenue correctly
disallowed the P75,000.00 deduction claimed by private respondent Algue as legitimate
business expenses in its income tax returns. The corollary issue is whether or not the
appeal of the private respondent from the decision of the Collector of Internal Revenue
was made on time and in accordance with law.
We deal first with the procedural question.
The record shows that on January 14, 1965, the private respondent, a domestic
corporation engaged in engineering, construction and other allied activities, received a
letter from the petitioner assessing it in the total amount of P83,183.85 as delinquency
income taxes for the years 1958 and 1959. 1 On January 18, 1965, Algue flied a letter of
protest or request for reconsideration, which letter was stamp received on the same day
in the office of the petitioner. 2 On March 12, 1965, a warrant of distraint and levy was
presented to the private respondent, through its counsel, Atty. Alberto Guevara, Jr., who
refused to receive it on the ground of the pending protest. 3 A search of the protest in
the dockets of the case proved fruitless. Atty. Guevara produced his file copy and gave
a photostat to BIR agent Ramon Reyes, who deferred service of the warrant. 4 On April
7, 1965, Atty. Guevara was finally informed that the BIR was not taking any action on
the protest and it was only then that he accepted the warrant of distraint and levy earlier
sought to be served. 5 Sixteen days later, on April 23, 1965, Algue filed a petition for
review of the decision of the Commissioner of Internal Revenue with the Court of Tax
Appeals. 6
The above chronology shows that the petition was filed seasonably. According to Rep.
Act No. 1125, the appeal may be made within thirty days after receipt of the decision or
ruling challenged. 7 It is true that as a rule the warrant of distraint and levy is "proof of
the finality of the assessment" 8 and renders hopeless a request for
reconsideration," 9being "tantamount to an outright denial thereof and makes the said
request deemed rejected." 10 But there is a special circumstance in the case at bar that
prevents application of this accepted doctrine.
The proven fact is that four days after the private respondent received the petitioner's
notice of assessment, it filed its letter of protest. This was apparently not taken into
account before the warrant of distraint and levy was issued; indeed, such protest could
not be located in the office of the petitioner. It was only after Atty. Guevara gave the BIR
a copy of the protest that it was, if at all, considered by the tax authorities. During the
intervening period, the warrant was premature and could therefore not be served.
As the Court of Tax Appeals correctly noted," 11 the protest filed by private respondent
was not pro forma and was based on strong legal considerations. It thus had the effect
of suspending on January 18, 1965, when it was filed, the reglementary period which
started on the date the assessment was received, viz., January 14, 1965. The period
started running again only on April 7, 1965, when the private respondent was definitely
informed of the implied rejection of the said protest and the warrant was finally served

on it. Hence, when the appeal was filed on April 23, 1965, only 20 days of the
reglementary period had been consumed.
Now for the substantive question.
The petitioner contends that the claimed deduction of P75,000.00 was properly
disallowed because it was not an ordinary reasonable or necessary business expense.
The Court of Tax Appeals had seen it differently. Agreeing with Algue, it held that the
said amount had been legitimately paid by the private respondent for actual services
rendered. The payment was in the form of promotional fees. These were collected by
the Payees for their work in the creation of the Vegetable Oil Investment Corporation of
the Philippines and its subsequent purchase of the properties of the Philippine Sugar
Estate Development Company.
Parenthetically, it may be observed that the petitioner had Originally claimed these
promotional fees to be personal holding company income 12 but later conformed to the
decision of the respondent court rejecting this assertion.13 In fact, as the said court
found, the amount was earned through the joint efforts of the persons among whom it
was distributed It has been established that the Philippine Sugar Estate Development
Company had earlier appointed Algue as its agent, authorizing it to sell its land,
factories and oil manufacturing process. Pursuant to such authority, Alberto Guevara,
Jr., Eduardo Guevara, Isabel Guevara, Edith, O'Farell, and Pablo Sanchez, worked for
the formation of the Vegetable Oil Investment Corporation, inducing other persons to
invest in it. 14 Ultimately, after its incorporation largely through the promotion of the said
persons, this new corporation purchased the PSEDC properties. 15 For this sale, Algue
received as agent a commission of P126,000.00, and it was from this commission that
the P75,000.00 promotional fees were paid to the aforenamed individuals. 16
There is no dispute that the payees duly reported their respective shares of the fees in
their income tax returns and paid the corresponding taxes thereon. 17 The Court of Tax
Appeals also found, after examining the evidence, that no distribution of dividends was
involved. 18
The petitioner claims that these payments are fictitious because most of the payees are
members of the same family in control of Algue. It is argued that no indication was made
as to how such payments were made, whether by check or in cash, and there is not
enough substantiation of such payments. In short, the petitioner suggests a tax dodge,
an attempt to evade a legitimate assessment by involving an imaginary deduction.
We find that these suspicions were adequately met by the private respondent when its
President, Alberto Guevara, and the accountant, Cecilia V. de Jesus, testified that the
payments were not made in one lump sum but periodically and in different amounts as
each payee's need arose. 19 It should be remembered that this was a family corporation
where strict business procedures were not applied and immediate issuance of receipts
was not required. Even so, at the end of the year, when the books were to be closed,
each payee made an accounting of all of the fees received by him or her, to make up
the total of P75,000.00. 20 Admittedly, everything seemed to be informal. This
arrangement was understandable, however, in view of the close relationship among the
persons in the family corporation.
We agree with the respondent court that the amount of the promotional fees was not
excessive. The total commission paid by the Philippine Sugar Estate Development Co.
to the private respondent was P125,000.00. 21After deducting the said fees, Algue still
had a balance of P50,000.00 as clear profit from the transaction. The amount of
P75,000.00 was 60% of the total commission. This was a reasonable proportion,
considering that it was the payees who did practically everything, from the formation of
the Vegetable Oil Investment Corporation to the actual purchase by it of the Sugar

Estate properties. This finding of the respondent court is in accord with the following
provision of the Tax Code:
SEC. 30. Deductions from gross income.--In computing net income there
shall be allowed as deductions
(a) Expenses:
(1) In general.--All the ordinary and necessary expenses paid or incurred
during the taxable year in carrying on any trade or business, including a
reasonable allowance for salaries or other compensation for personal
services actually rendered; ... 22
and Revenue Regulations No. 2, Section 70 (1), reading as follows:
SEC. 70. Compensation for personal services.--Among the ordinary and
necessary expenses paid or incurred in carrying on any trade or business
may be included a reasonable allowance for salaries or other
compensation for personal services actually rendered. The test of
deductibility in the case of compensation payments is whether they are
reasonable and are, in fact, payments purely for service. This test and
deductibility in the case of compensation payments is whether they are
reasonable and are, in fact, payments purely for service. This test and its
practical application may be further stated and illustrated as follows:
Any amount paid in the form of compensation, but not in fact as the
purchase price of services, is not deductible. (a) An ostensible salary paid
by a corporation may be a distribution of a dividend on stock. This is likely
to occur in the case of a corporation having few stockholders, Practically
all of whom draw salaries. If in such a case the salaries are in excess of
those ordinarily paid for similar services, and the excessive payment
correspond or bear a close relationship to the stockholdings of the officers
of employees, it would seem likely that the salaries are not paid wholly for
services rendered, but the excessive payments are a distribution of
earnings upon the stock. . . . (Promulgated Feb. 11, 1931, 30 O.G. No. 18,
325.)
It is worth noting at this point that most of the payees were not in the regular employ of
Algue nor were they its controlling stockholders. 23
The Solicitor General is correct when he says that the burden is on the taxpayer to
prove the validity of the claimed deduction. In the present case, however, we find that
the onus has been discharged satisfactorily. The private respondent has proved that the
payment of the fees was necessary and reasonable in the light of the efforts exerted by
the payees in inducing investors and prominent businessmen to venture in an
experimental enterprise and involve themselves in a new business requiring millions of
pesos. This was no mean feat and should be, as it was, sufficiently recompensed.
It is said that taxes are what we pay for civilization society. Without taxes, the
government would be paralyzed for lack of the motive power to activate and operate it.
Hence, despite the natural reluctance to surrender part of one's hard earned income to
the taxing authorities, every person who is able to must contribute his share in the
running of the government. The government for its part, is expected to respond in the
form of tangible and intangible benefits intended to improve the lives of the people and
enhance their moral and material values. This symbiotic relationship is the rationale of
taxation and should dispel the erroneous notion that it is an arbitrary method of exaction
by those in the seat of power.

But even as we concede the inevitability and indispensability of taxation, it is a

requirement in all democratic regimes that it be exercised reasonably and in accordance
with the prescribed procedure. If it is not, then the taxpayer has a right to complain and
the courts will then come to his succor. For all the awesome power of the tax collector,
he may still be stopped in his tracks if the taxpayer can demonstrate, as it has here, that
the law has not been observed.
We hold that the appeal of the private respondent from the decision of the petitioner
was filed on time with the respondent court in accordance with Rep. Act No. 1125. And
we also find that the claimed deduction by the private respondent was permitted under
the Internal Revenue Code and should therefore not have been disallowed by the
petitioner.
ACCORDINGLY, the appealed decision of the Court of Tax Appeals is AFFIRMED in
toto, without costs.
SO ORDERED.

G.R. No. 99886 March 31, 1993

JOHN H. OSMEA, petitioner,

vs.
OSCAR ORBOS, in his capacity as Executive Secretary; JESUS ESTANISLAO, in
his capacity as Secretary of Finance; WENCESLAO DELA PAZ, in his capacity as
Head of the Office of Energy Affairs; REX V. TANTIONGCO, and the ENERGY
REGULATORY BOARD, respondents.
The petitioner seeks the corrective, 1 prohibitive and coercive remedies provided by
Rule 65 of the Rules of Court, 2 upon the following posited grounds, viz.: 3
1) the invalidity of the "TRUST ACCOUNT" in the books of account of the Ministry of
Energy (now, the Office of Energy Affairs), created pursuant to 8, paragraph 1, of P.D.
No. 1956, as amended, "said creation of a trust fund being contrary to Section 29 (3),
Article VI of the . . Constitution; 4
2) the unconstitutionality of 8, paragraph 1 (c) of P.D. No. 1956, as amended by
Executive Order No. 137, for "being an undue and invalid delegation of legislative power
. . to the Energy Regulatory Board;" 5
3) the illegality of the reimbursements to oil companies, paid out of the Oil Price
Stabilization Fund, 6 because it contravenes 8, paragraph 2 (2) of
P. D. 1956, as amended; and
4) the consequent nullity of the Order dated December 10, 1990 and the necessity of a
rollback of the pump prices and petroleum products to the levels prevailing prior to the
said Order.
It will be recalled that on October 10, 1984, President Ferdinand Marcos issued P.D.
1956 creating a Special Account in the General Fund, designated as the Oil Price
Stabilization Fund (OPSF). The OPSF was designed to reimburse oil companies for
cost increases in crude oil and imported petroleum products resulting from exchange
rate adjustments and from increases in the world market prices of crude oil.
Subsequently, the OPSF was reclassified into a "trust liability account," in virtue of E.O.
1024, 7 and ordered released from the National Treasury to the Ministry of Energy. The
same Executive Order also authorized the investment of the fund in government
securities, with the earnings from such placements accruing to the fund.
President Corazon C. Aquino, amended P.D. 1956. She promulgated Executive Order
No. 137 on February 27, 1987, expanding the grounds for reimbursement to oil
companies for possible cost underrecovery incurred as a result of the reduction of
domestic prices of petroleum products, the amount of the underrecovery being left for
determination by the Ministry of Finance.
Now, the petition alleges that the status of the OPSF as of March 31, 1991 showed a
"Terminal Fund Balance deficit" of some P12.877 billion; 8 that to abate the worsening
deficit, "the Energy Regulatory Board . . issued an Order on December 10, 1990,
approving the increase in pump prices of petroleum products," and at the rate of
recoupment, the OPSF deficit should have been fully covered in a span of six (6)
months, but this notwithstanding, the respondents Oscar Orbos, in his capacity as
Executive Secretary; Jesus Estanislao, in his capacity as Secretary of Finance;
Wenceslao de la Paz, in his capacity as Head of the Office of Energy Affairs; Chairman
Rex V. Tantiongco and the Energy Regulatory Board "are poised to accept, process
and pay claims not authorized under P.D. 1956." 9
The petition further avers that the creation of the trust fund violates
29(3), Article VI of the Constitution, reading as follows:

(3) All money collected on any tax levied for a special purpose shall be
treated as a special fund and paid out for such purposes only. If the
purpose for which a special fund was created has been fulfilled or
abandoned, the balance, if any, shall be transferred to the general funds of
the Government.
The petitioner argues that "the monies collected pursuant to . . P.D. 1956, as amended,
must be treated as a 'SPECIAL FUND,' not as a 'trust account' or a 'trust fund,' and that
"if a special tax is collected for a specific purpose, the revenue generated therefrom
shall 'be treated as a special fund' to be used only for the purpose indicated, and not
channeled to another government objective." 10 Petitioner further points out that since
"a 'special fund' consists of monies collected through the taxing power of a State, such
amounts belong to the State, although the use thereof is limited to the special
purpose/objective for which it was created." 11
He also contends that the "delegation of legislative authority" to the ERB violates 28
(2). Article VI of the Constitution, viz.:
(2) The Congress may, by law, authorize the President to fix, within
specified limits, and subject to such limitations and restrictions as it may
impose, tariff rates, import and export quotas, tonnage and wharfage
dues, and other duties or imposts within the framework of the national
development program of the Government;
and, inasmuch as the delegation relates to the exercise of the power of taxation,
"the limits, limitations and restrictions must be quantitative, that is, the law must
not only specify how to tax, who (shall) be taxed (and) what the tax is for, but also
impose a specific limit on how much to tax." 12
The petitioner does not suggest that a "trust account" is illegal per se, but maintains that
the monies collected, which form part of the OPSF, should be maintained in a special
account of the general fund for the reason that the Constitution so provides, and
because they are, supposedly, taxes levied for a special purpose. He assumes that the
Fund is formed from a tax undoubtedly because a portion thereof is taken from
collections of ad valoremtaxes and the increases thereon.
It thus appears that the challenge posed by the petitioner is premised primarily on the
view that the powers granted to the ERB under P.D. 1956, as amended, partake of the
nature of the taxation power of the State. The Solicitor General observes that the
"argument rests on the assumption that the OPSF is a form of revenue measure
drawing from a special tax to be expended for a special purpose." 13 The petitioner's
perceptions are, in the Court's view, not quite correct.
To address this critical misgiving in the position of the petitioner on these issues, the
Court recalls its holding inValmonte v. Energy Regulatory Board, et al. 14
The foregoing arguments suggest the presence of misconceptions about
the nature and functions of the OPSF. The OPSF is a "Trust Account"
which was established "for the purpose of minimizing the frequent price
changes brought about by exchange rate adjustment and/or changes in
world market prices of crude oil and imported petroleum
products." 15 Under P.D. No. 1956, as amended by Executive Order No.
137 dated 27 February 1987, this Trust Account may be funded from any
of the following sources:
a) Any increase in the tax collection from ad valorem tax or
customs duty imposed on petroleum products subject to tax

under this Decree arising from exchange rate adjustment, as

may be determined by the Minister of Finance in consultation
with the Board of Energy;
b) Any increase in the tax collection as a result of the lifting
of tax exemptions of government corporations, as may be
determined by the Minister of Finance in consultation with
the Board of Energy:
c) Any additional amount to be imposed on petroleum
products to augment the resources of the Fund through an
appropriate Order that may be issued by the Board of
Energy requiring payment of persons or companies engaged
in the business of importing, manufacturing and/or marketing
petroleum products;
d) Any resulting peso cost differentials in case the actual
peso costs paid by oil companies in the importation of crude
oil and petroleum products is less than the peso costs
computed using the reference foreign exchange rate as fixed
by the Board of Energy.
xxx xxx xxx
The fact that the world market prices of oil, measured by the spot market
in Rotterdam, vary from day to day is of judicial notice. Freight rates for
hauling crude oil and petroleum products from sources of supply to the
Philippines may also vary from time to time. The exchange rate of the
pesovis-a-vis the U.S. dollar and other convertible foreign currencies also
changes from day to day. These fluctuations in world market prices and in
tanker rates and foreign exchange rates would in a completely free market
translate into corresponding adjustments in domestic prices of oil and
petroleum products with sympathetic frequency. But domestic prices which
vary from day to day or even only from week to week would result in a
chaotic market with unpredictable effects upon the country's economy in
general. The OPSF was established precisely to protect local consumers
from the adverse consequences that such frequent oil price adjustments
may have upon the economy.Thus, the OPSF serves as a pocket, as it
were, into which a portion of the purchase price of oil and petroleum
products paid by consumers as well as some tax revenues are inputted
and from which amounts are drawn from time to time to reimburse oil
companies, when appropriate situations arise, for increases in, as well as
underrecovery of, costs of crude importation. The OPSF is thus a buffer
mechanism through which the domestic consumer prices of oil and
petroleum products are stabilized, instead of fluctuating every so often,
and oil companies are allowed to recover those portions of their costs
which they would not otherwise recover given the level of domestic prices
existing at any given time. To the extent that some tax revenues are also
put into it, the OPSF is in effect a device through which the domestic
prices of petroleum products are subsidized in part. It appears to the Court
that the establishment and maintenance of the OPSF is well within that
pervasive and non-waivable power and responsibility of the government to
secure the physical and economic survival and well-being of the
community, that comprehensive sovereign authority we designate as the
police power of the State. The stabilization, and subsidy of domestic
prices of petroleum products and fuel oil clearly critical in importance
considering, among other things, the continuing high level of dependence

of the country on imported crude oil are appropriately regarded as

public purposes.
Also of relevance is this Court's ruling in relation to the sugar stabilization fund the
nature of which is not far different from the OPSF. In Gaston v. Republic Planters
Bank, 16 this Court upheld the legality of the sugar stabilization fees and explained their
nature and character, viz.:
The stabilization fees collected are in the nature of a tax, which is within
the power of the State to impose for the promotion of the sugar industry
(Lutz v. Araneta, 98 Phil. 148). . . . The tax collected is not in a pure
exercise of the taxing power. It is levied with a regulatory purpose, to
provide a means for the stabilization of the sugar industry. The levy is
primarily in the exercise of the police power of the State (Lutz v.
Araneta, supra).
xxx xxx xxx
The stabilization fees in question are levied by the State upon sugar
millers, planters and producers for a special purpose that of "financing
the growth and development of the sugar industry and all its components,
stabilization of the domestic market including the foreign market." The fact
that the State has taken possession of moneys pursuant to law is
sufficient to constitute them state funds, even though they are held for a
special purpose (Lawrence v. American Surety Co. 263 Mich. 586, 249
ALR 535, cited in 42 Am Jur Sec. 2, p. 718). Having been levied for a
special purpose, the revenues collected are to be treated as a special
fund, to be, in the language of the statute, "administered in trust" for the
purpose intended. Once the purpose has been fulfilled or abandoned, the
balance if any, is to be transferred to the general funds of the Government.
That is the essence of the trust intended (SEE 1987 Constitution, Article
VI, Sec. 29(3), lifted from the 1935 Constitution, Article VI, Sec. 23(1). 17
The character of the Stabilization Fund as a special kind of fund is
emphasized by the fact that the funds are deposited in the Philippine
National Bank and not in the Philippine Treasury, moneys from which may
be paid out only in pursuance of an appropriation made by law (1987)
Constitution, Article VI, Sec. 29 (3), lifted from the 1935 Constitution,
Article VI, Sec. 23(1). (Emphasis supplied).
Hence, it seems clear that while the funds collected may be referred to as taxes, they
are exacted in the exercise of the police power of the State. Moreover, that the OPSF is
a special fund is plain from the special treatment given it by E.O. 137. It is segregated
from the general fund; and while it is placed in what the law refers to as a "trust liability
account," the fund nonetheless remains subject to the scrutiny and review of the COA.
The Court is satisfied that these measures comply with the constitutional description of
a "special fund." Indeed, the practice is not without precedent.
With regard to the alleged undue delegation of legislative power, the Court finds that the
provision conferring the authority upon the ERB to impose additional amounts on
petroleum products provides a sufficient standard by which the authority must be
exercised. In addition to the general policy of the law to protect the local consumer by
stabilizing and subsidizing domestic pump rates, 8(c) of P.D. 1956 18 expressly
authorizes the ERB to impose additional amounts to augment the resources of the
Fund.

What petitioner would wish is the fixing of some definite, quantitative restriction, or "a
specific limit on how much to tax." 19 The Court is cited to this requirement by the
petitioner on the premise that what is involved here is the power of taxation; but as
already discussed, this is not the case. What is here involved is not so much the power
of taxation as police power. Although the provision authorizing the ERB to impose
additional amounts could be construed to refer to the power of taxation, it cannot be
overlooked that the overriding consideration is to enable the delegate to act with
expediency in carrying out the objectives of the law which are embraced by the police
power of the State.
The interplay and constant fluctuation of the various factors involved in the
determination of the price of oil and petroleum products, and the frequently shifting need
to either augment or exhaust the Fund, do not conveniently permit the setting of fixed or
rigid parameters in the law as proposed by the petitioner. To do so would render the
ERB unable to respond effectively so as to mitigate or avoid the undesirable
consequences of such fluidity. As such, the standard as it is expressed, suffices to guide
the delegate in the exercise of the delegated power, taking account of the
circumstances under which it is to be exercised.
For a valid delegation of power, it is essential that the law delegating the power must be
(1) complete in itself, that is it must set forth the policy to be executed by the delegate
and (2) it must fix a standard limits of which
are sufficiently determinate or determinable to which the delegate must conform. 20
. . . As pointed out in Edu v. Ericta: "To avoid the taint of unlawful
delegation, there must be a standard, which implies at the very least that
the legislature itself determines matters of principle and lays down
fundamental policy. Otherwise, the charge of complete abdication may be
hard to repel. A standard thus defines legislative policy, marks its limits,
maps out its boundaries and specifies the public agency to apply it. It
indicates the circumstances under which the legislative command is to be
effected. It is the criterion by which the legislative purpose may be carried
out. Thereafter, the executive or administrative office designated may in
pursuance of the above guidelines promulgate supplemental rules and
regulations. The standard may either be express or implied. If the former,
the non-delegation objection is easily met. The standard though does not
have to be spelled out specifically. It could be implied from the policy and
purpose of the act considered as a whole. 21
It would seem that from the above-quoted ruling, the petition for prohibition should fail.
The standard, as the Court has already stated, may even be implied. In that light, there
can be no ground upon which to sustain the petition, inasmuch as the challenged law
sets forth a determinable standard which guides the exercise of the power granted to
the ERB. By the same token, the proper exercise of the delegated power may be tested
with ease. It seems obvious that what the law intended was to permit the additional
imposts for as long as there exists a need to protect the general public and the
petroleum industry from the adverse consequences of pump rate fluctuations. "Where
the standards set up for the guidance of an administrative officer and the action taken
are in fact recorded in the orders of such officer, so that Congress, the courts and the
public are assured that the orders in the judgment of such officer conform to the
legislative standard, there is no failure in the performance of the legislative
functions." 22
This Court thus finds no serious impediment to sustaining the validity of the legislation;
the express purpose for which the imposts are permitted and the general objectives and

purposes of the fund are readily discernible, and they constitute a sufficient standard
upon which the delegation of power may be justified.
In relation to the third question respecting the illegality of the reimbursements to oil
companies, paid out of the Oil Price Stabilization Fund, because allegedly in
contravention of 8, paragraph 2 (2) of P.D. 1956, amended 23 the Court finds for the
petitioner.
The petition assails the payment of certain items or accounts in favor of the petroleum
companies (i.e., inventory losses, financing charges, fuel oil sales to the National Power
Corporation, etc.) because not authorized by law. Petitioner contends that "these claims
are not embraced in the enumeration in 8 of P.D. 1956 . . since none of them was
incurred 'as a result of the reduction of domestic prices of petroleum products,'" 24 and
since these items are reimbursements for which the OPSF should not have responded,
the amount of the P12.877 billion deficit "should be reduced by P5,277.2 million." 25 It is
argued "that under the principle of ejusdem generis . . . the term 'other factors' (as used
in 8 of P.D. 1956) . . can only include such 'other factors' which necessarily result in
the reduction of domestic prices of petroleum products." 26
The Solicitor General, for his part, contends that "(t)o place said (term) within the
restrictive confines of the rule ofejusdem generis would reduce (E.O. 137) to a
meaningless provision."
This Court, in Caltex Philippines, Inc. v. The Honorable Commissioner on Audit, et
al., 27 passed upon the application of ejusdem generis to paragraph 2 of 8 of P.D.
1956, viz.:
The rule of ejusdem generis states that "[w]here words follow an enumeration of
persons or things, by words of a particular and specific meaning, such general words
are not to be construed in their widest extent, but are held to be as applying only to
persons or things of the same kind or class as those specifically mentioned." 28 A
reading of subparagraphs (i) and (ii) easily discloses that they do not have a common
characteristic. The first relates to price reduction as directed by the Board of Energy
while the second refers to reduction in internal ad valorem taxes. Therefore,
subparagraph (iii) cannot be limited by the enumeration in these subparagraphs. What
should be considered for purposes of determining the "other factors" in subparagraph
(iii) is the first sentence of paragraph (2) of the Section which explicitly allows the cost
underrecovery only if such were incurred as a result of the reduction of domestic prices
of petroleum products.
The Court thus holds, that the reimbursement of financing charges is not authorized by
paragraph 2 of 8 of P.D. 1956, for the reason that they were not incurred as a result of
the reduction of domestic prices of petroleum products. Under the same provision,
however, the payment of inventory losses is upheld as valid, being clearly a result of
domestic price reduction, when oil companies incur a cost underrecovery for yet unsold
stocks of oil in inventory acquired at a higher price.
Reimbursement for cost underrecovery from the sales of oil to the National Power
Corporation is equally permissible, not as coming within the provisions of P.D. 1956, but
in virtue of other laws and regulations as held inCaltex 29 and which have been pointed
to by the Solicitor General. At any rate, doubts about the propriety of such
reimbursements have been dispelled by the enactment of R.A. 6952, establishing the
Petroleum Price Standby Fund, 2 of which specifically authorizes the reimbursement
of "cost underrecovery incurred as a result of fuel oil sales to the National Power
Corporation."

Anent the overpayment refunds mentioned by the petitioner, no substantive discussion

has been presented to show how this is prohibited by P.D. 1956. Nor has the Solicitor
General taken any effort to defend the propriety of this refund. In fine, neither of the
parties, beyond the mere mention of overpayment refunds, has at all bothered to
discuss the arguments for or against the legality of the so-called overpayment refunds.
To be sure, the absence of any argument for or against the validity of the refund cannot
result in its disallowance by the Court. Unless the impropriety or illegality of the
overpayment refund has been clearly and specifically shown, there can be no basis
upon which to nullify the same.
Finally, the Court finds no necessity to rule on the remaining issue, the same having
been rendered moot and academic. As of date hereof, the pump rates of gasoline have
been reduced to levels below even those prayed for in the petition.
WHEREFORE, the petition is GRANTED insofar as it prays for the nullification of the
reimbursement of financing charges, paid pursuant to E.O. 137, and DISMISSED in all
other respects.
SO ORDERED.

G.R. Nos. L-19824, L-19825 and 19826

July 9, 1966

REPUBLIC OF THE PHILIPPINES, plaintiff-appellee,

vs.
BACOLOD-MURCIA MILLING CO., INC., MA-AO SUGAR CENTRAL CO., INC., and
TALISAY-SILAY MILLING COMPANY, defendants-appellants.
This is a joint appeal by three sugar centrals, Bacolod Murcia Milling Co., Inc., Ma-ao
Sugar Central Co., Inc., and Talisay-Silay Milling Co., sister companies under one
controlling ownership and management, from a decision of the Court of First Instance of
Manila finding them liable for special assessments under Section 15 of Republic Act No.
632.
Republic Act No. 632 is the charter of the Philippine Sugar Institute, Philsugin for short,
a semi-public corporation created for the following purposes and objectives:
(a) To conduct research work for the sugar industry in all its phases, either
agricultural or industrial, for the purpose of introducing into the sugar industry
such practices or processes that will reduce the cost of production, increase and
improve the industrialization of the by-products of sugar cane, and achieve
greater efficiency in the industry;
(b) To improve existing methods of raising sugar cane and of sugar
manufacturing;
(c) To insure a permanent, sufficient and balanced production of sugar and its byproducts for local consumption and exportation;
(d) To establish and maintain such balanced relation between production and
consumption of sugar and its by-products, and such marketing conditions
therefor, as well insure stabilized prices at a level sufficient to cover the cost of
production plus a reasonable profit;
(e) To promote the effective merchandising of sugar and its by-products in the
domestic and foreign markets so that those engaged in the sugar industry will be
placed on a basis of economic security; and
(f) To improve the living and economic conditions of laborers engaged in the
sugar industry by the gradual and effective correction of the inequalities existing
in the industry. (Section 2, Rep. Act 632)
To realize and achieve these ends, Sections 15 and 16 of the aforementioned law
provide:
Sec. 15. Capitalization. To raise the necessary funds to carry out the
provisions of this Act and the purposes of the corporation, there shall be levied
on the annual sugar production a tax of TEN CENTAVOS [P0.10] per picul of
sugar to be collected for a period of five (5) years beginning the crop year 19511952. The amount shall be borne by the sugar cane planters and the sugar
centrals in the proportion of their corresponding milling share, and said levy shall
constitute a lien on their sugar quedans and/or warehouse receipts.
Sec. 16. Special Fund. The proceeds of the foregoing levy shall be set aside
to constitute a special fund to be known as the "Sugar Research and Stabilization
Fund," which shall be available exclusively for the use of the corporation. All the
income and receipts derived from the special fund herein created shall accrue to,
and form part of the said fund to be available solely for the use of the corporation.

The specific and general powers of the Philsugin are set forth in Section 8 of the same
law, to wit:
Sec. 3. Specific and General Powers. For carrying out the purposes
mentioned in the preceding section, the PHILSUGIN shall have the following
powers:
(a) To establish, keep, maintain and operate, or help establish, keep, maintain,
and operate one central experiment station and such number of regional
experiment stations in any part of the Philippines as may be necessary to
undertake extensive research in sugar cane culture and manufacture, including
studies as to the feasibility of merchandising sugar cane farms, the control and
eradication of pests, the selected and propagation of high-yielding varieties of
sugar cane suited to Philippine climatic conditions, and such other pertinent
studies as will be useful in adjusting the sugar industry to a position independent
of existing trade preference in the American market;
(b) To purchase such machinery, materials, equipment and supplies as may be
necessary to prosecute successfully such researches and experimental work;
(c) To explore and expand the domestic and foreign markets for sugar and its byproducts to assure mutual benefits to consumers and producers, and to promote
and maintain a sufficient general production of sugar and its by-products by an
efficient coordination of the component elements of the sugar industry of the
country;
(d) To buy, sell, assign, own, operate, rent or lease, subject to existing laws,
machineries, equipment, materials, merchant vessels, rails, railroad lines, and
any other means of transportation, warehouses, buildings, and any other
equipment and material to the production, manufacture, handling, transportation
and warehousing of sugar and its by-products;
(e) To grant loans, on reasonable terms, to planters when it deems such loans
advisable;
(f) To enter, make and execute contracts of any kind as may be necessary or
incidental to the attainment of its purposes with any person, firm, or public or
private corporation, with the Government of the Philippines or of the United
States, or any state, territory, or persons therefor, or with any foreign government
and, in general, to do everything directly or indirectly necessary or incidental to,
or in furtherance of, the purposes of the corporation;
(g) To do all such other things, transact all such business and perform such
functions directly or indirectly necessary, incidental or conducive to the
attainment of the purposes of the corporation; and
(h) Generally, to exercise all the powers of a Corporation under the Corporation
Law insofar as they are not inconsistent with the provisions of this Act.
The facts of this case bearing relevance to the issue under consideration, as recited by
the lower court and accepted by the appellants, are the following:
x x x during the 5 crop years mentioned in the law, namely 1951-1952, 19521953, 1953-1954, 1954-1955 and 1955-1956, defendant Bacolod-Murcia Milling
Co., Inc., has paid P267,468.00 but left an unpaid balance of P216,070.50;
defendant Ma-ao Sugar Central Co., Inc., has paid P117,613.44 but left unpaid
balance of P235,800.20; defendant Talisay-Silay Milling Company has paid

P251,812.43 but left unpaid balance of P208,193.74; and defendant Central

Azucarera del Danao made a payment of P49,897.78 but left unpaid balance of
P48,059.77. There is no question regarding the correctness of the amounts paid
and the amounts that remain unpaid.
From the evidence presented, on which there is no controversy, it was disclosed
that on September 3, 1951, the Philippine Sugar Institute, known as the
PHILSUGIN for short, acquired the Insular Sugar Refinery for a total
consideration of P3,070,909.60 payable, in accordance with the deed of sale
Exhibit A, in 3 installments from the process of the sugar tax to be collected,
under Republic Act 632. The evidence further discloses that the operation of the
Insular Sugar Refinery for the years, 1954, 1955, 1956 and 1957 was disastrous
in the sense that PHILSUGIN incurred tremendous losses as shown by an
examination of the statements of income and expenses marked Exhibits 5, 6, 7
and 8. Through the testimony of Mr. Cenon Flor Cruz, former acting general
manager of PHILSUGIN and at present technical consultant of said entity,
presented by the defendants as witnesses, it has been shown that the operation
of the Insular Sugar Refinery has consumed 70% of the thinking time and effort
of the PHILSUGIN management. x x x .
Contending that the purchase of the Insular Sugar Refinery with money from the
Philsugin Fund was not authorized by Republic Act 632 and that the continued
operation of the said refinery was inimical to their interests, the appellants refused to
continue with their contributions to the said fund. They maintained that their obligation to
contribute or pay to the said Fund subsists only to the limit and extent that they are
benefited by such contributions since Republic Act 632 is not a revenue measure but an
Act which establishes a "Special assessments." Adverting to the finding of the lower
court that proceeds of the said Fund had been used or applied to absorb the
"tremendous losses" incurred by Philsugin in its "disastrous operation" of the said
refinery, the appellants herein argue that they should not only be released from their
obligation to pay the said assessment but be refunded, besides, of all that they might
have previously paid thereunder.
The appellants' thesis is simply to the effect that the "10 centavos per picul of sugar"
authorized to be collected under Sec. 15 of Republic 632 is a special assessment. As
such, the proceeds thereof may be devoted only to the specific purpose for which the
assessment was authorized, a special assessment being a levy upon property
predicated on the doctrine that the property against which it is levied derives some
special benefit from the improvement. It is not a tax measure intended to raise revenues
for the Government. Consequently, once it has been determined that no benefit accrues
or inures to the property owners paying the assessment, or that the proceeds from the
said assessment are being misapplied to the prejudice of those against whom it has
been levied, then the authority to insist on the payment of the said assessment ceases.
On the other hand, the lower court adjudged the appellants herein liable under the
aforementioned law, Republic Act 632, upon the following considerations:
First, Subsection d) of Section 3 of Republic Act 632 authorizes Philsugin to buy and
operate machineries, equipment, merchant vessels, etc., and any other equipment and
material for the production, manufacture, handling, transportation and warehousing of
sugar and its by-products. It was, therefore, authorized to purchase and operate a sugar
refinery.
Secondly, the corporate powers of the Philsugin are vested in and exercised by a board
of directors composed of 5 members, 3 of whom shall be appointed upon
recommendation of the National Federation of Sugar Cane Planters and 2 upon
recommendation of the Philippine Sugar Association. (Sec. 4, Rep. Act 632). It has not

been shown that this particular provision was not observed in this case. Therefore, the
appellants herein may not rightly claim that there had been a misapplication of the
Philsugin funds when the same was used to procure the Insular Sugar Refinery
because the decision to purchase the said refinery was made by a board in which the
applicants were fully and duly represented, the appellants being members of the
Philippine Sugar Association.
Thirdly, all financial transactions of the Philsugin are audited by the General Auditing
Office, which must be presumed to have passed upon the legality and prudence of the
disbursements of the Fund. Additionally, other offices of the Government review such
transactions as reflected in the annual report obliged of the Philsugin to prepare. Among
those offices are the Office of the President of the Philippines, the Administrator of
Economic Coordination and the Presiding Officers of the two chambers of Congress.
With all these safeguards against any imprudent or unauthorized expenditure of
Philsugin Funds, the acquisition of the Insular Sugar Refinery must be upheld in its
legality and propriety.
Fourthly, it would be dangerous to sanction the unilateral refusal of the appellants herein
to continue with their contribution to the Fund for that conduct is no different "from the
case of an ordinary taxpayer who refuses to pay his taxes on the ground that the money
is being misappropriated by Government officials." This is taking the law into their own
hands.
Against the above ruling of the trial court, the appellants contend:
First. It is fallacious to argue that no mismanagement or abuse of corporate power could
have been committed by Philsugin solely because its charter incorporates so many
devices or safeguards to preclude such abuse. This reasoning of the lower court does
not reconcile with that actually happened in this case.
Besides, the appellants contend that the issue on hand is not whether Philsugin abused
or not its powers when it purchased the Insular Sugar Refinery. The issue, rather, is
whether Philsugin had any power or authority at all to acquire the said refinery. The
appellants deny that Philsugin is possessed of any such authority because what it is
empowered to purchase is not a "sugar refinery but a central experiment station or
perhaps at the most a sugar central to be used for that purpose." (Sec. 3[a], Rep. Act
632) For this distinction, the appellants cite the case ofCollector vs. Ledesma, G.R. No.
L-12158, May 27, 1959, in which this Court ruled that
We are of the opinion that a "sugar central," as that term is used in Section 189,
applies to "a large mill that makes sugar out of the cane brought from a wide
surrounding territory," or a sugar mill which manufactures sugar for a number of
plantations. The term "sugar central" could not have been intended by Congress
to refer to all sugar mills or sugar factories as contended by respondent. If
respondent's interpretation is to be followed, even sugar mills run by animal
power (trapiche) would be considered sugar central. We do not think Congress
ever intended to place owners of (trapiches) in the same category as operators of
sugar centrals.
That sugar mills are not the same as sugar centrals may also be gleaned from
Commonwealth Act No. 470 (Assessment Law). In prescribing the principle
governing valuation and assessment of real property. Section 4 of said Act
provides
"Machinery permanently used or in stalled in sugar centrals, mills, or refineries
shall be assessed."

This clearly indicates that "Sugar centrals" are not the same as "sugar mills" or
"sugar refineries."
Second. The appellants' refusal to continue paying the assessment under Republic Act
632 may not rightly be equated with a taxpayer's refusal to pay his ordinary taxes
precisely because there is a substantial distinction between a "special assessment" and
an ordinary tax. The purpose of the former is to finance the improvement of particular
properties, with the benefits of the improvement accruing or inuring to the owners
thereof who, after all, pay the assessment. The purpose of an ordinary tax, on the other
hand, is to provide the Government with revenues needed for the financing of state
affairs. Thus, while the refusal of a citizen to pay his ordinary taxes may not indeed be
sanctioned because it would impair government functions, the same would not hold true
in the case of a refusal to comply with a special assessment.
Third. Upon a host of decisions of the United States Supreme Court, the imposition or
collection of a special assessment upon property owners who receive no benefit from
such assessment amounts to a denial of due process. Thus, in the case of Norwood vs.
Baer, 172 US 269, the ruling was laid down that
As already indicated, the principle underlying special assessments to meet the
cost of public improvements is that the property upon which they are imposed is
peculiarly benefited, and therefore, the panels do not, in fact, pay anything in
excess of what they received by reason of such improvement.
unless a corresponding benefit is realized by the property owner, the exaction of a
special assessment would be "manifestly unfair" (Seattle vs. Kelleher 195 U.S. 351) and
"palpably arbitrary or plain abuse" (Gast Realty Investment Co. vs. Schneider Granite
Co., 240 U.S. 57). In other words, the assessment is violative of the due process
guarantee of the constitution (Memphis vs. Charleston Ry v. Pace, 282 U.S. 241).
We find for the appellee.
The nature of a "special assessment" similar to the case at bar has already been
discussed and explained by this Court in the case of Lutz vs. Araneta, 98 Phil. 148. For
in this Lutz case, Commonwealth Act 567, otherwise known as the Sugar Adjustment
Act, 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
a tax equivalent to the difference between the money value of the rental or
consideration collected and the amount representing 12 per centum of the
assessed value of such land. (Sec. 3).
1wph1.t

Under Section 6 of the said law, Commonwealth Act 567, all collections made
thereunder "shall accrue to a special fund in the Philippine Treasury, to be known as the
'Sugar Adjustment and Stabilization Fund,' and shall be paid out only for any or all of the
following purposes or to attain any or all of the following objectives, as may be provided
by law." It then proceeds to enumerate the said purposes, among which are "to place
the sugar industry in a position to maintain itself; ... to readjust the benefits derived from
the sugar industry ... so that all might continue profitably to engage therein; to limit the
production of sugar to areas more economically suited to the production thereof; and to
afford laborers employed in the industry a living wage and to improve their living and
working conditions.
The plaintiff in the above case, Walter Lutz, contended that the aforementioned tax or
special assessment was unconstitutional because it was being "levied for the aid and
support of the sugar industry exclusively," and therefore, not for a public purpose. In
rejecting the theory advanced by the said plaintiff, this Court said:

The basic defect in the plaintiff's position in his assumption that the tax provided
for in Commonwealth Act No. 567 is a pure exercise of the taxing power. Analysis
of the Act, and particularly Section 6, will show that the tax is levied with a
regulatory purpose, to provide means for the rehabilitation and stabilization of the
threatened sugar industry. In other words, the act is primarily an exercise of the
police power.
This Court can take judicial notice of the fact that sugar production is one of the
great industries of our nation, sugar occupying a leading position among its
export products; that it gives employment to thousands of laborers in fields and
factories; that it is a great source of the state's wealth, is one, of the important
sources to foreign exchange needed by our government, and is thus pivotal in
the plans of a regime committed to a policy of currency stability. Its promotion,
protection and advancement, therefore redounds greatly to the general welfare.
Hence, it was competent for the Legislature to find that the general welfare
demanded that the sugar industry should be stabilized in turn; and in the wide
field of its police power, the law-making body could provide that the distribution of
benefits therefrom be readjusted among its components, to enable it to resist the
added strain of the increase in taxes that it had to sustain (Sligh vs. Kirkwood,
237 U.S. 52, 59 L. Ed. 835; Johnson vs. State ex rel. Marey, 99 Fla. 1311, 128
So. 853; Marcy Inc. vs. Mayo, 103 Fla. 552, 139 So. 121)
As stated in Johnson vs. State ex rel. Marcy, with reference to the citrus industry
in Florida
"The protection of a large industry constituting one of the great source of
the state's wealth and therefore directly or indirectly affecting the welfare
of so great a portion of the population of the State is affected to such an
extent by public interests as to be within the police power of the
sovereign." (128 So. 857).
Once it is conceded, as it must that the protection and promotion of the sugar
industry is a matter of public concern, it follows that the Legislature may
determine within reasonable bounds what is necessary for its protection and
expedient for its promotion. Here, the legislative discretion 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 the law (above quoted) 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. (Great Atl. & Pac. Tea Co. vs. Grosjean,
301 U.S. 412, 81 L. Ed. 1193; U.S. vs. Butler, 297 U.S. 1, 80 L. Ed. 477;
M'cullock vs. Maryland, 4 Wheat. 316, 4 L. Ed. 579).
On the authority of the above case, then, We hold that the special assessment at bar
may be considered as similarly as the above, that is, that the levy for the Philsugin Fund
is not so much an exercise of the power of taxation, nor the imposition of a special
assessment, but, the exercise of the police power for the general welfare of the entire
country. It is, therefore, an exercise of a sovereign power which no private citizen may
lawfully resist.
Besides, under Section 2(a) of the charter, the Philsugin is authorized "to conduct
research work for the sugar industry in all its phases, either agricultural or industrial, for
the purpose of introducing into the sugar industry such practices or processes that will
reduce the cost of production, ..., and achieve greater efficiency in the industry." This
provision, first of all, more than justifies the acquisition of the refinery in question. The
case dispute that the operation of a sugar refinery is a phase of sugar production and

that from such operation may be learned methods of reducing the cost of sugar
manufactured no less than it may afford the opportunity to discover the more effective
means of achieving progress in the industry. Philsugin's experience alone of running a
refinery is a gain to the entire industry. That the operation resulted in a financial loss is
by no means an index that the industry did not profit therefrom, as other farms of a
different nature may have been realized. Thus, from its financially unsuccessful venture,
the Philsugin could very well have advanced in its appreciation of the problems of
management faced by sugar centrals. It could have understood more clearly the
difficulties of marketing sugar products. It could have known with better intimacy the
precise area of the industry in need of the more help from the government. The view of
the appellants herein, therefore, that they were not benefited by the unsuccessful
operation of the refinery in question is not entirely accurate.
Furthermore, Section 2(a) specifies a field of research which, indeed, would be difficult
to carry out save through the actual operation of a refinery. Quite obviously, the most
practical or realistic approach to the problem of what "practices or processes" might
most effectively cut the cost of production is to experiment on production itself. And yet,
how can such an experiment be carried out without the tools, which is all that a refinery
is?
In view of all the foregoing, the decision appealed from is hereby affirmed, with costs.

G.R. No. L-75697 June 18, 1987

VALENTIN TIO doing business under the name and style of OMI
ENTERPRISES, petitioner,
vs.
VIDEOGRAM REGULATORY BOARD, MINISTER OF FINANCE, METRO MANILA
COMMISSION, CITY MAYOR and CITY TREASURER OF MANILA, respondents.
Nelson Y. Ng for petitioner.
The City Legal Officer for respondents City Mayor and City Treasurer.

MELENCIO-HERRERA, J.:
This petition was filed on September 1, 1986 by petitioner on his own behalf and
purportedly on behalf of other videogram operators adversely affected. It assails the
constitutionality of Presidential Decree No. 1987 entitled "An Act Creating the
Videogram Regulatory Board" with broad powers to regulate and supervise the
videogram industry (hereinafter briefly referred to as the BOARD). The Decree was
promulgated on October 5, 1985 and took effect on April 10, 1986, fifteen (15) days
after completion of its publication in the Official Gazette.
On November 5, 1985, a month after the promulgation of the abovementioned decree,
Presidential Decree No. 1994 amended the National Internal Revenue Code
providing, inter alia:

SEC. 134. Video Tapes. There shall be collected on each processed

video-tape cassette, ready for playback, regardless of length, an annual
tax of five pesos; Provided, That locally manufactured or imported blank
video tapes shall be subject to sales tax.
On October 23, 1986, the Greater Manila Theaters Association, Integrated Movie
Producers, Importers and Distributors Association of the Philippines, and Philippine
Motion Pictures Producers Association, hereinafter collectively referred to as the
Intervenors, were permitted by the Court to intervene in the case, over petitioner's
opposition, upon the allegations that intervention was necessary for the complete
protection of their rights and that their "survival and very existence is threatened by the
unregulated proliferation of film piracy." The Intervenors were thereafter allowed to file
their Comment in Intervention.
The rationale behind the enactment of the DECREE, is set out in its preambular clauses
as follows:
1. WHEREAS, the proliferation and unregulated circulation of videograms
including, among others, videotapes, discs, cassettes or any technical
improvement or variation thereof, have greatly prejudiced the operations
of moviehouses and theaters, and have caused a sharp decline in
theatrical attendance by at least forty percent (40%) and a tremendous
drop in the collection of sales, contractor's specific, amusement and other
taxes, thereby resulting in substantial losses estimated at P450 Million
annually in government revenues;
2. WHEREAS, videogram(s) establishments collectively earn around P600
Million per annum from rentals, sales and disposition of videograms, and
such earnings have not been subjected to tax, thereby depriving the
Government of approximately P180 Million in taxes each year;
3. WHEREAS, the unregulated activities of videogram establishments
have also affected the viability of the movie industry, particularly the more
than 1,200 movie houses and theaters throughout the country, and
occasioned industry-wide displacement and unemployment due to the
shutdown of numerous moviehouses and theaters;
4. "WHEREAS, in order to ensure national economic recovery, it is
imperative for the Government to create an environment conducive to
growth and development of all business industries, including the movie
industry which has an accumulated investment of about P3 Billion;
5. WHEREAS, proper taxation of the activities of videogram
establishments will not only alleviate the dire financial condition of the
movie industry upon which more than 75,000 families and 500,000
workers depend for their livelihood, but also provide an additional source
of revenue for the Government, and at the same time rationalize the
heretofore uncontrolled distribution of videograms;
6. WHEREAS, the rampant and unregulated showing of obscene
videogram features constitutes a clear and present danger to the moral
and spiritual well-being of the youth, and impairs the mandate of the
Constitution for the State to support the rearing of the youth for civic
efficiency and the development of moral character and promote their
physical, intellectual, and social well-being;

7. WHEREAS, civic-minded citizens and groups have called for remedial

measures to curb these blatant malpractices which have flaunted our
censorship and copyright laws;
8. WHEREAS, in the face of these grave emergencies corroding the moral
values of the people and betraying the national economic recovery
program, bold emergency measures must be adopted with dispatch; ...
(Numbering of paragraphs supplied).
Petitioner's attack on the constitutionality of the DECREE rests on the following
grounds:
1. Section 10 thereof, which imposes a tax of 30% on the gross receipts
payable to the local government is a RIDER and the same is not germane
to the subject matter thereof;
2. The tax imposed is harsh, confiscatory, oppressive and/or in unlawful
restraint of trade in violation of the due process clause of the Constitution;
3. There is no factual nor legal basis for the exercise by the President of
the vast powers conferred upon him by Amendment No. 6;
4. There is undue delegation of power and authority;
5. The Decree is an ex-post facto law; and
6. There is over regulation of the video industry as if it were a nuisance,
which it is not.
We shall consider the foregoing objections in seriatim.
1. The Constitutional requirement that "every bill shall embrace only one subject which
shall be expressed in the title thereof" 1 is sufficiently complied with if the title be
comprehensive enough to include the general purpose which a statute seeks to
achieve. It is not necessary that the title express each and every end that the statute
wishes to accomplish. The requirement is satisfied if all the parts of the statute are
related, and are germane to the subject matter expressed in the title, or as long as they
are not inconsistent with or foreign to the general subject and title.2 An act having a
single general subject, indicated in the title, may contain any number of provisions, no
matter how diverse they may be, so long as they are not inconsistent with or foreign to
the general subject, and may be considered in furtherance of such subject by providing
for the method and means of carrying out the general object." 3 The rule also is that the
constitutional requirement as to the title of a bill should not be so narrowly construed as
to cripple or impede the power of legislation. 4 It should be given practical rather than
technical construction. 5
Tested by the foregoing criteria, petitioner's contention that the tax provision of the
DECREE is a rider is without merit. That section reads, inter alia:
Section 10. Tax on Sale, Lease or Disposition of Videograms.
Notwithstanding any provision of law to the contrary, the province shall
collect a tax of thirty percent (30%) of the purchase price or rental rate, as
the case may be, for every sale, lease or disposition of a videogram
containing a reproduction of any motion picture or audiovisual program.
Fifty percent (50%) of the proceeds of the tax collected shall accrue to the
province, and the other fifty percent (50%) shall acrrue to the municipality
where the tax is collected; PROVIDED, That in Metropolitan Manila, the

tax shall be shared equally by the City/Municipality and the Metropolitan

Manila Commission.
xxx xxx xxx
The foregoing provision is allied and germane to, and is reasonably necessary for the
accomplishment of, the general object of the DECREE, which is the regulation of the
video industry through the Videogram Regulatory Board as expressed in its title. The tax
provision is not inconsistent with, nor foreign to that general subject and title. As a tool
for regulation 6 it is simply one of the regulatory and control mechanisms scattered
throughout the DECREE. The express purpose of the DECREE to include taxation of
the video industry in order to regulate and rationalize the heretofore uncontrolled
distribution of videograms is evident from Preambles 2 and 5, supra. Those preambles
explain the motives of the lawmaker in presenting the measure. The title of the
DECREE, which is the creation of the Videogram Regulatory Board, is comprehensive
enough to include the purposes expressed in its Preamble and reasonably covers all its
provisions. It is unnecessary to express all those objectives in the title or that the latter
be an index to the body of the DECREE. 7
2. Petitioner also submits that the thirty percent (30%) tax imposed is harsh and
oppressive, confiscatory, and in restraint of trade. However, it is beyond serious
question that a tax does not cease to be valid merely because it regulates, discourages,
or even definitely deters the activities taxed. 8 The power to impose taxes is one so
unlimited in force and so searching in extent, that the courts scarcely venture to declare
that it is subject to any restrictions whatever, except such as rest in the discretion of the
authority which exercises it. 9 In imposing a tax, the legislature acts upon its
constituents. This is, in general, a sufficient security against erroneous and oppressive
taxation. 10
The tax imposed by the DECREE is not only a regulatory but also a revenue measure
prompted by the realization that earnings of videogram establishments of around P600
million per annum have not been subjected to tax, thereby depriving the Government of
an additional source of revenue. It is an end-user tax, imposed on retailers for every
videogram they make available for public viewing. It is similar to the 30% amusement
tax imposed or borne by the movie industry which the theater-owners pay to the
government, but which is passed on to the entire cost of the admission ticket, thus
shifting the tax burden on the buying or the viewing public. It is a tax that is imposed
uniformly on all videogram operators.
The levy of the 30% tax is for a public purpose. It was imposed primarily to answer the
need for regulating the video industry, particularly because of the rampant film piracy,
the flagrant violation of intellectual property rights, and the proliferation of pornographic
video tapes. And while it was also an objective of the DECREE to protect the movie
industry, the tax remains a valid imposition.
The public purpose of a tax may legally exist even if the motive which
impelled the legislature to impose the tax was to favor one industry over
another. 11
It is inherent in the power to tax that a state be free to select the subjects
of taxation, and it has been repeatedly held that "inequities which result
from a singling out of one particular class for taxation or exemption
infringe no constitutional limitation". 12 Taxation has been made the
implement of the state's police power. 13
At bottom, the rate of tax is a matter better addressed to the taxing legislature.

3. Petitioner argues that there was no legal nor factual basis for the promulgation of the
DECREE by the former President under Amendment No. 6 of the 1973 Constitution
providing that "whenever in the judgment of the President ... , there exists a grave
emergency or a threat or imminence thereof, or whenever the interim Batasang
Pambansa or the regular National Assembly fails or is unable to act adequately on any
matter for any reason that in his judgment requires immediate action, he may, in order
to meet the exigency, issue the necessary decrees, orders, or letters of instructions,
which shall form part of the law of the land."
In refutation, the Intervenors and the Solicitor General's Office aver that the 8th
"whereas" clause sufficiently summarizes the justification in that grave emergencies
corroding the moral values of the people and betraying the national economic recovery
program necessitated bold emergency measures to be adopted with dispatch. Whatever
the reasons "in the judgment" of the then President, considering that the issue of the
validity of the exercise of legislative power under the said Amendment still pends
resolution in several other cases, we reserve resolution of the question raised at the
proper time.
4. Neither can it be successfully argued that the DECREE contains an undue delegation
of legislative power. The grant in Section 11 of the DECREE of authority to the BOARD
to "solicit the direct assistance of other agencies and units of the government and
deputize, for a fixed and limited period, the heads or personnel of such agencies and
units to perform enforcement functions for the Board" is not a delegation of the power to
legislate but merely a conferment of authority or discretion as to its execution,
enforcement, and implementation. "The true distinction is between the delegation of
power to make the law, which necessarily involves a discretion as to what it shall be,
and conferring authority or discretion as to its execution to be exercised under and in
pursuance of the law. The first cannot be done; to the latter, no valid objection can be
made." 14 Besides, in the very language of the decree, the authority of the BOARD to
solicit such assistance is for a "fixed and limited period" with the deputized agencies
concerned being "subject to the direction and control of the BOARD." That the grant of
such authority might be the source of graft and corruption would not stigmatize the
DECREE as unconstitutional. Should the eventuality occur, the aggrieved parties will
not be without adequate remedy in law.
5. The DECREE is not violative of the ex post facto principle. An ex post facto law is,
among other categories, one which "alters the legal rules of evidence, and authorizes
conviction upon less or different testimony than the law required at the time of the
commission of the offense." It is petitioner's position that Section 15 of the DECREE in
providing that:
All videogram establishments in the Philippines are hereby given a period
of forty-five (45) days after the effectivity of this Decree within which to
register with and secure a permit from the BOARD to engage in the
videogram business and to register with the BOARD all their inventories of
videograms, including videotapes, discs, cassettes or other technical
improvements or variations thereof, before they could be sold, leased, or
otherwise disposed of. Thereafter any videogram found in the possession
of any person engaged in the videogram business without the required
proof of registration by the BOARD, shall be prima facie evidence of
violation of the Decree, whether the possession of such videogram be for
private showing and/or public exhibition.
raises immediately a prima facie evidence of violation of the DECREE when the
required proof of registration of any videogram cannot be presented and thus partakes
of the nature of an ex post facto law.

The argument is untenable. As this Court held in the recent case of Vallarta vs. Court of
Appeals, et al. 15
... it is now well settled that "there is no constitutional objection to the
passage of a law providing that the presumption of innocence may be
overcome by a contrary presumption founded upon the experience of
human conduct, and enacting what evidence shall be sufficient to
overcome such presumption of innocence" (People vs. Mingoa 92 Phil.
856 [1953] at 858-59, citing 1 COOLEY, A TREATISE ON THE
CONSTITUTIONAL LIMITATIONS, 639-641). And the "legislature may
enact that when certain facts have been proved that they shall be prima
facie evidence of the existence of the guilt of the accused and shift the
burden of proof provided there be a rational connection between the facts
proved and the ultimate facts presumed so that the inference of the one
from proof of the others is not unreasonable and arbitrary because of lack
of connection between the two in common experience". 16
Applied to the challenged provision, there is no question that there is a rational
connection between the fact proved, which is non-registration, and the ultimate fact
presumed which is violation of the DECREE, besides the fact that the prima
facie presumption of violation of the DECREE attaches only after a forty-five-day period
counted from its effectivity and is, therefore, neither retrospective in character.
6. We do not share petitioner's fears that the video industry is being over-regulated and
being eased out of existence as if it were a nuisance. Being a relatively new industry,
the need for its regulation was apparent. While the underlying objective of the DECREE
is to protect the moribund movie industry, there is no question that public welfare is at
bottom of its enactment, considering "the unfair competition posed by rampant film
piracy; the erosion of the moral fiber of the viewing public brought about by the
availability of unclassified and unreviewed video tapes containing pornographic films
and films with brutally violent sequences; and losses in government revenues due to the
drop in theatrical attendance, not to mention the fact that the activities of video
establishments are virtually untaxed since mere payment of Mayor's permit and
municipal license fees are required to engage in business. 17
The enactment of the Decree since April 10, 1986 has not brought about the "demise" of
the video industry. On the contrary, video establishments are seen to have proliferated
in many places notwithstanding the 30% tax imposed.
In the last analysis, what petitioner basically questions is the necessity, wisdom and
expediency of the DECREE. These considerations, however, are primarily and
exclusively a matter of legislative concern.
Only congressional power or competence, not the wisdom of the action
taken, may be the basis for declaring a statute invalid. This is as it ought
to be. The principle of separation of powers has in the main wisely
allocated the respective authority of each department and confined its
jurisdiction to such a sphere. There would then be intrusion not allowable
under the Constitution if on a matter left to the discretion of a coordinate
branch, the judiciary would substitute its own. If there be adherence to the
rule of law, as there ought to be, the last offender should be courts of
justice, to which rightly litigants submit their controversy precisely to
maintain unimpaired the supremacy of legal norms and prescriptions. The
attack on the validity of the challenged provision likewise insofar as there
may be objections, even if valid and cogent on its wisdom cannot be
sustained. 18

In fine, petitioner has not overcome the presumption of validity which attaches to a
challenged statute. We find no clear violation of the Constitution which would justify us
in pronouncing Presidential Decree No. 1987 as unconstitutional and void.
WHEREFORE, the instant Petition is hereby dismissed.
No costs.
SO ORDERED.

G.R. No. L-22356

July 21, 1967

REPUBLIC OF THE PHILIPPINES, plaintiff-appellant,

vs.
PEDRO B. PATANAO, defendant-appellee.
Office of the Solicitor General Arturo A. Alafriz, Solicitor A. B. Afurong and L. O. Gallang for plaintiff-appellant.
Tranquilino O. Calo, Jr. for defendant-appellee.
ANGELES, J.:
This is an appeal from an order of the Court of First Instance of Agusan in civil case No.
925, dismissing plaintiff's complaint so far as concerns the collection of deficiency
income taxes for the years 1951, 1953 and 1954 and additional residence taxes for
1951 and 1952, and requiring the defendant to file his answer with respect to deficiency
income tax for 1955 and residence taxes for 1953-1955.
In the complaint filed by the Republic of the Philippines, through the Solicitor General,
against Pedro B. Patanao, it is alleged that defendant was the holder of an ordinary
timber license with concession at Esperanza, Agusan, and as such was engaged in the
business of producing logs and lumber for sale during the years 1951-1955; that
defendant failed to file income tax returns for 1953 and 1954, and although he filed
income tax returns for 1951, 1952 and 1955, the same were false and fraudulent
because he did not report substantial income earned by him from his business; that in
an examination conducted by the Bureau of Internal Revenue on defendant's income
and expenses for 1951-1955, it was ascertained that the sum of P79,892.75,
representing deficiency; income taxes and additional residence taxes for the aforesaid
years, is due from defendant; that on February 14, 1958, plaintiff, through the Deputy
Commissioner of Internal Revenue, sent a letter of demand with enclosed income tax
assessment to the defendant requiring him to pay the said amount; that notwithstanding
repeated demands the defendant refused, failed and neglected to pay said taxes; and
that the assessment for the payment of the taxes in question has become final,
executory and demandable, because it was not contested before the Court of Tax
Appeals in accordance with the provisions of section 11 of Republic Act No. 1125.
Defendant moved to dismiss the complaint on two grounds, namely: (1) that the action
is barred by prior judgment, defendant having been acquitted in criminal cases Nos.
2089 and 2090 of the same court, which were prosecutions for failure to file income tax
returns and for non-payment of income taxes; and (2) that the action has prescribed.

After considering the motion to dismiss, the opposition thereto and the rejoinder to the
opposition, the lower court entered the order appealed from, holding that the only cause
of action left to the plaintiff in its complaint is the collection of the income tax due for the
taxable year 1955 and the residence tax (Class B) for 1953, 1954 and 1955. A motion to
reconsider said order was denied, whereupon plaintiff interposed the instant appeal,
which was brought directly to this Court, the questions involved being purely legal.
The conclusion of the trial court, that the present action is barred by prior judgment, is
anchored on the following rationale:
There is no question that the defendant herein has been accused in Criminal
Cases Nos. 2089 and 2090 of this Court for not filing his income tax returns and
for non-payment of income taxes for the years 1953 and 1954. In both cases, he
was acquitted. The rule in this jurisdiction is that the accused once acquitted is
exempt from both criminal and civil responsibility because when a criminal action
is instituted, civil action arising from the same offense is impliedly instituted
unless the offended party expressly waives the civil action or reserves the right to
file it separately. In the criminal cases abovementioned wherein the defendant
was completely exonerated, there was no waiver or reservation to file a separate
civil case so that the failure to obtain conviction on a charge of non-payment of
income taxes is fatal to any civil action to collect the payment of said taxes.
1wph1.t

Plaintiff-appellant assails the ruling as erroneous. Defendant-appellee on his part urges

that it should be maintained.
In applying the principle underlying the civil liability of an offender under the Penal Code
to a case involving the collection of taxes, the court a quo fell into error. The two cases
are circumscribed by factual premises which are diametrically opposed to each either,
and are founded on entirely different philosophies. Under the Penal Code the civil
liability is incurred by reason of the offender's criminal act. Stated differently, the criminal
liability gives birth to the civil obligation such that generally, if one is not criminally liable
under the Penal Code, he cannot become civilly liable thereunder. The situation under
the income tax law is the exact opposite. Civil liability to pay taxes arises from the fact,
for instance, that one has engaged himself in business, and not because of any criminal
act committed by him. The criminal liability arises upon failure of the debtor to satisfy his
civil obligation. The incongruity of the factual premises and foundation principles of the
two cases is one of the reasons for not imposing civil indemnity on the criminal infractor
of the income tax law. Another reason, of course, is found in the fact that while section
73 of the National Internal Revenue Code has provided the imposition of the penalty of
imprisonment or fine, or both, for refusal or neglect to pay income tax or to make a
return thereof, it failed to provide the collection of said tax in criminal proceedings. The
only civil remedies provided, for the collection of income tax, in Chapters I and II, Title IX
of the Code and section 316 thereof, are distraint of goods, chattels, etc. or by judicial
action, which remedies are generally exclusive in the absence of a contrary intent from
the legislator. (People vs. Arnault, G.R. No. L-4288, November 20, 1952; People vs.
Tierra, G.R. Nos. L-17177-17180, December 28, 1964) Considering that the
Government cannot seek satisfaction of the taxpayer's civil liability in a criminal
proceeding under the tax law or, otherwise stated, since the said civil liability is not
deemed included in the criminal action, acquittal of the taxpayer in the criminal
proceeding does not necessarily entail exoneration from his liability to pay the taxes. It
is error to hold, as the lower court has held, that the judgment in the criminal cases Nos.
2089 and 2090 bars the action in the present case. The acquittal in the said criminal
cases cannot operate to discharge defendant appellee from the duty of paying the taxes
which the law requires to be paid, since that duty is imposed by statute prior to and
independently of any attempts by the taxpayer to evade payment. Said obligation is not
a consequence of the felonious acts charged in the criminal proceeding, nor is it a mere
civil liability arising from crime that could be wiped out by the judicial declaration of non-

existence of the criminal acts charged. (Castro vs. The Collector of Internal Revenue,
G.R. No. L-12174, April 20, 1962).
Regarding prescription of action, the lower court held that the cause of action on the
deficiency income tax and residence tax for 1951 is barred because appellee's income
tax return for 1951 was assessed by the Bureau of Internal Revenue only on February
14, 1958, or beyond the five year period of limitation for assessment as provided in
section 331 of the National Internal Revenue Code. Appellant contends that the
applicable law is section 332 (a) of the same Code under which a proceeding in court
for the collection of the tax may be commenced without assessment at any time within
10 years from the discovery of the falsity, fraud or omission.
The complaint filed on December 7, 1962, alleges that the fraud in the appellee's
income tax return for 1951, was discovered on February 14, 1958. By filing a motion to
dismiss, appellee hypothetically admitted this allegation as all the other averments in
the complaint were so admitted. Hence, section 332 (a) and not section 331 of the
National Internal Revenue Code should determine whether or not the cause of action of
deficiency income tax and residence tax for 1951 has prescribed. Applying the provision
of section 332 (a), the appellant's action instituted in court on December 7, 1962 has not
prescribed.
Wherefore, the order appealed from is hereby set aside. Let the records of this case be
remanded to the court of origin for further proceedings. No pronouncement as to costs.

G.R. No. L-22074

April 30, 1965

THE PHILIPPINE GUARANTY CO., INC., petitioner,

vs.
THE COMMISSIONER OF INTERNAL REVENUE and THE COURT OF TAX
APPEALS, respondents.
Josue H. Gustilo and Ramirez and Ortigas for petitioner.
Office of the Solicitor General and Attorney V.G. Saldajena for respondents.
BENGZON, J.P., J.:
The Philippine Guaranty Co., Inc., a domestic insurance company, entered into
reinsurance contracts, on various dates, with foreign insurance companies not doing
business in the Philippines namely: Imperio Compaia de Seguros, La Union y El Fenix
Espaol, Overseas Assurance Corp., Ltd., Socieded Anonima de Reaseguros Alianza,
Tokio Marino & Fire Insurance Co., Ltd., Union Assurance Society Ltd., Swiss
Reinsurance Company and Tariff Reinsurance Limited. Philippine Guaranty Co., Inc.,
thereby agreed to cede to the foreign reinsurers a portion of the premiums on insurance
it has originally underwritten in the Philippines, in consideration for the assumption by
the latter of liability on an equivalent portion of the risks insured. Said reinsurrance
contracts were signed by Philippine Guaranty Co., Inc. in Manila and by the foreign
reinsurers outside the Philippines, except the contract with Swiss Reinsurance
Company, which was signed by both parties in Switzerland.
The reinsurance contracts made the commencement of the reinsurers' liability
simultaneous with that of Philippine Guaranty Co., Inc. under the original insurance.
Philippine Guaranty Co., Inc. was required to keep a register in Manila where the risks
ceded to the foreign reinsurers where entered, and entry therein was binding upon the

reinsurers. A proportionate amount of taxes on insurance premiums not recovered from

the original assured were to be paid for by the foreign reinsurers. The foreign reinsurers
further agreed, in consideration for managing or administering their affairs in the
Philippines, to compensate the Philippine Guaranty Co., Inc., in an amount equal to 5%
of the reinsurance premiums. Conflicts and/or differences between the parties under the
reinsurance contracts were to be arbitrated in Manila. Philippine Guaranty Co., Inc. and
Swiss Reinsurance Company stipulated that their contract shall be construed by the
laws of the Philippines.
Pursuant to the aforesaid reinsurance contracts, Philippine Guaranty Co., Inc. ceded to
the foreign reinsurers the following premiums:
1953 . . . . . . . . . . . . . . . . . . . . .

P842,466.71

1954 . . . . . . . . . . . . . . . . . . . . .

721,471.85

Said premiums were excluded by Philippine Guaranty Co., Inc. from its gross income
when it file its income tax returns for 1953 and 1954. Furthermore, it did not withhold or
pay tax on them. Consequently, per letter dated April 13, 1959, the Commissioner of
Internal Revenue assessed against Philippine Guaranty Co., Inc. withholding tax on the
ceded reinsurance premiums, thus:
1953
Gross premium per investigation . . . . . . . . . .

P768,580.00

Withholding tax due thereon at 24% . . . . . . . .

P184,459.00

25% surcharge . . . . . . . . . . . . . . . . . . . . . . . . . .
Compromise for non-filing of withholding
income tax return . . . . . . . . . . . . . . . . . . . . . . . . .
TOTAL AMOUNT DUE & COLLECTIBLE . . . .

46,114.00
100.00
P230,673.00
==========

1954
Gross premium per investigation . . . . . . . . . .

P780.880.68

Withholding tax due thereon at 24% . . . . . . . .

P184,411.00

25% surcharge . . . . . . . . . . . . . . . . . . . . . . . . . .

P184,411.00

Compromise for non-filing of withholding

income tax return . . . . . . . . . . . . . . . . . . . . . . . . .
TOTAL AMOUNT DUE & COLLECTIBLE . . . .

100.00
P234,364.00
==========

Philippine Guaranty Co., Inc., protested the assessment on the ground that reinsurance
premiums ceded to foreign reinsurers not doing business in the Philippines are not
subject to withholding tax. Its protest was denied and it appealed to the Court of Tax
Appeals.
On July 6, 1963, the Court of Tax Appeals rendered judgment with this dispositive
portion:

IN VIEW OF THE FOREGOING CONSIDERATIONS, petitioner Philippine

Guaranty Co., Inc. is hereby ordered to pay to the Commissioner of Internal
Revenue the respective sums of P202,192.00 and P173,153.00 or the total sum
of P375,345.00 as withholding income taxes for the years 1953 and 1954, plus
the statutory delinquency penalties thereon. With costs against petitioner.
Philippine Guaranty Co, Inc. has appealed, questioning the legality of the Commissioner
of Internal Revenue's assessment for withholding tax on the reinsurance premiums
ceded in 1953 and 1954 to the foreign reinsurers.
Petitioner maintain that the reinsurance premiums in question did not constitute income
from sources within the Philippines because the foreign reinsurers did not engage in
business in the Philippines, nor did they have office here.
The reinsurance contracts, however, show that the transactions or activities that
constituted the undertaking to reinsure Philippine Guaranty Co., Inc. against loses
arising from the original insurances in the Philippines were performed in the Philippines.
The liability of the foreign reinsurers commenced simultaneously with the liability of
Philippine Guaranty Co., Inc. under the original insurances. Philippine Guaranty Co.,
Inc. kept in Manila a register of the risks ceded to the foreign reinsurers. Entries made in
such register bound the foreign resinsurers, localizing in the Philippines the actual
cession of the risks and premiums and assumption of the reinsurance undertaking by
the foreign reinsurers. Taxes on premiums imposed by Section 259 of the Tax Code for
the privilege of doing insurance business in the Philippines were payable by the foreign
reinsurers when the same were not recoverable from the original assured. The foreign
reinsurers paid Philippine Guaranty Co., Inc. an amount equivalent to 5% of the ceded
premiums, in consideration for administration and management by the latter of the
affairs of the former in the Philippines in regard to their reinsurance activities here.
Disputes and differences between the parties were subject to arbitration in the City of
Manila. All the reinsurance contracts, except that with Swiss Reinsurance Company,
were signed by Philippine Guaranty Co., Inc. in the Philippines and later signed by the
foreign reinsurers abroad. Although the contract between Philippine Guaranty Co., Inc.
and Swiss Reinsurance Company was signed by both parties in Switzerland, the same
specifically provided that its provision shall be construed according to the laws of the
Philippines, thereby manifesting a clear intention of the parties to subject themselves to
Philippine law.
Section 24 of the Tax Code subjects foreign corporations to tax on their income from
sources within the Philippines. The word "sources" has been interpreted as the activity,
property or service giving rise to the income.1 The reinsurance premiums were income
created from the undertaking of the foreign reinsurance companies to reinsure
Philippine Guaranty Co., Inc., against liability for loss under original insurances. Such
undertaking, as explained above, took place in the Philippines. These insurance
premiums, therefore, came from sources within the Philippines and, hence, are subject
to corporate income tax.
The foreign insurers' place of business should not be confused with their place of
activity. Business should not be continuity and progression of transactions 2 while activity
may consist of only a single transaction. An activity may occur outside the place of
business. Section 24 of the Tax Code does not require a foreign corporation to engage
in business in the Philippines in subjecting its income to tax. It suffices that the activity
creating the income is performed or done in the Philippines. What is controlling,
therefore, is not the place of business but the place ofactivity that created an income.
Petitioner further contends that the reinsurance premiums are not income from sources
within the Philippines because they are not specifically mentioned in Section 37 of the
Tax Code. Section 37 is not an all-inclusive enumeration, for it merely directs that the

kinds of income mentioned therein should be treated as income from sources within the
Philippines but it does not require that other kinds of income should not be considered
likewise.
1wph1.t

The power to tax is an attribute of sovereignty. It is a power emanating from necessity. It

is a necessary burden to preserve the State's sovereignty and a means to give the
citizenry an army to resist an aggression, a navy to defend its shores from invasion, a
corps of civil servants to serve, public improvement designed for the enjoyment of the
citizenry and those which come within the State's territory, and facilities and protection
which a government is supposed to provide. Considering that the reinsurance premiums
in question were afforded protection by the government and the recipient foreign
reinsurers exercised rights and privileges guaranteed by our laws, such reinsurance
premiums and reinsurers should share the burden of maintaining the state.
Petitioner would wish to stress that its reliance in good faith on the rulings of the
Commissioner of Internal Revenue requiring no withholding of the tax due on the
reinsurance premiums in question relieved it of the duty to pay the corresponding
withholding tax thereon. This defense of petitioner may free if from the payment of
surcharges or penalties imposed for failure to pay the corresponding withholding tax,
but it certainly would not exculpate if from liability to pay such withholding tax The
Government is not estopped from collecting taxes by the mistakes or errors of its
agents.3
In respect to the question of whether or not reinsurance premiums ceded to foreign
reinsurers not doing business in the Philippines are subject to withholding tax under
Section 53 and 54 of the Tax Code, suffice it to state that this question has already been
answered in the affirmative in Alexander Howden & Co., Ltd. vs. Collector of Internal
Revenue, L-19393, April 14, 1965.
Finally, petitioner contends that the withholding tax should be computed from the
amount actually remitted to the foreign reinsurers instead of from the total amount
ceded. And since it did not remit any amount to its foreign insurers in 1953 and 1954, no
withholding tax was due.
The pertinent section of the Tax Code States:
Sec. 54. Payment of corporation income tax at source. In the case of foreign
corporations subject to taxation under this Title not engaged in trade or business
within the Philippines and not having any office or place of business therein,
there shall be deducted and withheld at the source in the same manner and upon
the same items as is provided in Section fifty-three a tax equal to twenty-four per
centum thereof, and such tax shall be returned and paid in the same manner and
subject to the same conditions as provided in that section.
The applicable portion of Section 53 provides:
(b) Nonresident aliens. All persons, corporations and general copartnerships
(compaias colectivas), in what ever capacity acting, including lessees or
mortgagors of real or personal property, trustees acting in any trust capacity,
executors, administrators, receivers, conservators, fiduciaries, employers, and all
officers and employees of the Government of the Philippines having the control,
receipt, custody, disposal, or payment of interest, dividends, rents, salaries,
wages, premiums, annuities, compensation, remunerations, emoluments, or
other fixed or determinable annual or periodical gains, profits, and income of any
nonresident alien individual, not engaged in trade or business within the
Philippines and not having any office or place of business therein, shall (except in
the case provided for in subsection [a] of this section) deduct and withhold from

such annual or periodical gains, profits, and income a tax equal to twelveper
centum thereof: Provided That no deductions or withholding shall be required in
the case of dividends paid by a foreign corporation unless (1) such corporation is
engaged in trade or business within the Philippines or has an office or place of
business therein, and (2) more than eighty-five per centum of the gross income
of such corporation for the three-year period ending with the close of its taxable
year preceding the declaration of such dividends (or for such part of such period
as the corporation has been in existence)was derived from sources within the
Philippines as determined under the provisions of section thirtyseven: Provided, further, That the Collector of Internal Revenue may authorize
such tax to be deducted and withheld from the interest upon any securities the
owners of which are not known to the withholding agent.
The above-quoted provisions allow no deduction from the income therein enumerated in
determining the amount to be withheld. According, in computing the withholding tax due
on the reinsurance premium in question, no deduction shall be recognized.
WHEREFORE, in affirming the decision appealed from, the Philippine Guaranty Co.,
Inc. is hereby ordered to pay to the Commissioner of Internal Revenue the sums of
P202,192.00 and P173,153.00, or a total amount of P375,345.00, as withholding tax for
the years 1953 and 1954, respectively. If the amount of P375,345.00 is not paid within
30 days from the date this judgement becomes final, there shall be collected a
surcharged of 5% on the amount unpaid, plus interest at the rate of 1% a month from
the date of delinquency to the date of payment, provided that the maximum amount that
may be collected as interest shall not exceed the amount corresponding to a period of
three (3) years. With costs againsts petitioner.
G.R. No. L-23645

October 29, 1968

BENJAMIN P. GOMEZ, petitioner-appellee,

vs.
ENRICO PALOMAR, in his capacity as Postmaster General, HON. BRIGIDO R.
VALENCIA, in his capacity as Secretary of Public Works and Communications,
and DOMINGO GOPEZ, in his capacity as Acting Postmaster of San Fernando,
Pampanga, respondent-appellants.
Lorenzo P. Navarro and Narvaro Belar S. Navarro for petitioner-appellee.
Office of the Solicitor General Arturo A. Alafriz, Assistant Solicitor General Frine C.
Zaballero and Solicitor Dominador L. Quiroz for respondents-appellants.
CASTRO, J.:
This appeal puts in issue the constitutionality of Republic Act 1635, 1 as amended by
Republic Act 2631,2 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.
The pertinent portions of Adm. Order 3 read as follows:
Such semi-postal stamps could not be made available during the period from
August 19 to September 30, 1957, for lack of time. However, two denominations
of such stamps, one at "5 + 5" centavos and another at "10 + 5" centavos, will
soon be released for use by the public on their mails to be posted during the
same period starting with the year 1958.
xxx

xxx

xxx

During the period from August 19 to September 30 each year starting in 1958, no
mail matter of whatever class, and whether domestic or foreign, posted at any
Philippine Post Office and addressed for delivery in this country or abroad, shall
be accepted for mailing unless it bears at least one such semi-postal stamp
showing the additional value of five centavos intended for the Philippine
Tuberculosis Society.
In the case of second-class mails and mails prepaid by means of mail permits or
impressions of postage meters, each piece of such mail shall bear at least one
such semi-postal stamp if posted during the period above stated starting with the
year 1958, in addition to being charged the usual postage prescribed by existing
regulations. In the case of business reply envelopes and cards mailed during
said period, such stamp should be collected from the addressees at the time of
delivery. Mails entitled to franking privilege like those from the office of the
President, members of Congress, and other offices to which such privilege has
been granted, shall each also bear one such semi-postal stamp if posted during
the said period.
Mails posted during the said period starting in 1958, which are found in street or
post-office mail boxes without the required semi-postal stamp, shall be returned
to the sender, if known, with a notation calling for the affixing of such stamp. If the
sender is unknown, the mail matter shall be treated as nonmailable and
forwarded to the Dead Letter Office for proper disposition.
Adm. Order 7, amending the fifth paragraph of Adm. Order 3, reads as follows:
In the case of the following categories of mail matter and mails entitled to
franking privilege which are not exempted from the payment of the five centavos
intended for the Philippine Tuberculosis Society, such extra charge may be
collected in cash, for which official receipt (General Form No. 13, A) shall be
issued, instead of affixing the semi-postal stamp in the manner hereinafter
indicated:
1. Second-class mail. Aside from the postage at the second-class rate, the
extra charge of five centavos for the Philippine Tuberculosis Society shall be
collected on each separately-addressed piece of second-class mail matter, and
the total sum thus collected shall be entered in the same official receipt to be
issued for the postage at the second-class rate. In making such entry, the total
number of pieces of second-class mail posted shall be stated, thus: "Total charge
for TB Fund on 100 pieces . .. P5.00." The extra charge shall be entered
separate from the postage in both of the official receipt and the Record of
Collections.

2. First-class and third-class mail permits. Mails to be posted without postage

affixed under permits issued by this Bureau shall each be charged the usual
postage, in addition to the five-centavo extra charge intended for said society.
The total extra charge thus received shall be entered in the same official receipt
to be issued for the postage collected, as in subparagraph 1.
3. Metered mail. For each piece of mail matter impressed by postage meter
under metered mail permit issued by this Bureau, the extra charge of five
centavos for said society shall be collected in cash and an official receipt issued
for the total sum thus received, in the manner indicated in subparagraph 1.
4. Business reply cards and envelopes. Upon delivery of business reply cards
and envelopes to holders of business reply permits, the five-centavo charge
intended for said society shall be collected in cash on each reply card or
envelope delivered, in addition to the required postage which may also be paid in
cash. An official receipt shall be issued for the total postage and total extra
charge received, in the manner shown in subparagraph 1.
5. Mails entitled to franking privilege. Government agencies, officials, and
other persons entitled to the franking privilege under existing laws may pay in
cash such extra charge intended for said society, instead of affixing the semipostal stamps to their mails, provided that such mails are presented at the postoffice window, where the five-centavo extra charge for said society shall be
collected on each piece of such mail matter. In such case, an official receipt shall
be issued for the total sum thus collected, in the manner stated in subparagraph
1.
Mail under permits, metered mails and franked mails not presented at the postoffice window shall be affixed with the necessary semi-postal stamps. If found in
mail boxes without such stamps, they shall be treated in the same way as herein
provided for other mails.
Adm. Order 9, amending Adm. Order 3, as amended, exempts "Government and its
Agencies and Instrumentalities Performing Governmental Functions." Adm. Order 10,
amending Adm. Order 3, as amended, exempts "copies of periodical publications
received for mailing under any class of mail matter, including newspapers and
magazines admitted as second-class mail."
The 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 brough 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; hence
this appeal by the respondent postal authorities.
For the reasons set out in this opinion, the judgment appealed from must be reversed.
I.
Before reaching the merits, we deem it necessary to dispose of the respondents'
contention that declaratory relief is unavailing because this suit was filed after the
petitioner had committed a breach of the statute. While conceding that the mailing by

the petitioner of a letter without the additional anti-TB stamp was a violation of Republic
Act 1635, as amended, the trial court nevertheless refused to dismiss the action on the
ground that under section 6 of Rule 64 of the Rules of Court, "If before the final
termination of the case a breach or violation of ... a statute ... should take place, the
action may thereupon be converted into an ordinary action."
The prime specification of an action for declaratory relief is that it must be brought
"before breach or violation" of the statute has been committed. Rule 64, section 1 so
provides. Section 6 of the same rule, which allows the court to treat an action for
declaratory relief as an ordinary action, applies only if the breach or violation occurs
after the filing of the action but before the termination thereof. 3
Hence, if, as the trial court itself admitted, there had been a breach of the statute before
the firing of this action, then indeed the remedy of declaratory relief cannot be availed
of, much less can the suit be converted into an ordinary action.
Nor is there merit in the petitioner's argument that the mailing of the letter in question
did not constitute a breach of the statute because the statute appears to be addressed
only to postal authorities. The statute, it is true, in terms provides that "no mail matter
shall be accepted in the mails unless it bears such semi-postal stamps." It does not
follow, however, that only postal authorities can be guilty of violating it by accepting
mails without the payment of the anti-TB stamp. It is obvious that they can be guilty of
violating the statute only if there are people who use the mails without paying for the
additional anti-TB stamp. Just as in bribery the mere offer constitutes a breach of the
law, so in the matter of the anti-TB stamp the mere attempt to use the mails without the
stamp constitutes a violation of the statute. It is not required that the mail be accepted
by postal authorities. That requirement is relevant only for the purpose of fixing the
liability of postal officials.
Nevertheless, we are of the view that the petitioner's choice of remedy is correct
because this suit was filed not only with respect to the letter which he mailed on
September 15, 1963, but also with regard to any other mail that he might send in the
future. Thus, in his complaint, the petitioner prayed that due course be given to "other
mails without the semi-postal stamps which he may deliver for mailing ... if any, during
the period covered by Republic Act 1635, as amended, as well as other mails hereafter
to be sent by or to other mailers which bear the required postage, without collection of
additional charge of five centavos prescribed by the same Republic Act." As one whose
mail was returned, the petitioner is certainly interested in a ruling on the validity of the
statute requiring the use of additional stamps.
II.
We now consider the constitutional objections raised against the statute and the
implementing orders.
1. It is said that the statute is violative of the equal protection clause of the Constitution.
More specifically the claim is made that it constitutes mail users into a class for the
purpose of the tax while leaving untaxed the rest of the population and that even among
postal patrons the statute discriminatorily grants exemption to newspapers while
Administrative Order 9 of the respondent Postmaster General grants a similar
exemption to offices performing governmental functions. .
The five centavo charge levied by Republic Act 1635, as amended, is in the nature of an
excise tax, laid upon the exercise of a privilege, namely, the privilege of using the mails.
As such the objections levelled against it must be viewed in the light of applicable
principles of taxation.

To begin with, it is settled that the legislature has the inherent power to select the
subjects of taxation and to grant exemptions.4 This power has aptly been described as
"of wide range and flexibility." 5 Indeed, it is said that in the field of taxation, more than in
other areas, the legislature possesses the greatest freedom in classification. 6 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.7
That legislative classifications must be reasonable is of course undenied. But what the
petitioner asserts is that statutory classification of mail users must bear some
reasonable relationship to the end sought to be attained, and that absent such
relationship the selection of mail users is constitutionally impermissible. This is
altogether a different proposition. As explained in Commonwealth v. Life Assurance
Co.:8
While the principle that there must be a reasonable relationship between
classification made by the legislation and its purpose is undoubtedly true in some
contexts, it has no application to a measure whose sole purpose is to raise
revenue ... So long as the classification imposed is based upon some standard
capable of reasonable comprehension, be that standard based upon ability to
produce revenue or some other legitimate distinction, equal protection of the law
has been afforded. See Allied Stores of Ohio, Inc. v. Bowers, supra, 358 U.S. at
527, 79 S. Ct. at 441; Brown Forman Co. v. Commonwealth of Kentucky, 2d U.S.
56, 573, 80 S. Ct. 578, 580 (1910).
We are not wont to invalidate legislation on equal protection grounds except by the
clearest demonstration that it sanctions invidious discrimination, which is all that the
Constitution forbids. The remedy for unwise legislation must be sought in the legislature.
Now, the classification of mail users is not without any reason. It is based on ability to
pay, let alone the enjoyment of a privilege, and on administrative convinience. In the
allocation of the tax burden, Congress must have concluded that the contribution to the
anti-TB fund can be assured by those whose who can afford the use of the mails.
The classification is likewise 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." 9 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
convenienceof 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.
And then of course it is not accurate to say that the statute constituted mail users into a
class. Mail users were already a class by themselves even before the enactment of the
statue and all that the legislature did was merely to select their class. Legislation is
essentially empiric and Republic Act 1635, as amended, no more than reflects a
distinction that exists in fact. As Mr. Justice Frankfurter said, "to recognize differences
that exist in fact is living law; to disregard [them] and concentrate on some abstract
identities is lifeless logic."10
Granted the power to select the subject of taxation, the State's power to grant
exemption must likewise be conceded as a necessary corollary. Tax exemptions are too
common in the law; they have never been thought of as raising issues under the equal
protection clause.

It is thus erroneous for the trial court to hold that because certain mail users are
exempted from the levy the law and administrative officials have sanctioned an invidious
discrimination offensive to the Constitution. The application of the lower courts theory
would require all mail users to be taxed, a conclusion that is hardly tenable in the light of
differences in status of mail users. The Constitution does not require this kind of
equality.
As the United States Supreme Court has said, the legislature may withhold the burden
of the tax in order to foster what it conceives to be a beneficent enterprise. 11 This is the
case of newspapers which, under the amendment introduced by Republic Act 2631, are
exempt from the payment of the additional stamp.
As for the Government and its instrumentalities, their exemption rests on the State's
sovereign immunity from taxation. The State cannot be taxed without its consent and
such consent, being in derogation of its sovereignty, is to be strictly
construed.12 Administrative Order 9 of the respondent Postmaster General, which lists
the various offices and instrumentalities of the Government exempt from the payment of
the anti-TB stamp, is but a restatement of this well-known principle of constitutional law.
The trial court likewise held the law invalid on the ground that it singles out tuberculosis
to the exclusion of other diseases which, it is said, are equally a menace to public
health. But it is never a requirement of equal protection that all evils of the same genus
be eradicated or none at all.13 As this Court has had occasion to say, "if the law
presumably hits the evil where it is most felt, it is not to be overthrown because there
are other instances to which it might have been applied." 14
2. The petitioner further argues that the tax in question is invalid, first, because it is not
levied for a public purpose as no special benefits accrue to mail users as taxpayers, and
second, because it violates the rule of uniformity in taxation.
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.15
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.16 As Mr. Justice Holmes said in sustaining the validity of a stamp act
which imposed a flat rate of two cents on every $100 face value of stock transferred:
One of the stocks was worth $30.75 a share of the face value of $100, the other
$172. The inequality of the tax, so far as actual values are concerned, is
manifest. But, here again equality in this sense has to yield to practical
considerations and usage. There must be a fixed and indisputable mode of
ascertaining a stamp tax. In another sense, moreover, there is equality. When the
taxes on two sales are equal, the same number of shares is sold in each case;
that is to say, the same privilege is used to the same extent. Valuation is not the
only thing to be considered. As was pointed out by the court of appeals, the

familiar stamp tax of 2 cents on checks, irrespective of income or earning

capacity, and many others, illustrate the necessity and practice of sometimes
substituting count for weight ...17
According to the trial court, the money raised from the sales of the anti-TB stamps is
spent for the benefit of the Philippine Tuberculosis Society, a private organization,
without appropriation by law. But as the Solicitor General points out, the Society is not
really the beneficiary but only the agency through which the State acts in carrying out
what is essentially a public function. The money is treated as a special fund and as such
need not be appropriated by law.18
3. Finally, the claim is made that the statute is so broadly drawn that to execute it the
respondents had to issue administrative orders far beyond their powers. Indeed, this is
one of the grounds on which the lower court invalidated Republic Act 1631, as
amended, namely, that it constitutes an undue delegation of legislative power.
Administrative Order 3, as amended by Administrative Orders 7 and 10, provides that
for certain classes of mail matters (such as mail permits, metered mails, business reply
cards, etc.), the five-centavo charge may be paid in cash instead of the purchase of the
anti-TB stamp. It further states that mails deposited during the period August 19 to
September 30 of each year in mail boxes without the stamp should be returned to the
sender, if known, otherwise they should be treated as nonmailable.
It is true that the law does not expressly authorize the collection of five centavos except
through the sale of anti-TB stamps, but such authority may be implied in so far as it may
be necessary to prevent a failure of the undertaking. The authority given to the
Postmaster General to raise funds through the mails must be liberally construed,
consistent with the principle that where the end is required the appropriate means are
given.19
The anti-TB stamp is a distinctive stamp which shows on its face not only the amount of
the additional charge but also that of the regular postage. In the case of business reply
cards, for instance, it is obvious that to require mailers to affix the anti-TB stamp on their
cards would be to make them pay much more because the cards likewise bear the
amount of the regular postage.
It is likewise true that the statute does not provide for the disposition of mails which do
not bear the anti-TB stamp, but a declaration therein that "no mail matter shall be
accepted in the mails unless it bears such semi-postal stamp" is a declaration that such
mail matter is nonmailable within the meaning of section 1952 of the Administrative
Code. Administrative Order 7 of the Postmaster General is but a restatement of the law
for the guidance of postal officials and employees. As for Administrative Order 9, we
have already said that in listing the offices and entities of the Government exempt from
the payment of the stamp, the respondent Postmaster General merely observed an
established principle, namely, that the Government is exempt from taxation.
ACCORDINGLY, the judgment a quo is reversed, and the complaint is dismissed,
without pronouncement as to costs.
Concepcion, C.J., Reyes, J.B.L., Dizon, Makalintal, Sanchez, Angeles and Capistrano,
JJ., concur.
Zaldivar, J., is on leave.

Separate Opinions

FERNANDO, J., concurring:

I join fully the rest of my colleagues in the decision upholding Republic Act No. 1635 as
amended by Republic Act No. 2631 and the majority opinion expounded with Justice
Castro's usual vigor and lucidity subject to one qualification. With all due recognition of
its inherently persuasive character, it would seem to me that the same result could be
achieved if reliance be had on police power rather than the attribute of taxation, as the
constitutional basis for the challenged legislation.
1. For me, the state in question is an exercise of the regulatory power connected with
the performance of the public service. I refer of course to the government postal
function, one of respectable and ancient lineage. The United States Constitution of 1787
vests in the federal government acting through Congress the power to establish post
offices.1 The first act providing for the organization of government departments in the
Philippines, approved Sept. 6, 1901, provided for the Bureau of Post Offices in the
Department of Commerce and Police.2 Its creation is thus a manifestation of one of the
many services in which the government may engage for public convenience and public
interest. Such being the case, it seems that any legislation that in effect would require
increase cost of postage is well within the discretionary authority of the government.
It may not be acting in a proprietary capacity but in fixing the fees that it collects for the
use of the mails, the broad discretion that it enjoys is undeniable. In that sense, the
principle announced in Esteban v. Cabanatuan City,3 in an opinion by our Chief Justice,
while not precisely controlling furnishes for me more than ample support for the validity
of the challenged legislation. Thus: "Certain exactions, imposable under an authority
other than police power, are not subject, however, to qualification as to the amount
chargeable, unless the Constitution or the pertinent laws provide otherwise. For
instance, the rates of taxes, whether national or municipal, need not be reasonable, in
the absence of such constitutional or statutory limitation. Similarly, when a municipal
corporation fixes the fees for the use of its properties, such as public markets, it does
not wield the police power, or even the power of taxation. Neither does it assert
governmental authority. It exercises merely a proprietary function. And, like any private
owner, it is in the absence of the aforementioned limitation, which does not exist in
the Charter of Cabanatuan City (Republic Act No. 526) free to charge such sums as
it may deem best, regardless of the reasonableness of the amount fixed, for the
prospective lessees are free to enter into the corresponding contract of lease, if they are
agreeable to the terms thereof or, otherwise, not enter into such contract."
2. It would appear likewise that an expression of one's personal view both as to
the attitude and awareness that must be displayed by inferior tribunals when the
"delicate and awesome" power of passing on the validity of a statute would not be
inappropriate. "The Constitution is the supreme law, and statutes are written and
enforced in submission to its commands."4 It is likewise common place in constitutional
law that a party adversely affected could, again to quote from Cardozo, "invoke, when
constitutional immunities are threatened, the judgment of the courts." 5
Since the power of judicial review flows logically from the judicial function of
ascertaining the facts and applying the law and since obviously the Constitution is the
highest law before which statutes must bend, then inferior tribunals can, in the
discharge of their judicial functions, nullify legislative acts. As a matter of fact, in clear
cases, such is not only their power but their duty. In the language of the present Chief
Justice: "In fact, whenever the conflicting claims of the parties to a litigation cannot
properly be settled without inquiring into the validity of an act of Congress or of either
House thereof, the courts have, not only jurisdiction to pass upon said issue but, also,
theduty to do so, which cannot be evaded without violating the fundamental law and
paving the way to its eventual destruction." 6

Nonetheless, the admonition of Cooley, specially addressed to inferior tribunals, must

ever be kept in mind. Thus: "It must be evident to any one that the power to declare a
legislative enactment void is one which the judge, conscious of the fallibility of the
human judgment, will shrink from exercising in any case where he can conscientiously
and with due regard to duty and official oath decline the responsibility." 7
There must be a caveat however to the above Cooley pronouncement. Such should not
be the case, to paraphrase Freund, when the challenged legislation imperils freedom of
the mind and of the person, for given such an undesirable situation, "it is freedom that
commands a momentum of respect." Here then, fidelity to the great ideal of liberty
enshrined in the Constitution may require the judiciary to take an uncompromising and
militant stand. As phrased by us in a recent decision, "if the liberty involved were
freedom of the mind or the person, the standard of its validity of governmental acts is
much more rigorous and exacting."8
So much for the appropriate judicial attitude. Now on the question of awareness of the
controlling constitutional doctrines.
There is nothing I can add to the enlightening discussion of the equal protection aspect
as found in the majority opinion. It may not be amiss to recall to mind, however, the
language of Justice Laurel in the leading case ofPeople v. Vera,9 to the effect that the
basic individual right of equal protection "is a restraint on all the three grand
departments of our government and on the subordinate instrumentalities and
subdivisions thereof, and on many constitutional powers, like the police power, taxation
and eminent domain."10 Nonetheless, no jurist was more careful in avoiding the dire
consequences to what the legislative body might have deemed necessary to promote
the ends of public welfare if the equal protection guaranty were made to constitute an
insurmountable obstacle.
A similar sense of realism was invariably displayed by Justice Frankfurter, as is quite
evident from the various citations from his pen found in the majority opinion. For him, it
would be a misreading of the equal protection clause to ignore actual conditions and
settled practices. Not for him the at times academic and sterile approach to
constitutional problems of this sort. Thus: "It would be a narrow conception of
jurisprudence to confine the notion of 'laws' to what is found written on the statute
books, and to disregard the gloss which life has written upon it. Settled state practice
cannot supplant constitutional guaranties, but it can establish what is state law. The
Equal Protection Clause did not write an empty formalism into the Constitution. Deeply
embedded traditional ways of carrying out state policy, such as those of which petitioner
complains, are often tougher and truer law than the dead words of the written
text."11 This too, from the same distinguished jurist: "The Constitution does not require
things which are different in fact or opinion to be treated in law as though they were the
same."12
Now, as to non-delegation. It is to be admitted that the problem of non-delegation of
legislative power at times occasions difficulties. Its strict view has been announced by
Justice Laurel in the aforecited case of People v. Verain this language. Thus: "In testing
whether a statute constitutes an undue delegation of legislative power or not, it is usual
to inquire whether the statute was complete in all its terms and provisions when it left
the hands of the legislature so that nothing was left to the judgment of any other
appointee or delegate of the legislature. .... InUnited States v. Ang Tang Ho ..., this court
adhered to the foregoing rule; it held an act of the legislature void in so far as it
undertook to authorize the Governor-General, in his discretion, to issue a proclamation
fixing the price of rice and to make the sale of it in violation of the proclamation a
crime."13

Only recently, the present Chief Justice reaffirmed the above view in Pelaez v. Auditor
General,14 specially where the delegation deals not with an administrative function but
one essentially and eminently legislative in character. What could properly be
stigmatized though to quote Justice Cardozo, is delegation of authority that is
"unconfined and vagrant, one not canalized within banks which keep it from
overflowing."15
This is not the situation as it presents itself to us. What was delegated was power not
legislative in character. Justice Laurel himself, in a later case, People v.
Rosenthal,16 admitted that within certain limits, there being a need for coping with the
more intricate problems of society, the principle of "subordinate legislation" has been
accepted, not only in the United States and England, but in practically all modern
governments. This view was reiterated by him in a 1940 decision, Pangasinan
Transportation Co., Inc. v. Public Service Commission.17 Thus: "Accordingly, with the
growing complexity of modern life, the multiplication of the subjects of governmental
regulation, and the increased difficulty of administering the laws, there is a constantly
growing tendency toward the delegation of greater powers by the legislature, and
toward the approval of the practice by the courts."
In the light of the above views of eminent jurists, authoritative in character, of both the
equal protection clause and the non-delegation principle, it is apparent how far the lower
court departed from the path of constitutional orthodoxy in nullifying Republic Act No.
1635 as amended. Fortunately, the matter has been set right with the reversal of its
decision, the opinion of the Court, manifesting its fealty to constitutional law precepts,
which have been reiterated time and time again and for the soundest of reasons.

G.R. No. 115455 October 30, 1995

ARTURO M. TOLENTINO, petitioner,
vs.
THE SECRETARY OF FINANCE and THE COMMISSIONER OF INTERNAL
REVENUE, respondents.
G.R. No. 115525 October 30, 1995
JUAN T. DAVID, petitioner,
vs.
TEOFISTO T. GUINGONA, JR., as Executive Secretary; ROBERTO DE OCAMPO,
as Secretary of Finance; LIWAYWAY VINZONS-CHATO, as Commissioner of
Internal Revenue; and their AUTHORIZED AGENTS OR
REPRESENTATIVES, respondents.
G.R. No. 115543 October 30, 1995
RAUL S. ROCO and the INTEGRATED BAR OF THE PHILIPPINES, petitioners,
vs.
THE SECRETARY OF THE DEPARTMENT OF FINANCE; THE COMMISSIONERS OF
THE BUREAU OF INTERNAL REVENUE AND BUREAU OF CUSTOMS, respondents.
G.R. No. 115544 October 30, 1995
PHILIPPINE PRESS INSTITUTE, INC.; EGP PUBLISHING CO., INC.; KAMAHALAN
PUBLISHING CORPORATION; PHILIPPINE JOURNALISTS, INC.; JOSE L. PAVIA;

and OFELIA L. DIMALANTA, petitioners,

vs.
HON. LIWAYWAY V. CHATO, in her capacity as Commissioner of Internal Revenue;
HON. TEOFISTO T. GUINGONA, JR., in his capacity as Executive Secretary; and
HON. ROBERTO B. DE OCAMPO, in his capacity as Secretary of
Finance, respondents.
G.R. No. 115754 October 30, 1995
CHAMBER OF REAL ESTATE AND BUILDERS ASSOCIATIONS, INC.,
(CREBA), petitioner,
vs.
THE COMMISSIONER OF INTERNAL REVENUE, respondent.
G.R. No. 115781 October 30, 1995
KILOSBAYAN, INC., JOVITO R. SALONGA, CIRILO A. RIGOS, ERME CAMBA,
EMILIO C. CAPULONG, JR., JOSE T. APOLO, EPHRAIM TENDERO, FERNANDO
SANTIAGO, JOSE ABCEDE, CHRISTINE TAN, FELIPE L. GOZON, RAFAEL G.
FERNANDO, RAOUL V. VICTORINO, JOSE CUNANAN, QUINTIN S. DOROMAL,
MOVEMENT OF ATTORNEYS FOR BROTHERHOOD, INTEGRITY AND
NATIONALISM, INC. ("MABINI"), FREEDOM FROM DEBT COALITION, INC., and
PHILIPPINE BIBLE SOCIETY, INC. and WIGBERTO TAADA,petitioners,
vs.
THE EXECUTIVE SECRETARY, THE SECRETARY OF FINANCE, THE
COMMISSIONER OF INTERNAL REVENUE and THE COMMISSIONER OF
CUSTOMS, respondents.
G.R. No. 115852 October 30, 1995
PHILIPPINE AIRLINES, INC., petitioner,
vs.
THE SECRETARY OF FINANCE and COMMISSIONER OF INTERNAL
REVENUE, respondents.
G.R. No. 115873 October 30, 1995
COOPERATIVE UNION OF THE PHILIPPINES, petitioner,
vs.
HON. LIWAYWAY V. CHATO, in her capacity as the Commissioner of Internal
Revenue, HON. TEOFISTO T. GUINGONA, JR., in his capacity as Executive
Secretary, and HON. ROBERTO B. DE OCAMPO, in his capacity as Secretary of
Finance, respondents.
G.R. No. 115931 October 30, 1995
PHILIPPINE EDUCATIONAL PUBLISHERS ASSOCIATION, INC. and ASSOCIATION
OF PHILIPPINE BOOK SELLERS, petitioners,
vs.
HON. ROBERTO B. DE OCAMPO, as the Secretary of Finance; HON. LIWAYWAY V.
CHATO, as the Commissioner of Internal Revenue; and HON. GUILLERMO
PARAYNO, JR., in his capacity as the Commissioner of Customs, respondents.
RESOLUTION

MENDOZA, J.:
These are motions seeking reconsideration of our decision dismissing the petitions filed
in these cases for the declaration of unconstitutionality of R.A. No. 7716, otherwise
known as the Expanded Value-Added Tax Law. The motions, of which there are 10 in
all, have been filed by the several petitioners in these cases, with the exception of the
Philippine Educational Publishers Association, Inc. and the Association of Philippine
Booksellers, petitioners in G.R. No. 115931.
The Solicitor General, representing the respondents, filed a consolidated comment, to
which the Philippine Airlines, Inc., petitioner in G.R. No. 115852, and the Philippine
Press Institute, Inc., petitioner in G.R. No. 115544, and Juan T. David, petitioner in G.R.
No. 115525, each filed a reply. In turn the Solicitor General filed on June 1, 1995 a
rejoinder to the PPI's reply.
On June 27, 1995 the matter was submitted for resolution.
I. Power of the Senate to propose amendments to revenue bills. Some of the petitioners
(Tolentino, Kilosbayan, Inc., Philippine Airlines (PAL), Roco, and Chamber of Real
Estate and Builders Association (CREBA)) reiterate previous claims made by them that
R.A. No. 7716 did not "originate exclusively" in the House of Representatives as
required by Art. VI, 24 of the Constitution. Although they admit that H. No. 11197 was
filed in the House of Representatives where it passed three readings and that afterward
it was sent to the Senate where after first reading it was referred to the Senate Ways
and Means Committee, they complain that the Senate did not pass it on second and
third readings. Instead what the Senate did was to pass its own version (S. No. 1630)
which it approved on May 24, 1994. Petitioner Tolentino adds that what the Senate
committee should have done was to amend H. No. 11197 by striking out the text of the
bill and substituting it with the text of S. No. 1630. That way, it is said, "the bill remains a
House bill and the Senate version just becomes the text (only the text) of the House
bill."
The contention has no merit.
The enactment of S. No. 1630 is not the only instance in which the Senate proposed an
amendment to a House revenue bill by enacting its own version of a revenue bill. On at
least two occasions during the Eighth Congress, the Senate passed its own version of
revenue bills, which, in consolidation with House bills earlier passed, became the
enrolled bills. These were:
R.A. No. 7369 (AN ACT TO AMEND THE OMNIBUS INVESTMENTS CODE OF 1987
BY EXTENDING FROM FIVE (5) YEARS TO TEN YEARS THE PERIOD FOR TAX
AND DUTY EXEMPTION AND TAX CREDIT ON CAPITAL EQUIPMENT) which was
approved by the President on April 10, 1992. This Act is actually a consolidation of H.
No. 34254, which was approved by the House on January 29, 1992, and S. No. 1920,
which was approved by the Senate on February 3, 1992.
R.A. No. 7549 (AN ACT GRANTING TAX EXEMPTIONS TO WHOEVER SHALL GIVE
REWARD TO ANY FILIPINO ATHLETE WINNING A MEDAL IN OLYMPIC GAMES)
which was approved by the President on May 22, 1992. This Act is a consolidation of H.
No. 22232, which was approved by the House of Representatives on August 2, 1989,
and S. No. 807, which was approved by the Senate on October 21, 1991.
On the other hand, the Ninth Congress passed revenue laws which were also the result
of the consolidation of House and Senate bills. These are the following, with indications
of the dates on which the laws were approved by the President and dates the separate
bills of the two chambers of Congress were respectively passed:

1. R.A. NO. 7642

AN ACT INCREASING THE PENALTIES FOR TAX EVASION,
AMENDING FOR THIS PURPOSE THE PERTINENT SECTIONS OF THE
NATIONAL INTERNAL REVENUE CODE (December 28, 1992).
House Bill No. 2165, October 5, 1992
Senate Bill No. 32, December 7, 1992
2. R.A. NO. 7643
AN ACT TO EMPOWER THE COMMISSIONER OF INTERNAL
REVENUE TO REQUIRE THE PAYMENT OF THE VALUE-ADDED TAX
EVERY MONTH AND TO ALLOW LOCAL GOVERNMENT UNITS TO
SHARE IN VAT REVENUE, AMENDING FOR THIS PURPOSE CERTAIN
SECTIONS OF THE NATIONAL INTERNAL REVENUE CODE (December
28, 1992)
House Bill No. 1503, September 3, 1992
Senate Bill No. 968, December 7, 1992
3. R.A. NO. 7646
AN ACT AUTHORIZING THE COMMISSIONER OF INTERNAL
REVENUE TO PRESCRIBE THE PLACE FOR PAYMENT OF INTERNAL
REVENUE TAXES BY LARGE TAXPAYERS, AMENDING FOR THIS
PURPOSE CERTAIN PROVISIONS OF THE NATIONAL INTERNAL
REVENUE CODE, AS AMENDED (February 24, 1993)
House Bill No. 1470, October 20, 1992
Senate Bill No. 35, November 19, 1992
4. R.A. NO. 7649
AN ACT REQUIRING THE GOVERNMENT OR ANY OF ITS POLITICAL
SUBDIVISIONS, INSTRUMENTALITIES OR AGENCIES INCLUDING
GOVERNMENT-OWNED OR CONTROLLED CORPORATIONS
(GOCCS) TO DEDUCT AND WITHHOLD THE VALUE-ADDED TAX DUE
AT THE RATE OF THREE PERCENT (3%) ON GROSS PAYMENT FOR
THE PURCHASE OF GOODS AND SIX PERCENT (6%) ON GROSS
RECEIPTS FOR SERVICES RENDERED BY CONTRACTORS (April 6,
1993)
House Bill No. 5260, January 26, 1993
Senate Bill No. 1141, March 30, 1993
5. R.A. NO. 7656
AN ACT REQUIRING GOVERNMENT-OWNED OR CONTROLLED
CORPORATIONS TO DECLARE DIVIDENDS UNDER CERTAIN
CONDITIONS TO THE NATIONAL GOVERNMENT, AND FOR OTHER
PURPOSES (November 9, 1993)

House Bill No. 11024, November 3, 1993

Senate Bill No. 1168, November 3, 1993
6. R.A. NO. 7660
AN ACT RATIONALIZING FURTHER THE STRUCTURE AND
ADMINISTRATION OF THE DOCUMENTARY STAMP TAX, AMENDING
FOR THE PURPOSE CERTAIN PROVISIONS OF THE NATIONAL
INTERNAL REVENUE CODE, AS AMENDED, ALLOCATING FUNDS
FOR SPECIFIC PROGRAMS, AND FOR OTHER PURPOSES (December
23, 1993)
House Bill No. 7789, May 31, 1993
Senate Bill No. 1330, November 18, 1993
7. R.A. NO. 7717
AN ACT IMPOSING A TAX ON THE SALE, BARTER OR EXCHANGE OF
SHARES OF STOCK LISTED AND TRADED THROUGH THE LOCAL
STOCK EXCHANGE OR THROUGH INITIAL PUBLIC OFFERING,
AMENDING FOR THE PURPOSE THE NATIONAL INTERNAL REVENUE
CODE, AS AMENDED, BY INSERTING A NEW SECTION AND
REPEALING CERTAIN SUBSECTIONS THEREOF (May 5, 1994)
House Bill No. 9187, November 3, 1993
Senate Bill No. 1127, March 23, 1994
Thus, the enactment of S. No. 1630 is not the only instance in which the Senate, in the
exercise of its power to propose amendments to bills required to originate in the House,
passed its own version of a House revenue measure. It is noteworthy that, in the
particular case of S. No. 1630, petitioners Tolentino and Roco, as members of the
Senate, voted to approve it on second and third readings.
On the other hand, amendment by substitution, in the manner urged by petitioner
Tolentino, concerns a mere matter of form. Petitioner has not shown what substantial
difference it would make if, as the Senate actually did in this case, a separate bill like S.
No. 1630 is instead enacted as a substitute measure, "taking into
Consideration . . . H.B. 11197."
Indeed, so far as pertinent, the Rules of the Senate only provide:
RULE XXIX
AMENDMENTS
xxx xxx xxx
68. Not more than one amendment to the original amendment shall be
considered.
No amendment by substitution shall be entertained unless the text thereof
is submitted in writing.

Any of said amendments may be withdrawn before a vote is taken

thereon.
69. No amendment which seeks the inclusion of a legislative provision
foreign to the subject matter of a bill (rider) shall be entertained.
xxx xxx xxx
70-A. A bill or resolution shall not be amended by substituting it with
another which covers a subject distinct from that proposed in the original
bill or resolution. (emphasis added).
Nor is there merit in petitioners' contention that, with regard to revenue bills, the
Philippine Senate possesses less power than the U.S. Senate because of textual
differences between constitutional provisions giving them the power to propose or
concur with amendments.
Art. I, 7, cl. 1 of the U.S. Constitution reads:
All Bills for raising Revenue shall originate in the House of
Representatives; but the Senate may propose or concur with amendments
as on other Bills.
Art. VI, 24 of our Constitution reads:
All appropriation, revenue or tariff bills, bills authorizing increase of the
public debt, bills of local application, and private bills shall originate
exclusively in the House of Representatives, but the Senate may propose
or concur with amendments.
The addition of the word "exclusively" in the Philippine Constitution and the decision to
drop the phrase "as on other Bills" in the American version, according to petitioners,
shows the intention of the framers of our Constitution to restrict the Senate's power to
propose amendments to revenue bills. Petitioner Tolentino contends that the word
"exclusively" was inserted to modify "originate" and "the words 'as in any other bills' (sic)
were eliminated so as to show that these bills were not to be like other bills but must be
treated as a special kind."
The history of this provision does not support this contention. The supposed indicia of
constitutional intent are nothing but the relics of an unsuccessful attempt to limit the
power of the Senate. It will be recalled that the 1935 Constitution originally provided for
a unicameral National Assembly. When it was decided in 1939 to change to a bicameral
legislature, it became necessary to provide for the procedure for lawmaking by the
Senate and the House of Representatives. The work of proposing amendments to the
Constitution was done by the National Assembly, acting as a constituent assembly,
some of whose members, jealous of preserving the Assembly's lawmaking powers,
sought to curtail the powers of the proposed Senate. Accordingly they proposed the
following provision:
All bills appropriating public funds, revenue or tariff bills, bills of local
application, and private bills shall originate exclusively in the Assembly,
but the Senate may propose or concur with amendments. In case of
disapproval by the Senate of any such bills, the Assembly may repass the
same by a two-thirds vote of all its members, and thereupon, the bill so
repassed shall be deemed enacted and may be submitted to the President
for corresponding action. In the event that the Senate should fail to finally
act on any such bills, the Assembly may, after thirty days from the opening

of the next regular session of the same legislative term, reapprove the
same with a vote of two-thirds of all the members of the Assembly. And
upon such reapproval, the bill shall be deemed enacted and may be
submitted to the President for corresponding action.
The special committee on the revision of laws of the Second National Assembly vetoed
the proposal. It deleted everything after the first sentence. As rewritten, the proposal
was approved by the National Assembly and embodied in Resolution No. 38, as
amended by Resolution No. 73. (J. ARUEGO, KNOW YOUR CONSTITUTION 65-66
(1950)). The proposed amendment was submitted to the people and ratified by them in
the elections held on June 18, 1940.
This is the history of Art. VI, 18 (2) of the 1935 Constitution, from which Art. VI, 24 of
the present Constitution was derived. It explains why the word "exclusively" was added
to the American text from which the framers of the Philippine Constitution borrowed and
why the phrase "as on other Bills" was not copied. Considering the defeat of the
proposal, the power of the Senate to propose amendments must be understood to be
full, plenary and complete "as on other Bills." Thus, because revenue bills are required
to originate exclusively in the House of Representatives, the Senate cannot enact
revenue measures of its own without such bills. After a revenue bill is passed and sent
over to it by the House, however, the Senate certainly can pass its own version on the
same subject matter. This follows from the coequality of the two chambers of Congress.
That this is also the understanding of book authors of the scope of the Senate's power
to concur is clear from the following commentaries:
The power of the Senate to propose or concur with amendments is
apparently without restriction. It would seem that by virtue of this power,
the Senate can practically re-write a bill required to come from the House
and leave only a trace of the original bill. For example, a general revenue
bill passed by the lower house of the United States Congress contained
provisions for the imposition of an inheritance tax . This was changed by
the Senate into a corporation tax. The amending authority of the Senate
was declared by the United States Supreme Court to be sufficiently broad
to enable it to make the alteration. [Flint v. Stone Tracy Company, 220
U.S. 107, 55 L. ed. 389].
(L. TAADA AND F. CARREON, POLITICAL LAW OF THE PHILIPPINES
247 (1961))
The above-mentioned bills are supposed to be initiated by the House of
Representatives because it is more numerous in membership and
therefore also more representative of the people. Moreover, its members
are presumed to be more familiar with the needs of the country in regard
to the enactment of the legislation involved.
The Senate is, however, allowed much leeway in the exercise of its power
to propose or concur with amendments to the bills initiated by the House
of Representatives. Thus, in one case, a bill introduced in the U.S. House
of Representatives was changed by the Senate to make a proposed
inheritance tax a corporation tax. It is also accepted practice for the
Senate to introduce what is known as an amendment by substitution,
which may entirely replace the bill initiated in the House of
Representatives.
(I. CRUZ, PHILIPPINE POLITICAL LAW 144-145 (1993)).

In sum, while Art. VI, 24 provides that all appropriation, revenue or tariff bills, bills
authorizing increase of the public debt, bills of local application, and private bills must
"originate exclusively in the House of Representatives," it also adds, "but the Senate
may propose or concur with amendments." In the exercise of this power, the Senate
may propose an entirely new bill as a substitute measure. As petitioner Tolentino states
in a high school text, a committee to which a bill is referred may do any of the following:
(1) to endorse the bill without changes; (2) to make changes in the bill
omitting or adding sections or altering its language; (3) to make and
endorse an entirely new bill as a substitute, in which case it will be known
as a committee bill; or (4) to make no report at all.
(A. TOLENTINO, THE GOVERNMENT OF THE PHILIPPINES 258
(1950))
To except from this procedure the amendment of bills which are required to originate in
the House by prescribing that the number of the House bill and its other parts up to the
enacting clause must be preserved although the text of the Senate amendment may be
incorporated in place of the original body of the bill is to insist on a mere technicality. At
any rate there is no rule prescribing this form. S. No. 1630, as a substitute measure, is
therefore as much an amendment of H. No. 11197 as any which the Senate could have
made.
II. S. No. 1630 a mere amendment of H. No. 11197. Petitioners' basic error is that they
assume that S. No. 1630 is an independent and distinct bill. Hence their repeated
references to its certification that it was passed by the Senate "in substitution of
S.B. No. 1129, taking into consideration P.S. Res. No. 734 and H.B. No. 11197,"
implying that there is something substantially different between the reference to S. No.
1129 and the reference to H. No. 11197. From this premise, they conclude that R.A. No.
7716 originated both in the House and in the Senate and that it is the product of two
"half-baked bills because neither H. No. 11197 nor S. No. 1630 was passed by both
houses of Congress."
In point of fact, in several instances the provisions of S. No. 1630, clearly appear to be
mere amendments of the corresponding provisions of H. No. 11197. The very tabular
comparison of the provisions of H. No. 11197 and S. No. 1630 attached as Supplement
A to the basic petition of petitioner Tolentino, while showing differences between the two
bills, at the same time indicates that the provisions of the Senate bill were precisely
intended to be amendments to the House bill.
Without H. No. 11197, the Senate could not have enacted S. No. 1630. Because the
Senate bill was a mere amendment of the House bill, H. No. 11197 in its original form
did not have to pass the Senate on second and three readings. It was enough that after
it was passed on first reading it was referred to the Senate Committee on Ways and
Means. Neither was it required that S. No. 1630 be passed by the House of
Representatives before the two bills could be referred to the Conference Committee.
There is legislative precedent for what was done in the case of H. No. 11197 and S. No.
1630. When the House bill and Senate bill, which became R.A. No. 1405 (Act
prohibiting the disclosure of bank deposits), were referred to a conference committee,
the question was raised whether the two bills could be the subject of such conference,
considering that the bill from one house had not been passed by the other and vice
versa. As Congressman Duran put the question:
MR. DURAN. Therefore, I raise this question of order as to procedure: If a
House bill is passed by the House but not passed by the Senate, and a
Senate bill of a similar nature is passed in the Senate but never passed in

the House, can the two bills be the subject of a conference, and can a law
be enacted from these two bills? I understand that the Senate bill in this
particular instance does not refer to investments in government securities,
whereas the bill in the House, which was introduced by the Speaker,
covers two subject matters: not only investigation of deposits in banks but
also investigation of investments in government securities. Now, since the
two bills differ in their subject matter, I believe that no law can be enacted.
Ruling on the point of order raised, the chair (Speaker Jose B. Laurel, Jr.) said:
THE SPEAKER. The report of the conference committee is in order. It is
precisely in cases like this where a conference should be had. If the
House bill had been approved by the Senate, there would have been no
need of a conference; but precisely because the Senate passed another
bill on the same subject matter, the conference committee had to be
created, and we are now considering the report of that committee.
(2 CONG. REC. NO. 13, July 27, 1955, pp. 3841-42 (emphasis added))
III. The President's certification. The fallacy in thinking that H. No. 11197 and S. No.
1630 are distinct and unrelated measures also accounts for the petitioners'
(Kilosbayan's and PAL's) contention that because the President separately certified to
the need for the immediate enactment of these measures, his certification was
ineffectual and void. The certification had to be made of the version of the same
revenue bill which at the momentwas being considered. Otherwise, to follow petitioners'
theory, it would be necessary for the President to certify as many bills as are presented
in a house of Congress even though the bills are merely versions of the bill he has
already certified. It is enough that he certifies the bill which, at the time he makes the
certification, is under consideration. Since on March 22, 1994 the Senate was
considering S. No. 1630, it was that bill which had to be certified. For that matter on
June 1, 1993 the President had earlier certified H. No. 9210 for immediate enactment
because it was the one which at that time was being considered by the House. This bill
was later substituted, together with other bills, by H. No. 11197.
As to what Presidential certification can accomplish, we have already explained in the
main decision that the phrase "except when the President certifies to the necessity of its
immediate enactment, etc." in Art. VI, 26 (2) qualifies not only the requirement that
"printed copies [of a bill] in its final form [must be] distributed to the members three days
before its passage" but also the requirement that before a bill can become a law it must
have passed "three readings on separate days." There is not only textual support for
such construction but historical basis as well.
Art. VI, 21 (2) of the 1935 Constitution originally provided:
(2) No bill shall be passed by either House unless it shall have been
printed and copies thereof in its final form furnished its Members at least
three calendar days prior to its passage, except when the President shall
have certified to the necessity of its immediate enactment. Upon the last
reading of a bill, no amendment thereof shall be allowed and the question
upon its passage shall be taken immediately thereafter, and
the yeas and nays entered on the Journal.
When the 1973 Constitution was adopted, it was provided in Art. VIII, 19 (2):
(2) No bill shall become a law unless it has passed three readings on
separate days, and printed copies thereof in its final form have been
distributed to the Members three days before its passage, except when

the Prime Minister certifies to the necessity of its immediate enactment to

meet a public calamity or emergency. Upon the last reading of a bill, no
amendment thereto shall be allowed, and the vote thereon shall be taken
immediately thereafter, and the yeas and nays entered in the Journal.
This provision of the 1973 document, with slight modification, was adopted in Art. VI,
26 (2) of the present Constitution, thus:
(2) No bill passed by either House shall become a law unless it has
passed three readings on separate days, and printed copies thereof in its
final form have been distributed to its Members three days before its
passage, except when the President certifies to the necessity of its
immediate enactment to meet a public calamity or emergency. Upon the
last reading of a bill, no amendment thereto shall be allowed, and the vote
thereon shall be taken immediately thereafter, and
the yeasand nays entered in the Journal.
The exception is based on the prudential consideration that if in all cases three readings
on separate days are required and a bill has to be printed in final form before it can be
passed, the need for a law may be rendered academic by the occurrence of the very
emergency or public calamity which it is meant to address.
Petitioners further contend that a "growing budget deficit" is not an emergency,
especially in a country like the Philippines where budget deficit is a chronic condition.
Even if this were the case, an enormous budget deficit does not make the need for R.A.
No. 7716 any less urgent or the situation calling for its enactment any less an
emergency.
Apparently, the members of the Senate (including some of the petitioners in these
cases) believed that there was an urgent need for consideration of S. No. 1630,
because they responded to the call of the President by voting on the bill on second and
third readings on the same day. While the judicial department is not bound by the
Senate's acceptance of the President's certification, the respect due coequal
departments of the government in matters committed to them by the Constitution and
the absence of a clear showing of grave abuse of discretion caution a stay of the judicial
hand.
At any rate, we are satisfied that S. No. 1630 received thorough consideration in the
Senate where it was discussed for six days. Only its distribution in advance in its final
printed form was actually dispensed with by holding the voting on second and third
readings on the same day (March 24, 1994). Otherwise, sufficient time between the
submission of the bill on February 8, 1994 on second reading and its approval on March
24, 1994 elapsed before it was finally voted on by the Senate on third reading.
The purpose for which three readings on separate days is required is said to be twofold: (1) to inform the members of Congress of what they must vote on and (2) to give
them notice that a measure is progressing through the enacting process, thus enabling
them and others interested in the measure to prepare their positions with reference to it.
(1 J. G. SUTHERLAND, STATUTES AND STATUTORY CONSTRUCTION 10.04, p.
282 (1972)). These purposes were substantially achieved in the case of R.A. No. 7716.
IV. Power of Conference Committee. It is contended (principally by Kilosbayan, Inc. and
the Movement of Attorneys for Brotherhood, Integrity and Nationalism, Inc. (MABINI))
that in violation of the constitutional policy of full public disclosure and the people's right
to know (Art. II, 28 and Art. III, 7) the Conference Committee met for two days in
executive session with only the conferees present.

As pointed out in our main decision, even in the United States it was customary to hold
such sessions with only the conferees and their staffs in attendance and it was only in
1975 when a new rule was adopted requiring open sessions. Unlike its American
counterpart, the Philippine Congress has not adopted a rule prescribing open hearings
for conference committees.
It is nevertheless claimed that in the United States, before the adoption of the rule in
1975, at least staff members were present. These were staff members of the Senators
and Congressmen, however, who may be presumed to be their confidential men, not
stenographers as in this case who on the last two days of the conference were
excluded. There is no showing that the conferees themselves did not take notes of their
proceedings so as to give petitioner Kilosbayan basis for claiming that even in secret
diplomatic negotiations involving state interests, conferees keep notes of their meetings.
Above all, the public's right to know was fully served because the Conference
Committee in this case submitted a report showing the changes made on the differing
versions of the House and the Senate.
Petitioners cite the rules of both houses which provide that conference committee
reports must contain "a detailed, sufficiently explicit statement of the changes in or other
amendments." These changes are shown in the bill attached to the Conference
Committee Report. The members of both houses could thus ascertain what changes
had been made in the original bills without the need of a statement detailing the
changes.
The same question now presented was raised when the bill which became R.A. No.
1400 (Land Reform Act of 1955) was reported by the Conference Committee.
Congressman Bengzon raised a point of order. He said:
MR. BENGZON. My point of order is that it is out of order to consider the
report of the conference committee regarding House Bill No. 2557 by
reason of the provision of Section 11, Article XII, of the Rules of this House
which provides specifically that the conference report must be
accompanied by a detailed statement of the effects of the amendment on
the bill of the House. This conference committee report is not
accompanied by that detailed statement, Mr. Speaker. Therefore it is out
of order to consider it.
Petitioner Tolentino, then the Majority Floor Leader, answered:
MR. TOLENTINO. Mr. Speaker, I should just like to say a few words in
connection with the point of order raised by the gentleman from
Pangasinan.
There is no question about the provision of the Rule cited by the
gentleman from Pangasinan, butthis provision applies to those cases
where only portions of the bill have been amended. In this case before us
an entire bill is presented; therefore, it can be easily seen from the reading
of the bill what the provisions are. Besides, this procedure has been an
established practice.
After some interruption, he continued:
MR. TOLENTINO. As I was saying, Mr. Speaker, we have to look into the
reason for the provisions of the Rules, and the reason for the requirement
in the provision cited by the gentleman from Pangasinan is when there are
only certain words or phrases inserted in or deleted from the provisions of
the bill included in the conference report, and we cannot understand what

those words and phrases mean and their relation to the bill. In that case, it
is necessary to make a detailed statement on how those words and
phrases will affect the bill as a whole; but when the entire bill itself is
copied verbatim in the conference report, that is not necessary. So when
the reason for the Rule does not exist, the Rule does not exist.
(2 CONG. REC. NO. 2, p. 4056. (emphasis added))
Congressman Tolentino was sustained by the chair. The record shows that when the
ruling was appealed, it was upheld by viva voce and when a division of the House was
called, it was sustained by a vote of 48 to 5. (Id.,
p. 4058)
Nor is there any doubt about the power of a conference committee to insert new
provisions as long as these are germane to the subject of the conference. As this Court
held in Philippine Judges Association v. Prado, 227 SCRA 703 (1993), in an opinion
written by then Justice Cruz, the jurisdiction of the conference committee is not limited
to resolving differences between the Senate and the House. It may propose an entirely
new provision. What is important is that its report is subsequently approved by the
respective houses of Congress. This Court ruled that it would not entertain allegations
that, because new provisions had been added by the conference committee, there was
thereby a violation of the constitutional injunction that "upon the last reading of a bill, no
amendment thereto shall be allowed."
Applying these principles, we shall decline to look into the petitioners'
charges that an amendment was made upon the last reading of the
bill that eventually became R.A. No. 7354 and that copiesthereof in its final
form were not distributed among the members of each House. Both the
enrolled bill and the legislative journals certify that the measure was duly
enacted i.e., in accordance with Article VI, Sec. 26 (2) of the Constitution.
We are bound by such official assurances from a coordinate department of
the government, to which we owe, at the very least, a becoming courtesy.
(Id. at 710. (emphasis added))
It is interesting to note the following description of conference committees in the
Philippines in a 1979 study:
Conference committees may be of two types: free or instructed. These
committees may be given instructions by their parent bodies or they may
be left without instructions. Normally the conference committees are
without instructions, and this is why they are often critically referred to as
"the little legislatures." Once bills have been sent to them, the conferees
have almost unlimited authority to change the clauses of the bills and in
fact sometimes introduce new measures that were not in the original
legislation. No minutes are kept, and members' activities on conference
committees are difficult to determine. One congressman known for his
idealism put it this way: "I killed a bill on export incentives for my interest
group [copra] in the conference committee but I could not have done so
anywhere else." The conference committee submits a report to both
houses, and usually it is accepted. If the report is not accepted, then the
committee is discharged and new members are appointed.
(R. Jackson, Committees in the Philippine Congress, in COMMITTEES
AND LEGISLATURES: A COMPARATIVE ANALYSIS 163 (J. D. LEES
AND M. SHAW, eds.)).

In citing this study, we pass no judgment on the methods of conference committees. We

cite it only to say that conference committees here are no different from their
counterparts in the United States whose vast powers we noted in Philippine Judges
Association v. Prado, supra. At all events, under Art. VI, 16(3) each house has the
power "to determine the rules of its proceedings," including those of its committees. Any
meaningful change in the method and procedures of Congress or its committees must
therefore be sought in that body itself.
V. The titles of S. No. 1630 and H. No. 11197. PAL maintains that R.A. No. 7716 violates
Art. VI, 26 (1) of the Constitution which provides that "Every bill passed by Congress
shall embrace only one subject which shall be expressed in the title thereof." PAL
contends that the amendment of its franchise by the withdrawal of its exemption from
the VAT is not expressed in the title of the law.
Pursuant to 13 of P.D. No. 1590, PAL pays a franchise tax of 2% on its gross revenue
"in lieu of all other taxes, duties, royalties, registration, license and other fees and
charges of any kind, nature, or description, imposed, levied, established, assessed or
collected by any municipal, city, provincial or national authority or government agency,
now or in the future."
PAL was exempted from the payment of the VAT along with other entities by 103 of the
National Internal Revenue Code, which provides as follows:
103. Exempt transactions. The following shall be exempt from the
value-added tax:
xxx xxx xxx
(q) Transactions which are exempt under special laws or international
agreements to which the Philippines is a signatory.
R.A. No. 7716 seeks to withdraw certain exemptions, including that granted to PAL, by
amending 103, as follows:
103. Exempt transactions. The following shall be exempt from the
value-added tax:
xxx xxx xxx
(q) Transactions which are exempt under special laws, except those
granted under Presidential Decree Nos. 66, 529, 972, 1491, 1590. . . .
The amendment of 103 is expressed in the title of R.A. No. 7716 which reads:
AN ACT RESTRUCTURING THE VALUE-ADDED TAX (VAT) SYSTEM,
WIDENING ITS TAX BASE AND ENHANCING ITS ADMINISTRATION,
AND FOR THESE PURPOSES AMENDING AND REPEALING THE
RELEVANT PROVISIONS OF THE NATIONAL INTERNAL REVENUE
CODE, AS AMENDED, AND FOR OTHER PURPOSES.
By stating that R.A. No. 7716 seeks to "[RESTRUCTURE] THE VALUE-ADDED TAX
(VAT) SYSTEM [BY] WIDENING ITS TAX BASE AND ENHANCING ITS
ADMINISTRATION, AND FOR THESE PURPOSES AMENDING AND REPEALING
THE RELEVANT PROVISIONS OF THE NATIONAL INTERNAL REVENUE CODE, AS
AMENDED AND FOR OTHER PURPOSES," Congress thereby clearly expresses its
intention to amend any provision of the NIRC which stands in the way of accomplishing
the purpose of the law.

PAL asserts that the amendment of its franchise must be reflected in the title of the law
by specific reference to P.D. No. 1590. It is unnecessary to do this in order to comply
with the constitutional requirement, since it is already stated in the title that the law
seeks to amend the pertinent provisions of the NIRC, among which is 103(q), in order
to widen the base of the VAT. Actually, it is the bill which becomes a law that is required
to express in its title the subject of legislation. The titles of H. No. 11197 and S. No. 1630
in fact specifically referred to 103 of the NIRC as among the provisions sought to be
amended. We are satisfied that sufficient notice had been given of the pendency of
these bills in Congress before they were enacted into what is now R.A.
No. 7716.
In Philippine Judges Association v. Prado, supra, a similar argument as that now made
by PAL was rejected. R.A. No. 7354 is entitled AN ACT CREATING THE PHILIPPINE
POSTAL CORPORATION, DEFINING ITS POWERS, FUNCTIONS AND
RESPONSIBILITIES, PROVIDING FOR REGULATION OF THE INDUSTRY AND FOR
OTHER PURPOSES CONNECTED THEREWITH. It contained a provision repealing all
franking privileges. It was contended that the withdrawal of franking privileges was not
expressed in the title of the law. In holding that there was sufficient description of the
subject of the law in its title, including the repeal of franking privileges, this Court held:
To require every end and means necessary for the accomplishment of the
general objectives of the statute to be expressed in its title would not only
be unreasonable but would actually render legislation impossible. [Cooley,
Constitutional Limitations, 8th Ed., p. 297] As has been correctly
explained:
The details of a legislative act need not be specifically stated
in its title, but matter germane to the subject as expressed in
the title, and adopted to the accomplishment of the object in
view, may properly be included in the act. Thus, it is proper
to create in the same act the machinery by which the act is
to be enforced, to prescribe the penalties for its infraction,
and to remove obstacles in the way of its execution. If such
matters are properly connected with the subject as
expressed in the title, it is unnecessary that they should also
have special mention in the title. (Southern Pac. Co. v.
Bartine, 170 Fed. 725)
(227 SCRA at 707-708)
VI. Claims of press freedom and religious liberty. We have held that, as a general
proposition, the press is not exempt from the taxing power of the State and that what
the constitutional guarantee of free press prohibits are laws which single out the press
or target a group belonging to the press for special treatment or which in any way
discriminate against the press on the basis of the content of the publication, and R.A.
No. 7716 is none of these.
Now it is contended by the PPI that by removing the exemption of the press from the
VAT while maintaining those granted to others, the law discriminates against the press.
At any rate, it is averred, "even nondiscriminatory taxation of constitutionally guaranteed
freedom is unconstitutional."
With respect to the first contention, it would suffice to say that since the law granted the
press a privilege, the law could take back the privilege anytime without offense to the
Constitution. The reason is simple: by granting exemptions, the State does not forever
waive the exercise of its sovereign prerogative.

Indeed, in withdrawing the exemption, the law merely subjects the press to the same tax
burden to which other businesses have long ago been subject. It is thus different from
the tax involved in the cases invoked by the PPI. The license tax in Grosjean
v. American Press Co., 297 U.S. 233, 80 L. Ed. 660 (1936) was found to be
discriminatory because it was laid on the gross advertising receipts only of newspapers
whose weekly circulation was over 20,000, with the result that the tax applied only to 13
out of 124 publishers in Louisiana. These large papers were critical of Senator Huey
Long who controlled the state legislature which enacted the license tax. The censorial
motivation for the law was thus evident.
On the other hand, in Minneapolis Star & Tribune Co. v. Minnesota Comm'r of Revenue,
460 U.S. 575, 75 L. Ed. 2d 295 (1983), the tax was found to be discriminatory because
although it could have been made liable for the sales tax or, in lieu thereof, for the use
tax on the privilege of using, storing or consuming tangible goods, the press was not.
Instead, the press was exempted from both taxes. It was, however, later made to pay
a specialuse tax on the cost of paper and ink which made these items "the only items
subject to the use tax that were component of goods to be sold at retail." The U.S.
Supreme Court held that the differential treatment of the press "suggests that the goal of
regulation is not related to suppression of expression, and such goal is presumptively
unconstitutional." It would therefore appear that even a law that favors the press is
constitutionally suspect. (See the dissent of Rehnquist, J. in that case)
Nor is it true that only two exemptions previously granted by E.O. No. 273 are
withdrawn "absolutely and unqualifiedly" by R.A. No. 7716. Other exemptions from the
VAT, such as those previously granted to PAL, petroleum concessionaires, enterprises
registered with the Export Processing Zone Authority, and many more are likewise
totally withdrawn, in addition to exemptions which are partially withdrawn, in an effort to
broaden the base of the tax.
The PPI says that the discriminatory treatment of the press is highlighted by the fact that
transactions, which are profit oriented, continue to enjoy exemption under R.A. No.
7716. An enumeration of some of these transactions will suffice to show that by and
large this is not so and that the exemptions are granted for a purpose. As the Solicitor
General says, such exemptions are granted, in some cases, to encourage agricultural
production and, in other cases, for the personal benefit of the end-user rather than for
profit. The exempt transactions are:
(a) Goods for consumption or use which are in their original state
(agricultural, marine and forest products, cotton seeds in their original
state, fertilizers, seeds, seedlings, fingerlings, fish, prawn livestock and
poultry feeds) and goods or services to enhance agriculture (milling of
palay, corn, sugar cane and raw sugar, livestock, poultry feeds, fertilizer,
ingredients used for the manufacture of feeds).
(b) Goods used for personal consumption or use (household and personal
effects of citizens returning to the Philippines) or for professional use, like
professional instruments and implements, by persons coming to the
Philippines to settle here.
(c) Goods subject to excise tax such as petroleum products or to be used
for manufacture of petroleum products subject to excise tax and services
subject to percentage tax.
(d) Educational services, medical, dental, hospital and veterinary services,
and services rendered under employer-employee relationship.
(e) Works of art and similar creations sold by the artist himself.

(f) Transactions exempted under special laws, or international

agreements.
(g) Export-sales by persons not VAT-registered.
(h) Goods or services with gross annual sale or receipt not
exceeding P500,000.00.
(Respondents' Consolidated Comment on the Motions for
Reconsideration, pp. 58-60)
The PPI asserts that it does not really matter that the law does not discriminate against
the press because "even nondiscriminatory taxation on constitutionally guaranteed
freedom is unconstitutional." PPI cites in support of this assertion the following
statement in Murdock v. Pennsylvania, 319 U.S. 105, 87 L. Ed. 1292 (1943):
The fact that the ordinance is "nondiscriminatory" is immaterial. The
protection afforded by the First Amendment is not so restricted. A license
tax certainly does not acquire constitutional validity because it classifies
the privileges protected by the First Amendment along with the wares and
merchandise of hucksters and peddlers and treats them all alike. Such
equality in treatment does not save the ordinance. Freedom of press,
freedom of speech, freedom of religion are in preferred position.
The Court was speaking in that case of a license tax, which, unlike an ordinary tax, is
mainly for regulation. Its imposition on the press is unconstitutional because it lays a
prior restraint on the exercise of its right. Hence, although its application to others, such
those selling goods, is valid, its application to the press or to religious groups, such as
the Jehovah's Witnesses, in connection with the latter's sale of religious books and
pamphlets, is unconstitutional. As the U.S. Supreme Court put it, "it is one thing to
impose a tax on income or property of a preacher. It is quite another thing to exact a tax
on him for delivering a sermon."
A similar ruling was made by this Court in American Bible Society v. City of Manila, 101
Phil. 386 (1957) which invalidated a city ordinance requiring a business license fee on
those engaged in the sale of general merchandise. It was held that the tax could not be
imposed on the sale of bibles by the American Bible Society without restraining the free
exercise of its right to propagate.
The VAT is, however, different. It is not a license tax. It is not a tax on the exercise of a
privilege, much less a constitutional right. It is imposed on the sale, barter, lease or
exchange of goods or properties or the sale or exchange of services and the lease of
properties purely for revenue purposes. To subject the press to its payment is not to
burden the exercise of its right any more than to make the press pay income tax or
subject it to general regulation is not to violate its freedom under the Constitution.
Additionally, the Philippine Bible Society, Inc. claims that although it sells bibles, the
proceeds derived from the sales are used to subsidize the cost of printing copies which
are given free to those who cannot afford to pay so that to tax the sales would be to
increase the price, while reducing the volume of sale. Granting that to be the case, the
resulting burden on the exercise of religious freedom is so incidental as to make it
difficult to differentiate it from any other economic imposition that might make the right to
disseminate religious doctrines costly. Otherwise, to follow the petitioner's argument, to
increase the tax on the sale of vestments would be to lay an impermissible burden on
the right of the preacher to make a sermon.

On the other hand the registration fee of P1,000.00 imposed by 107 of the NIRC, as
amended by 7 of R.A. No. 7716, although fixed in amount, is really just to pay for the
expenses of registration and enforcement of provisions such as those relating to
accounting in 108 of the NIRC. That the PBS distributes free bibles and therefore is
not liable to pay the VAT does not excuse it from the payment of this fee because it also
sells some copies. At any rate whether the PBS is liable for the VAT must be decided in
concrete cases, in the event it is assessed this tax by the Commissioner of Internal
Revenue.
VII. Alleged violations of the due process, equal protection and contract clauses and the
rule on taxation. CREBA asserts that R.A. No. 7716 (1) impairs the obligations of
contracts, (2) classifies transactions as covered or exempt without reasonable basis and
(3) violates the rule that taxes should be uniform and equitable and that Congress shall
"evolve a progressive system of taxation."
With respect to the first contention, it is claimed that the application of the tax to existing
contracts of the sale of real property by installment or on deferred payment basis would
result in substantial increases in the monthly amortizations to be paid because of the
10% VAT. The additional amount, it is pointed out, is something that the buyer did not
anticipate at the time he entered into the contract.
The short answer to this is the one given by this Court in an early case: "Authorities
from numerous sources are cited by the plaintiffs, but none of them show that a lawful
tax on a new subject, or an increased tax on an old one, interferes with a contract or
impairs its obligation, within the meaning of the Constitution. Even though such taxation
may affect particular contracts, as it may increase the debt of one person and lessen
the security of another, or may impose additional burdens upon one class and release
the burdens of another, still the tax must be paid unless prohibited by the Constitution,
nor can it be said that it impairs the obligation of any existing contract in its true legal
sense." (La Insular v. Machuca Go-Tauco and Nubla Co-Siong, 39 Phil. 567, 574
(1919)). Indeed not only existing laws but also "the reservation of the essential
attributes of sovereignty, is . . . read into contracts as a postulate of the legal order."
(Philippine-American Life Ins. Co. v. Auditor General, 22 SCRA 135, 147 (1968))
Contracts must be understood as having been made in reference to the possible
exercise of the rightful authority of the government and no obligation of contract can
extend to the defeat of that authority. (Norman v. Baltimore and Ohio R.R., 79 L. Ed. 885
(1935)).
It is next pointed out that while 4 of R.A. No. 7716 exempts such transactions as the
sale of agricultural products, food items, petroleum, and medical and veterinary
services, it grants no exemption on the sale of real property which is equally essential.
The sale of real property for socialized and low-cost housing is exempted from the tax,
but CREBA claims that real estate transactions of "the less poor," i.e., the middle class,
who are equally homeless, should likewise be exempted.
The sale of food items, petroleum, medical and veterinary services, etc., which are
essential goods and services was already exempt under 103, pars. (b) (d) (1) of the
NIRC before the enactment of R.A. No. 7716. Petitioner is in error in claiming that R.A.
No. 7716 granted exemption to these transactions, while subjecting those of petitioner
to the payment of the VAT. Moreover, there is a difference between the "homeless poor"
and the "homeless less poor" in the example given by petitioner, because the second
group or middle class can afford to rent houses in the meantime that they cannot yet
buy their own homes. The two social classes are thus differently situated in life. "It is
inherent in the power to tax that the State be free to select the subjects of taxation, and
it has been repeatedly held that 'inequalities which result from a singling out of one
particular class for taxation, or exemption infringe no constitutional limitation.'" (Lutz v.
Araneta, 98 Phil. 148, 153 (1955). Accord, City of Baguio v. De Leon, 134 Phil. 912

(1968); Sison, Jr. v. Ancheta, 130 SCRA 654, 663 (1984); Kapatiran ng mga
Naglilingkod sa Pamahalaan ng Pilipinas, Inc. v. Tan, 163 SCRA 371 (1988)).
Finally, it is contended, for the reasons already noted, that R.A. No. 7716 also violates
Art. VI, 28(1) which provides that "The rule of taxation shall be uniform and equitable.
The Congress shall evolve a progressive system of taxation."
Equality and uniformity of taxation means that all taxable articles or kinds of property of
the same class be taxed at the same rate. The taxing power has the authority to make
reasonable and natural classifications for purposes of taxation. To satisfy this
requirement it is enough that the statute or ordinance applies equally to all persons,
forms and corporations placed in similar situation. (City of Baguio v. De Leon, supra;
Sison, Jr. v. Ancheta, supra)
Indeed, the VAT was already provided in E.O. No. 273 long before R.A. No. 7716 was
enacted. R.A. No. 7716 merely expands the base of the tax. The validity of the original
VAT Law was questioned in Kapatiran ng Naglilingkod sa Pamahalaan ng Pilipinas,
Inc. v. Tan, 163 SCRA 383 (1988) on grounds similar to those made in these cases,
namely, that the law was "oppressive, discriminatory, unjust and regressive in violation
of Art. VI, 28(1) of the Constitution." (At 382) Rejecting the challenge to the law, this
Court held:
As the Court sees it, EO 273 satisfies all the requirements of a valid tax. It
is uniform. . . .
The sales tax adopted in EO 273 is applied similarly on all goods and
services sold to the public, which are not exempt, at the constant rate of
0% or 10%.
The disputed sales tax is also equitable. It is imposed only on sales of
goods or services by persons engaged in business with an aggregate
gross annual sales exceeding P200,000.00. Small corner sari-sari stores
are consequently exempt from its application. Likewise exempt from the
tax are sales of farm and marine products, so that the costs of basic food
and other necessities, spared as they are from the incidence of the VAT,
are expected to be relatively lower and within the reach of the general
public.
(At 382-383)
The CREBA claims that the VAT is regressive. A similar claim is made by the
Cooperative Union of the Philippines, Inc. (CUP), while petitioner Juan T. David argues
that the law contravenes the mandate of Congress to provide for a progressive system
of taxation because the law imposes a flat rate of 10% and thus places the tax burden
on all taxpayers without regard to their ability to pay.
The Constitution does not really prohibit the imposition of indirect taxes which, like the
VAT, are regressive. What it simply provides is that Congress shall "evolve a
progressive system of taxation." The constitutional provision has been interpreted to
mean simply that "direct taxes are . . . to be preferred [and] as much as possible,
indirect taxes should be minimized." (E. FERNANDO, THE CONSTITUTION OF THE
PHILIPPINES 221 (Second ed. (1977)). Indeed, the mandate to Congress is not
to prescribe, but to evolve, a progressive tax system. Otherwise, sales taxes, which
perhaps are the oldest form of indirect taxes, would have been prohibited with the
proclamation of Art. VIII, 17(1) of the 1973 Constitution from which the present Art. VI,
28(1) was taken. Sales taxes are also regressive.

Resort to indirect taxes should be minimized but not avoided entirely because it is
difficult, if not impossible, to avoid them by imposing such taxes according to the
taxpayers' ability to pay. In the case of the VAT, the law minimizes the regressive effects
of this imposition by providing for zero rating of certain transactions (R.A. No. 7716, 3,
amending 102 (b) of the NIRC), while granting exemptions to other transactions. (R.A.
No. 7716, 4, amending 103 of the NIRC).
Thus, the following transactions involving basic and essential goods and services are
exempted from the VAT:
(a) Goods for consumption or use which are in their original state
(agricultural, marine and forest products, cotton seeds in their original
state, fertilizers, seeds, seedlings, fingerlings, fish, prawn livestock and
poultry feeds) and goods or services to enhance agriculture (milling of
palay, corn sugar cane and raw sugar, livestock, poultry feeds, fertilizer,
ingredients used for the manufacture of feeds).
(b) Goods used for personal consumption or use (household and personal
effects of citizens returning to the Philippines) and or professional use, like
professional instruments and implements, by persons coming to the
Philippines to settle here.
(c) Goods subject to excise tax such as petroleum products or to be used
for manufacture of petroleum products subject to excise tax and services
subject to percentage tax.
(d) Educational services, medical, dental, hospital and veterinary services,
and services rendered under employer-employee relationship.
(e) Works of art and similar creations sold by the artist himself.
(f) Transactions exempted under special laws, or international
agreements.
(g) Export-sales by persons not VAT-registered.
(h) Goods or services with gross annual sale or receipt not
exceeding P500,000.00.
(Respondents' Consolidated Comment on the Motions for
Reconsideration, pp. 58-60)
On the other hand, the transactions which are subject to the VAT are those which
involve goods and services which are used or availed of mainly by higher income
groups. These include real properties held primarily for sale to customers or for lease in
the ordinary course of trade or business, the right or privilege to use patent, copyright,
and other similar property or right, the right or privilege to use industrial, commercial or
scientific equipment, motion picture films, tapes and discs, radio, television, satellite
transmission and cable television time, hotels, restaurants and similar places, securities,
lending investments, taxicabs, utility cars for rent, tourist buses, and other common
carriers, services of franchise grantees of telephone and telegraph.
The problem with CREBA's petition is that it presents broad claims of constitutional
violations by tendering issues not at retail but at wholesale and in the abstract. There is
no fully developed record which can impart to adjudication the impact of actuality. There
is no factual foundation to show in the concrete the application of the law to actual
contracts and exemplify its effect on property rights. For the fact is that petitioner's

members have not even been assessed the VAT. Petitioner's case is not made concrete
by a series of hypothetical questions asked which are no different from those dealt with
in advisory opinions.
The difficulty confronting petitioner is thus apparent. He alleges
arbitrariness. A mere allegation, as here, does not suffice. There must be a
factual foundation of such unconstitutional taint. Considering that
petitioner here would condemn such a provision as void on its face, he
has not made out a case. This is merely to adhere to the authoritative
doctrine that where the due process and equal protection clauses are
invoked, considering that they are not fixed rules but rather broad
standards, there is a need for proof of such persuasive character as would
lead to such a conclusion. Absent such a showing, the presumption of
validity must prevail.
(Sison, Jr. v. Ancheta, 130 SCRA at 661)
Adjudication of these broad claims must await the development of a concrete case. It
may be that postponement of adjudication would result in a multiplicity of suits. This
need not be the case, however. Enforcement of the law may give rise to such a case. A
test case, provided it is an actual case and not an abstract or hypothetical one, may
thus be presented.
Nor is hardship to taxpayers alone an adequate justification for adjudicating abstract
issues. Otherwise, adjudication would be no different from the giving of advisory opinion
that does not really settle legal issues.
We are told that it is our duty under Art. VIII, 1, 2 to decide whenever a claim is made
that "there has been a grave abuse of discretion amounting to lack or excess of
jurisdiction on the part of any branch or instrumentality of the government." This duty
can only arise if an actual case or controversy is before us. Under Art . VIII, 5 our
jurisdiction is defined in terms of "cases" and all that Art. VIII, 1, 2 can plausibly mean
is that in the exercise of that jurisdiction we have the judicial power to determine
questions of grave abuse of discretion by any branch or instrumentality of the
government.
Put in another way, what is granted in Art. VIII, 1, 2 is "judicial power," which is "the
power of a court to hear and decide cases pending between parties who have the right
to sue and be sued in the courts of law and equity" (Lamb v. Phipps, 22 Phil. 456, 559
(1912)), as distinguished from legislative and executive power. This power cannot be
directly appropriated until it is apportioned among several courts either by the
Constitution, as in the case of Art. VIII, 5, or by statute, as in the case of the Judiciary
Act of 1948 (R.A. No. 296) and the Judiciary Reorganization Act of 1980 (B.P. Blg. 129).
The power thus apportioned constitutes the court's "jurisdiction," defined as "the power
conferred by law upon a court or judge to take cognizance of a case, to the exclusion of
all others." (United States v. Arceo, 6 Phil. 29 (1906)) Without an actual case coming
within its jurisdiction, this Court cannot inquire into any allegation of grave abuse of
discretion by the other departments of the government.
VIII. Alleged violation of policy towards cooperatives. On the other hand, the
Cooperative Union of the Philippines (CUP), after briefly surveying the course of
legislation, argues that it was to adopt a definite policy of granting tax exemption to
cooperatives that the present Constitution embodies provisions on cooperatives. To
subject cooperatives to the VAT would therefore be to infringe a constitutional policy.
Petitioner claims that in 1973, P.D. No. 175 was promulgated exempting cooperatives
from the payment of income taxes and sales taxes but in 1984, because of the crisis
which menaced the national economy, this exemption was withdrawn by P.D. No. 1955;

that in 1986, P.D. No. 2008 again granted cooperatives exemption from income and
sales taxes until December 31, 1991, but, in the same year, E.O. No. 93 revoked the
exemption; and that finally in 1987 the framers of the Constitution "repudiated the
previous actions of the government adverse to the interests of the cooperatives, that
is, the repeated revocation of the tax exemption to cooperatives and instead upheld the
policy of strengthening the cooperatives by way of the grant of tax exemptions," by
providing the following in Art. XII:
1. The goals of the national economy are a more equitable distribution of
opportunities, income, and wealth; a sustained increase in the amount of
goods and services produced by the nation for the benefit of the people;
and an expanding productivity as the key to raising the quality of life for all,
especially the underprivileged.
The State shall promote industrialization and full employment based on
sound agricultural development and agrarian reform, through industries
that make full and efficient use of human and natural resources, and which
are competitive in both domestic and foreign markets. However, the State
shall protect Filipino enterprises against unfair foreign competition and
trade practices.
In the pursuit of these goals, all sectors of the economy and all regions of
the country shall be given optimum opportunity to develop. Private
enterprises, including corporations, cooperatives, and similar collective
organizations, shall be encouraged to broaden the base of their
ownership.
15. The Congress shall create an agency to promote the viability and
growth of cooperatives as instruments for social justice and economic
development.
Petitioner's contention has no merit. In the first place, it is not true that P.D. No. 1955
singled out cooperatives by withdrawing their exemption from income and sales taxes
under P.D. No. 175, 5. What P.D. No. 1955, 1 did was to withdraw the exemptions
and preferential treatments theretofore granted to private business enterprises in
general, in view of the economic crisis which then beset the nation. It is true that after
P.D. No. 2008, 2 had restored the tax exemptions of cooperatives in 1986, the
exemption was again repealed by E.O. No. 93, 1, but then again cooperatives were
not the only ones whose exemptions were withdrawn. The withdrawal of tax incentives
applied to all, including government and private entities. In the second place, the
Constitution does not really require that cooperatives be granted tax exemptions in
order to promote their growth and viability. Hence, there is no basis for petitioner's
assertion that the government's policy toward cooperatives had been one of vacillation,
as far as the grant of tax privileges was concerned, and that it was to put an end to this
indecision that the constitutional provisions cited were adopted. Perhaps as a matter of
policy cooperatives should be granted tax exemptions, but that is left to the discretion of
Congress. If Congress does not grant exemption and there is no discrimination to
cooperatives, no violation of any constitutional policy can be charged.
Indeed, petitioner's theory amounts to saying that under the Constitution cooperatives
are exempt from taxation. Such theory is contrary to the Constitution under which only
the following are exempt from taxation: charitable institutions, churches and
parsonages, by reason of Art. VI, 28 (3), and non-stock, non-profit educational
institutions by reason of Art. XIV, 4 (3).
CUP's further ground for seeking the invalidation of R.A. No. 7716 is that it denies
cooperatives the equal protection of the law because electric cooperatives are

exempted from the VAT. The classification between electric and other cooperatives
(farmers cooperatives, producers cooperatives, marketing cooperatives, etc.) apparently
rests on a congressional determination that there is greater need to provide cheaper
electric power to as many people as possible, especially those living in the rural areas,
than there is to provide them with other necessities in life. We cannot say that such
classification is unreasonable.
We have carefully read the various arguments raised against the constitutional validity
of R.A. No. 7716. We have in fact taken the extraordinary step of enjoining its
enforcement pending resolution of these cases. We have now come to the conclusion
that the law suffers from none of the infirmities attributed to it by petitioners and that its
enactment by the other branches of the government does not constitute a grave abuse
of discretion. Any question as to its necessity, desirability or expediency must be
addressed to Congress as the body which is electorally responsible, remembering that,
as Justice Holmes has said, "legislators are the ultimate guardians of the liberties and
welfare of the people in quite as great a degree as are the courts." (Missouri, Kansas &
Texas Ry. Co. v. May, 194 U.S. 267, 270, 48 L. Ed. 971, 973 (1904)). It is not right, as
petitioner in G.R. No. 115543 does in arguing that we should enforce the public
accountability of legislators, that those who took part in passing the law in question by
voting for it in Congress should later thrust to the courts the burden of reviewing
measures in the flush of enactment. This Court does not sit as a third branch of the
legislature, much less exercise a veto power over legislation.
WHEREFORE, the motions for reconsideration are denied with finality and the
temporary restraining order previously issued is hereby lifted.

G.R. No. L-7859

December 22, 1955

WALTER LUTZ, as Judicial Administrator of the Intestate Estate of the deceased

Antonio Jayme Ledesma, plaintiff-appellant,
vs.
J. ANTONIO ARANETA, as the Collector of Internal Revenue, defendant-appellee.
Ernesto J. Gonzaga for appellant.
Office of the Solicitor General Ambrosio Padilla, First Assistant Solicitor General
Guillermo E. Torres and Solicitor Felicisimo R. Rosete for appellee.

REYES, J.B L., J.:

This case was initiated in the Court of First Instance of Negros Occidental to test the
legality of the taxes imposed by Commonwealth Act No. 567, otherwise known as the
Sugar Adjustment Act.
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-McDuffe 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 manufactured; 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
a tax equivalent to the difference between the money value of the rental or
consideration collected and the amount representing 12 per centum of the
assessed value of such land.
According to section 6 of the law
SEC. 6. All collections made under this Act shall accrue to a special fund in the
Philippine Treasury, to be known as the 'Sugar Adjustment and Stabilization
Fund,' and shall be paid out only for any or all of the following purposes or to
attain any or all of the following objectives, as may be provided by law.
First, to place the sugar industry in a position to maintain itself, despite the
gradual loss of the preferntial position of the Philippine sugar in the United States
market, and ultimately to insure its continued existence notwithstanding the loss
of that market and the consequent necessity of meeting competition in the free
markets of the world;
Second, to readjust the benefits derived from the sugar industry by all of the
component elements thereof the mill, the landowner, the planter of the sugar
cane, and the laborers in the factory and in the field so that all might continue
profitably to engage therein;lawphi1.net
Third, to limit the production of sugar to areas more economically suited to the
production thereof; and
Fourth, to afford labor employed in the industry a living wage and to improve their
living and working conditions: Provided, That the President of the Philippines
may, until the adjourment of the next regular session of the National Assembly,
make the necessary disbursements from the fund herein created (1) for the
establishment and operation of sugar experiment station or stations and the
undertaking of researchers (a) to increase the recoveries of the centrifugal sugar
factories with the view of reducing manufacturing costs, (b) to produce and
propagate higher yielding varieties of sugar cane more adaptable to different
district conditions in the Philippines, (c) to lower the costs of raising sugar cane,
(d) to improve the buying quality of denatured alcohol from molasses for motor
fuel, (e) to determine the possibility of utilizing the other by-products of the
industry, (f) to determine what crop or crops are suitable for rotation and for the
utilization of excess cane lands, and (g) on other problems the solution of which
would help rehabilitate and stabilize the industry, and (2) for the improvement of
living and working conditions in sugar mills and sugar plantations, authorizing
him to organize the necessary agency or agencies to take charge of the
expenditure and allocation of said funds to carry out the purpose hereinbefore
enumerated, and, likewise, authorizing the disbursement from the fund herein
created of the necessary amount or amounts needed for salaries, wages,
travelling expenses, equipment, and other sundry expenses of said agency or
agencies.
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 constitutioally levied. The action
having been dismissed by the Court of First Instance, the plaintifs appealed the case
directly to this Court (Judiciary Act, section 17).
The basic defect in the plaintiff's position is his assumption that the tax provided for in
Commonwealth Act No. 567 is a pure exercise of the taxing power. Analysis of the Act,
and particularly of section 6 (heretofore quoted in full), will show that the tax is levied
with a regulatory purpose, to provide means for the rehabilitation and stabilization of the
threatened sugar industry. In other words, the act is primarily an exercise of the police
power.
This Court can take judicial notice of the fact that sugar production is one of the great
industries of our nation, sugar occupying a leading position among its export products;
that it gives employment to thousands of laborers in fields and factories; that it is a great
source of the state's wealth, is one of the important sources of foreign exchange needed
by our government, and is thus pivotal in the plans of a regime committed to a policy of
currency stability. Its promotion, protection and advancement, therefore redounds
greatly to the general welfare. Hence it was competent for the legislature to find that the
general welfare demanded that the sugar industry should be stabilized in turn; and in
the wide field of its police power, the lawmaking body could provide that the distribution
of benefits therefrom be readjusted among its components to enable it to resist the
added strain of the increase in taxes that it had to sustain (Sligh vs. Kirkwood, 237 U. S.
52, 59 L. Ed. 835; Johnson vs. State ex rel. Marey, 99 Fla. 1311, 128 So. 853; Maxcy
Inc. vs. Mayo, 103 Fla. 552, 139 So. 121).
As stated in Johnson vs. State ex rel. Marey, with reference to the citrus industry in
Florida
The protection of a large industry constituting one of the great sources of the
state's wealth and therefore directly or indirectly affecting the welfare of so great
a portion of the population of the State is affected to such an extent by public
interests as to be within the police power of the sovereign. (128 Sp. 857).
Once it is conceded, as it must, that the protection and promotion of the sugar industry
is a matter of public concern, it follows that the Legislature may determine within
reasonable bounds what is necessary for its protection and expedient for its promotion.
Here, the legislative discretion must be allowed fully play, subject only to the test of
reasonableness; and it is not contended that the means provided in section 6 of the law
(above quoted) 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 (Great Atl. & Pac. Tea Co. vs. Grosjean,
301 U. S. 412, 81 L. Ed. 1193; U. S. vs. Butler, 297 U. S. 1, 80 L. Ed. 477; M'Culloch vs.
Maryland, 4 Wheat. 316, 4 L. Ed. 579).
That the tax to be levied should burden the sugar producers themselves can hardly be a
ground of complaint; indeed, it appears rational that the tax be obtained precisely from
those who are to be benefited from the expenditure of the funds derived from it. At any
rate, 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"
(Carmichael vs. Southern Coal & Coke Co., 301 U. S. 495, 81 L. Ed. 1245, citing
numerous authorities, at p. 1251).
From the point of view we have taken it appears of no moment that the funds raised
under the Sugar Stabilization Act, now in question, should be exclusively spent in aid of
the sugar industry, since it is that very enterprise that is being protected. It may be that

other industries are also in need of similar protection; that the legislature is not required
by the Constitution to adhere to a policy of "all or none." As ruled in Minnesota ex rel.
Pearson vs. Probate Court, 309 U. S. 270, 84 L. Ed. 744, "if the law presumably hits the
evil where it is most felt, it is not to be overthrown because there are other instances to
which it might have been applied;" and that "the legislative authority, exerted within its
proper field, need not embrace all the evils within its reach" (N. L. R. B. vs. Jones &
Laughlin Steel Corp. 301 U. S. 1, 81 L. Ed. 893).
Even from the standpoint that the Act is a pure tax measure, it cannot be said that the
devotion of tax money to experimental stations to seek increase of efficiency in sugar
production, utilization of by-products and solution of allied problems, as well as to the
improvements of living and working conditions in sugar mills or plantations, without any
part of such money being channeled directly to private persons, constitutes expenditure
of tax money for private purposes, (compare Everson vs. Board of Education, 91 L. Ed.
472, 168 ALR 1392, 1400).
The decision appealed from is affirmed, with costs against appellant. So ordered.

G.R. No. L-4817

May 26, 1954

SILVESTER M. PUNSALAN, ET AL., plaintiffs-appellants,

vs.
THE MUNICIPAL BOARD OF THE CITY OF MANILA, ET AL., defendants-appellants.
Calanog and Alafriz for plaintiffs-appellants.
City Fiscal Eugenio Angeles and Assistant Fiscal Eulogio S. Serreno for defendantsappellants.
REYES, J.:
This suit was commenced in the Court of First Instance of Manila by two lawyers, a
medical practitioner, a public accountant, a dental surgeon and a pharmacist,
purportedly "in their own behalf and in behalf of other professionals practising in the City
of Manila who may desire to join it." Object of the suit is the annulment of Ordinance No.
3398 of the City of Manila together with the provision of the Manila charter authorizing it
and the refund of taxes collected under the ordinance but paid under protest.
The ordinance in question, which was approved by the municipal board of the City of
Manila on July 25, 1950, imposes a municipal occupation tax on persons exercising
various professions in the city and penalizes non-payment of the tax "by a fine of not
more than two hundred pesos or by imprisonment of not more than six months, or by
both such fine and imprisonment in the discretion of the court." Among the professions
taxed were those to which plaintiffs belong. The ordinance was enacted pursuant to
paragraph (1) of section 18 of the Revised Charter of the City of Manila (as amended by
Republic Act No. 409), which empowers the Municipal Board of said city to impose a
municipal occupation tax, not to exceed P50 per annum, on persons engaged in the
various professions above referred to.
Having already paid their occupation tax under section 201 of the National Internal
Revenue Code, plaintiffs, upon being required to pay the additional tax prescribed in the
ordinance, paid the same under protest and then brought the present suit for the
purpose already stated. The lower court upheld the validity of the provision of law
authorizing the enactment of the ordinance but declared the ordinance itself illegal and

void on the ground that the penalty there in provided for non-payment of the tax was not
legally authorized. From this decision both parties appealed to this Court, and the only
question they have presented for our determination is whether this ruling is correct or
not, for though the decision is silent on the refund of taxes paid plaintiffs make no
assignment of error on this point.
To begin with defendants' appeal, we find that the lower court was in error in saying that
the imposition of the penalty provided for in the ordinance was without the authority of
law. The last paragraph (kk) of the very section that authorizes the enactment of this tax
ordinance (section 18 of the Manila Charter) in express terms also empowers the
Municipal Board "to fix penalties for the violation of ordinances which shall not exceed
to(sic) two hundred pesos fine or six months" imprisonment, or both such fine and
imprisonment, for a single offense."Hence, the pronouncement below that the ordinance
in question is illegal and void because it imposes a penalty not authorized by law is
clearly without basis.
As to plaintiffs' appeal, the contention in substance is that this ordinance and the law
authorizing it constitute class legislation, are unjust and oppressive, and authorize what
amounts to double taxation.
In raising the hue and cry of "class legislation", the burden of plaintiffs' complaint is not
that the professions to which they respectively belong have been singled out for the
imposition of this municipal occupation tax; and in any event, the Legislature may, in its
discretion, select what occupations shall be taxed, and in the exercise of that discretion
it may tax all, or it may select for taxation certain classes and leave the others untaxed.
(Cooley on Taxation, Vol. 4, 4th ed., pp. 3393-3395.) Plaintiffs' complaint is that while
the law has authorized the City of Manila to impose the said tax, it has withheld that
authority from other chartered cities, not to mention municipalities. We do not think it is
for the courts to judge what particular cities or municipalities should be empowered to
impose occupation taxes in addition to those imposed by the National Government.
That matter is peculiarly within the domain of the political departments and the courts
would do well not to encroach upon it. Moreover, as the seat of the National
Government and with a population and volume of trade many times that of any other
Philippine city or municipality, Manila, no doubt, offers a more lucrative field for the
practice of the professions, so that it is but fair that the professionals in Manila be made
to pay a higher occupation tax than their brethren in the provinces.
Plaintiffs brand the ordinance unjust and oppressive because they say that it creates
discrimination within a class in that while professionals with offices in Manila have to
pay the tax, outsiders who have no offices in the city but practice their profession
therein are not subject to the tax. Plaintiffs make a distinction that is not found in the
ordinance. The ordinance imposes the tax upon every person "exercising" or "pursuing"
in the City of Manila naturally any one of the occupations named, but does not say
that such person must have his office in Manila. What constitutes exercise or pursuit of
a profession in the city is a matter of judicial determination. The argument against
double taxation may not be invoked where one tax is imposed by the state and the other
is imposed by the city (1 Cooley on Taxation, 4th ed., p. 492), 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. (51 Am. Jur., 341.)
In view of the foregoing, the judgment appealed from is reversed in so far as it declares
Ordinance No. 3398 of the City of Manila illegal and void and affirmed in so far as it
holds the validity of the provision of the Manila charter authorizing it. With costs against
plaintiffs-appellants.

G.R. No. 76778 June 6, 1990

FRANCISCO I. CHAVEZ, petitioner,
vs.
JAIME B. ONGPIN, in his capacity as Minister of Finance and FIDELINA CRUZ, in
her capacity as Acting Municipal Treasurer of the Municipality of Las Pias,
respondents, REALTY OWNERS ASSOCIATION OF THE PHILIPPINES,
INC., petitioner-intervenor.
Brotherhood of Nationalistic, Involved and Free Attorneys to Combat Injustice and
Oppression (Bonifacio) for petitioner.
Ambrosia Padilla, Mempin and Reyes Law Offices for movant Realty Owners
Association.

MEDIALDEA, J.:
The petition seeks to declare unconstitutional Executive Order No. 73 dated November
25, 1986, which We quote in full, as follows (78 O.G. 5861):
EXECUTIVE ORDER No. 73
PROVIDING FOR THE COLLECTION OF REAL PROPERTY TAXES
BASED ON THE 1984 REAL PROPERTY VALUES, AS PROVIDED FOR
UNDER SECTION 21 OF THE REAL PROPERTY TAX CODE, AS
AMENDED
WHEREAS, the collection of real property taxes is still based on the 1978
revision of property values;
WHEREAS, the latest general revision of real property assessments
completed in 1984 has rendered the 1978 revised values obsolete;
WHEREAS, the collection of real property taxes based on the 1984 real
property values was deferred to take effect on January 1, 1988 instead of
January 1, 1985, thus depriving the local government units of an additional
source of revenue;
WHEREAS, there is an urgent need for local governments to augment
their financial resources to meet the rising cost of rendering effective
services to the people;
NOW, THEREFORE, I. CORAZON C. AQUINO, President of the
Philippines, do hereby order:
SECTION 1. Real property values as of December 31, 1984 as
determined by the local assessors during the latest general revision of
assessments shall take effect beginning January 1, 1987 for purposes of
real property tax collection.
SEC. 2. The Minister of Finance shall promulgate the necessary rules and
regulations to implement this Executive Order.

SEC. 3. Executive Order No. 1019, dated April 18, 1985, is hereby
repealed.
SEC. 4. All laws, orders, issuances, and rules and regulations or parts
thereof inconsistent with this Executive Order are hereby repealed or
modified accordingly.
SEC. 5. This Executive Order shall take effect immediately.
On March 31, 1987, Memorandum Order No. 77 was issued suspending the
implementation of Executive Order No. 73 until June 30, 1987.
The petitioner, Francisco I. Chavez, 1 is a taxpayer and an owner of three parcels of land. He
alleges the following: that Executive Order No. 73 accelerated the application of the general revision of
assessments to January 1, 1987 thereby mandating an excessive increase in real property taxes by
100% to 400% on improvements, and up to 100% on land; that any increase in the value of real property
brought about by the revision of real property values and assessments would necessarily lead to a
proportionate increase in real property taxes; that sheer oppression is the result of increasing real
property taxes at a period of time when harsh economic conditions prevail; and that the increase in the
market values of real property as reflected in the schedule of values was brought about only by inflation
and economic recession.

The intervenor Realty Owners Association of the Philippines, Inc. (ROAP), which is the
national association of owners-lessors, joins Chavez in his petition to declare
unconstitutional Executive Order No. 73, but additionally alleges the following: that
Presidential Decree No. 464 is unconstitutional insofar as it imposes an additional one
percent (1%) tax on all property owners to raise funds for education, as real property tax
is admittedly a local tax for local governments; that the General Revision of
Assessments does not meet the requirements of due process as regards publication,
notice of hearing, opportunity to be heard and insofar as it authorizes "replacement
cost" of buildings (improvements) which is not provided in Presidential Decree No. 464,
but only in an administrative regulation of the Department of Finance; and that the Joint
Local Assessment/Treasury Regulations No. 2-86 2 is even more oppressive and
unconstitutional as it imposes successive increase of 150% over the 1986 tax.

The Office of the Solicitor General argues against the petition.

The petition is not impressed with merit.
Petitioner Chavez and intervenor ROAP question the constitutionality of Executive
Order No. 73 insofar as the revision of the assessments and the effectivity thereof are
concerned. It should be emphasized that Executive Order No. 73 merely directs, in
Section 1 thereof, that:
SECTION 1. Real property values as of December 31, 1984 as
determined by the local assessors during the latest general revision of
assessments shall take effect beginning January 1, 1987 for purposes of
real property tax collection. (emphasis supplied)
The general revision of assessments completed in 1984 is based on Section 21 of
Presidential Decree No. 464 which provides, as follows:
SEC. 21. General Revision of Assessments. Beginning with the
assessor shall make a calendar year 1978, the provincial or city general
revision of real property assessments in the province or city to take effect
January 1, 1979, and once every five years thereafter: Provided; however,
That if property values in a province or city, or in any municipality, have
greatly changed since the last general revision, the provincial or city

assesor may, with the approval of the Secretary of Finance or upon bis
direction, undertake a general revision of assessments in the province or
city, or in any municipality before the fifth year from the effectivity of the
last general revision.
Thus, We agree with the Office of the Solicitor General that the attack on Executive
Order No. 73 has no legal basis as the general revision of assessments is a continuing
process mandated by Section 21 of Presidential Decree No. 464. If at all, it is
Presidential Decree No. 464 which should be challenged as constitutionally infirm.
However, Chavez failed to raise any objection against said decree. It was ROAP which
questioned the constitutionality thereof. Furthermore, Presidential Decree No. 464
furnishes the procedure by which a tax assessment may be questioned:
SEC. 30. Local Board of Assessment Appeals. Any owner who is not
satisfied with the action of the provincial or city assessor in the
assessment of his property may, within sixty days from the date of receipt
by him of the written notice of assessment as provided in this Code,
appeal to the Board of Assessment Appeals of the province or city, by
filing with it a petition under oath using the form prescribed for the
purpose, together with copies of the tax declarations and such affidavit or
documents submitted in support of the appeal.
xxx xxx xxx
SEC. 34. Action by the Local Board of assessment Appeals. The Local
Board of Assessment Appeals shall decide the appeal within one hundred
and twenty days from the date of receipt of such appeal. The decision
rendered must be based on substantial evidence presented at the hearing
or at least contained in the record and disclosed to the parties or such
relevant evidence as a reasonable mind might accept as adequate to
support the conclusion.
In the exercise of its appellate jurisdiction, the Board shall have the power
to summon witnesses, administer oaths, conduct ocular inspection, take
depositions, and issue subpoena and subpoenaduces tecum. The
proceedings of the Board shall be conducted solely for the purpose of
ascertaining the truth without-necessarily adhering to technical rules
applicable in judicial proceedings.
The Secretary of the Board shall furnish the property owner and the
Provincial or City Assessor with a copy each of the decision of the Board.
In case the provincial or city assessor concurs in the revision or the
assessment, it shall be his duty to notify the property owner of such fact
using the form prescribed for the purpose. The owner or administrator of
the property or the assessor who is not satisfied with the decision of the
Board of Assessment Appeals, may, within thirty days after receipt of the
decision of the local Board, appeal to the Central Board of Assessment
Appeals by filing his appeal under oath with the Secretary of the proper
provincial or city Board of Assessment Appeals using the prescribed form
stating therein the grounds and the reasons for the appeal, and attaching
thereto any evidence pertinent to the case. A copy of the appeal should be
also furnished the Central Board of Assessment Appeals, through its
Chairman, by the appellant.
Within ten (10) days from receipt of the appeal, the Secretary of the Board
of Assessment Appeals concerned shall forward the same and all papers

related thereto, to the Central Board of Assessment Appeals through the

Chairman thereof.
xxx xxx xxx
SEC. 36. Scope of Powers and Functions. The Central Board of
Assessment Appeals shall have jurisdiction over appealed assessment
cases decided by the Local Board of Assessment Appeals. The said Board
shall decide cases brought on appeal within twelve (12) months from the
date of receipt, which decision shall become final and executory after the
lapse of fifteen (15) days from the date of receipt of a copy of the decision
by the appellant.
In the exercise of its appellate jurisdiction, the Central Board of
Assessment Appeals, or upon express authority, the Hearing
Commissioner, shall have the power to summon witnesses, administer
oaths, take depositions, and issue subpoenas and subpoenas duces
tecum.
The Central Board of assessment Appeals shall adopt and promulgate
rules of procedure relative to the conduct of its business.
Simply stated, within sixty days from the date of receipt of the, written notice of
assessment, any owner who doubts the assessment of his property, may appeal to the
Local Board of Assessment Appeals. In case the, owner or administrator of the property
or the assessor is not satisfied with the decision of the Local Board of Assessment
Appeals, he may, within thirty days from the receipt of the decision, appeal to the
Central Board of Assessment Appeals. The decision of the Central Board of
Assessment Appeals shall become final and executory after the lapse of fifteen days
from the date of receipt of the decision.
Chavez argues further that the unreasonable increase in real property taxes brought
about by Executive Order No. 73 amounts to a confiscation of property repugnant to the
constitutional guarantee of due process, invoking the cases of Ermita-Malate Hotel, et
al. v. Mayor of Manila (G.R. No. L-24693, July 31, 1967, 20 SCRA 849) andSison v.
Ancheta, et al. (G.R. No. 59431, July 25, 1984, 130 SCRA 654).
The reliance on these two cases is certainly misplaced because the due process
requirement called for therein applies to the "power to tax." Executive Order No. 73
does not impose new taxes nor increase taxes.
Indeed, the government recognized the financial burden to the taxpayers that will result
from an increase in real property taxes. Hence, Executive Order No. 1019 was issued
on April 18, 1985, deferring the implementation of the increase in real property taxes
resulting from the revised real property assessments, from January 1, 1985 to January
1, 1988. Section 5 thereof is quoted herein as follows:
SEC. 5. The increase in real property taxes resulting from the revised real
property assessments as provided for under Section 21 of Presidential
Decree No. 464, as amended by Presidential Decree No. 1621, shall be
collected beginning January 1, 1988 instead of January 1, 1985 in order to
enable the Ministry of Finance and the Ministry of Local Government to
establish the new systems of tax collection and assessment provided
herein and in order to alleviate the condition of the people, including real
property owners, as a result of temporary economic difficulties. (emphasis
supplied)

The issuance of Executive Order No. 73 which changed the date of implementation of
the increase in real property taxes from January 1, 1988 to January 1, 1987 and
therefore repealed Executive Order No. 1019, also finds ample justification in its
"whereas' clauses, as follows:
WHEREAS, the collection of real property taxes based on the 1984 real
property values was deferred to take effect on January 1, 1988 instead of
January 1, 1985, thus depriving the local government units of an
additional source of revenue;
WHEREAS, there is an urgent need for local governments to augment
their financial resources to meet the rising cost of rendering effective
services to the people; (emphasis supplied)
xxx xxx xxx
The other allegation of ROAP that Presidential Decree No. 464 is unconstitutional, is not
proper to be resolved in the present petition. As stated at the outset, the issue here is
limited to the constitutionality of Executive Order No. 73. Intervention is not an
independent proceeding, but an ancillary and supplemental one which, in the nature of
things, unless otherwise provided for by legislation (or Rules of Court), must be in
subordination to the main proceeding, and it may be laid down as a general rule that an
intervention is limited to the field of litigation open to the original parties (59 Am. Jur.
950. Garcia, etc., et al. v. David, et al., 67 Phil. 279).
We agree with the observation of the Office of the Solicitor General that without
Executive Order No. 73, the basis for collection of real property taxes win still be the
1978 revision of property values. Certainly, to continue collecting real property taxes
based on valuations arrived at several years ago, in disregard of the increases in the
value of real properties that have occurred since then, is not in consonance with a
sound tax system. Fiscal adequacy, which is one of the characteristics of a sound tax
system, requires that sources of revenues must be adequate to meet government
expenditures and their variations.
ACCORDINGLY, the petition and the petition-in-intervention are hereby DISMISSED.
SO ORDERED.

G.R. No. 81311 June 30, 1988

KAPATIRAN NG MGA NAGLILINGKOD SA PAMAHALAAN NG PILIPINAS, INC.,
HERMINIGILDO C. DUMLAO, GERONIMO Q. QUADRA, and MARIO C.
VILLANUEVA, petitioners,
vs.
HON. BIENVENIDO TAN, as Commissioner of Internal Revenue, respondent.
G.R. No. 81820 June 30, 1988
KILUSANG MAYO UNO LABOR CENTER (KMU), its officers and affiliated labor
federations and alliances,petitioners,
vs.

THE EXECUTIVE SECRETARY, SECRETARY OF FINANCE, THE COMMISSIONER

OF INTERNAL REVENUE, and SECRETARY OF BUDGET, respondents.
G.R. No. 81921 June 30, 1988
INTEGRATED CUSTOMS BROKERS ASSOCIATION OF THE PHILIPPINES and
JESUS B. BANAL, petitioners,
vs.
The HON. COMMISSIONER, BUREAU OF INTERNAL REVENUE, respondent.
G.R. No. 82152 June 30, 1988
RICARDO C. VALMONTE, petitioner,
vs.
THE EXECUTIVE SECRETARY, SECRETARY OF FINANCE, COMMISSIONER OF
INTERNAL REVENUE and SECRETARY OF BUDGET, respondent.
Franklin S. Farolan for petitioner Kapatiran in G.R. No. 81311.
Jaime C. Opinion for individual petitioners in G.R. No. 81311.
Banzuela, Flores, Miralles, Raeses, Sy, Taquio and Associates for petitioners in G.R.
No 81820.
Union of Lawyers and Advocates for Peoples Right collaborating counsel for petitioners
in G.R. No 81820.
Jose C. Leabres and Joselito R. Enriquez for petitioners in G.R. No. 81921.

PADILLA, J.:
These four (4) petitions, which have been consolidated because of the similarity of the
main issues involved therein, seek to nullify Executive Order No. 273 (EO 273, for
short), issued by the President of the Philippines on 25 July 1987, to take effect on 1
January 1988, and which amended certain sections of the National Internal Revenue
Code and adopted the value-added tax (VAT, for short), for being unconstitutional in that
its enactment is not alledgedly within the powers of the President; that the VAT is
oppressive, discriminatory, regressive, and violates the due process and equal
protection clauses and other provisions of the 1987 Constitution.
The Solicitor General prays for the dismissal of the petitions on the ground that the
petitioners have failed to show justification for the exercise of its judicial powers, viz. (1)
the existence of an appropriate case; (2) an interest, personal and substantial, of the
party raising the constitutional questions; (3) the constitutional question should be
raised at the earliest opportunity; and (4) the question of constitutionality is directly and
necessarily involved in a justiciable controversy and its resolution is essential to the
protection of the rights of the parties. According to the Solicitor General, only the third
requisite that the constitutional question should be raised at the earliest opportunity
has been complied with. He also questions the legal standing of the petitioners who,
he contends, are merely asking for an advisory opinion from the Court, there being no
justiciable controversy for resolution.
Objections to taxpayers' suit for lack of sufficient personality standing, or interest are,
however, in the main procedural matters. Considering the importance to the public of
the cases at bar, and in keeping with the Court's duty, under the 1987 Constitution, to

determine wether or not the other branches of government have kept themselves within
the limits of the Constitution and the laws and that they have not abused the discretion
given to them, the Court has brushed aside technicalities of procedure and has taken
cognizance of these petitions.
But, before resolving the issues raised, a brief look into the tax law in question is in
order.
The VAT is a tax levied on a wide range of goods and services. It is a tax on the value,
added by every seller, with aggregate gross annual sales of articles and/or services,
exceeding P200,00.00, to his purchase of goods and services, unless exempt. VAT is
computed at the rate of 0% or 10% of the gross selling price of goods or gross receipts
realized from the sale of services.
The VAT is said to have eliminated privilege taxes, multiple rated sales tax on
manufacturers and producers, advance sales tax, and compensating tax on
importations. The framers of EO 273 that it is principally aimed to rationalize the system
of taxing goods and services; simplify tax administration; and make the tax system more
equitable, to enable the country to attain economic recovery.
The VAT is not entirely new. It was already in force, in a modified form, before EO 273
was issued. As pointed out by the Solicitor General, the Philippine sales tax system,
prior to the issuance of EO 273, was essentially a single stage value added tax system
computed under the "cost subtraction method" or "cost deduction method" and was
imposed only on original sale, barter or exchange of articles by manufacturers,
producers, or importers. Subsequent sales of such articles were not subject to sales tax.
However, with the issuance of PD 1991 on 31 October 1985, a 3% tax was imposed on
a second sale, which was reduced to 1.5% upon the issuance of PD 2006 on 31
December 1985, to take effect 1 January 1986. Reduced sales taxes were imposed not
only on the second sale, but on every subsequent sale, as well. EO 273 merely
increased the VAT on every sale to 10%, unless zero-rated or exempt.
Petitioners first contend that EO 273 is unconstitutional on the Ground that the
President had no authority to issue EO 273 on 25 July 1987.
The contention is without merit.
It should be recalled that under Proclamation No. 3, which decreed a Provisional
Constitution, sole legislative authority was vested upon the President. Art. II, sec. 1 of
the Provisional Constitution states:
Sec. 1. Until a legislature is elected and convened under a new
Constitution, the President shall continue to exercise legislative powers.
On 15 October 1986, the Constitutional Commission of 1986 adopted a new
Constitution for the Republic of the Philippines which was ratified in a plebiscite
conducted on 2 February 1987. Article XVIII, sec. 6 of said Constitution, hereafter
referred to as the 1987 Constitution, provides:
Sec. 6. The incumbent President shall continue to exercise legislative
powers until the first Congress is convened.
It should be noted that, under both the Provisional and the 1987 Constitutions, the
President is vested with legislative powers until a legislature under a new Constitution
is convened. The first Congress, created and elected under the 1987 Constitution, was
convened on 27 July 1987. Hence, the enactment of EO 273 on 25 July 1987, two (2)

days before Congress convened on 27 July 1987, was within the President's
constitutional power and authority to legislate.
Petitioner Valmonte claims, additionally, that Congress was really convened on 30 June
1987 (not 27 July 1987). He contends that the word "convene" is synonymous with "the
date when the elected members of Congress assumed office."
The contention is without merit. The word "convene" which has been interpreted to
mean "to call together, cause to assemble, or convoke," 1 is clearly different from assumption
of office by the individual members of Congress or their taking the oath of office. As an example, we call
to mind the interim National Assembly created under the 1973 Constitution, which had not been
"convened" but some members of the body, more particularly the delegates to the 1971 Constitutional
Convention who had opted to serve therein by voting affirmatively for the approval of said Constitution,
had taken their oath of office.

To uphold the submission of petitioner Valmonte would stretch the definition of the word
"convene" a bit too far. It would also defeat the purpose of the framers of the 1987
Constitutional and render meaningless some other provisions of said Constitution. For
example, the provisions of Art. VI, sec. 15, requiring Congress to conveneonce every
year on the fourth Monday of July for its regular session would be a contrariety, since
Congress would already be deemed to be in session after the individual members have
taken their oath of office. A portion of the provisions of Art. VII, sec. 10, requiring
Congress to convene for the purpose of enacting a law calling for a special election to
elect a President and Vice-President in case a vacancy occurs in said offices, would
also be a surplusage. The portion of Art. VII, sec. 11, third paragraph, requiring
Congress to convene, if not in session, to decide a conflict between the President and
the Cabinet as to whether or not the President and the Cabinet as to whether or not the
President can re-assume the powers and duties of his office, would also be redundant.
The same is true with the portion of Art. VII, sec. 18, which requires Congress to
convene within twenty-four (24) hours following the declaration of martial law or the
suspension of the privilage of the writ of habeas corpus.
The 1987 Constitution mentions a specific date when the President loses her power to
legislate. If the framers of said Constitution had intended to terminate the exercise of
legislative powers by the President at the beginning of the term of office of the members
of Congress, they should have so stated (but did not) in clear and unequivocal terms.
The Court has not power to re-write the Constitution and give it a meaning different from
that intended.
The Court also finds no merit in the petitioners' claim that EO 273 was issued by the
President in grave abuse of discretion amounting to lack or excess of jurisdiction.
"Grave abuse of discretion" has been defined, as follows:
Grave abuse of discretion" implies such capricious and whimsical exercise
of judgment as is equivalent to lack of jurisdiction (Abad Santos vs.
Province of Tarlac, 38 Off. Gaz. 834), or, in other words, where the power
is exercised in an arbitrary or despotic manner by reason of passion or
personal hostility, and it must be so patent and gross as to amount to an
evasion of positive duty or to a virtual refusal to perform the duty enjoined
or to act at all in contemplation of law. (Tavera-Luna, Inc. vs. Nable, 38
Off. Gaz. 62). 2
Petitioners have failed to show that EO 273 was issued capriciously and whimsically or
in an arbitrary or despotic manner by reason of passion or personal hostility. It appears
that a comprehensive study of the VAT had been extensively discussed by this framers
and other government agencies involved in its implementation, even under the past
administration. As the Solicitor General correctly sated. "The signing of E.O. 273 was
merely the last stage in the exercise of her legislative powers. The legislative process

started long before the signing when the data were gathered, proposals were weighed
and the final wordings of the measure were drafted, revised and finalized. Certainly, it
cannot be said that the President made a jump, so to speak, on the Congress, two days
before it convened." 3
Next, the petitioners claim that EO 273 is oppressive, discriminatory, unjust and
regressive, in violation of the provisions of Art. VI, sec. 28(1) of the 1987 Constitution,
which states:
Sec. 28 (1) The rule of taxation shall be uniform and equitable. The
Congress shall evolve a progressive system of taxation.
The petitioners" assertions in this regard are not supported by facts and circumstances
to warrant their conclusions. They have failed to adequately show that the VAT is
oppressive, discriminatory or unjust. Petitioners merely rely upon newspaper articles
which are actually hearsay and have evidentiary value. To justify the nullification of a
law. there must be a clear and unequivocal breach of the Constitution, not a doubtful
and argumentative implication. 4
As the Court sees it, EO 273 satisfies all the requirements of a valid tax. It is uniform.
The court, in City of Baguio vs. De Leon, 5 said:
... In Philippine Trust Company v. Yatco (69 Phil. 420), Justice Laurel,
speaking for the Court, stated: "A tax is considered uniform when it
operates with the same force and effect in every place where the subject
may be found."
There was no occasion in that case to consider the possible effect on such
a constitutional requirement where there is a classification. The
opportunity came in Eastern Theatrical Co. v. Alfonso (83 Phil. 852, 862).
Thus: "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; . . ." About two years later, Justice
Tuason, speaking for this Court in Manila Race Horses Trainers Assn. v.
de la Fuente (88 Phil. 60, 65) incorporated the above excerpt in his
opinion and continued; "Taking everything into account, the differentiation
against which the plaintiffs complain conforms to the practical dictates of
justice and equity and is not discriminatory within the meaning of the
Constitution."
To satisfy this requirement then, all that is needed as held in another case
decided two years later, (Uy Matias v. City of Cebu, 93 Phil. 300) is that
the statute or ordinance in question "applies equally to all persons, firms
and corporations placed in similar situation." This Court is on record as
accepting the view in a leading American case (Carmichael v. Southern
Coal and Coke Co., 301 US 495) that "inequalities which result from a
singling out of one particular class for taxation or exemption infringe no
constitutional limitation." (Lutz v. Araneta, 98 Phil. 148, 153).
The sales tax adopted in EO 273 is applied similarly on all goods and services sold to
the public, which are not exempt, at the constant rate of 0% or 10%.
The disputed sales tax is also equitable. It is imposed only on sales of goods or services
by persons engage in business with an aggregate gross annual sales exceeding
P200,000.00. Small corner sari-sari stores are consequently exempt from its
application. Likewise exempt from the tax are sales of farm and marine products,

spared as they are from the incidence of the VAT, are expected to be relatively lower
and within the reach of the general public. 6
The Court likewise finds no merit in the contention of the petitioner Integrated Customs
Brokers Association of the Philippines that EO 273, more particularly the new Sec. 103
(r) of the National Internal Revenue Code, unduly discriminates against customs
brokers. The contested provision states:
Sec. 103. Exempt transactions. The following shall be exempt from the
value-added tax:
xxx xxx xxx
(r) Service performed in the exercise of profession or calling (except
customs brokers) subject to the occupation tax under the Local Tax Code,
and professional services performed by registered general professional
partnerships;
The phrase "except customs brokers" is not meant to discriminate against customs
brokers. It was inserted in Sec. 103(r) to complement the provisions of Sec. 102 of the
Code, which makes the services of customs brokers subject to the payment of the VAT
and to distinguish customs brokers from other professionals who are subject to the
payment of an occupation tax under the Local Tax Code. Pertinent provisions of Sec.
102 read:
Sec. 102. Value-added tax on sale of services. There shall be levied,
assessed and collected, a value-added tax equivalent to 10% percent of
gross receipts derived by any person engaged in the sale of services. The
phrase sale of services" means the performance of all kinds of services for
others for a fee, remuneration or consideration, including those performed
or rendered by construction and service contractors; stock, real estate,
commercial, customs and immigration brokers; lessors of personal
property; lessors or distributors of cinematographic films; persons
engaged in milling, processing, manufacturing or repacking goods for
others; and similar services regardless of whether or not the performance
thereof call for the exercise or use of the physical or mental faculties: ...
With the insertion of the clarificatory phrase "except customs brokers" in Sec. 103(r), a
potential conflict between the two sections, (Secs. 102 and 103), insofar as customs
brokers are concerned, is averted.
At any rate, the distinction of the customs brokers from the other professionals who are
subject to occupation tax under the Local Tax Code is based upon material differences,
in that the activities of customs brokers (like those of stock, real estate and immigration
brokers) partake more of a business, rather than a profession and were thus subjected
to the percentage tax under Sec. 174 of the National Internal Revenue Code prior to its
amendment by EO 273. EO 273 abolished the percentage tax and replaced it with the
VAT. If the petitioner Association did not protest the classification of customs brokers
then, the Court sees no reason why it should protest now.
The Court takes note that EO 273 has been in effect for more than five (5) months now,
so that the fears expressed by the petitioners that the adoption of the VAT will trigger
skyrocketing of prices of basic commodities and services, as well as mass actions and
demonstrations against the VAT should by now be evident. The fact that nothing of the
sort has happened shows that the fears and apprehensions of the petitioners appear to
be more imagined than real. It would seem that the VAT is not as bad as we are made
to believe.

In any event, if petitioners seriously believe that the adoption and continued application
of the VAT are prejudicial to the general welfare or the interests of the majority of the
people, they should seek recourse and relief from the political branches of the
government. The Court, following the time-honored doctrine of separation of powers,
cannot substitute its judgment for that of the President as to the wisdom, justice and
advisability of the adoption of the VAT. The Court can only look into and determine
whether or not EO 273 was enacted and made effective as law, in the manner required
by, and consistent with, the Constitution, and to make sure that it was not issued in
grave abuse of discretion amounting to lack or excess of jurisdiction; and, in this regard,
the Court finds no reason to impede its application or continued implementation.
WHEREFORE, the petitions are DISMISSED. Without pronouncement as to costs.
SO ORDERED.

G.R. No. 88291 June 8, 1993

ERNESTO M. MACEDA, petitioner,
vs.
HON. CATALINO MACARAIG, JR., in his capacity as Executive Secretary, Office of
the President, HON. VICENTE JAYME, ETC., ET AL., respondents.
Angara, Abello, Concepcion & Cruz for respondent Pilipinas Shell Petroleum
Corporation.
Siguion Reyna, Montecillo & Ongsiako for Caltex.

NOCON, J.:
Just like lightning which does strike the same place twice in some instances, this matter
of indirect tax exemption of the private respondent National Power Corporation (NPC) is
brought to this Court a second time. Unfazed by the Decision We promulgated on May
31, 1991 1 petitioner Ernesto Maceda asks this Court to reconsider said Decision. Lest We be criticized
for denying due process to the petitioner. We have decided to take a second look at the issues. In the
process, a hearing was held on July 9, 1992 where all parties presented their respective arguments.
Etched in this Court's mind are the paradoxical claims by both petitioner and private respondents that
their respective positions are for the benefit of the Filipino people.

I
A Chronological review of the relevant NPC laws, specially with respect to its tax
exemption provisions, at the risk of being repetitious is, therefore, in order.
On November 3, 1936, Commonwealth Act No. 120 was enacted creating the National
Power Corporation, a public corporation, mainly to develop hydraulic power from all
water sources in the Philippines. 2 The sum of P250,000.00 was appropriated out of the funds in the
Philippine Treasury for the purpose of organizing the NPC and conducting its preliminary work. 3 The main
source of funds for the NPC was the flotation of bonds in the capital markets 4 and these bonds

. . . issued under the authority of this Act shall be exempt from the
payment of all taxes by the Commonwealth of the Philippines, or by any
authority, branch, division or political subdivision thereof and subject to the
provisions of the Act of Congress, approved March 24, 1934, otherwise
known as the Tydings McDuffle Law, which facts shall be stated upon the
face of said bonds. . . . . 5
On June 24, 1938, C.A. No. 344 was enacted increasing to P550,000.00 the funds
needed for the initial operations of the NPC and reiterating the provision of the flotation
of bonds as soon as the first construction of any hydraulic power project was to be
decided by the NPC Board. 6 The provision on tax exemption in relation to the issuance of the NPC
bonds was neither amended nor deleted.

On September 30, 1939, C.A. No. 495 was enacted removing the provision on the
payment of the bond's principal and interest in "gold coins" but adding that payment
could be made in United States dollars. 7 The provision on tax exemption in relation to the
issuance of the NPC bonds was neither amended nor deleted.

On June 4, 1949, Republic Act No. 357 was enacted authorizing the President of the
Philippines to guarantee, absolutely and unconditionally, as primary obligor, the
payment of any and all NPC loans. 8 He was also authorized to contract on behalf of the NPC with
the International Bank for Reconstruction and Development (IBRD) for NPC loans for the accomplishment
of NPC's corporate objectives 9 and for the reconstruction and development of the economy of the
country.10 It was expressly stated that:

Any such loan or loans shall be exempt from taxes, duties, fees, imposts,
charges, contributions and restrictions of the Republic of the Philippines,
its provinces, cities and municipalities. 11
On the same date, R.A. No. 358 was enacted expressly authorizing the NPC, for the
first time, to incur other types of indebtedness, aside from indebtedness incurred by
flotation of bonds. 12 As to the pertinent tax exemption provision, the law stated as follows:
To facilitate payment of its indebtedness, the National Power Corporation
shall be exempt from all taxes, duties, fees, imposts, charges, and
restrictions of the Republic of the Philippines, its provinces, cities and
municipalities. 13
On July 10, 1952, R.A. No. 813 was enacted amending R.A. No. 357 in that, aside from
the IBRD, the President of the Philippines was authorized to negotiate, contract and
guarantee loans with the Export-Import Bank of of Washigton, D.C., U.S.A., or any other
international financial institution. 14 The tax provision for repayment of these loans, as stated in R.A.
No. 357, was not amended.

On June 2, 1954, R.A. No. 987 was enacted specifically to withdraw NPC's tax
exemption for real estate taxes. As enacted, the law states as follows:
To facilitate payment of its indebtedness, the National Power Corporation
shall be exempt from all taxes, except real property tax, and from all
duties, fees, imposts, charges, and restrictions of the Republic of the
Philippines, its provinces, cities, and municipalities. 15
On September 8, 1955, R.A. No. 1397 was enacted directing that the NPC projects to
be funded by the increased indebtedness 16 should bear the National Economic Council's stamp
of approval. The tax exemption provision related to the payment of this total indebtedness was not
amended nor deleted.

On June 13, 1958, R.A. No. 2055 was enacted increasing the total amount of foreign
loans NPC was authorized to incur to US$100,000,000.00 from the US$50,000,000.00
ceiling in R.A. No. 357. 17 The tax provision related to the repayment of these loans was not
amended nor deleted.

On June 13, 1958, R.A. No. 2058 was enacting fixing the corporate life of NPC to
December 31, 2000. 18 All laws or provisions of laws and executive orders contrary to said R.A. No.
2058 were expressly repealed. 19

On June 18, 1960, R.A. No 2641 was enacted converting the NPC from a public
corporation into a stock corporation with an authorized capital stock of P100,000,000.00
divided into 1,000.000 shares having a par value of P100.00 each, with said capital
stock wholly subscribed to by the Government. 20 No tax exemption was incorporated in said
Act.

On June 17, 1961, R.A. No. 3043 was enacted increasing the above-mentioned
authorized capital stock to P250,000,000.00 with the increase to be wholly subscribed
by the Government. 21 No tax provision was incorporated in said Act.
On June 17, 1967, R.A. No 4897 was enacted. NPC's capital stock was increased again
to P300,000,000.00, the increase to be wholly subscribed by the Government. No tax
provision was incorporated in said Act. 22
On September 10, 1971, R.A. No. 6395 was enacted revising the charter of the NPC,
C.A. No. 120, as amended. Declared as primary objectives of the nation were:
Declaration of Policy. Congress hereby declares that (1) the
comprehensive development, utilization and conservation of Philippine
water resources for all beneficial uses, including power generation, and (2)
the total electrification of the Philippines through the development of
power from all sources to meet the needs of industrial development and
dispersal and the needs of rural electrification are primary objectives of the
nation which shall be pursued coordinately and supported by all
instrumentalities and agencies of the government, including the financial
institutions. 23
Section 4 of C.A. No. 120, was renumbered as Section 8, and divided into sections 8 (a)
(Authority to incur Domestic Indebtedness) and Section 8 (b) (Authority to Incur Foreign
Loans).
As to the issuance of bonds by the NPC, Paragraph No. 3 of Section 8(a), states as
follows:
The bonds issued under the authority of this subsection shall be exempt
from the payment of all taxes by the Republic of the Philippines, or by any
authority, branch, division or political subdivision thereof which facts shall
be stated upon the face of said bonds. . . . 24
As to the foreign loans the NPC was authorized to contract, Paragraph No. 5, Section
8(b), states as follows:
The loans, credits and indebtedness contracted under this subsection and
the payment of the principal, interest and other charges thereon, as well
as the importation of machinery, equipment, materials and supplies by the
Corporation, paid from the proceeds of any loan, credit or indebtedeness
incurred under this Act, shall also be exempt from all taxes, fees, imposts,
other charges and restrictions, including import restrictions, by the

Republic of the Philippines, or any of its agencies and political

subdivisions. 25
A new section was added to the charter, now known as Section 13, R.A. No. 6395,
which declares the non-profit character and tax exemptions of NPC as follows:
The Corporation shall be non-profit and shall devote all its returns from its
capital investment, as well as excess revenues from its operation, for
expansion. To enable the Corporation to pay its indebtedness and
obligations and in furtherance and effective implementation of the policy
enunciated in Section one of this Act, the Corporation is hereby declared
exempt:
(a) From the payment of all taxes, duties, fees, imposts, charges costs
and service fees in any court or administrative proceedings in which it may
be a party, restrictions and duties to the Republic of the Philippines, its
provinces, cities, and municipalities and other government agencies and
instrumentalities;
(b) From all income taxes, franchise taxes and realty taxes to be paid to
the National Government, its provinces, cities, municipalities and other
government agencies and instrumentalities;
(c) From all import duties, compensating taxes and advanced sales tax,
and wharfage fees on import of foreign goods required for its operations
and projects; and
(d) From all taxes, duties, fees, imposts and all other charges its
provinces, cities, municipalities and other government agencies and
instrumentalities, on all petroleum products used by the Corporation in the
generation, transmission, utilization, and sale of electric power. 26
On November 7, 1972, Presidential Decree No. 40 was issued declaring that the
electrification of the entire country was one of the primary concerns of the country. And in
connection with this, it was specifically stated that:

The setting up of transmission line grids and the construction of

associated generation facilities in Luzon, Mindanao and major islands of
the country, including the Visayas, shall be the responsibility of the
National Power Corporation (NPC) as the authorized implementing
agency of the State. 27
xxx xxx xxx

It is the ultimate objective of the State for the NPC to own and operate as
a single integrated system all generating facilities supplying electric power
to the entire area embraced by any grid set up by the NPC. 28
On January 22, 1974, P.D. No. 380 was issued giving extra powers to the NPC to
enable it to fulfill its role under aforesaid P.D. No. 40. Its authorized capital stock was
raised to P2,000,000,000.00, 29 its total domestic indebtedness was pegged at a maximum of
P3,000,000,000.00 at any one time, 30 and the NPC was authorized to borrow a total of
US$1,000,000,000.00 31 in foreign loans.

The relevant tax exemption provision for these foreign loans states as follows:
The loans, credits and indebtedness contracted under this subsection and
the payment of the principal, interest and other charges thereon, as well

as the importation of machinery, equipment, materials, supplies and

services, by the Corporation, paid from the proceeds of any loan, credit or
indebtedness incurred under this Act, shall also be exempt from all direct
and indirect taxes, fees, imposts, other charges and restrictions, including
import restrictions previously and presently imposed, and to be imposed
by the Republic of the Philippines, or any of its agencies and political
subdivisions.32 (Emphasis supplied)
Section 13(a) and 13(d) of R.A. No 6395 were amended to read as follows:
(a) From the payment of all taxes, duties, fees, imposts, charges and
restrictions to the Republic of the Philippines, its provinces, cities,
municipalities and other government agencies and instrumentalities
including the taxes, duties, fees, imposts and other charges provided for
under the Tariff and Customs Code of the Philippines, Republic Act
Numbered Nineteen Hundred Thirty-Seven, as amended, and as further
amended by Presidential Decree No. 34 dated October 27, 1972, and
Presidential Decree No. 69, dated November 24, 1972, and costs and
service fees in any court or administrative proceedings in which it may be
a party;
xxx xxx xxx
(d) From all taxes, duties, fees, imposts, and all other charges
imposed directly or indirectly by the Republic of the Philippines, its
provinces, cities, municipalities and other government agencies and
instrumentalities, on all petroleum products used by the Corporation in the
generation, transmission, utilization and sale of electric power. 33 (Emphasis
supplied)

On February 26, 1970, P.D. No. 395 was issued removing certain restrictions in the
NPC's sale of electricity to its different customers. 34 No tax exemption provision was amended,
deleted or added.

On July 31, 1975, P.D. No. 758 was issued directing that P200,000,000.00 would be
appropriated annually to cover the unpaid subscription of the Government in the NPC
authorized capital stock, which amount would be taken from taxes accruing to the
General Funds of the Government, proceeds from loans, issuance of bonds, treasury
bills or notes to be issued by the Secretary of Finance for this particular purpose. 35
On May 27, 1976 P.D. No. 938 was issued
(I)n view of the accelerated expansion programs for generation and
transmission facilities which includes nuclear power generation, the
present capitalization of National Power Corporation (NPC) and the
ceilings for domestic and foreign borrowings are deemed insufficient;

36

xxx xxx xxx

(I)n the application of the tax exemption provisions of the Revised Charter,
the non-profit character of NPC has not been fully utilized because of
restrictive interpretation of the taxing agencies of the government on said
provisions; 37
xxx xxx xxx

(I)n order to effect the accelerated expansion program and attain the
declared objective of total electrification of the country, further
amendments of certain sections of Republic Act No. 6395, as amended by
Presidential Decrees Nos. 380, 395 and 758, have become imperative; 38
Thus NPC's capital stock was raised to P8,000,000,000.00,

39

the total domestic

indebtedness ceiling was increased to P12,000,000,000.00, the total foreign loan ceiling was raised to
US$4,000,000,000.00 41 and Section 13 of R.A. No. 6395, was amended to read as follows:
40

The Corporation shall be non-profit and shall devote all its returns from its
capital investment as well as excess revenues from its operation, for
expansion. To enable the Corporation to pay to its indebtedness and
obligations and in furtherance and effective implementation of the policy
enunciated in Section one of this Act, the Corporation, including its
subsidiaries, is hereby declared exempt from the payment of all forms of
taxes, duties, fees, imposts as well as costs and service fees including
filing fees, appeal bonds, supersedeas bonds, in any court or
administrative proceedings. 42
II
On the other hand, the pertinent tax laws involved in this controversy are P.D. Nos. 882,
1177, 1931 and Executive Order No. 93 (S'86).
On January 30, 1976, P.D. No. 882 was issued withdrawing the tax exemption of NPC
with regard to imports as follows:
WHEREAS, importations by certain government agencies, including
government-owned or controlled corporation, are exempt from the
payment of customs duties and compensating tax; and
WHEREAS, in order to reduce foreign exchange spending and to protect
domestic industries, it is necessary to restrict and regulate such tax-free
importations.
NOW THEREFORE, I, FERDINAND E. MARCOS, President of the
Philippines, by virtue of the powers vested in me by the Constitution, and
do hereby decree and order the following:
Sec. 1. All importations of any government agency, including governmentowned or controlled corporations which are exempt from the payment of
customs duties and internal revenue taxes, shall be subject to the prior
approval of an Inter-Agency Committee which shall insure compliance with
the following conditions:
(a) That no such article of local manufacture are available in sufficient
quantity and comparable quality at reasonable prices;
(b) That the articles to be imported are directly and actually needed and
will be used exclusively by the grantee of the exemption for its operations
and projects or in the conduct of its functions; and
(c) The shipping documents covering the importation are in the name of
the grantee to whom the goods shall be delivered directly by customs
authorities.
xxx xxx xxx

Sec. 3. The Committee shall have the power to regulate and control the
tax-free importation of government agencies in accordance with the
conditions set forth in Section 1 hereof and the regulations to be
promulgated to implement the provisions of this Decree. Provided,
however, That any government agency or government-owned or
controlled corporation, or any local manufacturer or business firm
adversely affected by any decision or ruling of the Inter-Agency
Committee may file an appeal with the Office of the President within ten
days from the date of notice thereof. . . . .
xxx xxx xxx
Sec. 6. . . . . Section 13 of Republic Act No. 6395; . . .. and all similar
provisions of all general and special laws and decrees are hereby
amended accordingly.
xxx xxx xxx
On July 30, 1977, P.D. 1177 was issued as it was
. . . declared the policy of the State to formulate and implement a National
Budget that is an instrument of national development, reflective of national
objectives, strategies and plans. The budget shall be supportive of and
consistent with the socio-economic development plan and shall be
oriented towards the achievement of explicit objectives and expected
results, to ensure that funds are utilized and operations are conducted
effectively, economically and efficiently. The national budget shall be
formulated within a context of a regionalized government structure and of
the totality of revenues and other receipts, expenditures and borrowings of
all levels of government-owned or controlled corporations. The budget
shall likewise be prepared within the context of the national long-term plan
and of a long-term budget program. 43
In line with such policy, the law decreed that
All units of government, including government-owned or controlled corporations, shall
pay income taxes, customs duties and other taxes and fees are imposed under
revenues laws: provided, that organizations otherwise exempted by law from the
payment of such taxes/duties may ask for a subsidy from the General Fund in the exact
amount of taxes/duties due: provided, further, that a procedure shall be established by
the Secretary of Finance and the Commissioner of the Budget, whereby such subsidies
shall automatically be considered as both revenue and expenditure of the General
Fund. 44
The law also declared that
[A]ll laws, decrees, executive orders, rules and regulations or parts thereof
which are inconsistent with the provisions of the Decree are hereby
repealed and/or modified accordingly. 45
On July 11, 1984, most likely due to the economic morass the Government found itself
in after the Aquino assassination, P.D. No. 1931 was issued to reiterate that:
WHEREAS, Presidential Decree No. 1177 has already expressly repealed
the grant of tax privileges to any government-owned or controlled
corporation and all other units of government; 46

and since there was a

. . . need for government-owned or controlled corporations and all other
units of government enjoying tax privileges to share in the requirements of
development, fiscal or otherwise, by paying the duties, taxes and other
charges due from them. 47
it was decreed that:
Sec. 1. The provisions of special on general law to the contrary
notwithstanding, all exemptions from the payment of duties, taxes, fees,
imposts and other charges heretofore granted in favor of governmentowned or controlled corporations including their subsidiaries, are hereby
withdrawn.
Sec. 2. The President of the Philippines and/or the Minister of Finance,
upon the recommendation of the Fiscal Incentives Review Board created
under Presidential Decree No. 776, is hereby empowered to restore,
partially or totally, the exemptions withdrawn by Section 1 above, any
applicable tax and duty, taking into account, among others, any or all of
the following:
1) The effect on the relative price levels;
2) The relative contribution of the corporation to the revenue generation
effort;
3) The nature of the activity in which the corporation is engaged in; or
4) In general the greater national interest to be served.
xxx xxx xxx
Sec. 5. The provisions of Presidential Decree No. 1177 as well as all other
laws, decrees, executive orders, administrative orders, rules, regulations
or parts thereof which are inconsistent with this Decree are hereby
repealed, amended or modified accordingly.
On December 17, 1986, E.O. No. 93 (S'86) was issued with a view to correct
presidential restoration or grant of tax exemption to other government and private
entities without benefit of review by the Fiscal Incentives Review Board, to wit:
WHEREAS, Presidential Decree Nos. 1931 and 1955 issued on June 11,
1984 and October 14, 1984, respectively, withdrew the tax and duty
exemption privileges, including the preferential tax treatment, of
government and private entities with certain exceptions, in order that the
requirements of national economic development, in terms of fiscals and
other resources, may be met more adequately;
xxx xxx xxx
WHEREAS, in addition to those tax and duty exemption privileges were
restored by the Fiscal Incentives Review Board (FIRB), a number of
affected entities, government and private, had their tax and duty
exemption privileges restored or granted by Presidential action without
benefit or review by the Fiscal Incentives Review Board (FIRB);

xxx xxx xxx

Since it was decided that:
[A]ssistance to government and private entities may be better provided
where necessary by explicit subsidy and budgetary support rather than tax
and duty exemption privileges if only to improve the fiscal monitoring
aspects of government operations.
It was thus ordered that:
Sec. 1. The Provisions of any general or special law to the contrary
notwithstanding, all tax and duty incentives granted to government and
private entities are hereby withdrawn, except:
a) those covered by the non-impairment clause of the Constitution;
b) those conferred by effective internation agreement to which the
Government of the Republic of the Philippines is a signatory;
c) those enjoyed by enterprises registered with:
(i) the Board of Investment pursuant to Presidential Decree
No. 1789, as amended;
(ii) the Export Processing Zone Authority, pursuant to
Presidential Decree No. 66 as amended;
(iii) the Philippine Veterans Investment Development
Corporation Industrial Authority pursuant to Presidential
Decree No. 538, was amended.
d) those enjoyed by the copper mining industry pursuant to the provisions
of Letter of Instructions No. 1416;
e) those conferred under the four basic codes namely:
(i) the Tariff and Customs Code, as amended;
(ii) the National Internal Revenue Code, as amended;
(iii) the Local Tax Code, as amended;
(iv) the Real Property Tax Code, as amended;
f) those approved by the President upon the
recommendation of the Fiscal Incentives Review Board.
Sec. 2. The Fiscal Incentives Review Board created under Presidential
Decree No. 776, as amended, is hereby authorized to:
a) restore tax and/or duty exemptions withdrawn hereunder in whole or in
part;
b) revise the scope and coverage of tax and/or duty exemption that may
be restored;

c) impose conditions for the restoration of tax and/or duty exemption;

d) prescribe the date of period of effectivity of the restoration of tax and/or
duty exemption;
e) formulate and submit to the President for approval, a complete system
for the grant of subsidies to deserving beneficiaries, in lieu of or in
combination with the restoration of tax and duty exemptions or preferential
treatment in taxation, indicating the source of funding therefor, eligible
beneficiaries and the terms and conditions for the grant thereof taking into
consideration the international commitment of the Philippines and the
necessary precautions such that the grant of subsidies does not become
the basis for countervailing action.
Sec. 3. In the discharge of its authority hereunder, the Fiscal Incentives
Review Board shall take into account any or all of the following
considerations:
a) the effect on relative price levels;
b) relative contribution of the beneficiary to the revenue generation effort;
c) nature of the activity the beneficiary is engaged; and
d) in general, the greater national interest to be served.
xxx xxx xxx
Sec. 5. All laws, orders, issuances, rules and regulations or parts thereof
inconsistent with this Executive Order are hereby repealed or modified
accordingly.
E.O. No. 93 (S'86) was decreed to be effective

48

upon the promulgation of the rules and

regulations, to be issued by the Ministry of Finance. Said rules and regulations were promulgated and
published in the Official Gazette
on February 23, 1987. These became effective on the 15th day after promulgation 50 in the Official
Gasetter, 51 which 15th day was March 10, 1987.
49

III
Now to some definitions. We refer to the very simplistic approach that all would-be
lawyers, learn in their TAXATION I course, which fro convenient reference, is as follows:
Classifications or kinds of Taxes:
According to Persons who pay or who bear the burden:
a. Direct Tax the where the person supposed to pay the tax really pays
it. WITHOUT transferring the burden to someone else.
Examples: Individual income tax, corporate income tax, transfer taxes
(estate tax, donor's tax), residence tax, immigration tax
b. Indirect Tax that where the tax is imposed upon
goods BEFORE reaching the consumer who ultimately pays for it, not as a
tax, but as a part of the purchase price.

Examples: the internal revenue indirect taxes (specific tax, percentage

taxes, (VAT) and the tariff and customs indirect taxes (import duties,
special import tax and other dues) 52
IV
To simply matter, the issues raised by petitioner in his motion for reconsideration can be
reduced to the following:
(1) What kind of tax exemption privileges did NPC have?
(2) For what periods in time were these privileges being enjoyed?
(3) If there are taxes to be paid, who shall pay for these taxes?
V
Petitioner contends that P.D. No. 938 repealed the indirect tax exemption of NPC as the
phrase "all forms of taxes etc.," in its section 10, amending Section 13, R.A. No. 6395,
as amended by P.D. No. 380, does not expressly include "indirect taxes."
His point is not well-taken.
A chronological review of the NPC laws will show that it has been the lawmaker's
intention that the NPC was to be completely tax exempt from all forms of taxes direct
and indirect.
NPC's tax exemptions at first applied to the bonds it was authorized to float to finance
its operations upon its creation by virtue of C.A. No. 120.
When the NPC was authorized to contract with the IBRD for foreign financing, any loans
obtained were to be completely tax exempt.
After the NPC was authorized to borrow from other sources of funds aside issuance
of bonds it was again specifically exempted from all types of taxes "to facilitate
payment of its indebtedness." Even when the ceilings for domestic and foreign
borrowings were periodically increased, the tax exemption privileges of the NPC were
maintained.
NPC's tax exemption from real estate taxes was, however, specifically withdrawn by
Rep. Act No. 987, as above stated. The exemption was, however, restored by R.A. No.
6395.
Section 13, R.A. No. 6395, was very comprehensive in its enumeration of the tax
exemptions allowed NPC. Its section 13(d) is the starting point of this bone of contention
among the parties. For easy reference, it is reproduced as follows:
[T]he Corporation is hereby declared exempt:
xxx xxx xxx
(d) From all taxes, duties, fees, imposts and all other charges imposed by
the Republic of the Philippines, its provinces, cities, municipalities and
other government agencies and instrumentalities, on all petroleum
products used by the Corporation in the generation, transmission,
utilization, and sale of electric power.

P.D. No. 380 added phrase "directly or indirectly" to said Section 13(d), which now reads
as follows:
xxx xxx xxx
(d) From all taxes, duties, fees, imposts, and all other charges
imposed directly or indirectly by the Republic of the Philippines, its
provinces, cities, municipalities and other government agencies and
instrumentalities, on all petroleum products used by the Corporation in the
generation, transmission, utilization and sale of electric power. (Emphasis
supplied)
Then came P.D. No. 938 which amended Sec. 13(a), (b), (c) and (d) into one very
simple paragraph as follows:
The Corporation shall be non-profit and shall devote all its returns from its
capital investment as well as excess revenues from its operation, for
expansion. To enable the Corporation to pay its indebtedness and
obligations and in furtherance and effective implementation of the policy
enunciated in Section one of this Act, the Corporation, including its
subsidiaries, is hereby declared exempt from the payment of ALL FORMS
OF taxes, duties, fees, imposts as well as costs and service fees including
filing fees, appeal bonds, supersedeas bonds, in any court or
administrative proceedings. (Emphasis supplied)
Petitioner reminds Us that:
[I]t must be borne in mind that Presidential Decree Nos. 380
and 938 were issued by one man, acting as such the Executive and
Legislative. 53
xxx xxx xxx

[S]ince both presidential decrees were made by the same person, it would
have been very easy for him to retain the same or similar language used
in P.D. No. 380 P.D. No. 938 if his intention were to preserve the indirect
tax exemption of NPC. 54
Actually, P.D. No. 938 attests to the ingenuousness of then President Marcos no matter
what his fault were. It should be noted that section 13, R.A. No. 6395, provided for tax
exemptions for the following items:
13(a) : court or administrative proceedings;
13(b) : income, franchise, realty taxes;
13(c) : import of foreign goods required for its operations and projects;
13(d) : petroleum products used in generation of electric power.
P.D. No. 938 lumped up 13(b), 13(c), and 13(d) into the phrase "ALL FORMS OF
TAXES, ETC.,", included 13(a) under the "as well as" clause and added PNOC
subsidiaries as qualified for tax exemptions.
This is the only conclusion one can arrive at if he has read all the NPC laws in the order
of enactment or issuance as narrated above in part I hereof. President Marcos must
have considered all the NPC statutes from C.A. No. 120 up to its latest amendments,

P.D. No. 380, P.D. No. 395 and P.D. No. 759, AND came up

55

with a very simple Section 13,

R.A. No. 6395, as amended by P.D. No. 938.

One common theme in all these laws is that the NPC must be enable to pay its
indebtedness 56 which, as of P.D. No. 938, was P12 Billion in total domestic indebtedness, at any one
time, and U$4 Billion in total foreign loans at any one time. The NPC must be and has to be exempt from
all forms of taxes if this goal is to be achieved.

By virtue of P.D. No. 938 NPC's capital stock was raised to P8 Billion. It must be
remembered that to pay the government share in its capital stock P.D. No. 758 was
issued mandating that P200 Million would be appropriated annually to cover the said
unpaid subscription of the Government in NPC's authorized capital stock. And
significantly one of the sources of this annual appropriation of P200 million is TAX
MONEY accruing to the General Fund of the Government. It does not stand to reason
then that former President Marcos would order P200 Million to be taken partially or
totally from tax money to be used to pay the Government subscription in the NPC, on
one hand, and then order the NPC to pay all its indirect taxes, on the other.
The above conclusion that then President Marcos lumped up Sections 13 (b), 13 (c) and
(d) into the phrase "All FORMS OF" is supported by the fact that he did not do the same
for the tax exemption provision for the foreign loans to be incurred.
The tax exemption on foreign loans found in Section 8(b), R.A. No. 6395, reads as
follows:
The loans, credits and indebtedness contracted under this subsection and
the payment of the principal, interest and other charges thereon, as well
as the importation of machinery, equipment, materials and supplies by the
Corporation, paid from the proceeds of any loan, credit or indebtedness
incurred under this Act, shall also be exempt from all taxes, fees, imposts,
other charges and restrictions, including import restrictions, by the
Republic of the Philippines, or any of its agencies and political
subdivisions. 57
The same was amended by P.D. No. 380 as follows:
The loans, credits and indebtedness contracted this subsection and the
payment of the principal, interest and other charges thereon, as well as
the importation of machinery, equipment, materials, supplies and services,
by the Corporation, paid from the proceeds of any loan, credit or
indebtedness incurred under this Act, shall also be exempt from all direct
and indirect taxes, fees, imposts, other charges and restrictions, including
import restrictions previously and presently imposed, and to be
imposed by the Republic of the Philippines, or any of its agencies and
political subdivisions. 58(Emphasis supplied)
P.D. No. 938 did not amend the same

59

and so the tax exemption provision in Section 8 (b), R.A.

No. 6395, as amended by P.D. No. 380, still stands. Since the subject matter of this particular Section 8
(b) had to do only with loans and machinery imported, paid for from the proceeds of these foreign
loans, THERE WAS NO OTHER SUBJECT MATTER TO LUMP IT UP WITH, and so, the tax exemption
stood as is with the express mention of "direct
and indirect" tax exemptions. And this "direct and indirect" tax exemption privilege extended to "taxes,
fees, imposts, other charges . . . to be imposed" in the future surely, an indication that the lawmakers
wanted the NPC to be exempt from ALL FORMS of taxes direct and indirect.

It is crystal clear, therefore, that NPC had been granted tax exemption privileges for
both direct and indirect taxes under P.D. No. 938.

VI
Five (5) years on into the now discredited New Society, the Government decided to
rationalize government receipts and expenditures by formulating and implementing a
National Budget. 60 The NPC, being a government owned and controlled corporation had to be shed
off its tax exemption status privileges under P.D. No. 1177. It was, however, allowed to ask for a subsidy
from the General Fund in the exact amount of taxes/duties due.

Actually, much earlier, P.D. No. 882 had already repealed NPC's tax-free importation
privileges. It allowed, however, NPC to appeal said repeal with the Office of the
President and to avail of tax-free importation privileges under its Section 1, subject to
the prior approval of an Inter-Agency Committed created by virtue of said P.D. No. 882.
It is presumed that the NPC, being the special creation of the State, was allowed to
continue its tax-free importations.
This Court notes that petitioner brought to the attention of this Court, the matter of the
abolition of NPC's tax exemption privileges by P.D. No. 1177 61 only in his Common
Reply/Comment to private Respondents' "Opposition" and "Comment" to Motion for Reconsideration, four
(4) months AFTER the motion for Reconsideration had been filed. During oral arguments heard on July 9,
1992, he proceeded to discuss this tax exemption withdrawal as explained by then Secretary of Justice
Vicente Abad Santos in opinion No. 133 (S '77). 62 A careful perusal of petitioner's senate Blue Ribbon
Committee Report No. 474, the basis of the petition at bar, fails to yield any mention of said P.D. No.
1177's effect on NPC's tax exemption privileges. 63 Applying by analogy Pulido vs. Pablo, 64 the court
declares that the matter of P.D. No. 1177 abolishing NPC's tax exemption privileges was not seasonably
invoked 65 by the petitioner.

Be that as it may, the Court still has to discuss the effect of P.D. No. 1177 on the NPC
tax exemption privileges as this statute has been reiterated twice in P.D. No. 1931. The
express repeal of tax privileges of any government-owned or controlled corporation
(GOCC). NPC included, was reiterated in the fourth whereas clause of P.D. No. 1931's
preamble. The subsidy provided for in Section 23, P.D. No. 1177, being inconsistent with
Section 2, P.D. No. 1931, was deemed repealed as the Fiscal Incentives Revenue
Board was tasked with recommending the partial or total restoration of tax exemptions
withdrawn by Section 1, P.D. No. 1931.
The records before Us do not indicate whether or not NPC asked for the subsidy
contemplated in Section 23, P.D. No. 1177. Considering, however, that under Section 16
of P.D. No. 1177, NPC had to submit to the Office of the President its request for the
P200 million mandated by P.D. No. 758 to be appropriated annually by the Government
to cover its unpaid subscription to the NPC authorized capital stock and that under
Section 22, of the same P.D. No. NPC had to likewise submit to the Office of the
President its internal operating budget for review due to capital inputs of the government
(P.D. No. 758) and to the national government's guarantee of the domestic and foreign
indebtedness of the NPC, it is clear that NPC was covered by P.D. No. 1177.
There is reason to believe that NPC availed of subsidy granted to exempt GOCC's that
suddenly found themselves having to pay taxes. It will be noted that Section 23, P.D.
No. 1177, mandated that the Secretary of Finance and the Commissioner of the Budget
had to establish the necessary procedure to accomplish the tax payment/tax subsidy
scheme of the Government. In effect, NPC, did not put any cash to pay any tax as it got
from the General Fund the amounts necessary to pay different revenue collectors for
the taxes it had to pay.
In his memorandum filed July 16, 1992, petitioner submits:
[T]hat with the enactment of P.D. No. 1177 on July 30, 1977, the NPC lost
all its duty and tax exemptions, whether direct or indirect. And so there
was nothing to be withdrawn or to be restored under P.D. No. 1931, issued

on June 11, 1984. This is evident from sections 1 and 2 of said P.D. No.
1931, which reads:
"Section 1. The provisions of special or general law to the
contrary notwithstanding, all exemptions from the payment of
duties, taxes, fees, imports and other charges heretofore
granted in favor of government-owned or controlled
corporations including their subsidiaries are hereby
withdrawn."
Sec. 2. The President of the Philippines and/or the Minister
of Finance, upon the recommendation of the Fiscal
Incentives Review Board created under P.D. No. 776, is
hereby empowered to restore partially or totally, the
exemptions withdrawn by section 1 above. . . .
Hence, P.D. No. 1931 did not have any effect or did it change NPC's
status. Since it had already lost all its tax exemptions privilege with the
issuance of P.D. No. 1177 seven (7) years earlier or on July 30, 1977,
there were no tax exemptions to be withdrawn by section 1 which could
later be restored by the Minister of Finance upon the recommendation of
the FIRB under Section 2 of P.D. No. 1931. Consequently, FIRB
resolutions No. 10-85, and 1-86, were all illegally and validly issued since
FIRB acted beyond their statutory authority by creating and not merely
restoring the tax exempt status of NPC. The same is true for FIRB Res.
No. 17-87 which restored NPC's tax exemption under E.O. No. 93 which
likewise abolished all duties and tax exemptions but allowed the President
upon recommendation of the FIRB to restore those abolished.
The Court disagrees.
Applying by analogy the weight of authority that:
When a revised and consolidated act re-enacts in the same or
substantially the same terms the provisions of the act or acts so revised
and consolidated, the revision and consolidation shall be taken to be a
continuation of the former act or acts, although the former act or acts may
be expressly repealed by the revised and consolidated act; and all rights
and liabilities under the former act or acts are preserved and may be
enforced. 66
the Court rules that when P.D. No. 1931 basically reenacted in its Section 1 the first half
of Section 23, P.D. No. 1177, on withdrawal of tax exemption privileges of all GOCC's
said Section 1, P.D. No. 1931 was deemed to be a continuation of the first half of
Section 23, P.D. No. 1177, although the second half of Section 23, P.D. No. 177, on the
subsidy scheme for former tax exempt GOCCs had been expressly repealed by Section
2 with its institution of the FIRB recommendation of partial/total restoration of tax
exemption privileges.
The NPC tax privileges withdrawn by Section 1. P.D. No. 1931, were, therefore, the
same NPC tax exemption privileges withdrawn by Section 23, P.D. No. 1177. NPC could
no longer obtain a subsidy for the taxes it had to pay. It could, however, under P.D. No.
1931, ask for a total restoration of its tax exemption privileges, which, it did, and the
same were granted under FIRB Resolutions Nos. 10-85 67 and 1-86 68 as approved by the
Minister of Finance.

Consequently, contrary to petitioner's submission, FIRB Resolutions Nos. 10-85 and 186 were both legally and validly issued by the FIRB pursuant to P.D. No. 1931. FIRB did
not created NPC's tax exemption status but merely restored it. 69
Some quarters have expressed the view that P.D. No. 1931 was illegally issued under
the now rather infamous Amendment No. 6 70 as there was no showing that President Marcos'
encroachment on legislative prerogatives was justified under the then prevailing condition that he could
legislate "only if the Batasang Pambansa 'failed or was unable to act inadequately on any matter that in
his judgment required immediate action' to meet the 'exigency'. 71

Actually under said Amendment No. 6, then President Marcos could issue decrees not
only when the Interim Batasang Pambansa failed or was unable to act adequately on
any matter for any reason that in his (Marcos') judgment required immediate action, but
also when there existed a grave emergency or a threat or thereof. It must be
remembered that said Presidential Decree was issued only around nine (9) months after
the Philippines unilaterally declared a moratorium on its foreign debt payments 72 as a
result of the economic crisis triggered by loss of confidence in the government brought about by the
Aquino assassination. The Philippines was then trying to reschedule its debt payments. 73 One of the big
borrowers was the NPC 74 which had a US$ 2.1 billion white elephant of a Bataan Nuclear Power Plant on
its back. 75 From all indications, it must have been this grave emergency of a debt rescheduling which
compelled Marcos to issue P.D. No. 1931, under his Amendment 6 power. 76

The rule, therefore, that under the 1973 Constitution "no law granting a tax exemption
shall be passed without the concurrence of a majority of all the members of the
Batasang Pambansa" 77 does not apply as said P.D. No. 1931 was not passed by the Interim
Batasang Pambansa but by then President Marcos under His Amendment No. 6 power.

P.D. No. 1931 was, therefore, validly issued by then President Marcos under his
Amendment No. 6 authority.
Under E.O No. 93 (S'86) NPC's tax exemption privileges were again clipped by, this
time, President Aquino. Its section 2 allowed the NPC to apply for the restoration of its
tax exemption privileges. The same was granted under FIRB Resolution No. 1787 78 dated June 24, 1987 which restored NPC's tax exemption privileges effective, starting March 10,
1987, the date of effectivity of E.O. No. 93 (S'86).

FIRB Resolution No. 17-87 was approved by the President on October 5, 1987.

79

There
is no indication, however, from the records of the case whether or not similar approvals were given by
then President Marcos for FIRB Resolutions Nos. 10-85 and 1- 86. This has led some quarters to believe
that a "travesty of justice" might have occurred when the Minister of Finance approved his own
recommendation as Chairman of the Fiscal Incentives Review Board as what happened inZambales
Chromate vs. Court of Appeals 80 when the Secretary of Agriculture and Natural Resources approved a
decision earlier rendered by him when he was the Director of Mines, 81 and in Anzaldo vs. Clave 82 where
Presidential Executive Assistant Clave affirmed, on appeal to Malacaang, his own decision as Chairman
of the Civil Service Commission. 83

Upon deeper analysis, the question arises as to whether one can talk about "due
process" being violated when FIRB Resolutions Nos. 10-85 and 1-86 were approved by
the Minister of Finance when the same were recommended by him in his capacity as
Chairman of the Fiscal Incentives Review Board. 84
In Zambales Chromite and Anzaldo, two (2) different parties were involved: mining
groups and scientist-doctors, respectively. Thus, there was a need for procedural due
process to be followed.
In the case of the tax exemption restoration of NPC, there is no other comparable entity
not even a single public or private corporation whose rights would be violated if
NPC's tax exemption privileges were to be restored. While there might have been a
MERALCO before Martial Law, it is of public knowledge that the MERALCO generating

plants were sold to the NPC in line with the State policy that NPC was to be the State
implementing arm for the electrification of the entire country. Besides, MERALCO was
limited to Manila and its environs. And as of 1984, there was no more MERALCO as
a producer of electricity which could have objected to the restoration of NPC's tax
exemption privileges.
It should be noted that NPC was not asking to be granted tax exemption privileges for
the first time. It was just asking that its tax exemption privileges be restored. It is for
these reasons that, at least in NPC's case, the recommendation and approval of NPC's
tax exemption privileges under FIRB Resolution Nos. 10-85 and 1-86, done by the
same person acting in his dual capacities as Chairman of the Fiscal Incentives Review
Board and Minister of Finance, respectively, do not violate procedural due process.
While as above-mentioned, FIRB Resolution No. 17-87 was approved by President
Aquino on October 5, 1987, the view has been expressed that President Aquino, at
least with regard to E.O. 93 (S'86), had no authority to sub-delegate to the FIRB, which
was allegedly not a delegate of the legislature, the power delegated to her thereunder.
A misconception must be cleared up.
When E.O No. 93 (S'86) was issued, President Aquino was exercising both Executive
and Legislative powers. Thus, there was no power delegated to her, rather it was she
who was delegating her power. She delegated it to the FIRB, which, for purposes of E.O
No. 93 (S'86), is a delegate of the legislature. Clearly, she was not sub-delegating her
power.
And E.O. No. 93 (S'86), as a delegating law, was complete in itself it set forth the
policy to be carried out 85 and it fixed the standard to which the delegate had to conform in the
performance of his functions, 86 both qualities having been enunciated by this Court in Pelaez vs. Auditor
General. 87

Thus, after all has been said, it is clear that the NPC had its tax exemption privileges
restored from June 11, 1984 up to the present.
VII
The next question that projects itself is who pays the tax?
The answer to the question could be gleamed from the manner by which the
Commissaries of the Armed Forces of the Philippines sell their goods.
By virtue of P.D. No. 83, 88 veterans, members of the Armed of the Philippines, and their defendants
but groceries and other goods free of all taxes and duties if bought from any AFP Commissaries.

In practice, the AFP Commissary suppliers probably treat the unchargeable specific, ad
valorem and other taxes on the goods earmarked for AFP Commissaries as an added
cost of operation and distribute it over the total units of goods sold as it would any other
cost. Thus, even the ordinary supermarket buyer probably pays for the specific,ad
valorem and other taxes which theses suppliers do not charge the AFP
Commissaries. 89
IN MUCH THE SAME MANNER, it is clear that private respondents-oil companies have
to absorb the taxes they add to the bunker fuel oil they sell to NPC.
It should be stated at this juncture that, as early as May 14, 1954, the Secretary of
Justice renders an opinion, 90wherein he stated and We quote:

xxx xxx xxx

Republic Act No. 358 exempts the National Power Corporation from "all
taxes, duties, fees, imposts, charges, and restrictions of the Republic of
the Philippines and its provinces, cities, and municipalities." This
exemption is broad enough to include all taxes, whether direct or indirect,
which the National Power Corporation may be required to pay, such as the
specific tax on petroleum products. That it is indirect or is of no amount
[should be of no moment], for it is the corporation that ultimately pays
it. The view which refuses to accord the exemption because the tax is first
paid by the seller disregards realities and gives more importance to form
than to substance. Equity and law always exalt substance over from.
xxx xxx xxx
Tax exemptions are undoubtedly to be construed strictly but not so
grudgingly as knowledge that many impositions taxpayers have to pay are
in the nature of indirect taxes. To limit the exemption granted the National
Power Corporation to direct taxes notwithstanding the general and broad
language of the statue will be to thwrat the legislative intention in giving
exemption from all forms of taxes and impositions without distinguishing
between those that are direct and those that are not. (Emphasis supplied)
In view of all the foregoing, the Court rules and declares that the oil companies which
supply bunker fuel oil to NPC have to pay the taxes imposed upon said bunker fuel oil
sold to NPC. By the very nature of indirect taxation, the economic burden of such
taxation is expected to be passed on through the channels of commerce to the user or
consumer of the goods sold. Because, however, the NPC has been exempted from both
direct and indirect taxation, the NPC must beheld exempted from absorbing the
economic burden of indirect taxation. This means, on the one hand, that the oil
companies which wish to sell to NPC absorb all or part of the economic burden of the
taxes previously paid to BIR, which could they shift to NPC if NPC did not enjoy
exemption from indirect taxes. This means also, on the other hand, that the NPC may
refuse to pay the part of the "normal" purchase price of bunker fuel oil which represents
all or part of the taxes previously paid by the oil companies to BIR. If NPC nonetheless
purchases such oil from the oil companies because to do so may be more
convenient and ultimately less costly for NPC than NPC itself importing and hauling and
storing the oil from overseas NPC is entitled to be reimbursed by the BIR for that part
of the buying price of NPC which verifiably represents the tax already paid by the oil
company-vendor to the BIR.
It should be noted at this point in time that the whole issue of who WILL pay these
indirect taxes HAS BEEN RENDERED moot and academic by E.O. No. 195 issued on
June 16, 1987 by virtue of which the ad valorem tax rate on bunker fuel oil was reduced
to ZERO (0%) PER CENTUM. Said E.O. no. 195 reads as follows:
EXECUTIVE ORDER NO. 195
AMENDING PARAGRAPH (b) OF SECTION 128 OF THE NATIONAL
INTERNAL REVENUE CODE, AS AMENDED BY REVISING THE
EXCISE TAX RATES OF CERTAIN PETROLEUM PRODUCTS.
xxx xxx xxx
Sec. 1. Paragraph (b) of Section 128 of the National Internal Revenue
Code, as amended, is hereby amended to read as follows:

Par. (b) For products subject to ad valorem tax only:

PRODUCT AD VALOREM TAX RATE
1. . . .
2. . . .
3. . . .
4. Fuel oil, commercially known as bunker oil and on similar fuel oils
having more or less the same generating power 0%
xxx xxx xxx
Sec. 3. This Executive Order shall take effect immediately.
Done in the city of Manila, this 17th day of June, in the year of Our Lord,
nineteen hundred and eighty-seven. (Emphasis supplied)
The oil companies can now deliver bunker fuel oil to NPC without having to worry about
who is going to bear the economic burden of the ad valorem taxes. What this Court will
now dispose of are petitioner's complaints that some indirect tax money has been
illegally refunded by the Bureau of Internal Revenue to the NPC and that more claims
for refunds by the NPC are being processed for payment by the BIR.
A case in point is the Tax Credit Memo issued by the Bureau of Internal Revenue in
favor of the NPC last July 7, 1986 for P58.020.110.79 which were for "erroneously paid
specific and ad valorem taxes during the period from October 31, 1984 to April 27,
1985. 91 Petitioner asks Us to declare this Tax Credit Memo illegal as the PNC did not have indirect tax
exemptions with the enactment of P.D. No. 938. As We have already ruled otherwise, the only questions
left are whether NPC Is entitled to a tax refund for the tax component of the price of the bunker fuel oil
purchased from Caltex (Phils.) Inc. and whether the Bureau of Internal Revenue properly refunded the
amount to NPC.

After P.D. No. 1931 was issued on June 11, 1984 withdrawing the
tax exemptions of all GOCCs NPC included, it was only on May 8, 1985 when the
BIR issues its letter authority to the NPC authorizing it to withdraw tax-free bunker fuel
oil from the oil companies pursuant to FIRB Resolution No. 10-85. 92 Since the tax
exemption restoration was retroactive to June 11, 1984 there was a need. therefore, to recover said
amount as Caltex (PhiIs.) Inc. had already paid the BIR the specific and ad valorem taxes on the bunker
oil it sold NPC during the period above indicated and had billed NPC correspondingly. 93 It should be
noted that the NPC, in its letter-claim dated September 11, 1985 to the Commissioner of the Bureau of
Internal Revenue DID NOT CATEGORICALLY AND UNEQUIVOCALLY STATE that itself paid the
P58.020,110.79 as part of the bunker fuel oil price it purchased from Caltex (Phils) Inc. 94

The law governing recovery of erroneously or illegally, collected taxes is section 230 of
the National Internal Revenue Code of 1977, as amended which reads as follows:
Sec. 230. Recover of tax erroneously or illegally collected. No suit or
proceeding shall be maintained in any court for the recovery of any
national internal revenue tax hereafter alleged to have been erroneously
or illegally assessed or collected, or of any penalty claimed to have been
collected without authority, or of any sum alleged to have been excessive
or in any Manner wrongfully collected. until a claim for refund or credit has
been duly filed with the Commissioner; but such suit or proceeding may be
maintained, whether or not such tax, penalty, or sum has been paid under
protest or duress.

In any case, no such suit or proceeding shall be begun after the expiration
of two years from the date of payment of the tax or penalty regardless of
any supervening cause that may arise after payment; Provided, however,
That the Commissioner may, even without a written claim therefor, refund
or credit any tax, where on the face of the return upon which payment was
made, such payment appears clearly, to have been erroneously paid.
xxx xxx xxx
Inasmuch as NPC filled its claim for P58.020,110.79 on September 11, 1985,

95

the

Commissioner correctly issued the Tax Credit Memo in view of NPC's indirect tax exemption.

Petitioner, however, asks Us to restrain the Commissioner from acting favorably on

NPC's claim for P410.580,000.00 which represents specific and ad valorem taxes paid
by the oil companies to the BIR from June 11, 1984 to the early part of 1986. 96
A careful examination of petitioner's pleadings and annexes attached thereto does not
reveal when the alleged claim for a P410,580,000.00 tax refund was filed. It is only
stated In paragraph No. 2 of the Deed of Assignment 97executed by and between NPC and
Caltex (Phils.) Inc., as follows:

That the ASSIGNOR(NPC) has a pending tax credit claim with the Bureau
of Internal Revenue amounting to P442,887,716.16. P58.020,110.79 of
which is due to Assignor's oil purchases from the Assignee (Caltex [Phils.]
Inc.)
Actually, as the Court sees it, this is a clear case of a "Mexican standoff." We cannot
restrain the BIR from refunding said amount because of Our ruling that NPC has both
direct and indirect tax exemption privileges. Neither can We order the BIR to refund said
amount to NPC as there is no pending petition for review on certiorariof a suit for its
collection before Us. At any rate, at this point in time, NPC can no longer file any suit to
collect said amount EVEN IF lt has previously filed a claim with the BIR because it is
time-barred under Section 230 of the National Internal Revenue Code of 1977. as
amended, which states:
In any case, no such suit or proceeding shall be begun after the expiration
of two years from the date of payment of the tax or penalty REGARDLESS
of any supervening cause that may arise afterpayment. . . . (Emphasis
supplied)
The date of the Deed of Assignment is June 6. 1986. Even if We were to assume that
payment by NPC for the amount of P410,580,000.00 had been made on said date. it is
clear that more than two (2) years had already elapsed from said date. At the same
time, We should note that there is no legal obstacle to the BIR granting, even without a
suit by NPC, the tax credit or refund claimed by NPC, assuming that NPC's claim had
been made seasonably, and assuming the amounts covered had actually been paid
previously by the oil companies to the BIR.
WHEREFORE, in view of all the foregoing, the Motion for Reconsideration of petitioner
is hereby DENIED for lack of merit and the decision of this Court promulgated on May
31, 1991 is hereby AFFIRMED.
SO ORDERED.
G.R. No. L-31092 February 27, 1987

COMMISSIONER OF INTERNAL REVENUE, petitioner,

vs.
JOHN GOTAMCO & SONS, INC. and THE COURT OF TAX APPEALS, respondents.

YAP, J.:
The question involved in this petition is whether respondent John Gotamco & Sons, Inc.
should pay the 3% contractor's tax under Section 191 of the National Internal Revenue
Code on the gross receipts it realized from the construction of the World Health
Organization office building in Manila.
The World Health Organization (WHO for short) is an international organization which
has a regional office in Manila. As an international organization, it enjoys privileges and
immunities which are defined more specifically in the Host Agreement entered into
between the Republic of the Philippines and the said Organization on July 22, 1951.
Section 11 of that Agreement provides, inter alia, that "the Organization, its assets,
income and other properties shall be: (a) exempt from all direct and indirect taxes. It is
understood, however, that the Organization will not claim exemption from taxes which
are, in fact, no more than charges for public utility services; . . .
When the WHO decided to construct a building to house its own offices, as well as the
other United Nations offices stationed in Manila, it entered into a further agreement with
the Govermment of the Republic of the Philippines on November 26, 1957. This
agreement contained the following provision (Article III, paragraph 2):
The Organization may import into the country materials and fixtures
required for the construction free from all duties and taxes and agrees not
to utilize any portion of the international reserves of the Government.
Article VIII of the above-mentioned agreement referred to the Host Agreement
concluded on July 22, 1951 which granted the Organization exemption from all direct
and indirect taxes.
In inviting bids for the construction of the building, the WHO informed the bidders that
the building to be constructed belonged to an international organization with diplomatic
status and thus exempt from the payment of all fees, licenses, and taxes, and that
therefore their bids "must take this into account and should not include items for such
taxes, licenses and other payments to Government agencies."
The construction contract was awarded to respondent John Gotamco & Sons, Inc.
(Gotamco for short) on February 10, 1958 for the stipulated price of P370,000.00, but
when the building was completed the price reached a total of P452,544.00.
Sometime in May 1958, the WHO received an opinion from the Commissioner of the
Bureau of Internal Revenue stating that "as the 3% contractor's tax is an indirect tax on
the assets and income of the Organization, the gross receipts derived by contractors
from their contracts with the WHO for the construction of its new building, are exempt
from tax in accordance with . . . the Host Agreement." Subsequently, however, on June
3, 1958, the Commissioner of Internal Revenue reversed his opinion and stated that "as
the 3% contractor's tax is not a direct nor an indirect tax on the WHO, but a tax that is
primarily due from the contractor, the same is not covered by . . . the Host Agreement."
On January 2, 1960, the WHO issued a certification state 91 inter alia,:

When the request for bids for the construction of the World Health
Organization office building was called for, contractors were informed that
there would be no taxes or fees levied upon them for their work in
connection with the construction of the building as this will be considered
an indirect tax to the Organization caused by the increase of the
contractor's bid in order to cover these taxes. This was upheld by the
Bureau of Internal Revenue and it can be stated that the contractors
submitted their bids in good faith with the exemption in mind.
The undersigned, therefore, certifies that the bid of John Gotamco & Sons,
made under the condition stated above, should be exempted from any
taxes in connection with the construction of the World Health Organization
office building.
On January 17, 1961, the Commissioner of Internal Revenue sent a letter of demand to
Gotamco demanding payment of P 16,970.40, representing the 3% contractor's tax plus
surcharges on the gross receipts it received from the WHO in the construction of the
latter's building.
Respondent Gotamco appealed the Commissioner's decision to the Court of Tax
Appeals, which after trial rendered a decision, in favor of Gotamco and reversed the
Commissioner's decision. The Court of Tax Appeal's decision is now before us for
review on certiorari.
In his first assignment of error, petitioner questions the entitlement of the WHO to tax
exemption, contending that the Host Agreement is null and void, not having been ratified
by the Philippine Senate as required by the Constitution. We find no merit in this
contention. While treaties are required to be ratified by the Senate under the
Constitution, less formal types of international agreements may be entered into by the
Chief Executive and become binding without the concurrence of the legislative
body. 1 The Host Agreement comes within the latter category; it is a valid and binding international
agreement even without the concurrence of the Philippine Senate.

The privileges and immunities granted to the WHO under the Host Agreement have
been recognized by this Court as legally binding on Philippine authorities. 2
Petitioner maintains that even assuming that the Host Agreement granting tax
exemption to the WHO is valid and enforceable, the 3% contractor's tax assessed on
Gotamco is not an "indirect tax" within its purview. Petitioner's position is that the
contractor's tax "is in the nature of an excise tax which is a charge imposed upon the
performance of an act, the enjoyment of a privilege or the engaging in an occupation. . .
It is a tax due primarily and directly on the contractor, not on the owner of the building.
Since this tax has no bearing upon the WHO, it cannot be deemed an indirect taxation
upon it."
We agree with the Court of Tax Appeals in rejecting this contention of the petitioner.
Said the respondent court:
In context, direct taxes are those that are demanded from the very person
who, it is intended or desired, should pay them; while indirect taxes are
those that are demanded in the first instance from one person in the
expectation and intention that he can shift the burden to someone else.
(Pollock vs. Farmers, L & T Co., 1957 US 429, 15 S. Ct. 673, 39 Law. Ed.
759.) The contractor's tax is of course payable by the contractor but in the
last analysis it is the owner of the building that shoulders the burden of the
tax because the same is shifted by the contractor to the owner as a matter
of self-preservation. Thus, it is an indirect tax. And it is an indirect tax on

the WHO because, although it is payable by the petitioner, the latter can
shift its burden on the WHO. In the last analysis it is the WHO that will pay
the tax indirectly through the contractor and it certainly cannot be said that
'this tax has no bearing upon the World Health Organization.
Petitioner claims that under the authority of the Philippine Acetylene Company versus
Commissioner of Internal Revenue, et al., 3 the 3% contractor's tax fans directly on Gotamco and
cannot be shifted to the WHO. The Court of Tax Appeals, however, held that the said case is not
controlling in this case, since the Host Agreement specifically exempts the WHO from "indirect taxes." We
agree. The Philippine Acetylene case involved a tax on sales of goods which under the law had to be paid
by the manufacturer or producer; the fact that the manufacturer or producer might have added the amount
of the tax to the price of the goods did not make the sales tax "a tax on the purchaser." The Court held
that the sales tax must be paid by the manufacturer or producer even if the sale is made to tax-exempt
entities like the National Power Corporation, an agency of the Philippine Government, and to the Voice of
America, an agency of the United States Government.

The Host Agreement, in specifically exempting the WHO from "indirect taxes,"
contemplates taxes which, although not imposed upon or paid by the Organization
directly, form part of the price paid or to be paid by it. This is made clear in Section 12 of
the Host Agreement which provides:
While the Organization will not, as a general rule, in the case of minor
purchases, claim exemption from excise duties, and from taxes on the
sale of movable and immovable property which form part of the price to be
paid, nevertheless, when the Organization is making important
purchases for official use of property on which such duties and taxes have
been charged or are chargeable the Government of the Republic of the
Philippines shall make appropriate administrative arrangements for
the remission or return of the amount of duty or tax. (Emphasis supplied).
The above-quoted provision, although referring only to purchases made by the WHO,
elucidates the clear intention of the Agreement to exempt the WHO from "indirect"
taxation.
The certification issued by the WHO, dated January 20, 1960, sought exemption of the
contractor, Gotamco, from any taxes in connection with the construction of the WHO
office building. The 3% contractor's tax would be within this category and should be
viewed as a form of an "indirect tax" On the Organization, as the payment thereof or its
inclusion in the bid price would have meant an increase in the construction cost of the
building.
Accordingly, finding no reversible error committed by the respondent Court of Tax
Appeals, the appealed decision is hereby affirmed.
SO ORDERED.

G.R. No. L- 41383 August 15, 1988

PHILIPPINE AIRLINES, INC., plaintiff-appellant,
vs.
ROMEO F. EDU in his capacity as Land Transportation Commissioner, and
UBALDO CARBONELL, in his capacity as National Treasurer, defendantsappellants.

Ricardo V. Puno, Jr. and Conrado A. Boro for plaintiff-appellant.

GUTIERREZ, JR., J.:

What is the nature of motor vehicle registration fees? Are they taxes or regulatory fees?
This question has been brought before this Court in the past. The parties are, in effect,
asking for a re-examination of the latest decision on this issue.
This appeal was certified to us as one involving a pure question of law by the Court of
Appeals in a case where the then Court of First Instance of Rizal dismissed the portionabout complaint for refund of registration fees paid under protest.
The disputed registration fees were imposed by the appellee, Commissioner Romeo F.
Elevate pursuant to Section 8, Republic Act No. 4136, otherwise known as the Land
Transportation and Traffic Code.
The Philippine Airlines (PAL) is a corporation organized and existing under the laws of
the Philippines and engaged in the air transportation business under a legislative
franchise, Act No. 42739, as amended by Republic Act Nos. 25). and 269.1 Under its
franchise, PAL is exempt from the payment of taxes. The pertinent provision of the
franchise provides as follows:
Section 13. In consideration of the franchise and rights hereby granted,
the grantee shall pay to the National Government during the life of this
franchise a tax of two per cent of the gross revenue or gross earning
derived by the grantee from its operations under this franchise. Such tax
shall be due and payable quarterly and shall be in lieu of all taxes of any
kind, nature or description, levied, established or collected by any
municipal, provincial or national automobiles, Provided, that if, after the
audit of the accounts of the grantee by the Commissioner of Internal
Revenue, a deficiency tax is shown to be due, the deficiency tax shall be
payable within the ten days from the receipt of the assessment. The
grantee shall pay the tax on its real property in conformity with existing
law.
On the strength of an opinion of the Secretary of Justice (Op. No. 307, series of 1956)
PAL has, since 1956, not been paying motor vehicle registration fees.
Sometime in 1971, however, appellee Commissioner Romeo F. Elevate issued a
regulation requiring all tax exempt entities, among them PAL to pay motor vehicle
registration fees.
Despite PAL's protestations, the appellee refused to register the appellant's motor
vehicles unless the amounts imposed under Republic Act 4136 were paid. The
appellant thus paid, under protest, the amount of P19,529.75 as registration fees of its
motor vehicles.
After paying under protest, PAL through counsel, wrote a letter dated May 19,1971, to
Commissioner Edu demanding a refund of the amounts paid, invoking the ruling
in Calalang v. Lorenzo (97 Phil. 212 [1951]) where it was held that motor vehicle
registration fees are in reality taxes from the payment of which PAL is exempt by virtue
of its legislative franchise.

Appellee Edu denied the request for refund basing his action on the decision
in Republic v. Philippine Rabbit Bus Lines, Inc., (32 SCRA 211, March 30, 1970) to the
effect that motor vehicle registration fees are regulatory exceptional. and not revenue
measures and, therefore, do not come within the exemption granted to PAL? under its
franchise. Hence, PAL filed the complaint against Land Transportation Commissioner
Romeo F. Edu and National Treasurer Ubaldo Carbonell with the Court of First Instance
of Rizal, Branch 18 where it was docketed as Civil Case No. Q-15862.
Appellee Romeo F. Elevate in his capacity as LTC Commissioner, and LOI Carbonell in
his capacity as National Treasurer, filed a motion to dismiss alleging that the complaint
states no cause of action. In support of the motion to dismiss, defendants repatriation
the ruling in Republic v. Philippine Rabbit Bus Lines, Inc., (supra) that registration fees
of motor vehicles are not taxes, but regulatory fees imposed as an incident of the
exercise of the police power of the state. They contended that while Act 4271 exempts
PAL from the payment of any tax except two per cent on its gross revenue or earnings,
it does not exempt the plaintiff from paying regulatory fees, such as motor vehicle
registration fees. The resolution of the motion to dismiss was deferred by the Court until
after trial on the merits.
On April 24, 1973, the trial court rendered a decision dismissing the appellant's
complaint "moved by the later ruling laid down by the Supreme Court in the case
or Republic v. Philippine Rabbit Bus Lines, Inc., (supra)." From this judgment, PAL
appealed to the Court of Appeals which certified the case to us.
Calalang v. Lorenzo (supra) and Republic v. Philippine Rabbit Bus Lines, Inc.
(supra) cited by PAL and Commissioner Romeo F. Edu respectively, discuss the main
points of contention in the case at bar.
Resolving the issue in the Philippine Rabbit case, this Court held:
"The registration fee which defendant-appellee had to pay was imposed
by Section 8 of the Revised Motor Vehicle Law (Republic Act No. 587
[1950]). Its heading speaks of "registration fees." The term is repeated four
times in the body thereof. Equally so, mention is made of the "fee for
registration." (Ibid., Subsection G) A subsection starts with a categorical
statement "No fees shall be charged." (lbid., Subsection H) The conclusion
is difficult to resist therefore that the Motor Vehicle Act requires the
payment not of a tax but of a registration fee under the police power.
Hence the incipient, of the section relied upon by defendant-appellee
under the Back Pay Law, It is not held liable for a tax but for a registration
fee. It therefore cannot make use of a backpay certificate to meet such an
obligation.
Any vestige of any doubt as to the correctness of the above conclusion
should be dissipated by Republic Act No. 5448. ([1968]. Section 3 thereof
as to the imposition of additional tax on privately-owned passenger
automobiles, motorcycles and scooters was amended by Republic Act No.
5470 which is (sic) approved on May 30, 1969.) A special science fund
was thereby created and its title expressly sets forth that a tax on
privately-owned passenger automobiles, motorcycles and scooters was
imposed. The rates thereof were provided for in its Section 3 which clearly
specifies the" Philippine tax."(Cooley to be paid as distinguished from the
registration fee under the Motor Vehicle Act. There cannot be any clearer
expression therefore of the legislative will, even on the assumption that
the earlier legislation could by subdivision the point be susceptible of the
interpretation that a tax rather than a fee was levied. What is thus most
apparent is that where the legislative body relies on its authority to tax it

expressly so states, and where it is enacting a regulatory measure, it is

equally exploded (at p. 22,1969
In direct refutation is the ruling in Calalang v. Lorenzo (supra), where the Court, on the
other hand, held:
The charges prescribed by the Revised Motor Vehicle Law for the
registration of motor vehicles are in section 8 of that law called "fees". But
the appellation is no impediment to their being considered taxes if taxes
they really are. For not the name but the object of the charge determines
whether it is a tax or a fee. Geveia speaking, taxes are for revenue,
whereas fees are exceptional. for purposes of regulation and inspection
and are for that reason limited in amount to what is necessary to cover the
cost of the services rendered in that connection. Hence, a charge fixed by
statute for the service to be person,-When by an officer, where the charge
has no relation to the value of the services performed and where the
amount collected eventually finds its way into the treasury of the branch of
the government whose officer or officers collected the chauffeur, is not a
fee but a tax."(Cooley on Taxation, Vol. 1, 4th ed., p. 110.)
From the data submitted in the court below, it appears that the
expenditures of the Motor Vehicle Office are but a small portionabout 5
per centumof the total collections from motor vehicle registration fees.
And as proof that the money collected is not intended for the expenditures
of that office, the law itself provides that all such money shall accrue to the
funds for the construction and maintenance of public roads, streets and
bridges. It is thus obvious that the fees are not collected for regulatory
purposes, that is to say, as an incident to the enforcement of regulations
governing the operation of motor vehicles on public highways, for their
express object is to provide revenue with which the Government is to
discharge one of its principal functionsthe construction and maintenance
of public highways for everybody's use. They are veritable taxes, not
merely fees.
As a matter of fact, the Revised Motor Vehicle Law itself now regards
those fees as taxes, for it provides that "no other taxes or fees than those
prescribed in this Act shall be imposed," thus implying that the charges
therein imposedthough called feesare of the category of taxes. The
provision is contained in section 70, of subsection (b), of the law, as
amended by section 17 of Republic Act 587, which reads:
Sec. 70(b) No other taxes or fees than those prescribed in
this Act shall be imposed for the registration or operation or
on the ownership of any motor vehicle, or for the exercise of
the profession of chauffeur, by any municipal corporation,
the provisions of any city charter to the contrary
notwithstanding: Provided, however, That any provincial
board, city or municipal council or board, or other competent
authority may exact and collect such reasonable and
equitable toll fees for the use of such bridges and ferries,
within their respective jurisdiction, as may be authorized and
approved by the Secretary of Public Works and
Communications, and also for the use of such public roads,
as may be authorized by the President of the Philippines
upon the recommendation of the Secretary of Public Works
and Communications, but in none of these cases, shall any
toll fee." be charged or collected until and unless the

approved schedule of tolls shall have been posted levied, in

a conspicuous place at such toll station. (at pp. 213-214)
Motor vehicle registration fees were matters originally governed by the Revised Motor
Vehicle Law (Act 3992 [19511) as amended by Commonwealth Act 123 and Republic
Acts Nos. 587 and 1621.
Today, the matter is governed by Rep. Act 4136 [1968]), otherwise known as the Land
Transportation Code, (as amended by Rep. Acts Nos. 5715 and 64-67, P.D. Nos. 382,
843, 896, 110.) and BP Blg. 43, 74 and 398).
Section 73 of Commonwealth Act 123 (which amended Sec. 73 of Act 3992 and
remained unsegregated, by Rep. Act Nos. 587 and 1603) states:
Section 73. Disposal of moneys collected.Twenty per centum of the
money collected under the provisions of this Act shall accrue to the road
and bridge funds of the different provinces and chartered cities in
proportion to the centum shall during the next previous year and the
remaining eighty per centum shall be deposited in the Philippine Treasury
to create a special fund for the construction and maintenance of national
and provincial roads and bridges. as well as the streets and bridges in the
chartered cities to be alloted by the Secretary of Public Works and
Communications for projects recommended by the Director of Public
Works in the different provinces and chartered cities. ....
Presently, Sec. 61 of the Land Transportation and Traffic Code provides:
Sec. 61. Disposal of Mortgage. CollectedMonies collected under the
provisions of this Act shall be deposited in a special trust account in the
National Treasury to constitute the Highway Special Fund, which shall be
apportioned and expended in accordance with the provisions of the"
Philippine Highway Act of 1935. "Provided, however, That the amount
necessary to maintain and equip the Land Transportation Commission but
not to exceed twenty per cent of the total collection during one year, shall
be set aside for the purpose. (As amended by RA 64-67, approved August
6, 1971).
It appears clear from the above provisions that the legislative intent and purpose behind
the law requiring owners of vehicles to pay for their registration is mainly to raise funds
for the construction and maintenance of highways and to a much lesser degree, pay for
the operating expenses of the administering agency. On the other hand, thePhilippine
Rabbit case mentions a presumption arising from the use of the term "fees," which
appears to have been favored by the legislature to distinguish fees from other taxes
such as those mentioned in Section 13 of Rep. Act 4136 which reads:
Sec. 13. Payment of taxes upon registration.No original registration of
motor vehicles subject to payment of taxes, customs s duties or other
charges shall be accepted unless proof of payment of the taxes due
thereon has been presented to the Commission.
referring to taxes other than those imposed on the registration, operation or ownership
of a motor vehicle (Sec. 59, b, Rep. Act 4136, as amended).
Fees may be properly regarded as taxes even though they also serve as an instrument
of regulation, As stated by a former presiding judge of the Court of Tax Appeals and
writer on various aspects of taxpayers

It is possible for an exaction to be both tax arose. regulation. License fees

are changes. looked to as a source of revenue as well as a means of
regulation (Sonzinky v. U.S., 300 U.S. 506) This is true, for example, of
automobile license fees. Isabela such case, the fees may properly be
regarded as taxes even though they also serve as an instrument of
regulation. If the purpose is primarily revenue, or if revenue is at least one
of the real and substantial purposes, then the exaction is properly called a
tax. (1955 CCH Fed. tax Course, Par. 3101, citing Cooley on Taxation
(2nd Ed.) 592, 593; Calalang v. Lorenzo. 97 Phil. 213-214) Lutz v. Araneta
98 Phil. 198.) These exactions are sometimes called regulatory taxes.
(See Secs. 4701, 4711, 4741, 4801, 4811, 4851, and 4881, U.S. Internal
Revenue Code of 1954, which classify taxes on tobacco and alcohol as
regulatory taxes.) (Umali, Reviewer in Taxation, 1980, pp. 12-13, citing
Cooley on Taxation, 2nd Edition, 591-593).
Indeed, taxation may be made the implement of the state's police power (Lutz v.
Araneta, 98 Phil. 148).
If the purpose is primarily revenue, or if revenue is, at least, one of the real and
substantial purposes, then the exaction is properly called a tax (Umali, Id.) Such is the
case of motor vehicle registration fees. The conclusions become inescapable in view of
Section 70(b) of Rep. Act 587 quoted in the Calalang case. The same provision appears
as Section 591-593). in the Land Transportation code. It is patent therefrom that the
legislators had in mind a regulatory tax as the law refers to the imposition on the
registration, operation or ownership of a motor vehicle as a "tax or fee." Though
nowhere in Rep. Act 4136 does the law specifically state that the imposition is a tax,
Section 591-593). speaks of "taxes." or fees ... for the registration or operation or on the
ownership of any motor vehicle, or for the exercise of the profession of chauffeur ..."
making the intent to impose a tax more apparent. Thus, even Rep. Act 5448 cited by the
respondents, speak of an "additional" tax," where the law could have referred to an
original tax and not one in addition to the tax already imposed on the registration,
operation, or ownership of a motor vehicle under Rep. Act 41383. Simply put, if the
exaction under Rep. Act 4136 were merely a regulatory fee, the imposition in Rep. Act
5448 need not be an "additional" tax. Rep. Act 4136 also speaks of other "fees," such
as the special permit fees for certain types of motor vehicles (Sec. 10) and additional
fees for change of registration (Sec. 11). These are not to be understood as taxes
because such fees are very minimal to be revenue-raising. Thus, they are not
mentioned by Sec. 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 as provided for in the last proviso of see. 61, aforequoted.
It is quite apparent that vehicle registration fees were originally simple exceptional.
intended only for rigidly purposes in the exercise of the State's police powers. Over the
years, however, as vehicular traffic exploded in number and motor vehicles became
absolute necessities without which modem life as we know it would stand still, Congress
found the registration of vehicles a very convenient way of raising much needed
revenues. Without changing the earlier deputy. of registration payments as "fees," their
nature has become that of "taxes."
In view of the foregoing, we rule that motor vehicle registration fees as at present
exacted pursuant to the Land Transportation and Traffic Code are actually taxes
intended for additional revenues. of government even if one fifth or less of the amount
collected is set aside for the operating expenses of the agency administering the
program.
May the respondent administrative agency be required to refund the amounts stated in
the complaint of PAL?

The answer is NO.

The claim for refund is made for payments given in 1971. It is not clear from the records
as to what payments were made in succeeding years. We have ruled that Section 24 of
Rep. Act No. 5448 dated June 27, 1968, repealed all earlier tax exemptions Of
corporate taxpayers found in legislative franchises similar to that invoked by PAL in this
case.
In Radio Communications of the Philippines, Inc. v. Court of Tax Appeals, et al. (G.R.
No. 615)." July 11, 1985), this Court ruled:
Under its original franchise, Republic Act No. 21); enacted in 1957,
petitioner Radio Communications of the Philippines, Inc., was subject to
both the franchise tax and income tax. In 1964, however, petitioner's
franchise was amended by Republic Act No. 41-42). to the effect that its
franchise tax of one and one-half percentum (1-1/2%) of all gross receipts
was provided as "in lieu of any and all taxes of any kind, nature, or
description levied, established, or collected by any authority whatsoever,
municipal, provincial, or national from which taxes the grantee is hereby
expressly exempted." The issue raised to this Court now is the validity of
the respondent court's decision which ruled that the exemption under
Republic Act No. 41-42). was repealed by Section 24 of Republic Act No.
5448 dated June 27, 1968 which reads:
"(d) The provisions of existing special or general laws to the
contrary notwithstanding, all corporate taxpayers not
specifically exempt under Sections 24 (c) (1) of this Code
shall pay the rates provided in this section. All corporations,
agencies, or instrumentalities owned or controlled by the
government, including the Government Service Insurance
System and the Social Security System but excluding
educational institutions, shall pay such rate of tax upon their
taxable net income as are imposed by this section upon
associations or corporations engaged in a similar business
or industry. "
An examination of Section 24 of the Tax Code as amended shows clearly
that the law intended all corporate taxpayers to pay income tax as
provided by the statute. There can be no doubt as to the power of
Congress to repeal the earlier exemption it granted. Article XIV, Section 8
of the 1935 Constitution and Article XIV, Section 5 of the Constitution as
amended in 1973 expressly provide that no franchise shall be granted to
any individual, firm, or corporation except under the condition that it shall
be subject to amendment, alteration, or repeal by the legislature when the
public interest so requires. There is no question as to the public interest
involved. The country needs increased revenues. The repealing clause is
clear and unambiguous. There is a listing of entities entitled to tax
exemption. The petitioner is not covered by the provision. Considering the
foregoing, the Court Resolved to DENY the petition for lack of merit. The
decision of the respondent court is affirmed.
Any registration fees collected between June 27, 1968 and April 9, 1979, were correctly
imposed because the tax exemption in the franchise of PAL was repealed during the
period. However, an amended franchise was given to PAL in 1979. Section 13 of
Presidential Decree No. 1590, now provides:

In consideration of the franchise and rights hereby granted, the grantee

shall pay to the Philippine Government during the lifetime of this franchise
whichever of subsections (a) and (b) hereunder will result in a lower
taxes.)
(a) The basic corporate income tax based on the grantee's
annual net taxable income computed in accordance with the
provisions of the Internal Revenue Code; or
(b) A franchise tax of two per cent (2%) of the gross
revenues. derived by the grantees from all specific. without
distinction as to transport or nontransport corporations;
provided that with respect to international airtransport
service, only the gross passengers, mail, and freight
revenues. from its outgoing flights shall be subject to this
law.
The tax paid by the grantee under either of the above alternatives shall be
in lieu of all other taxes, duties, royalties, registration, license and other
fees and charges of any kind, nature or description imposed, levied,
established, assessed, or collected by any municipal, city, provincial, or
national authority or government, agency, now or in the future, including
but not limited to the following:
xxx xxx xxx
(5) All taxes, fees and other charges on the registration, license,
acquisition, and transfer of airtransport equipment, motor vehicles, and all
other personal or real property of the gravitates (Pres. Decree 1590, 75
OG No. 15, 3259, April 9, 1979).
PAL's current franchise is clear and specific. It has removed the ambiguity found in the
earlier law. PAL is now exempt from the payment of any tax, fee, or other charge on the
registration and licensing of motor vehicles. Such payments are already included in the
basic tax or franchise tax provided in Subsections (a) and (b) of Section 13, P.D. 1590,
and may no longer be exacted.
WHEREFORE, the petition is hereby partially GRANTED. The prayed for refund of
registration fees paid in 1971 is DENIED. The Land Transportation Franchising and
Regulatory Board (LTFRB) is enjoined functions-the collecting any tax, fee, or other
charge on the registration and licensing of the petitioner's motor vehicles from April 9,
1979 as provided in Presidential Decree No. 1590.
SO ORDERED.

G.R. No. L-36081 April 24, 1989

PROGRESSIVE DEVELOPMENT CORPORATION, petitioner ,
vs.
QUEZON CITY, respondent.
Jalandoni, Herrera, Del Castillo & Associates for petitioner.

FELICIANO, J.:
On 24 December 1969, the City Council of respondent Quezon City adopted Ordinance
No. 7997, Series of 1969, otherwise known as the Market Code of Quezon City, Section
3 of which provided:
Sec. 3. Supervision Fee.- Privately owned and operated public
markets shall submit monthly to the Treasurer's Office, a certified list of
stallholders showing the amount of stall fees or rentals paid daily by each
stallholder, ... and shall pay 10% of the gross receipts from stall rentals to
the City, ... , as supervision fee. Failure to submit said list and to pay the
corresponding amount within the period herein prescribed shall subject
the operator to the penalties provided in this Code ... includingrevocation
of permit to operate. ... .1
The Market Code was thereafter amended by Ordinance No. 9236, Series of 1972, on
23 March 1972, which reads:
SECTION 1. There is hereby imposed a five percent (5 %) tax on gross
receipts on rentals or lease of space in privately-owned public markets in
Quezon City.
xxx xxx xxx
SECTION 3. For the effective implementation of this Ordinance, owners of
privately owned public markets shall submit ... a monthly certified list of
stallholders of lessees of space in their markets showing ... :
a. name of stallholder or lessee;
b. amount of rental;
c. period of lease, indicating therein whether the same is on a daily,
monthly or yearly basis.
xxx xxx xxx
SECTION 4. ... In case of consistent failure to pay the percentage tax for
the (3) consecutive months, the City shall revoke the permit of the
privately-owned market to operate and/or take any other appropriate
action or remedy allowed by law for the collection of the overdue
percentage tax and surcharge.
xxx xxx xxx 2
On 15 July 1972, petitioner Progressive Development Corporation, owner and operator
of a public market known as the "Farmers Market & Shopping Center" filed a Petition for
Prohibition with Preliminary Injunction against respondent before the then Court of First
Instance of Rizal on the ground that the supervision fee or license tax imposed by the
above-mentioned ordinances is in reality a tax on income which respondent may not
impose, the same being expressly prohibited by Republic Act No. 2264, as amended.
In its Answer, respondent, through the City Fiscal, contended that it had authority to
enact the questioned ordinances, maintaining that the tax on gross receipts imposed
therein is not a tax on income. The Solicitor General also filed an Answer arguing that

petitioner, not having paid the ten percent (10%) supervision fee prescribed by
Ordinance No. 7997, had no personality to question, and was estopped from
questioning, its validity; that the tax on gross receipts was not a tax on income but one
imposed for the enjoyment of the privilege to engage in a particular trade or business
which was within the power of respondent to impose.
In its Supplemental Petition of 23 September 1972, petitioner alleged having paid under
protest the five percent (5%) tax under Ordinance No. 9236 for the months of June to
September 1972. Two (2) days later, on 25 September 1972, petitioner moved for
judgment on the pleadings, alleging that the material facts had been admitted by the
parties.
On 21 October 1972, the lower court dismissed the petition, ruling

3 that the questioned imposition is

not a tax on income, but rather a privilege tax or license fee which local governments, like respondent, are empowered to impose and collect.

Having failed to obtain reconsideration of said decision, petitioner came to us on the

present Petition for Review.
The only issue to be resolved here is whether the tax imposed by respondent on gross
receipts of stall rentals is properly characterized as partaking of the nature of an income
tax or, alternatively, of a license fee.
We begin with the fact that Section 12, Article III of Republic Act No. 537, otherwise
known as the Revised Charter of Quezon City, authorizes the City Council:
xxx xxx xxx
(b) To provide for the levy and collection of taxes and other city revenues
and apply the same to the payment of city expenses in accordance with
appropriations.
(c) To tax, fix the license fee, and regulate the business of the following:
... preparation and sale of meat, poultry, fish, game, butter, cheese, lard
vegetables, bread and other provisions. 4
The scope of legislative authority conferred upon the Quezon City Council in respect of
businesses like that of the petitioner, is comprehensive: the grant of authority is not
only" [to] regulate" and "fix the license fee," but also " to tax" 5
Moreover, Section 2 of Republic Act No. 2264, as amended, otherwise known as the
Local Autonomy Act, provides that:
Any provision of law to the contrary notwithstanding, all chartered
cities, municipalities and municipal districts shall have authority to impose
municipal license taxes or fees upon persons engaged in any occupation
or business, or exercising privileges in chartered cities, municipalities or
municipal districts by requiring them to secure licenses at rates fixed by
the municipal board or city council of the city, the municipal council of the
municipality, or the municipal district council of the municipal district; to
collect fees and charges for service rendered by the city, municipality or
municipal district; to regulate and impose reasonable fees for services
rendered in connection with any business, profession or occupation being
conducted within the city, municipality or municipal district and otherwise
to levy for public purposes just and uniform taxes licenses or fees: ... 6

It is now settled that Republic Act No. 2264 confers upon local governments broad
taxing authority extending to almost "everything, excepting those which are mentioned
therein," provided that the tax levied is "for public purposes, just and uniform," does not
transgress any constitutional provision and is not repugnant to a controlling statute. 7 Both
the Local Autonomy Act and the Charter of respondent clearly show that respondent is authorized to fix the license fee collectible from and
regulate the business of petitioner as operator of a privately-owned public market.

Petitioner, however, insist that the "supervision fee" collected from rentals, being a
return from capital invested in the construction of the Farmers Market, practically
operates as a tax on income, one of those expressly excepted from respondent's taxing
authority, and thus beyond the latter's competence. Petitioner cites the same Section 2
of the Local Autonomy Act which goes on to state: 8
... Provided, however, That no city, municipality or municipal district may
levy or impose any of the following:
xxx xxx xxx
(g) Taxes on income of any kind whatsoever;
The term "tax" frequently applies to all kinds of exactions of monies which become
public funds. It is often loosely used to include levies for revenue as well as levies for
regulatory purposes such that license fees are frequently called taxes although license
fee is a legal concept distinguishable from tax: the former is imposed in the exercise of
police power primarily for purposes of regulation, while the latter is imposed under the
taxing power primarily for purposes of raising revenues. 9 Thus, if the generating of revenue is the primary
purpose and regulation is merely incidental, the imposition is a tax; but if regulation is the primary purpose, the fact that incidentally revenue
is also obtained does not make the imposition a tax. 10

To be considered a license fee, the imposition questioned must relate to an occupation

or activity that so engages the public interest in health, morals, safety and development
as to require regulation for the protection and promotion of such public interest; the
imposition must also bear a reasonable relation to the probable expenses of regulation,
taking into account not only the costs of direct regulation but also its incidental
consequences as well.11 When an activity, occupation or profession is of such a character that inspection or supervision by
public officials is reasonably necessary for the safeguarding and furtherance of public health, morals and safety, or the general welfare, the
legislature may provide that such inspection or supervision or other form of regulation shall be carried out at the expense of the persons
engaged in such occupation or performing such activity, and that no one shall engage in the occupation or carry out the activity until a fee or
charge sufficient to cover the cost of the inspection or supervision has been paid. 12Accordingly, a charge of a fixed sum which bears no
relation at all to the cost of inspection and regulation may be held to be a tax rather than an exercise of the police power. 13

In the case at bar, the "Farmers Market & Shopping Center" was built by virtue of
Resolution No. 7350 passed on 30 January 1967 by respondents's local legislative body
authorizing petitioner to establish and operate a market with a permit to sell fresh meat,
fish, poultry and other foodstuffs. 14 The same resolution imposed upon petitioner, as a condition for continuous
operation, the obligation to "abide by and comply with the ordinances, rules and regulations prescribed for the establishment, operation and
maintenance of markets in Quezon City." 15

The "Farmers' Market and Shopping Center" being a public market in the' sense of a
market open to and inviting the patronage of the general public, even though privately
owned, petitioner's operation thereof required a license issued by the respondent City,
the issuance of which, applying the standards set forth above, was done principally in
the exercise of the respondent's police power. 16 The operation of a privately owned market is, as correctly
noted by the Solicitor General, equivalent to or quite the same as the operation of a government-owned market; both are established for the
rendition of service to the general public, which warrants close supervision and control by the respondent City, 17 for the protection of the
health of the public by insuring, e.g., the maintenance of sanitary and hygienic conditions in the market, compliance of all food stuffs sold
therein with applicable food and drug and related standards, for the prevention of fraud and imposition upon the buying public, and so forth.

We believe and so hold that the five percent (5%) tax imposed in Ordinance No. 9236
constitutes, not a tax on income, not a city income tax (as distinguished from
the national income tax imposed by the National Internal Revenue Code) within the
meaning of Section 2 (g) of the Local Autonomy Act, but rather a license tax or fee for

the regulation of the business in which the petitioner is engaged. While it is true that the
amount imposed by the questioned ordinances may be considered in determining
whether the exaction is really one for revenue or prohibition, instead of one of regulation
under the police power, 18 it nevertheless will be presumed to be reasonable. Local' governments are allowed wide discretion
in determining the rates of imposable license fees even in cases of purely police power measures, in the absence of proof as to particular
municipal conditions and the nature of the business being taxed as well as other detailed factors relevant to the issue of arbitrariness or
unreasonableness of the questioned rates. 19 Thus:

[A]n ordinance carries with it the presumption of validity. The question of

reasonableness though is open to judicial inquiry. Much should be left thus
to the discretion of municipal authorities. Courts will go slow in writing off
an ordinance as unreasonable unless the amount is so excessive as to be
prohibitory, arbitrary, unreasonable, oppressive, or confiscatory. A rule
which has gained acceptance is that factors relevant to such an inquiry
are the municipal conditions as a whole and the nature of the business
made subject to imposition. 20
Petitioner has not shown that the rate of the gross receipts tax is so unreasonably large
and excessive and so grossly disproportionate to the costs of the regulatory service
being performed by the respondent as to compel the Court to characterize the
imposition as a revenue measure exclusively. The lower court correctly held that the
gross receipts from stall rentals have been used only as a basis for computing the fees
or taxes due respondent to cover the latter's administrative expenses, i.e., for regulation
and supervision of the sale of foodstuffs to the public. The use of the gross amount of
stall rentals as basis for determining the collectible amount of license tax, does not by
itself, upon the one hand, convert or render the license tax into a prohibited city tax on
income. Upon the other hand, it has not been suggested that such basis has no
reasonable relationship to the probable costs of regulation and supervision of the
petitioner's kind of business. For, ordinarily, the higher the amount of stall rentals, the
higher the aggregate volume of foodstuffs and related items sold in petitioner's privately
owned market; and the higher the volume of goods sold in such private market, the
greater the extent and frequency of inspection and supervision that may be reasonably
required in the interest of the buying public. Moreover, what we started with should be
recalled here: the authority conferred upon the respondent's City Council is not merely
"to regulate" but also embraces the power "to tax" the petitioner's business.
Finally, petitioner argues that respondent is without power to impose a gross receipts
tax for revenue purposes absent an express grant from the national government. As a
general rule, there must be a statutory grant for a local government unit to impose
lawfully a gross receipts tax, that unit not having the inherent power of taxation. 21 The rule,
however, finds no application in the instant case where what is involved is an exercise of, principally, the regulatory power of the respondent
City and where that regulatory power is expressly accompanied by the taxing power.

ACCORDINGLY, the Decision of the then Court of First Instance of Rizal, Quezon City,
Branch 18, is hereby AFFIRMED and the Court Resolved to DENY the Petition for lack
of merit.
SO ORDERED.

G.R. No. L-67649 June 28, 1988

ENGRACIO FRANCIA, petitioner,

vs.
INTERMEDIATE APPELLATE COURT and HO FERNANDEZ, respondents.

GUTIERREZ, JR., J.:

The petitioner invokes legal and equitable grounds to reverse the questioned decision of
the Intermediate Appellate Court, to set aside the auction sale of his property which took
place on December 5, 1977, and to allow him to recover a 203 square meter lot which
was, sold at public auction to Ho Fernandez and ordered titled in the latter's name.
The antecedent facts are as follows:
Engracio Francia is the registered owner of a residential lot and a two-story house built
upon it situated at Barrio San Isidro, now District of Sta. Clara, Pasay City, Metro
Manila. The lot, with an area of about 328 square meters, is described and covered by
Transfer Certificate of Title No. 4739 (37795) of the Registry of Deeds of Pasay City.
On October 15, 1977, a 125 square meter portion of Francia's property was
expropriated by the Republic of the Philippines for the sum of P4,116.00 representing
the estimated amount equivalent to the assessed value of the aforesaid portion.
Since 1963 up to 1977 inclusive, Francia failed to pay his real estate taxes. Thus, on
December 5, 1977, his property was sold at public auction by the City Treasurer of
Pasay City pursuant to Section 73 of Presidential Decree No. 464 known as the Real
Property Tax Code in order to satisfy a tax delinquency of P2,400.00. Ho Fernandez
was the highest bidder for the property.
Francia was not present during the auction sale since he was in Iligan City at that time
helping his uncle ship bananas.
On March 3, 1979, Francia received a notice of hearing of LRC Case No. 1593-P "In re:
Petition for Entry of New Certificate of Title" filed by Ho Fernandez, seeking the
cancellation of TCT No. 4739 (37795) and the issuance in his name of a new certificate
of title. Upon verification through his lawyer, Francia discovered that a Final Bill of Sale
had been issued in favor of Ho Fernandez by the City Treasurer on December 11, 1978.
The auction sale and the final bill of sale were both annotated at the back of TCT No.
4739 (37795) by the Register of Deeds.
On March 20, 1979, Francia filed a complaint to annul the auction sale. He later
amended his complaint on January 24, 1980.
On April 23, 1981, the lower court rendered a decision, the dispositive portion of which
reads:
WHEREFORE, in view of the foregoing, judgment is hereby rendered
dismissing the amended complaint and ordering:
(a) The Register of Deeds of Pasay City to issue a new
Transfer Certificate of Title in favor of the defendant Ho
Fernandez over the parcel of land including the
improvements thereon, subject to whatever encumbrances
appearing at the back of TCT No. 4739 (37795) and ordering
the same TCT No. 4739 (37795) cancelled.

(b) The plaintiff to pay defendant Ho Fernandez the sum of

P1,000.00 as attorney's fees. (p. 30, Record on Appeal)
The Intermediate Appellate Court affirmed the decision of the lower court in toto.
Hence, this petition for review.
Francia prefaced his arguments with the following assignments of grave errors of law:
I
RESPONDENT INTERMEDIATE APPELLATE COURT COMMITTED A GRAVE ERROR
OF LAW IN NOT HOLDING PETITIONER'S OBLIGATION TO PAY P2,400.00 FOR
SUPPOSED TAX DELINQUENCY WAS SET-OFF BY THE AMOUNT OF P4,116.00
WHICH THE GOVERNMENT IS INDEBTED TO THE FORMER.
II
RESPONDENT INTERMEDIATE APPELLATE COURT COMMITTED A GRAVE AND
SERIOUS ERROR IN NOT HOLDING THAT PETITIONER WAS NOT PROPERLY AND
DULY NOTIFIED THAT AN AUCTION SALE OF HIS PROPERTY WAS TO TAKE
PLACE ON DECEMBER 5, 1977 TO SATISFY AN ALLEGED TAX DELINQUENCY OF
P2,400.00.
III
RESPONDENT INTERMEDIATE APPELLATE COURT FURTHER COMMITTED A
SERIOUS ERROR AND GRAVE ABUSE OF DISCRETION IN NOT HOLDING THAT
THE PRICE OF P2,400.00 PAID BY RESPONTDENT HO FERNANDEZ WAS
GROSSLY INADEQUATE AS TO SHOCK ONE'S CONSCIENCE AMOUNTING TO
FRAUD AND A DEPRIVATION OF PROPERTY WITHOUT DUE PROCESS OF LAW,
AND CONSEQUENTLY, THE AUCTION SALE MADE THEREOF IS VOID. (pp. 10, 17,
20-21, Rollo)
We gave due course to the petition for a more thorough inquiry into the petitioner's
allegations that his property was sold at public auction without notice to him and that the
price paid for the property was shockingly inadequate, amounting to fraud and
deprivation without due process of law.
A careful review of the case, however, discloses that Mr. Francia brought the problems
raised in his petition upon himself. While we commiserate with him at the loss of his
property, the law and the facts militate against the grant of his petition. We are
constrained to dismiss it.
Francia contends that his tax delinquency of P2,400.00 has been extinguished by legal
compensation. He claims that the government owed him P4,116.00 when a portion of
his land was expropriated on October 15, 1977. Hence, his tax obligation had been setoff by operation of law as of October 15, 1977.
There is no legal basis for the contention. By legal compensation, obligations of
persons, who in their own right are reciprocally debtors and creditors of each other, are
extinguished (Art. 1278, Civil Code). The circumstances of the case do not satisfy the
requirements provided by Article 1279, to wit:
(1) that each one of the obligors be bound principally and that he be at the
same time a principal creditor of the other;

xxx xxx xxx

(3) that the two debts be due.
xxx xxx xxx
This principal contention of the petitioner has no merit. We have consistently ruled that
there can be no off-setting of taxes against the claims that the taxpayer may have
against the government. A person cannot refuse to pay a tax on the ground that the
government owes him an amount equal to or greater than the tax being collected. The
collection of a tax cannot await the results of a lawsuit against the government.
In the case of Republic v. Mambulao Lumber Co. (4 SCRA 622), this Court ruled that
Internal Revenue Taxes can not be the subject of set-off or compensation. We stated
that:
A claim for taxes is not such a debt, demand, contract or judgment as is
allowed to be set-off under the statutes of set-off, which are construed
uniformly, in the light of public policy, to exclude the remedy in an action or
any indebtedness of the state or municipality to one who is liable to the
state or municipality for taxes. Neither are they a proper subject of
recoupment since they do not arise out of the contract or transaction sued
on. ... (80 C.J.S., 7374). "The general rule based on grounds of public
policy is well-settled that no set-off admissible against demands for taxes
levied for general or local governmental purposes. The reason on which
the general rule is based, is that taxes are not in the nature of contracts
between the party and party but grow out of duty to, and are the positive
acts of the government to the making and enforcing of which, the personal
consent of individual taxpayers is not required. ..."
We stated that a taxpayer cannot refuse to pay his tax when called upon by the collector
because he has a claim against the governmental body not included in the tax levy.
This rule was reiterated in the case of Corders v. Gonda (18 SCRA 331) where we
stated that: "... internal revenue taxes can not be the subject of compensation: Reason:
government and taxpayer are not mutually creditors and debtors of each other' under
Article 1278 of the Civil Code and a "claim for taxes is not such a debt, demand,
contract or judgment as is allowed to be set-off."
There are other factors which compel us to rule against the petitioner. The tax was due
to the city government while the expropriation was effected by the national government.
Moreover, the amount of P4,116.00 paid by the national government for the 125 square
meter portion of his lot was deposited with the Philippine National Bank long before the
sale at public auction of his remaining property. Notice of the deposit dated September
28, 1977 was received by the petitioner on September 30, 1977. The petitioner admitted
in his testimony that he knew about the P4,116.00 deposited with the bank but he did
not withdraw it. It would have been an easy matter to withdraw P2,400.00 from the
deposit so that he could pay the tax obligation thus aborting the sale at public auction.
Petitioner had one year within which to redeem his property although, as well be shown
later, he claimed that he pocketed the notice of the auction sale without reading it.
Petitioner contends that "the auction sale in question was made without complying with
the mandatory provisions of the statute governing tax sale. No evidence, oral or
otherwise, was presented that the procedure outlined by law on sales of property for tax
delinquency was followed. ... Since defendant Ho Fernandez has the affirmative of this

issue, the burden of proof therefore rests upon him to show that plaintiff was duly and
properly notified ... .(Petition for Review, Rollo p. 18; emphasis supplied)
We agree with the petitioner's claim that Ho Fernandez, the purchaser at the auction
sale, has the burden of proof to show that there was compliance with all the prescribed
requisites for a tax sale.
The case of Valencia v. Jimenez (11 Phil. 492) laid down the doctrine that:
xxx xxx xxx
... [D]ue process of law to be followed in tax proceedings must be
established by proof and thegeneral rule is that the purchaser of a tax title
is bound to take upon himself the burden of showing the regularity of all
proceedings leading up to the sale. (emphasis supplied)
There is no presumption of the regularity of any administrative action which results in
depriving a taxpayer of his property through a tax sale. (Camo v. Riosa Boyco, 29 Phil.
437); Denoga v. Insular Government, 19 Phil. 261). This is actually an exception to the
rule that administrative proceedings are presumed to be regular.
But even if the burden of proof lies with the purchaser to show that all legal
prerequisites have been complied with, the petitioner can not, however, deny that he did
receive the notice for the auction sale. The records sustain the lower court's finding that:
[T]he plaintiff claimed that it was illegal and irregular. He insisted that he
was not properly notified of the auction sale. Surprisingly, however, he
admitted in his testimony that he received the letter dated November 21,
1977 (Exhibit "I") as shown by his signature (Exhibit "I-A") thereof. He
claimed further that he was not present on December 5, 1977 the date of
the auction sale because he went to Iligan City. As long as there was
substantial compliance with the requirements of the notice, the validity of
the auction sale can not be assailed ... .
We quote the following testimony of the petitioner on cross-examination, to wit:
Q. My question to you is this letter marked as Exhibit I for Ho
Fernandez notified you that the property in question shall be
sold at public auction to the highest bidder on December 5,
1977 pursuant to Sec. 74 of PD 464. Will you tell the Court
whether you received the original of this letter?
A. I just signed it because I was not able to read the same. It
was just sent by mail carrier.
Q. So you admit that you received the original of Exhibit I
and you signed upon receipt thereof but you did not read the
contents of it?
A. Yes, sir, as I was in a hurry.
Q. After you received that original where did you place it?
A. I placed it in the usual place where I place my mails.

Petitioner, therefore, was notified about the auction sale. It was negligence on his part
when he ignored such notice. By his very own admission that he received the notice, his
now coming to court assailing the validity of the auction sale loses its force.
Petitioner's third assignment of grave error likewise lacks merit. As a general rule, gross
inadequacy of price is not material (De Leon v. Salvador, 36 SCRA 567; Ponce de Leon
v. Rehabilitation Finance Corporation, 36 SCRA 289; Tolentino v. Agcaoili, 91 Phil. 917
Unrep.). See also Barrozo Vda. de Gordon v. Court of Appeals (109 SCRA 388) we held
that "alleged gross inadequacy of price is not material when the law gives the owner the
right to redeem as when a sale is made at public auction, upon the theory that the
lesser the price, the easier it is for the owner to effect redemption." In Velasquez v.
Coronel (5 SCRA 985), this Court held:
... [R]espondent treasurer now claims that the prices for which the lands
were sold are unconscionable considering the wide divergence between
their assessed values and the amounts for which they had been actually
sold. However, while in ordinary sales for reasons of equity a transaction
may be invalidated on the ground of inadequacy of price, or when such
inadequacy shocks one's conscience as to justify the courts to interfere,
such does not follow when the law gives to the owner the right to redeem,
as when a sale is made at public auction, upon the theory that the lesser
the price the easier it is for the owner to effect the redemption. And so it
was aptly said: "When there is the right to redeem, inadequacy of price
should not be material, because the judgment debtor may reacquire the
property or also sell his right to redeem and thus recover the loss he
claims to have suffered by reason of the price obtained at the auction
sale."
The reason behind the above rulings is well enunciated in the case of Hilton et. ux. v.
De Long, et al. (188 Wash. 162, 61 P. 2d, 1290):
If mere inadequacy of price is held to be a valid objection to a sale for
taxes, the collection of taxes in this manner would be greatly
embarrassed, if not rendered altogether impracticable. In Black on Tax
Titles (2nd Ed.) 238, the correct rule is stated as follows: "where land is
sold for taxes, the inadequacy of the price given is not a valid objection to
the sale." This rule arises from necessity, for, if a fair price for the land
were essential to the sale, it would be useless to offer the property.
Indeed, it is notorious that the prices habitually paid by purchasers at tax
sales are grossly out of proportion to the value of the land. (Rothchild
Bros. v. Rollinger, 32 Wash. 307, 73 P. 367, 369).
In this case now before us, we can aptly use the language of McGuire, et al. v. Bean, et
al. (267 P. 555):
Like most cases of this character there is here a certain element of
hardship from which we would be glad to relieve, but do so would unsettle
long-established rules and lead to uncertainty and difficulty in the
collection of taxes which are the life blood of the state. We are convinced
that the present rules are just, and that they bring hardship only to those
who have invited it by their own neglect.
We are inclined to believe the petitioner's claim that the value of the lot has greatly
appreciated in value. Precisely because of the widening of Buendia Avenue in Pasay
City, which necessitated the expropriation of adjoining areas, real estate values have
gone up in the area. However, the price quoted by the petitioner for a 203 square meter

lot appears quite exaggerated. At any rate, the foregoing reasons which answer the
petitioner's claims lead us to deny the petition.
And finally, even if we are inclined to give relief to the petitioner on equitable grounds,
there are no strong considerations of substantial justice in his favor. Mr. Francia failed to
pay his taxes for 14 years from 1963 up to the date of the auction sale. He claims to
have pocketed the notice of sale without reading it which, if true, is still an act of
inexplicable negligence. He did not withdraw from the expropriation payment deposited
with the Philippine National Bank an amount sufficient to pay for the back taxes. The
petitioner did not pay attention to another notice sent by the City Treasurer on
November 3, 1978, during the period of redemption, regarding his tax delinquency.
There is furthermore no showing of bad faith or collusion in the purchase of the property
by Mr. Fernandez. The petitioner has no standing to invoke equity in his attempt to
regain the property by belatedly asking for the annulment of the sale.
WHEREFORE, IN VIEW OF THE FOREGOING, the petition for review is DISMISSED.
The decision of the respondent court is affirmed.
SO ORDERED.

G.R. No. L-18994

June 29, 1963

MELECIO R. DOMINGO, as Commissioner of Internal Revenue, petitioner,

vs.
HON. LORENZO C. GARLITOS, in his capacity as Judge of the Court of First
Instance of Leyte,
and SIMEONA K. PRICE, as Administratrix of the Intestate Estate of the late Walter
Scott Price,respondents.
Office of the Solicitor General and Atty. G. H. Mantolino for petitioner.
Benedicto and Martinez for respondents.
LABRADOR, J.:
This is a petition for certiorari and mandamus against the Judge of the Court of First
Instance of Leyte, Ron. Lorenzo C. Garlitos, presiding, seeking to annul certain orders
of the court and for an order in this Court directing the respondent court below to
execute the judgment in favor of the Government against the estate of Walter Scott
Price for internal revenue taxes.
It appears that in Melecio R. Domingo vs. Hon. Judge S. C. Moscoso, G.R. No. L14674, January 30, 1960, this Court declared as final and executory the order for the
payment by the estate of the estate and inheritance taxes, charges and penalties,
amounting to P40,058.55, issued by the Court of First Instance of Leyte in, special
proceedings No. 14 entitled "In the matter of the Intestate Estate of the Late Walter
Scott Price." In order to enforce the claims against the estate the fiscal presented a
petition dated June 21, 1961, to the court below for the execution of the judgment. The
petition was, however, denied by the court which held that the execution is not justifiable
as the Government is indebted to the estate under administration in the amount of
P262,200. The orders of the court below dated August 20, 1960 and September 28,
1960, respectively, are as follows:
Atty. Benedicto submitted a copy of the contract between Mrs. Simeona K. Price,
Administratrix of the estate of her late husband Walter Scott Price and Director
Zoilo Castrillo of the Bureau of Lands dated September 19, 1956 and

acknowledged before Notary Public Salvador V. Esguerra, legal adviser in

Malacaang to Executive Secretary De Leon dated December 14, 1956, the note
of His Excellency, Pres. Carlos P. Garcia, to Director Castrillo dated August 2,
1958, directing the latter to pay to Mrs. Price the sum ofP368,140.00, and an
extract of page 765 of Republic Act No. 2700 appropriating the sum of
P262.200.00 for the payment to the Leyte Cadastral Survey, Inc., represented by
the administratrix Simeona K. Price, as directed in the above note of the
President. Considering these facts, the Court orders that the payment of
inheritance taxes in the sum of P40,058.55 due the Collector of Internal Revenue
as ordered paid by this Court on July 5, 1960 in accordance with the order of the
Supreme Court promulgated July 30, 1960 in G.R. No. L-14674, be deducted
from the amount of P262,200.00 due and payable to the Administratrix Simeona
K. Price, in this estate, the balance to be paid by the Government to her without
further delay. (Order of August 20, 1960)
The Court has nothing further to add to its order dated August 20, 1960 and it
orders that the payment of the claim of the Collector of Internal Revenue be
deferred until the Government shall have paid its accounts to the administratrix
herein amounting to P262,200.00. It may not be amiss to repeat that it is only fair
for the Government, as a debtor, to its accounts to its citizens-creditors before it
can insist in the prompt payment of the latter's account to it, specially taking into
consideration that the amount due to the Government draws interests while the
credit due to the present state does not accrue any interest. (Order of September
28, 1960)
The petition to set aside the above orders of the court below and for the execution of the
claim of the Government against the estate must be denied for lack of merit. The
ordinary procedure by which to settle claims of indebtedness against the estate of a
deceased person, as an inheritance tax, is for the claimant to present a claim before the
probate court so that said court may order the administrator to pay the amount thereof.
To such effect is the decision of this Court in Aldamiz vs. Judge of the Court of First
Instance of Mindoro, G.R. No. L-2360, Dec. 29, 1949, thus:
. . . a writ of execution is not the proper procedure allowed by the Rules of Court
for the payment of debts and expenses of administration. The proper procedure
is for the court to order the sale of personal estate or the sale or mortgage of real
property of the deceased and all debts or expenses of administrator and with the
written notice to all the heirs legatees and devisees residing in the Philippines,
according to Rule 89, section 3, and Rule 90, section 2. And when sale or
mortgage of real estate is to be made, the regulations contained in Rule 90,
section 7, should be complied with.
1wph1.t

Execution may issue only where the devisees, legatees or heirs have entered
into possession of their respective portions in the estate prior to settlement and
payment of the debts and expenses of administration and it is later ascertained
that there are such debts and expenses to be paid, in which case "the court
having jurisdiction of the estate may, by order for that purpose, after hearing,
settle the amount of their several liabilities, and order how much and in what
manner each person shall contribute, and mayissue execution if circumstances
require" (Rule 89, section 6; see also Rule 74, Section 4; Emphasis supplied.)
And this is not the instant case.
The legal basis for such a procedure is the fact that in the testate or intestate
proceedings to settle the estate of a deceased person, the properties belonging to the
estate are under the jurisdiction of the court and such jurisdiction continues until said
properties have been distributed among the heirs entitled thereto. During the pendency
of the proceedings all the estate is in custodia legis and the proper procedure is not to

allow the sheriff, in case of the court judgment, to seize the properties but to ask the
court for an order to require the administrator to pay the amount due from the estate
and required to be paid.
Another ground for denying the petition of the provincial fiscal is the fact that the court
having jurisdiction of the estate had found that the claim of the estate against the
Government has been recognized and an amount of P262,200 has already been
appropriated for the purpose by a corresponding law (Rep. Act No. 2700). Under the
above circumstances, both the claim of the Government for inheritance taxes and the
claim of the intestate for services rendered have already become overdue and
demandable is well as fully liquidated. Compensation, therefore, takes place by
operation of law, in accordance with the provisions of Articles 1279 and 1290 of the Civil
Code, and both debts are extinguished to the concurrent amount, thus:
ART. 1200. When all the requisites mentioned in article 1279 are present,
compensation takes effect by operation of law, and extinguished both debts to
the concurrent amount, eventhough the creditors and debtors are not aware of
the compensation.
It is clear, therefore, that the petitioner has no clear right to execute the judgment for
taxes against the estate of the deceased Walter Scott Price. Furthermore, the petition
for certiorari and mandamus is not the proper remedy for the petitioner. Appeal is the
remedy.
The petition is, therefore, dismissed, without costs.

G.R. No. 125704 August 28, 1998

PHILEX MINING CORPORATION, petitioner,
vs.
COMMISSIONER OF INTERNAL REVENUE, COURT OF APPEALS, and THE
COURT OF TAX APPEALS,respondents.

ROMERO, J.:
Petitioner Philex Mining Corp. assails the decision of the Court of Appeals promulgated on April 8, 1996 in CA-G.R. SP No.

affirming the Court of Tax Appeals decision in CTA Case No. 4872 dated March 16, 1995 2 ordering
it to pay the amount of P110,677,668.52 as excise tax liability for the period from the 2nd quarter of 1991
to the 2nd quarter of 1992 plus 20% annual interest from August 6, 1994 until fully paid pursuant to
Sections 248 and 249 of the Tax Code of 1977.
36975

The facts show that on August 5, 1992, the BIR sent a letter to Philex asking it to settle
its tax liabilities for the 2nd, 3rd and 4th quarter of 1991 as well as the 1st and 2nd
quarter of 1992 in the total amount of P123,821.982.52 computed as follows:
PERIOD COVERED BASIC TAX 25% SURCHARGE INTEREST TOTAL EXCISE
TAX DUE
2nd Qtr., 1991 12,911,124.60 3,227,781.15 3,378,116.16 19,517,021.91
3rd Qtr., 1991 14,994,749.21 3,748,687.30 2,978,409.09 21,721,845.60

4th Qtr., 1991 19,406,480.13 4,851,620.03 2,631,837.72 26,889,937.88

47,312,353.94 11,828,088.48 8,988,362.97 68,128,805.39

1st Qtr., 1992 23,341,849.94 5,835,462.49 1,710,669.82 30,887,982.25
2nd Qtr., 1992 19,671,691.76 4,917,922.94 215,580.18 24,805,194.88

43,013,541.70 10,753,385.43 1,926,250.00 55,693,177.13

90,325,895.64 22,581,473.91 10,914,612.97
123,821,982.52 3
========= ========= ========= =========
In a letter dated August 20, 1992, 4 Philex protested the demand for payment of the tax liabilities
stating that it has pending claims for VAT input credit/refund for the taxes it paid for the years 1989 to
1991 in the amount of P119,977,037.02 plus interest. Therefore these claims for tax credit/refund should
be applied against the tax liabilities, citing our ruling inCommissioner of Internal Revenue v. Itogon-Suyoc
Mines, Inc. 5
In reply, the BIR, in a letter dated September 7, 1992, 6 found no merit in Philex's position. Since these
pending claims have not yet been established or determined with certainty, it follows that no legal
compensation can take place. Hence, the BIR reiterated its demand that Philex settle the amount plus
interest within 30 days from the receipt of the letter.

In view of the BIR's denial of the offsetting of Philex's claim for VAT input credit/refund
against its excise tax obligation, Philex raised the issue to the Court of Tax Appeals on
November 6, 1992. 7 In the course of the proceedings, the BIR issued Tax Credit Certificate SN
001795 in the amount of P13,144,313.88 which, applied to the total tax liabilities of Philex of
P123,821,982.52; effectively lowered the latter's tax obligation to P110,677,688.52.

Despite the reduction of its tax liabilities, the CTA still ordered Philex to pay the
remaining balance of P110,677,688.52 plus interest, elucidating its reason, to wit:
Thus, for legal compensation to take place, both obligations must
be liquidated and demandable. "Liquidated" debts are those where the
exact amount has already been determined (PARAS, Civil Code of the
Philippines, Annotated, Vol. IV, Ninth Edition, p. 259). In the instant case,
the claims of the Petitioner for VAT refund is still pending litigation, and still
has to be determined by this Court (C.T.A. Case No. 4707). A fortiori,
the liquidated debt of the Petitioner to the government cannot, therefore,
be set-off against the unliquidated claim which Petitioner conceived to
exist in its favor (see Compaia General de Tabacos vs. French and
Unson, No. 14027, November 8, 1918, 39 Phil. 34). 8
Moreover, the Court of Tax Appeals ruled that "taxes cannot be subject to set-off on compensation since
claim for taxes is not a debt or contract." 9 The dispositive portion of the CTA decision 10 provides:

In all the foregoing, this Petition for Review is hereby DENIED for lack of
merit and Petitioner is hereby ORDERED to PAY the Respondent the

amount of P110,677,668.52 representing excise tax liability for the period

from the 2nd quarter of 1991 to the 2nd quarter of 1992 plus 20% annual
interest from August 6, 1994 until fully paid pursuant to Section 248 and
249 of the Tax Code, as amended.
Aggrieved with the decision, Philex appealed the case before the Court of Appeals
docketed as CA-GR. CV No. 36975. 11 Nonetheless, on April 8, 1996, the Court of Appeals a
Affirmed the Court of Tax Appeals observation. The pertinent portion of which reads:

12

WHEREFORE, the appeal by way of petition for review is hereby

DISMISSED and the decision dated March 16, 1995 is AFFIRMED.
Philex filed a motion for reconsideration which was, nevertheless, denied in a
Resolution dated July 11, 1996. 13
However, a few days after the denial of its motion for reconsideration, Philex was able to obtain its VAT
input credit/refund not only for the taxable year 1989 to 1991 but also for 1992 and 1994, computed as
follows: 14

Period Covered Tax Credit Date

By Claims For Certificate of
VAT refund/credit Number Issue Amount
1994 (2nd Quarter) 007730 11 July 1996 P25,317,534.01
1994 (4th Quarter) 007731 11 July 1996 P21,791,020.61
1989 007732 11 July 1996 P37,322,799.19
1990-1991 007751 16 July 1996 P84,662,787.46
1992 (1st-3rd Quarter) 007755 23 July 1996 P36,501,147.95
In view of the grant of its VAT input credit/refund, Philex now contends that the same
should, ipso jure, off-set its excise tax liabilities 15 since both had already become "due and
demandable, as well as fully liquidated;"

16

hence, legal compensation can properly take place.

We see no merit in this contention.

In several instances prior to the instant case, we have already made the
pronouncement that taxes cannot be subject to compensation for the simple reason that
the government and the taxpayer are not creditors and debtors of each other. 17 There is a
material distinction between a tax and debt. Debts are due to the Government in its corporate capacity,
while taxes are due to the Government in its sovereign capacity. 18 We find no cogent reason to deviate
from the aforementioned distinction.

Prescinding from this premise, in Francia v. Intermediate Appellate Court, 19 we

categorically held that taxes cannot be subject to set-off or compensation, thus:

We have consistently ruled that there can be no off-setting of taxes

against the claims that the taxpayer may have against the government. A
person cannot refuse to pay a tax on the ground that the government
owes him an amount equal to or greater than the tax being collected. The
collection of a tax cannot await the results of a lawsuit against the
government.

The ruling in Francia has been applied to the subsequent case of Caltex Philippines,
Inc. v. Commission on Audit,20 which reiterated that:
. . . a taxpayer may not offset taxes due from the claims that he may have
against the government. Taxes cannot be the subject of compensation
because the government and taxpayer are not mutually creditors and
debtors of each other and a claim for taxes is not such a debt, demand,
contract or judgment as is allowed to be set-off.
Further, Philex's reliance on our holding in Commissioner of Internal Revenue v. ItogonSuyoc Mines Inc., wherein we ruled that a pending refund may be set off against an
existing tax liability even though the refund has not yet been approved by the
Commissioner, 21 is no longer without any support in statutory law.
It is important to note, that the premise of our ruling in the aforementioned case was
anchored on Section 51 (d) of the National Revenue Code of 1939. However, when the
National Internal Revenue Code of 1977 was enacted, the same provision upon which
the Itogon-Suyoc pronouncement was based was omitted. 22 Accordingly, the doctrine
enunciated in Itogon-Suyoc cannot be invoked by Philex.

Despite the foregoing rulings clearly adverse to Philex's position, it asserts that the
imposition of surcharge and interest for the non-payment of the excise taxes within the
time prescribed was unjustified. Philex posits the theory that it had no obligation to pay
the excise tax liabilities within the prescribed period since, after all, it still has pending
claims for VAT input credit/refund with BIR. 23
We fail to see the logic of Philex's claim for this is an outright disregard of the basic principle in tax law
that taxes are the lifeblood of the government and so should be collected without unnecessary
hindrance. 24 Evidently, to countenance Philex's whimsical reason would render ineffective our tax
collection system. Too simplistic, it finds no support in law or in jurisprudence.

To be sure, we cannot allow Philex to refuse the payment of its tax liabilities on the
ground that it has a pending tax claim for refund or credit against the government which
has not yet been granted. It must be noted that a distinguishing feature of a tax is that it
is compulsory rather than a matter of bargain. 25 Hence, a tax does not depend upon the consent
of the taxpayer. 26 If any taxpayer can defer the payment of taxes by raising the defense that it still has a
pending claim for refund or credit, this would adversely affect the government revenue system. A taxpayer
cannot refuse to pay his taxes when they fall due simply because he has a claim against the government
or that the collection of the tax is contingent on the result of the lawsuit it filed against the
government. 27 Moreover, Philex's theory that would automatically apply its VAT input credit/refund against
its tax liabilities can easily give rise to confusion and abuse, depriving the government of authority over
the manner by which taxpayers credit and offset their tax liabilities.

Corollarily, the fact that Philex has pending claims for VAT input claim/refund with the
government is immaterial for the imposition of charges and penalties prescribed under
Section 248 and 249 of the Tax Code of 1977. The payment of the surcharge is
mandatory and the BIR is not vested with any authority to waive the collection
thereof. 28 The same cannot be condoned for flimsy reasons, 29 similar to the one advanced by Philex in
justifying its non-payment of its tax liabilities.

Finally, Philex asserts that the BIR violated Section 106 (e)
Code of 1977, which requires the refund of input taxes within 60 days,
latter to grant its tax claim for VAT input credit/refund. 32

30
31

of the National Internal Revenue

when it took five years for the

In this regard, we agree with Philex. While there is no dispute that a claimant has the burden of proof to
establish the factual basis of his or her claim for tax credit or refund, 33 however, once the claimant has
submitted all the required documents it is the function of the BIR to assess these documents with
purposeful dispatch. After all, since taxpayers owe honestly to government it is but just that government
render fair service to the taxpayers. 34

In the instant case, the VAT input taxes were paid between 1989 to 1991 but the refund of these
erroneously paid taxes was only granted in 1996. Obviously, had the BIR been more diligent and judicious
with their duty, it could have granted the refund earlier. We need not remind the BIR that simple justice
requires the speedy refund of wrongly-held taxes. 35 Fair dealing and nothing less, is expected by the
taxpayer from the BIR in the latter's discharge of its function. As aptly held inRoxas v. Court of Tax
Appeals: 36

The power of taxation is sometimes called also the power to destroy.

Therefore it should be exercised with caution to minimize injury to the
proprietary rights of a taxpayer. It must be exercised fairly, equally and
uniformly, lest the tax collector kill the "hen that lays the golden egg" And,
in order to maintain the general public's trust and confidence in the
Government this power must be used justly and not treacherously.
Despite our concern with the lethargic manner by which the BIR handled Philex's tax
claim, it is a settled rule that in the performance of governmental function, the State is
not bound by the neglect of its agents and officers. Nowhere is this more true than in the
field of taxation. 37 Again, while we understand Philex's predicament, it must be stressed that the same
is not a valid reason for the non-payment of its tax liabilities.

To be sure, this is not to state that the taxpayer is devoid of remedy against public
servants or employees, especially BIR examiners who, in investigating tax claims are
seen to drag their feet needlessly. First, if the BIR takes time in acting upon the
taxpayer's claim for refund, the latter can seek judicial remedy before the Court of Tax
Appeals in the manner prescribed by law. 38 Second, if the inaction can be characterized as willful
neglect of duty, then recourse under the Civil Code and the Tax Code can also be availed of.

Art. 27 of the Civil Code provides:

Art. 27. Any person suffering material or moral loss because a public
servant or employee refuses or neglects, without just cause, to perform his
official duty may file an action for damages and other relief against the
latter, without prejudice to any disciplinary action that may be taken.
More importantly, Section 269 (c) of the National Internal Revenue Act of 1997 states:
xxx xxx xxx
(c) Wilfully neglecting to give receipts, as by law required for any sum
collected in the performance of duty or wilfully neglecting to perform, any
other duties enjoyed by law.
Simply put, both provisions abhor official inaction, willful neglect and unreasonable
delay in the performance of official duties. 39 In no uncertain terms must we stress that every
public employee or servant must strive to render service to the people with utmost diligence and
efficiency. Insolence and delay have no place in government service. The BIR, being the government
collecting arm, must and should do no less. It simply cannot be apathetic and laggard in rendering service
to the taxpayer if it wishes to remain true to its mission of hastening the country's development. We take
judicial notice of the taxpayer's generally negative perception towards the BIR; hence, it is up to the latter
to prove its detractors wrong.

In sum, while we can never condone the BIR's apparent callousness in performing its
duties, still, the same cannot justify Philex's non-payment of its tax liabilities. The adage
"no one should take the law into his own hands" should have guided Philex's action.
WHEREFORE, in view of the foregoing, the instant petition is hereby DISMISSED. The
assailed decision of the Court of Appeals dated April 8, 1996 is hereby AFFIRMED.
SO ORDERED.

G.R. No. L-39086 June 15, 1988

ABRA VALLEY COLLEGE, INC., represented by PEDRO V. BORGONIA, petitioner,
vs.
HON. JUAN P. AQUINO, Judge, Court of First Instance, Abra; ARMIN M. CARIAGA,
Provincial Treasurer, Abra; GASPAR V. BOSQUE, Municipal Treasurer, Bangued,
Abra; HEIRS OF PATERNO MILLARE,respondents.

PARAS, J.:
This is a petition for review on certiorari of the decision

* of the defunct Court of First Instance of Abra,

Branch I, dated June 14, 1974, rendered in Civil Case No. 656, entitled "Abra Valley Junior College, Inc., represented by Pedro V. Borgonia,
plaintiff vs. Armin M. Cariaga as Provincial Treasurer of Abra, Gaspar V. Bosque as Municipal Treasurer of Bangued, Abra and Paterno
Millare, defendants," the decretal portion of which reads:

IN VIEW OF ALL THE FOREGOING, the Court hereby declares:

That the distraint seizure and sale by the Municipal Treasurer of Bangued,
Abra, the Provincial Treasurer of said province against the lot and building
of the Abra Valley Junior College, Inc., represented by Director Pedro
Borgonia located at Bangued, Abra, is valid;
That since the school is not exempt from paying taxes, it should therefore
pay all back taxes in the amount of P5,140.31 and back taxes and
penalties from the promulgation of this decision;
That the amount deposited by the plaintaff him the sum of P60,000.00
before the trial, be confiscated to apply for the payment of the back taxes
and for the redemption of the property in question, if the amount is less
than P6,000.00, the remainder must be returned to the Director of Pedro
Borgonia, who represents the plaintiff herein;
That the deposit of the Municipal Treasurer in the amount of P6,000.00
also before the trial must be returned to said Municipal Treasurer of
Bangued, Abra;
And finally the case is hereby ordered dismissed with costs against the
plaintiff.
SO ORDERED. (Rollo, pp. 22-23)
Petitioner, an educational corporation and institution of higher learning duly incorporated
with the Securities and Exchange Commission in 1948, filed a complaint (Annex "1" of
Answer by the respondents Heirs of Paterno Millare; Rollo, pp. 95-97) on July 10, 1972
in the court a quo to annul and declare void the "Notice of Seizure' and the "Notice of
Sale" of its lot and building located at Bangued, Abra, for non-payment of real estate
taxes and penalties amounting to P5,140.31. Said "Notice of Seizure" of the college lot
and building covered by Original Certificate of Title No. Q-83 duly registered in the name

of petitioner, plaintiff below, on July 6, 1972, by respondents Municipal Treasurer and

Provincial Treasurer, defendants below, was issued for the satisfaction of the said taxes
thereon. The "Notice of Sale" was caused to be served upon the petitioner by the
respondent treasurers on July 8, 1972 for the sale at public auction of said college lot
and building, which sale was held on the same date. Dr. Paterno Millare, then Municipal
Mayor of Bangued, Abra, offered the highest bid of P6,000.00 which was duly accepted.
The certificate of sale was correspondingly issued to him.
On August 10, 1972, the respondent Paterno Millare (now deceased) filed through
counstel a motion to dismiss the complaint.
On August 23, 1972, the respondent Provincial Treasurer and Municipal Treasurer,
through then Provincial Fiscal Loreto C. Roldan, filed their answer (Annex "2" of Answer
by the respondents Heirs of Patemo Millare; Rollo, pp. 98-100) to the complaint. This
was followed by an amended answer (Annex "3," ibid, Rollo, pp. 101-103) on August 31,
1972.
On September 1, 1972 the respondent Paterno Millare filed his answer (Annex "5," ibid;
Rollo, pp. 106-108).
On October 12, 1972, with the aforesaid sale of the school premises at public auction,
the respondent Judge, Hon. Juan P. Aquino of the Court of First Instance of Abra,
Branch I, ordered (Annex "6," ibid; Rollo, pp. 109-110) the respondents provincial and
municipal treasurers to deliver to the Clerk of Court the proceeds of the auction sale.
Hence, on December 14, 1972, petitioner, through Director Borgonia, deposited with the
trial court the sum of P6,000.00 evidenced by PNB Check No. 904369.
On April 12, 1973, the parties entered into a stipulation of facts adopted and embodied
by the trial court in its questioned decision. Said Stipulations reads:
STIPULATION OF FACTS
COME NOW the parties, assisted by counsels, and to this Honorable
Court respectfully enter into the following agreed stipulation of facts:
1. That the personal circumstances of the parties as stated in paragraph 1
of the complaint is admitted; but the particular person of Mr. Armin M.
Cariaga is to be substituted, however, by anyone who is actually holding
the position of Provincial Treasurer of the Province of Abra;
2. That the plaintiff Abra Valley Junior College, Inc. is the owner of the lot
and buildings thereon located in Bangued, Abra under Original Certificate
of Title No. 0-83;
3. That the defendant Gaspar V. Bosque, as Municipal treasurer of
Bangued, Abra caused to be served upon the Abra Valley Junior College,
Inc. a Notice of Seizure on the property of said school under Original
Certificate of Title No. 0-83 for the satisfaction of real property taxes
thereon, amounting to P5,140.31; the Notice of Seizure being the one
attached to the complaint as Exhibit A;
4. That on June 8, 1972 the above properties of the Abra Valley Junior
College, Inc. was sold at public auction for the satisfaction of the unpaid
real property taxes thereon and the same was sold to defendant Paterno
Millare who offered the highest bid of P6,000.00 and a Certificate of Sale
in his favor was issued by the defendant Municipal Treasurer.

5. That all other matters not particularly and specially covered by this
stipulation of facts will be the subject of evidence by the parties.
WHEREFORE, it is respectfully prayed of the Honorable Court to consider
and admit this stipulation of facts on the point agreed upon by the parties.
Bangued, Abra, April 12, 1973.
Sgd.
Agripi
no
Brillan
tes
Typ
AGRI
PINO
BRILL
ANTE
S
Attorn
ey for
Plaintif
f
Sgd.
Loreto
Rolda
n
Typ
LORE
TO
ROLD
AN
Provin
cial
Fiscal
Couns
el for
Defen
dants
Provin
cial
Treas
urer
of
Abra
and
the
Munici
pal
Treas
urer of
Bangu
ed,
Abra

Sgd.
Demet
rio V.
Pre
Typ.
DEME
TRIO
V.
PRE
Attorn
ey for
Defen
dant
Patern
o
Millare
(Rollo,
pp.
17-18)
Aside from the Stipulation of Facts, the trial court among others, found the following: (a)
that the school is recognized by the government and is offering Primary, High School
and College Courses, and has a school population of more than one thousand students
all in all; (b) that it is located right in the heart of the town of Bangued, a few meters from
the plaza and about 120 meters from the Court of First Instance building; (c) that the
elementary pupils are housed in a two-storey building across the street; (d) that the high
school and college students are housed in the main building; (e) that the Director with
his family is in the second floor of the main building; and (f) that the annual gross
income of the school reaches more than one hundred thousand pesos.
From all the foregoing, the only issue left for the Court to determine and as agreed by
the parties, is whether or not the lot and building in question are used exclusively for
educational purposes. (Rollo, p. 20)
The succeeding Provincial Fiscal, Hon. Jose A. Solomon and his Assistant, Hon.
Eustaquio Z. Montero, filed a Memorandum for the Government on March 25, 1974, and
a Supplemental Memorandum on May 7, 1974, wherein they opined "that based on the
evidence, the laws applicable, court decisions and jurisprudence, the school building
and school lot used for educational purposes of the Abra Valley College, Inc., are
exempted from the payment of taxes." (Annexes "B," "B-1" of Petition; Rollo, pp. 24-49;
44 and 49).
Nonetheless, the trial court disagreed because of the use of the second floor by the
Director of petitioner school for residential purposes. He thus ruled for the government
and rendered the assailed decision.
After having been granted by the trial court ten (10) days from August 6, 1974 within
which to perfect its appeal (Per Order dated August 6, 1974; Annex "G" of Petition;
Rollo, p. 57) petitioner instead availed of the instant petition for review on certiorari with
prayer for preliminary injunction before this Court, which petition was filed on August 17,
1974 (Rollo, p.2).
In the resolution dated August 16, 1974, this Court resolved to give DUE COURSE to
the petition (Rollo, p. 58). Respondents were required to answer said petition (Rollo, p.
74).
Petitioner raised the following assignments of error:

I
THE COURT A QUO ERRED IN SUSTAINING AS VALID THE SEIZURE AND SALE OF
THE COLLEGE LOT AND BUILDING USED FOR EDUCATIONAL PURPOSES OF
THE PETITIONER.
II
THE COURT A QUO ERRED IN DECLARING THAT THE COLLEGE LOT AND
BUILDING OF THE PETITIONER ARE NOT USED EXCLUSIVELY FOR
EDUCATIONAL PURPOSES MERELY BECAUSE THE COLLEGE PRESIDENT
RESIDES IN ONE ROOM OF THE COLLEGE BUILDING.
III
THE COURT A QUO ERRED IN DECLARING THAT THE COLLEGE LOT AND
BUILDING OF THE PETITIONER ARE NOT EXEMPT FROM PROPERTY TAXES AND
IN ORDERING PETITIONER TO PAY P5,140.31 AS REALTY TAXES.
IV
THE COURT A QUO ERRED IN ORDERING THE CONFISCATION OF THE P6,000.00
DEPOSIT MADE IN THE COURT BY PETITIONER AS PAYMENT OF THE P5,140.31
REALTY TAXES. (See Brief for the Petitioner, pp. 1-2)
The main issue in this case is the proper interpretation of the phrase "used exclusively
for educational purposes."
Petitioner contends that the primary use of the lot and building for educational purposes,
and not the incidental use thereof, determines and exemption from property taxes under
Section 22 (3), Article VI of the 1935 Constitution. Hence, the seizure and sale of
subject college lot and building, which are contrary thereto as well as to the provision of
Commonwealth Act No. 470, otherwise known as the Assessment Law, are without legal
basis and therefore void.
On the other hand, private respondents maintain that the college lot and building in
question which were subjected to seizure and sale to answer for the unpaid tax are
used: (1) for the educational purposes of the college; (2) as the permanent residence of
the President and Director thereof, Mr. Pedro V. Borgonia, and his family including the
in-laws and grandchildren; and (3) for commercial purposes because the ground floor of
the college building is being used and rented by a commercial establishment, the
Northern Marketing Corporation (See photograph attached as Annex "8" (Comment;
Rollo, p. 90]).
Due to its time frame, the constitutional provision which finds application in the case at
bar is Section 22, paragraph 3, Article VI, of the then 1935 Philippine Constitution, which
expressly grants exemption from realty taxes for "Cemeteries, churches and
parsonages or convents appurtenant thereto, and all lands, buildings, and
improvements used exclusively for religious, charitable or educational purposes ...
Relative thereto, Section 54, paragraph c, Commonwealth Act No. 470 as amended by
Republic Act No. 409, otherwise known as the Assessment Law, provides:
The following are exempted from real property tax under the Assessment
Law:
xxx xxx xxx

(c) churches and parsonages or convents appurtenant thereto, and all

lands, buildings, and improvements used exclusively for religious,
charitable, scientific or educational purposes.
xxx xxx xxx
In this regard petitioner argues that the primary use of the school lot and building is the
basic and controlling guide, norm and standard to determine tax exemption, and not the
mere incidental use thereof.
As early as 1916 in YMCA of Manila vs. Collector of lnternal Revenue, 33 Phil. 217
[1916], this Court ruled that while it may be true that the YMCA keeps a lodging and a
boarding house and maintains a restaurant for its members, still these do not constitute
business in the ordinary acceptance of the word, but an institution used exclusively for
religious, charitable and educational purposes, and as such, it is entitled to be
exempted from taxation.
In the case of Bishop of Nueva Segovia v. Provincial Board of Ilocos Norte, 51 Phil. 352
[1972], this Court included in the exemption a vegetable garden in an adjacent lot and
another lot formerly used as a cemetery. It was clarified that the term "used exclusively"
considers incidental use also. Thus, the exemption from payment of land tax in favor of
the convent includes, not only the land actually occupied by the building but also the
adjacent garden devoted to the incidental use of the parish priest. The lot which is not
used for commercial purposes but serves solely as a sort of lodging place, also qualifies
for exemption because this constitutes incidental use in religious functions.
The phrase "exclusively used for educational purposes" was further clarified by this
Court in the cases of Herrera vs. Quezon City Board of assessment Appeals, 3 SCRA
186 [1961] and Commissioner of Internal Revenue vs. Bishop of the Missionary District,
14 SCRA 991 [1965], thus
Moreover, the exemption in favor of property used exclusively for
charitable or educational purposes is 'not limited to property actually
indispensable' therefor (Cooley on Taxation, Vol. 2, p. 1430), but extends
to facilities which are incidental to and reasonably necessary for the
accomplishment of said purposes, such as in the case of hospitals, "a
school for training nurses, a nurses' home, property use to provide
housing facilities for interns, resident doctors, superintendents, and other
members of the hospital staff, and recreational facilities for student nurses,
interns, and residents' (84 CJS 6621), such as "Athletic fields" including "a
firm used for the inmates of the institution. (Cooley on Taxation, Vol. 2, p.
1430).
The test of exemption from taxation is the use of the property for purposes mentioned in
the Constitution (Apostolic Prefect v. City Treasurer of Baguio, 71 Phil, 547 [1941]).
It must be stressed however, that while this Court allows a more liberal and nonrestrictive interpretation of the phrase "exclusively used for educational purposes" as
provided for in Article VI, Section 22, paragraph 3 of the 1935 Philippine Constitution,
reasonable emphasis has always been made that exemption extends to facilities which
are incidental to and reasonably necessary for the accomplishment of the main
purposes. Otherwise stated, the use of the school building or lot for commercial
purposes is neither contemplated by law, nor by jurisprudence. Thus, while the use of
the second floor of the main building in the case at bar for residential purposes of the
Director and his family, may find justification under the concept of incidental use, which
is complimentary to the main or primary purposeeducational, the lease of the first

floor thereof to the Northern Marketing Corporation cannot by any stretch of the
imagination be considered incidental to the purpose of education.
It will be noted however that the aforementioned lease appears to have been raised for
the first time in this Court. That the matter was not taken up in the to court is really
apparent in the decision of respondent Judge. No mention thereof was made in the
stipulation of facts, not even in the description of the school building by the trial judge,
both embodied in the decision nor as one of the issues to resolve in order to determine
whether or not said properly may be exempted from payment of real estate taxes (Rollo,
pp. 17-23). On the other hand, it is noteworthy that such fact was not disputed even
after it was raised in this Court.
Indeed, it is axiomatic that facts not raised in the lower court cannot be taken up for the
first time on appeal. Nonetheless, as an exception to the rule, this Court has held that
although a factual issue is not squarely raised below, still in the interest of substantial
justice, this Court is not prevented from considering a pivotal factual matter. "The
Supreme Court is clothed with ample authority to review palpable errors not assigned as
such if it finds that their consideration is necessary in arriving at a just decision." (Perez
vs. Court of Appeals, 127 SCRA 645 [1984]).
Under the 1935 Constitution, the trial court correctly arrived at the conclusion that the
school building as well as the lot where it is built, should be taxed, not because the
second floor of the same is being used by the Director and his family for residential
purposes, but because the first floor thereof is being used for commercial purposes.
However, since only a portion is used for purposes of commerce, it is only fair that half
of the assessed tax be returned to the school involved.
PREMISES CONSIDERED, the decision of the Court of First Instance of Abra, Branch I,
is hereby AFFIRMED subject to the modification that half of the assessed tax be
returned to the petitioner.
SO ORDERED.