ASSOCIATION v.

MUNICIPAL BOARD

This is a petition for declaratory relief to test the validity of Ordinance No. 3379 passed by the
Municipal Board of the City of Manila on March 24, 1950.

The Association of Customs Brokers, Inc., which is composed of all brokers and public service
operators of motor vehicles in the City of Manila, and G. Manlapit, Inc., a member of said
association, also a public service operator of the trucks in said City, challenge the validity of said
ordinance on the ground that (1) while it levies a so-called property tax it is in reality a license
tax which is beyond the power of the Municipal Board of the City of Manila; (2) said ordinance
offends against the rule of uniformity of taxation; and (3) it constitutes double taxation.

The respondents, represented by the city fiscal, contend on their part that the challenged
ordinance imposes a property tax which is within the power of the City of Manila to impose
under its Revised Charter [Section 18 (p) of Republic Act No. 409], and that the tax in question
does not violate the rule of uniformity of taxation, nor does it constitute double taxation.

The issues having been joined, the Court of First Instance of Manila sustained the validity of the
ordinance and dismissed the petition. Hence this appeal.

The disputed ordinance was passed by the Municipal Board of the City of Manila under the
authority conferred by section 18 (p) of Republic Act No. 409. Said section confers upon the
municipal board the power "to tax motor and other vehicles operating within the City of Manila
the provisions of any existing law to the contrary notwithstanding." It is contended that this
power is broad enough to confer upon the City of Manila the power to enact an ordinance
imposing the property tax on motor vehicles operating within the city limits.

In the deciding the issue before us it is necessary to bear in mind the pertinent provisions of the
Motor Vehicles Law, as amended, (Act No. 3992) which has a bearing on the power of the
municipal corporation to impose tax on motor vehicles operating in any highway in the
Philippines. The pertinent provisions are contained in section 70 (b) which provide in part:

No further fees than those fixed in this Act shall be exacted or demanded by any public
highway, bridge or ferry, or for the exercise of the profession of chauffeur, or for the
operation of any motor vehicle by the owner thereof: Provided, however, That nothing in
this Act shall be construed to exempt any motor vehicle from the payment of any lawful
and equitable insular, local or municipal property tax imposed thereupon. . . .

Note that under the above section no fees may be exacted or demanded for the operation of
any motor vehicle other than those therein provided, the only exception being that which refers
to the property tax which may be imposed by a municipal corporation. This provision is all-
inclusive in that sense that it applies to all motor vehicles. In this sense, this provision should be
construed as limiting the broad grant of power conferred upon the City of Manila by its Charter
to impose taxes. When section 18 of said Charter provides that the City of Manila can impose a

1
tax on motor vehicles operating within its limit, it can only refers to property tax as a different
interpretation would make it repugnant to the Motor Vehicle Law.

Coming now to the ordinance in question, we find that its title refers to it as "An Ordinance
Levying a Property Tax on All Motor Vehicles Operating Within the City of Manila", and that in its
section 1 it provides that the tax should be 1 per cent ad valorem per annum. It also provides
that the proceeds of the tax "shall accrue to the Streets and Bridges Funds of the City and shall
be expended exclusively for the repair, maintenance and improvement of its streets and
bridges." Considering the wording used in the ordinance in the light in the purpose for which the
tax is created, can we consider the tax thus imposed as property tax, as claimed by
respondents?

While as a rule an ad valorem tax is a property tax, and this rule is supported by some
authorities, the rule should not be taken in its absolute sense if the nature and purpose of the
tax as gathered from the context show that it is in effect an excise or a license tax. Thus, it has
been held that "If a tax is in its nature an excise, it does not become a property tax because it is
proportioned in amount to the value of the property used in connection with the occupation,
privilege or act which is taxed. Every excise necessarily must finally fall upon and be paid by
property and so may be indirectly a tax upon property; but if it is really imposed upon the
performance of an act, enjoyment of a privilege, or the engaging in an occupation, it will be
considered an excise." (26 R. C. L., 35-36.) It has also been held that

The character of the tax as a property tax or a license or occupation tax must be
determined by its incidents, and from the natural and legal effect of the language
employed in the act or ordinance, and not by the name by which it is described, or by the
mode adopted in fixing its amount. If it is clearly a property tax, it will be so regarded,
even though nominally and in form it is a license or occupation tax; and, on the other
hand, if the tax is levied upon persons on account of their business, it will be construed
as a license or occupation tax, even though it is graduated according to the property
used in such business, or on the gross receipts of the business. (37 C.J., 172)

The ordinance in question falls under the foregoing rules. While it refers to property tax and it is
fixed ad valorem yet we cannot reject the idea that it is merely levied on motor vehicles
operating within the City of Manila with the main purpose of raising funds to be expended
exclusively for the repair, maintenance and improvement of the streets and bridges in said city.
This is precisely what the Motor Vehicle Law (Act No. 3992) intends to prevent, for the reason
that, under said Act, municipal corporation already participate in the distribution of the proceeds
that are raised for the same purpose of repairing, maintaining and improving bridges and public
highway (section 73 of the Motor Vehicle Law). This prohibition is intended to prevent
duplication in the imposition of fees for the same purpose. It is for this reason that we believe
that the ordinance in question merely imposes a license fee although under the cloak of an ad
valorem tax to circumvent the prohibition above adverted to.

2
It is also our opinion that the ordinance infringes the rule of the uniformity of taxation ordained
by our Constitution. Note that the ordinance exacts the tax upon all motor vehicles operating
within the City of Manila. It does not distinguish between a motor vehicle for hire and one which
is purely for private use. Neither does it distinguish between a motor vehicle registered in the
City of Manila and one registered in another place but occasionally comes to Manila and uses
its streets and public highways. The distinction is important if we note that the ordinance intends
to burden with the tax only those registered in the City of Manila as may be inferred from the
word "operating" used therein. The word "operating" denotes a connotation which is akin to a
registration, for under the Motor Vehicle Law no motor vehicle can be operated without previous
payment of the registration fees. There is no pretense that the ordinance equally applies to
motor vehicles who come to Manila for a temporary stay or for short errands, and it cannot be
denied that they contribute in no small degree to the deterioration of the streets and public
highway. The fact that they are benefited by their use they should also be made to share the
corresponding burden. And yet such is not the case. This is an inequality which we find in the
ordinance, and which renders it offensive to the Constitution.

Wherefore, reversing the decision appealed from, we hereby declare the ordinance null and
void.

ESSO v. CIR

On appeal before us is the decision of the Court of Tax Appeals 1 denying petitioner's claims for
refund of overpaid income taxes of P102,246.00 for 1959 and P434,234.93 for 1960 in CTA
Cases No. 1251 and 1558 respectively.

In CTA Case No. 1251, petitioner ESSO deducted from its gross income for 1959, as part of its
ordinary and necessary business expenses, the amount it had spent for drilling and exploration
of its petroleum concessions. This claim was disallowed by the respondent Commissioner of
Internal Revenue on the ground that the expenses should be capitalized and might be written off
as a loss only when a "dry hole" should result. ESSO then filed an amended return where it
asked for the refund of P323,279.00 by reason of its abandonment as dry holes of several of its
oil wells. Also claimed as ordinary and necessary expenses in the same return was the amount
of P340,822.04, representing margin fees it had paid to the Central Bank on its profit
remittances to its New York head office.

On August 5, 1964, the CIR granted a tax credit of P221,033.00 only, disallowing the claimed
deduction for the margin fees paid.

In CTA Case No. 1558, the CR assessed ESSO a deficiency income tax for the year 1960, in
the amount of P367,994.00, plus 18% interest thereon of P66,238.92 for the period from April
18,1961 to April 18, 1964, for a total of P434,232.92. The deficiency arose from the
disallowance of the margin fees of Pl,226,647.72 paid by ESSO to the Central Bank on its profit
remittances to its New York head office.

3
ESSO settled this deficiency assessment on August 10, 1964, by applying the tax credit of
P221,033.00 representing its overpayment on its income tax for 1959 and paying under protest
the additional amount of P213,201.92. On August 13, 1964, it claimed the refund of P39,787.94
as overpayment on the interest on its deficiency income tax. It argued that the 18% interest
should have been imposed not on the total deficiency of P367,944.00 but only on the amount of
P146,961.00, the difference between the total deficiency and its tax credit of P221,033.00.

This claim was denied by the CIR, who insisted on charging the 18% interest on the entire
amount of the deficiency tax. On May 4,1965, the CIR also denied the claims of ESSO for
refund of the overpayment of its 1959 and 1960 income taxes, holding that the margin fees paid
to the Central Bank could not be considered taxes or allowed as deductible business expenses.

ESSO appealed to the CTA and sought the refund of P102,246.00 for 1959, contending that the
margin fees were deductible from gross income either as a tax or as an ordinary and necessary
business expense. It also claimed an overpayment of its tax by P434,232.92 in 1960, for the
same reason. Additionally, ESSO argued that even if the amount paid as margin fees were not
legally deductible, there was still an overpayment by P39,787.94 for 1960, representing excess
interest.

After trial, the CTA denied petitioner's claim for refund of P102,246.00 for 1959 and P434,234.92
for 1960 but sustained its claim for P39,787.94 as excess interest. This portion of the decision
was appealed by the CIR but was affirmed by this Court in Commissioner of Internal Revenue v.
ESSO, G.R. No. L-28502- 03, promulgated on April 18, 1989. ESSO for its part appealed the
CTA decision denying its claims for the refund of the margin fees P102,246.00 for 1959 and
P434,234.92 for 1960. That is the issue now before us.

II

The first question we must settle is whether R.A. 2009, entitled An Act to Authorize the Central
Bank of the Philippines to Establish a Margin Over Banks' Selling Rates of Foreign Exchange, is
a police measure or a revenue measure. If it is a revenue measure, the margin fees paid by the
petitioner to the Central Bank on its profit remittances to its New York head office should be
deductible from ESSO's gross income under Sec. 30(c) of the National Internal Revenue Code.
This provides that all taxes paid or accrued during or within the taxable year and which are
related to the taxpayer's trade, business or profession are deductible from gross income.

The petitioner maintains that margin fees are taxes and cites the background and legislative
history of the Margin Fee Law showing that R.A. 2609 was nothing less than a revival of the
17% excise tax on foreign exchange imposed by R.A. 601. This was a revenue measure
formally proposed by President Carlos P. Garcia to Congress as part of, and in order to balance,
the budget for 1959-1960. It was enacted by Congress as such and, significantly, properly
originated in the House of Representatives. During its two and a half years of existence, the
measure was one of the major sources of revenue used to finance the ordinary operating
expenditures of the government. It was, moreover, payable out of the General Fund.

4
On the claimed legislative intent, the Court of Tax Appeals, quoting established principles,
pointed out that

We are not unmindful of the rule that opinions expressed in debates, actual proceedings of the
legislature, steps taken in the enactment of a law, or the history of the passage of the law
through the legislature, may be resorted to as an aid in the interpretation of a statute which is
ambiguous or of doubtful meaning. The courts may take into consideration the facts leading up
to, coincident with, and in any way connected with, the passage of the act, in order that they
may properly interpret the legislative intent. But it is also well-settled jurisprudence that only in
extremely doubtful matters of interpretation does the legislative history of an act of Congress
become important. As a matter of fact, there may be no resort to the legislative history of the
enactment of a statute, the language of which is plain and unambiguous, since such legislative
history may only be resorted to for the purpose of solving doubt, not for the purpose of creating
it. [50 Am. Jur. 328.]

Apart from the above consideration, there are at least two cases where we have held that a
margin fee is not a tax but an exaction designed to curb the excessive demands upon our
international reserve.

In Caltex (Phil.) Inc. v. Acting Commissioner of Customs, 2 the Court stated through Justice Jose
P. Bengzon:

A margin levy on foreign exchange is a form of exchange control or restriction

designed to discourage imports and encourage exports, and ultimately, 'curtail
any excessive demand upon the international reserve' in order to stabilize the
currency. Originally adopted to cope with balance of payment pressures,
exchange restrictions have come to serve various purposes, such as limiting
non-essential imports, protecting domestic industry and when combined with the
use of multiple currency rates providing a source of revenue to the government,
and are in many developing countries regarded as a more or less inevitable
concomitant of their economic development programs. The different measures of
exchange control or restriction cover different phases of foreign exchange
transactions, i.e., in quantitative restriction, the control is on the amount of foreign
exchange allowable. In the case of the margin levy, the immediate impact is on
the rate of foreign exchange; in fact, its main function is to control the exchange
rate without changing the par value of the peso as fixed in the Bretton Woods
Agreement Act. For a member nation is not supposed to alter its exchange rate
(at par value) to correct a merely temporary disequilibrium in its balance of
payments. By its nature, the margin levy is part of the rate of exchange as fixed
by the government.

As to the contention that the margin levy is a tax on the purchase of foreign exchange and
hence should not form part of the exchange rate, suffice it to state that We have already held
the contrary for the reason that a tax is levied to provide revenue for government operations,

5
while the proceeds of the margin fee are applied to strengthen our country's international
reserves.

Earlier, in Chamber of Agriculture and Natural Resources of the Philippines v. Central

Bank, 3 the same idea was expressed, though in connection with a different levy, through Justice
J.B.L. Reyes:

Neither do we find merit in the argument that the 20% retention of exporter's
foreign exchange constitutes an export tax. A tax is a levy for the purpose of
providing revenue for government operations, while the proceeds of the 20%
retention, as we have seen, are applied to strengthen the Central Bank's
international reserve.

We conclude then that the margin fee was imposed by the State in the exercise of its police
power and not the power of taxation.

Alternatively, ESSO prays that if margin fees are not taxes, they should nevertheless be
considered necessary and ordinary business expenses and therefore still deductible from its
gross income. The fees were paid for the remittance by ESSO as part of the profits to the head
office in the Unites States. Such remittance was an expenditure necessary and proper for the
conduct of its corporate affairs.

The applicable provision is Section 30(a) of the National Internal Revenue Code reading as
follows:

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; traveling expenses while away from home in the pursuit of a
trade or business; and rentals or other payments required to be made as a
condition to the continued use or possession, for the purpose of the trade or
business, of property to which the taxpayer has not taken or is not taking title or
in which he has no equity.

(2) Expenses allowable to non-resident alien individuals and foreign corporations.

In the case of a non-resident alien individual or a foreign corporation, the
expenses deductible are the necessary expenses paid or incurred in carrying on
any business or trade conducted within the Philippines exclusively.

6
In the case of Atlas Consolidated Mining and Development Corporation v. Commissioner of
Internal Revenue, 4 the Court laid down the rules on the deductibility of business expenses,
thus:

The principle is recognized that when a taxpayer claims a deduction, he must

point to some specific provision of the statute in which that deduction is
authorized and must be able to prove that he is entitled to the deduction which
the law allows. As previously adverted to, the law allowing expenses as
deduction from gross income for purposes of the income tax is Section 30(a) (1)
of the National Internal Revenue which allows a deduction of 'all the ordinary and
necessary expenses paid or incurred during the taxable year in carrying on any
trade or business.' An item of expenditure, in order to be deductible under this
section of the statute, must fall squarely within its language.

We come, then, to the statutory test of deductibility where it is axiomatic that to

be deductible as a business expense, three conditions are imposed, namely: (1)
the expense must be ordinary and necessary, (2) it must be paid or incurred
within the taxable year, and (3) it must be paid or incurred in carrying on a trade
or business. In addition, not only must the taxpayer meet the business test, he
must substantially prove by evidence or records the deductions claimed under
the law, otherwise, the same will be disallowed. The mere allegation of the
taxpayer that an item of expense is ordinary and necessary does not justify its
deduction.

While it is true that there is a number of decisions in the United States delving on
the interpretation of the terms 'ordinary and necessary' as used in the federal tax
laws, no adequate or satisfactory definition of those terms is possible. Similarly,
this Court has never attempted to define with precision the terms 'ordinary and
necessary.' There are however, certain guiding principles worthy of serious
consideration in the proper adjudication of conflicting claims. Ordinarily, an
expense will be considered 'necessary' where the expenditure is appropriate and
helpful in the development of the taxpayer's business. It is 'ordinary' when it
connotes a payment which is normal in relation to the business of the taxpayer
and the surrounding circumstances. The term 'ordinary' does not require that the
payments be habitual or normal in the sense that the same taxpayer will have to
make them often; the payment may be unique or non-recurring to the particular
taxpayer affected.

There is thus no hard and fast rule on the matter. The right to a deduction
depends in each case on the particular facts and the relation of the payment to
the type of business in which the taxpayer is engaged. The intention of the
taxpayer often may be the controlling fact in making the determination. Assuming
that the expenditure is ordinary and necessary in the operation of the taxpayer's
business, the answer to the question as to whether the expenditure is an

7
 allowable deduction as a business expense must be determined from the nature
of the expenditure itself, which in turn depends on the extent and permanency of
the work accomplished by the expenditure.

In the light of the above explanation, we hold that the Court of Tax Appeals did not err when it
held on this issue as follows:

Considering the foregoing test of what constitutes an ordinary and necessary

deductible expense, it may be asked: Were the margin fees paid by petitioner on
its profit remittance to its Head Office in New York appropriate and helpful in the
taxpayer's business in the Philippines? Were the margin fees incurred for
purposes proper to the conduct of the affairs of petitioner's branch in the
Philippines? Or were the margin fees incurred for the purpose of realizing a profit
or of minimizing a loss in the Philippines? Obviously not. As stated in the Lopez
case, the margin fees are not expenses in connection with the production or
earning of petitioner's incomes in the Philippines. They were expenses incurred
in the disposition of said incomes; expenses for the remittance of funds after they
have already been earned by petitioner's branch in the Philippines for the
disposal of its Head Office in New York which is already another distinct and
separate income taxpayer.

xxx

Since the margin fees in question were incurred for the remittance of funds to
petitioner's Head Office in New York, which is a separate and distinct income
taxpayer from the branch in the Philippines, for its disposal abroad, it can never
be said therefore that the margin fees were appropriate and helpful in the
development of petitioner's business in the Philippines exclusively or were
incurred for purposes proper to the conduct of the affairs of petitioner's branch in
the Philippines exclusively or for the purpose of realizing a profit or of minimizing
a loss in the Philippines exclusively. If at all, the margin fees were incurred for
purposes proper to the conduct of the corporate affairs of Standard Vacuum Oil
Company in New York, but certainly not in the Philippines.

ESSO has not shown that the remittance to the head office of part of its profits was made in
furtherance of its own trade or business. The petitioner merely presumed that all corporate
expenses are necessary and appropriate in the absence of a showing that they are illegal
or ultra vires. This is error. The public respondent is correct when it asserts that "the paramount
rule is that claims for deductions are a matter of legislative grace and do not turn on mere
equitable considerations ... . The taxpayer in every instance has the burden of justifying the
allowance of any deduction claimed." 5

It is clear that ESSO, having assumed an expense properly attributable to its head office, cannot
now claim this as an ordinary and necessary expense paid or incurred in carrying on its own
trade or business.

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WHEREFORE, the decision of the Court of Tax Appeals denying the petitioner's claims for
refund of P102,246.00 for 1959 and P434,234.92 for 1960, is AFFIRMED, with costs against the
petitioner.

SO ORDERED.

PROGRESSIVE v. QC

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
... including revocation 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.

9
 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:

10
 ... 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;

11
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. 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.

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. 12 Accordingly, 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.

12
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

13
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.

PAL v. EDU

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 portion-about complaint
for refund of registration fees paid under protest.

The disputed registration fees were imposed by the appellee, Commissioner Romeo F. Elevate
pursuant to Section 8, Republic Act No. 4136, otherwise known as the Land Transportation and
Traffic Code.

The Philippine Airlines (PAL) is a corporation organized and existing under the laws of the
Philippines and engaged in the air transportation business under a legislative franchise, Act No.
42739, as amended by Republic Act Nos. 25). and 269.1 Under its franchise, PAL is exempt
from the payment of taxes. The pertinent provision of the franchise provides as follows:

Section 13. In consideration of the franchise and rights hereby granted, the
grantee shall pay to the National Government during the life of this franchise a
tax of two per cent of the gross revenue or gross earning derived by the grantee
from its operations under this franchise. Such tax shall be due and payable
quarterly and shall be in lieu of all taxes of any kind, nature or description, levied,
established or collected by any municipal, provincial or national automobiles,
Provided, that if, after the audit of the accounts of the grantee by the
Commissioner of Internal Revenue, a deficiency tax is shown to be due, the
deficiency tax shall be payable within the ten days from the receipt of the
assessment. The grantee shall pay the tax on its real property in conformity with
existing law.

On the strength of an opinion of the Secretary of Justice (Op. No. 307, series of 1956) PAL has,
since 1956, not been paying motor vehicle registration fees.

Sometime in 1971, however, appellee Commissioner Romeo F. Elevate issued a regulation

requiring all tax exempt entities, among them PAL to pay motor vehicle registration fees.

14
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

15
 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

16
 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

17
 shall during the next previous year and the remaining eighty per centum shall be
deposited in the Philippine Treasury to create a special fund for the construction
and maintenance of national and provincial roads and bridges. as well as the
streets and bridges in the chartered cities to be alloted by the Secretary of Public
Works and Communications for projects recommended by the Director of Public
Works in the different provinces and chartered cities. ....

Presently, Sec. 61 of the Land Transportation and Traffic Code provides:

Sec. 61. Disposal of Mortgage. CollectedMonies collected under the provisions

of this Act shall be deposited in a special trust account in the National Treasury to
constitute the Highway Special Fund, which shall be apportioned and expended
in accordance with the provisions of the" Philippine Highway Act of 1935.
"Provided, however, That the amount necessary to maintain and equip the Land
Transportation Commission but not to exceed twenty per cent of the total
collection during one year, shall be set aside for the purpose. (As amended by
RA 64-67, approved August 6, 1971).

It appears clear from the above provisions that the legislative intent and purpose behind the law
requiring owners of vehicles to pay for their registration is mainly to raise funds for the
construction and maintenance of highways and to a much lesser degree, pay for the operating
expenses of the administering agency. On the other hand, the Philippine Rabbit case mentions
a presumption arising from the use of the term "fees," which appears to have been favored by
the legislature to distinguish fees from other taxes such as those mentioned in Section 13 of
Rep. Act 4136 which reads:

Sec. 13. Payment of taxes upon registration.No original registration of motor

vehicles subject to payment of taxes, customs s duties or other charges shall be
accepted unless proof of payment of the taxes due thereon has been presented
to the Commission.

referring to taxes other than those imposed on the registration, operation or ownership of a
motor vehicle (Sec. 59, b, Rep. Act 4136, as amended).

Fees may be properly regarded as taxes even though they also serve as an instrument of
regulation, As stated by a former presiding judge of the Court of Tax Appeals and writer on
various aspects of taxpayers

It is possible for an exaction to be both tax arose. regulation. License fees are
changes. looked to as a source of revenue as well as a means of regulation
(Sonzinky v. U.S., 300 U.S. 506) This is true, for example, of automobile license
fees. Isabela such case, the fees may properly be regarded as taxes even
though they also serve as an instrument of regulation. If the purpose is primarily
revenue, or if revenue is at least one of the real and substantial purposes, then
the exaction is properly called a tax. (1955 CCH Fed. tax Course, Par. 3101,

18
 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.

19
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

20
 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.

21
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.

VILLEGAS v. HIU

This is a petition for certiorari to review tile decision dated September 17, 1968 of respondent
Judge Francisco Arca of the Court of First Instance of Manila, Branch I, in Civil Case No. 72797,
the dispositive portion of winch reads.

Wherefore, judgment is hereby rendered in favor of the petitioner and against the
respondents, declaring Ordinance No. 6 37 of the City of Manila null and void.
The preliminary injunction is made permanent. No pronouncement as to cost.

SO ORDERED.

Manila, Philippines, September 17, 1968.

(SGD.)
FRAN
CISCO
ARCA

Judge 1

The controverted Ordinance No. 6537 was passed by the Municipal Board of Manila on
February 22, 1968 and signed by the herein petitioner Mayor Antonio J. Villegas of Manila on
March 27, 1968. 2

City Ordinance No. 6537 is entitled:

AN ORDINANCE MAKING IT UNLAWFUL FOR ANY PERSON NOT A CITIZEN

OF THE PHILIPPINES TO BE EMPLOYED IN ANY PLACE OF EMPLOYMENT
OR TO BE ENGAGED IN ANY KIND OF TRADE, BUSINESS OR OCCUPATION
WITHIN THE CITY OF MANILA WITHOUT FIRST SECURING AN
EMPLOYMENT PERMIT FROM THE MAYOR OF MANILA; AND FOR OTHER
PURPOSES. 3

Section 1 of said Ordinance No. 6537 4 prohibits aliens from being employed or to engage or
participate in any position or occupation or business enumerated therein, whether permanent,
temporary or casual, without first securing an employment permit from the Mayor of Manila and

22
paying the permit fee of P50.00 except persons employed in the diplomatic or consular missions
of foreign countries, or in the technical assistance programs of both the Philippine Government
and any foreign government, and those working in their respective households, and members of
religious orders or congregations, sect or denomination, who are not paid monetarily or in kind.

Violations of this ordinance is punishable by an imprisonment of not less than three (3) months
to six (6) months or fine of not less than P100.00 but not more than P200.00 or both such fine
and imprisonment, upon conviction. 5

On May 4, 1968, private respondent Hiu Chiong Tsai Pao Ho who was employed in Manila, filed
a petition with the Court of First Instance of Manila, Branch I, denominated as Civil Case No.
72797, praying for the issuance of the writ of preliminary injunction and restraining order to stop
the enforcement of Ordinance No. 6537 as well as for a judgment declaring said Ordinance No.
6537 null and void. 6

In this petition, Hiu Chiong Tsai Pao Ho assigned the following as his grounds for wanting the
ordinance declared null and void:

1) As a revenue measure imposed on aliens employed in the City of Manila,

Ordinance No. 6537 is discriminatory and violative of the rule of the uniformity in
taxation;

2) As a police power measure, it makes no distinction between useful and non-

useful occupations, imposing a fixed P50.00 employment permit, which is out of
proportion to the cost of registration and that it fails to prescribe any standard to
guide and/or limit the action of the Mayor, thus, violating the fundamental
principle on illegal delegation of legislative powers:

3) It is arbitrary, oppressive and unreasonable, being applied only to aliens who

are thus, deprived of their rights to life, liberty and property and therefore,
violates the due process and equal protection clauses of the Constitution. 7

On May 24, 1968, respondent Judge issued the writ of preliminary injunction and on September
17, 1968 rendered judgment declaring Ordinance No. 6537 null and void and making permanent
the writ of preliminary injunction. 8

Contesting the aforecited decision of respondent Judge, then Mayor Antonio J. Villegas filed the
present petition on March 27, 1969. Petitioner assigned the following as errors allegedly
committed by respondent Judge in the latter's decision of September 17,1968: 9

THE RESPONDENT JUDGE COMMITTED A SERIOUS AND PATENT ERROR

OF LAW IN RULING THAT ORDINANCE NO. 6537 VIOLATED THE CARDINAL
RULE OF UNIFORMITY OF TAXATION.

23
 II

RESPONDENT JUDGE LIKEWISE COMMITTED A GRAVE AND PATENT

ERROR OF LAW IN RULING THAT ORDINANCE NO. 6537 VIOLATED THE
PRINCIPLE AGAINST UNDUE DESIGNATION OF LEGISLATIVE POWER.

III

RESPONDENT JUDGE FURTHER COMMITTED A SERIOUS AND PATENT

ERROR OF LAW IN RULING THAT ORDINANCE NO. 6537 VIOLATED THE
DUE PROCESS AND EQUAL PROTECTION CLAUSES OF THE
CONSTITUTION.

Petitioner Mayor Villegas argues that Ordinance No. 6537 cannot be declared null and void on
the ground that it violated the rule on uniformity of taxation because the rule on uniformity of
taxation applies only to purely tax or revenue measures and that Ordinance No. 6537 is not a
tax or revenue measure but is an exercise of the police power of the state, it being principally a
regulatory measure in nature.

The contention that Ordinance No. 6537 is not a purely tax or revenue measure because its
principal purpose is regulatory in nature has no merit. While it is true that the first part which
requires that the alien shall secure an employment permit from the Mayor involves the exercise
of discretion and judgment in the processing and approval or disapproval of applications for
employment permits and therefore is regulatory in character the second part which requires the
payment of P50.00 as employee's fee is not regulatory but a revenue measure. There is no logic
or justification in exacting P50.00 from aliens who have been cleared for employment. It is
obvious that the purpose of the ordinance is to raise money under the guise of regulation.

The P50.00 fee is unreasonable not only because it is excessive but because it fails to consider
valid substantial differences in situation among individual aliens who are required to pay it.
Although the equal protection clause of the Constitution does not forbid classification, it is
imperative that the classification should be based on real and substantial differences having a
reasonable relation to the subject of the particular legislation. The same amount of P50.00 is
being collected from every employed alien whether he is casual or permanent, part time or full
time or whether he is a lowly employee or a highly paid executive

Ordinance No. 6537 does not lay down any criterion or standard to guide the Mayor in the
exercise of his discretion. It has been held that where an ordinance of a municipality fails to
state any policy or to set up any standard to guide or limit the mayor's action, expresses no
purpose to be attained by requiring a permit, enumerates no conditions for its grant or refusal,
and entirely lacks standard, thus conferring upon the Mayor arbitrary and unrestricted power to
grant or deny the issuance of building permits, such ordinance is invalid, being an undefined
and unlimited delegation of power to allow or prevent an activity per se lawful. 10

24
In Chinese Flour Importers Association vs. Price Stabilization Board, 11 where a law granted a
government agency power to determine the allocation of wheat flour among importers, the
Supreme Court ruled against the interpretation of uncontrolled power as it vested in the
administrative officer an arbitrary discretion to be exercised without a policy, rule, or standard
from which it can be measured or controlled.

It was also held in Primicias vs. Fugoso 12 that the authority and discretion to grant and refuse
permits of all classes conferred upon the Mayor of Manila by the Revised Charter of Manila is
not uncontrolled discretion but legal discretion to be exercised within the limits of the law.

Ordinance No. 6537 is void because it does not contain or suggest any standard or criterion to
guide the mayor in the exercise of the power which has been granted to him by the ordinance.

The ordinance in question violates the due process of law and equal protection rule of the
Constitution.

Requiring a person before he can be employed to get a permit from the City Mayor of Manila
who may withhold or refuse it at will is tantamount to denying him the basic right of the people in
the Philippines to engage in a means of livelihood. While it is true that the Philippines as a State
is not obliged to admit aliens within its territory, once an alien is admitted, he cannot be deprived
of life without due process of law. This guarantee includes the means of livelihood. The shelter
of protection under the due process and equal protection clause is given to all persons, both
aliens and citizens. 13

The trial court did not commit the errors assigned.

WHEREFORE, the decision appealed from is hereby affirmed, without pronouncement as to

costs.

SO ORDERED.

Barredo, Makasiar, Muoz Palma, Santos and Guerrero, JJ., concur.

Castro, C.J., Antonio and Aquino, Fernando, JJ., concur in the result.

Concepcion, Jr., J., took no part.

Separate Opinions

25
TEEHANKEE, J., concurring:

I concur in the decision penned by Mr. Justice Fernandez which affirms the lower court's
judgment declaring Ordinance No. 6537 of the City of Manila null and void for the reason that
the employment of aliens within the country is a matter of national policy and regulation, which
properly pertain to the national government officials and agencies concerned and not to local
governments, such as the City of Manila, which after all are mere creations of the national
government.

The national policy on the matter has been determined in the statutes enacted by the
legislature, viz, the various Philippine nationalization laws which on the whole recognize the
right of aliens to obtain gainful employment in the country with the exception of certain specific
fields and areas. Such national policies may not be interfered with, thwarted or in any manner
negated by any local government or its officials since they are not separate from and
independent of the national government.

As stated by the Court in the early case of Phil. Coop. Livestock Ass'n. vs. Earnshaw, 59 Phil.
129: "The City of Manila is a subordinate body to the Insular (National Government ...). When
the Insular (National) Government adopts a policy, a municipality is without legal authority to
nullify and set at naught the action of the superior authority." Indeed, "not only must all municipal
powers be exercised within the limits of the organic laws, but they must be consistent with the
general law and public policy of the particular state ..." (I McQuillin, Municipal Corporations, 2nd
sec. 367, P. 1011).

With more reason are such national policies binding on local governments when they involve
our foreign relations with other countries and their nationals who have been lawfully admitted
here, since in such matters the views and decisions of the Chief of State and of the legislature
must prevail over those of subordinate and local governments and officials who have no
authority whatever to take official acts to the contrary.

COMPANIA GENERAL v. MANILA

Appeal from the decision of the Court of First Instance of Manila ordering the City Treasurer of
Manila to refund the sum of P15,280.00 to Compania General de Tabacos de Filipinas.

Appellee Compania General de Tabacos de Filipinas hereinafter referred to simply as

Tabacalera filed this action in the Court of First Instance of Manila to recover from appellants,
City of Manila and its Treasurer, Marcelino Sarmiento also hereinafter referred to as the City
the sum of P15,280.00 allegedly overpaid by it as taxes on its wholesale and retail sales of
liquor for the period from the third quarter of 1954 to the second quarter of 1957, inclusive,
under Ordinances Nos. 3634, 3301, and 3816.

Tabacalera, as a duly licensed first class wholesale and retail liquor dealer paid the City the
fixed license fees prescribed by Ordinance No. 3358 for the years 1954 to 1957, inclusive, and,

26
as a wholesale and retail dealer of general merchandise, it also paid the sales taxes required by
Ordinances Nos. 3634, 3301, and 3816.1wph1.t

In its sworn statements of wholesale, retail, and grocery sales of general merchandise from the
third quarter of 1954 to the second quarter of 1957, inclusive, Tabacalera included its liquor
sales of the same period, and it is not denied that of the taxes it paid on all its sales of general
merchandise, the sum of P15,280.00 subject to the action represents the tax corresponding to
the liquor sales aforesaid.

Tabacalera's action for refund is based on the theory that, in connection with its liquor sales, it
should pay the license fees prescribed by Ordinance No. 3358 but not the municipal sales taxes
imposed by Ordinances Nos. 3634, 3301, and 3816; and since it already paid the license fees
aforesaid, the sales taxes paid by it amounting to the sum of P15,208.00 under the three
ordinances mentioned heretofore is an overpayment made by mistake, and therefore
refundable.

The City, on the other hand, contends that, for the permit issued to it granting proper authority to
"conduct or engage in the sale of alcoholic beverages, or liquors" Tabacalera is subject to pay
the license fees prescribed by Ordinance No. 3358, aside from the sales taxes imposed by
Ordinances Nos. 3634, 3301, and 3816; that, even assuming that Tabacalera is not subject to
the payment of the sales taxes prescribed by the said three ordinances as regards
its liquor sales, it is not entitled to the refund demanded for the following reasons:.

(a) The said amount was paid by the plaintiff voluntarily and without protest;

(b) If at all the alleged overpayment was made by mistake, such mistake was one of law
and arose from the plaintiff's neglect of duty; .

(c) The said amount had been added by the plaintiff to the selling price of the liquor sold
by it and passed to the consumers; and

(d) The said amount had been already expended by the defendant City for public
improvements and essential services of the City government, the benefits of which are
enjoyed, and being enjoyed by the plaintiff.

It is admitted that as liquor dealer, Tabacalera paid annually the wholesale and retail liquor
license fees under Ordinance No. 3358. In 1954, City Ordinance No. 3634, amending City
Ordinance No. 3420, and City Ordinance No. 3816, amending City Ordinance No. 3301 were
passed. By reason thereof, the City Treasurer issued the regulations marked Exhibit A,
according to which, the term "general merchandise as used in said ordinances, includes all
articles referred to in Chapter 1, Sections 123 to 148 of the National Internal Revenue Code. Of
these, Sections 133-135 included liquor among the taxable articles. Pursuant to said
regulations, Tabacalera included its sales of liquor in its sworn quarterly declaration submitted to
the City Treasurer beginning from the third quarter of 1954 to the second quarter of 1957, with a
total value of P722,501.09 and correspondingly paid a wholesaler's tax amounting to

27
P13,688.00 and a retailer's tax amounting to P1,520.00, or a total of P15,208.00 the amount
sought to be recovered.

It appears that in the year 1954, the City, through its treasurer, addressed a letter to Messrs.
Sycip, Gorres, Velayo and Co., an accounting firm, expressing the view that liquor dealers
paying the annual wholesale and retail fixed tax under City Ordinance No. 3358 are not subject
to the wholesale and retail dealers' taxes prescribed by City Ordinances Nos. 3634, 3301, and
3816. Upon learning of said opinion, appellee stopped including its sales of liquor in its quarterly
sworn declarations submitted in accordance with the aforesaid City Ordinances Nos. 3634,
3301, and 3816, and on December 3, 1957, it addressed a letter to the City Treasurer
demanding refund of the alleged overpayment. As the claim was disallowed, the present action
was instituted.

The term "tax" applies generally speaking to all kinds of exactions which become public
funds. The term is often loosely used to include levies for revenue as well as levies for
regulatory purposes. Thus license fees are commonly called taxes. Legally speaking,
however, license fee is a legal concept quite distinct from tax; the former is imposed in the
exercise of police power for purposes of regulation, while the latter is imposed under the taxing
power for the purpose of raising revenues (MacQuillin, Municipal Corporations, Vol. 9, 3rd
Edition, p. 26).

Ordinance No. 3358 is clearly one that prescribes municipal license fees for the privilege to
engage in the business of selling liquor or alcoholic beverages, having been enacted by the
Municipal Board of Manila pursuant to its charter power to fix license fees on, and regulate, the
sale of intoxicating liquors, whether imported or locally manufactured. (Section 18 [p], Republic
Act 409, as amended). The license fees imposed by it are essentially for purposes of regulation,
and are justified, considering that the sale of intoxicating liquor is, potentially at least, harmful to
public health and morals, and must be subject to supervision or regulation by the state and by
cities and municipalities authorized to act in the premises. (MacQuillin, supra, p. 445.)

On the other hand, it is clear that Ordinances Nos. 3634, 3301, and 3816 impose taxes on the
sales of general merchandise, wholesale or retail, and are revenue measures enacted by the
Municipal Board of Manila by virtue of its power to tax dealers for the sale of such merchandise.
(Section 10 [o], Republic Act No. 409, as amended.).

Under Ordinance No. 3634 the word "merchandise" as employed therein clearly includes liquor.
Aside from this, we have held in City of Manila vs. Inter-Island Gas Service, Inc., G.R. No. L-
8799, August 31, 1956, that the word "merchandise" refers to all subjects of commerce and
traffic; whatever is usually bought and sold in trade or market; goods or wares bought and sold
for gain; commodities or goods to trade; and commercial commodities in general.

That Tabacalera is being subjected to double taxation is more apparent than real. As already
stated what is collected under Ordinance No. 3358 is a license fee for the privilege of engaging
in the sale of liquor, a calling in which it is obvious not anyone or anybody may freely
engage, considering that the sale of liquor indiscriminately may endanger public health and

28
morals. On the other hand, what the three ordinances mentioned heretofore impose is a tax for
revenue purposes based on the sales made of the same article or merchandise. It is already
settled in this connection that both a license fee and a tax may be imposed on the same
business or occupation, or for selling the same article, this not being in violation of the rule
against double taxation (Bentley Gray Dry Goods Co. vs. City of Tampa, 137 Fla. 641, 188 So.
758; MacQuillin, Municipal Corporations, Vol. 9, 3rd Edition, p. 83). This is precisely the case
with the ordinances involved in the case at bar.

Appellee's contention that the City is repudiating its previous view expressed by its Treasurer
in a letter addressed to Messrs. Sycip, Gorres, Velayo & Co. in 1954 that a liquor dealer who
pays the annual license fee under Ordinance No. 3358 is exempted from the wholesalers and
retailers taxes under the other three ordinances mentioned heretofore is of no consequence.
The government is not bound by the errors or mistakes committed by its officers, specially on
matters of law.

Having arrived at the above conclusion, we deem it unnecessary to consider the other legal
points raised by the City.

WHEREFORE, the decision appealed from is reversed, with the result that this case should be,
as it is hereby dismissed, with costs.

AMERICAN MAIL v. BASILAN

Appeal from the decision of the Court of First Instance of Manila "declaring illegal and void
Ordinance No. 180, Series of 1955, of the City of Basilan," and dismissing defendants,
counterclaim for lack of merit.

On September 12, 1955 the City Council of Basilan City enacted Ordinance No. 180, Series of
1955, (Exh. N) amending Title IV, Ordinance No. 7, Series of 1948, (Exh. A) by adding thereto
Section 1 (D) and Sections 2 (C) and (D). The first reads as follows:

Section 1. Article IV of ordinance numbered seven entitled, 'The Port Area Ordinance', is
hereby amended to read as follows:

ARTICLE IV. REGULATION FOR BERTHING, MOORING, DOCKING AND

ANCHORING AT PIERS OR WHARVES AT ANY POINT WITHIN THE CITY OF
BASILAN AND FOR ANCHORING AT ANY OPEN BAY, CHANNEL OR ANY
OTHER POINT WITHIN THE TERRITORIAL WATERS OF THE CITY OF
BASILAN

Sec. 2. Section 1 of Ordinance No. 7 is hereby amended and adding thereto a new
paragraph to be known as Section 1 (D), to read as follows:

"Section 1 (D). Any foreign vessel engaged in coastwise trade which may anchor at any
open bay, channel, or any loading point within the territorial waters of the City of Basilan

29
 for the purpose of loading or unloading logs or passengers and other cargoes shall pay
an anchorage fee of 1/2 centavo (P.005) per registered gross ton of the vessel for the
first twenty-four (24) hours, or part thereof, and for succeeding hours, or part thereof,
PROVIDED, that maximum charge shall not exceed, seventy-five pesos (P75.00) per
day, irrespective of the greater tonnage of the vessels."

Appellees are foreign shipping companies licensed to do business in the Philippines, with
offices in Manila. Their vessels call at Basilan City and anchor in the bay or channel within its
territorial waters. As the city treasurer assessed and attempted to collect from them the
anchorage fees prescribed in the aforesaid amendatory ordinance, they filed the present action
for Declaratory Relief to have the courts determine its validity. Upon their petition the lower court
issued a writ of preliminary injunction restraining appellants from collecting or attempting to
collect from them the fees prescribed therein.

After the denial of appellants' motion to dismiss the complaint on the ground of wrong venue,
they filed their answer alleging therein that the City of Basilan had authority, through its city
council, to enact the questioned ordinance in the exercise of either its revenue-raising power or
of its police power. They also filed a counterclaim to recover alleged uncollected anchorage
dues amounting to P7,500.00, and the sum of P2,000.00 for expenses incurred in defending the
suit.

The question to be resolved is whether the City of Basilan has the authority to enact Ordinance
180 and to collect the anchorage fees prescribed therein.

In support of the affirmative, appellant city relies upon the following provisions of its Charter
(Republic Act 288):

SEC. 14. General Powers and Duties of the Council. Except as otherwise provided by
law, and subject to the conditions and limitations thereof, the Council shall have the
following legislative powers:

(a) To levy and collect taxes for general and special purposes in accordance with law.

xxx xxx xxx

(c) To enact ordinances for the maintenance and preservation of peace and good
morals.

xxx xxx xxx

(v) To fix the charges to be paid by all watercraft landing at or using public wharves,
docks, levees, or landing places.

Under paragraph (a) transcribed above, it is clear that the City of Basilan may only levy and
collect taxes for general and special purposes in accordance with or as provided by law; in other

30
words, the city of Basilan was not granted a blanket power of taxation. The use of the phrase "in
accordance with law" which, in our opinion, means the same as "provided by law" clearly
discloses the legislative intent to limit the taxing power of the City.

The next point to be considered whether the questioned ordinance may be upheld under the
provisions of Section 14(v) of Republic Act No. 288. After a careful consideration of the
language employed therein, we have reached the conclusion that said provision does not
authorize the City of Basilan to promulgate ordinances providing for the collection of
"Anchorage" fees. This is clearly not included in the power granted by the provision under
consideration "to fix the charges to be paid by all watercraft landing at or using public wharves,
docks, levees, or landing places." That this is so is shown by the need which the City of Basilan
had to enact the amendatory ordinance.

Appellants also argue that the ordinance in question was validly enacted in the exercise of the
city's police power and that the fees imposed therein are for purely regulatory purposes. In this
connection it has been held that the power to regulate as an exercise of police power does not
include the power to impose fees for revenue purposes (Cu Unijeng vs. Patstone, 42 Phil. 818;
Pacific Commercial Co. vs. Romualdez etc. et al., 46 Phil. 917; Arquiza etc. vs. Municipality of
Zamboanga, 55 Phil. 653). In the Cu Unjieng case it was held that fees for purely regulatory
purposes "may only be of sufficient amount to include the expenses of issuing the license and
the cost of the necessary inspection or police surveillance, taking into account not only the
expense of direct regulation but also incidental expenses. In Manila Electric Co. vs. Auditor
General, 73 Phil. 129-135, it was also held that the regulatory fee "must be more than sufficient
to cover the actual cost of inspection or examination as nearly as the same can be estimated. If
it were possible to prove in advance the exact cost, that would be the limit of the fee."

To support the claim that the fees imposed are merely regulatory it is said that the City of
Basilan is an island with mountainous coasts and fringed by numerous coves and island bays
and islets, and may become a veritable haven for smugglers if the city has no funds or means to
suppress their illegal activities, but we believe that, this notwithstanding, the fees required are
extended for revenue purposes. In the first place, being cased upon the tonnage of the vessels,
the fees have no proper or reasonable relation to the cost of issuing the permits and the cost of
inspection or surveillance. In the second place, the fee imposed on foreign vessels 1/2
centavo per registered gross ton for the first 24 hours and which shall not exceed P75.00 per
day exceeds even the harbor fee imposed by the National Government, which is only P50.00
for foreign vessels (sec. 2702 of the Tariff and Customs Code, Republic Act No. 1937, taken
from Sec. 2, Republic Act No. 1317 which was enacted by Congress to raise revenues for the
Port Works Fund). Moreover, Mariano Mancao, Port Inspector of the City of Basilan, in his
affidavit dated February 17, 1956 (Exh. O), states that were it not for the injunction issued by the
lower court in this case, the city "would have collected considerable amounts from the plaintiffs
for anchorage fees". All these circumstances point to the conclusion that the fees were intended
for revenue purposes.

31
Lastly, appellant city's own contention that the questioned ordinance was enacted in the
exercise of its power of taxation, makes it obvious that the fees imposed are not merely
regulatory.

WHEREFORE, the decision appealed from is affirmed, and the preliminary injunction issued
heretofore is made final. Without costs.

OSMENA v. ORBOS

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.

32
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

33
undoubtedly because a portion thereof is taken from collections of ad valorem taxes and the
increases thereon.

It thus appears that the challenge posed by the petitioner is premised primarily on the view that
the powers granted to the ERB under P.D. 1956, as amended, partake of the nature of the
taxation power of the State. The Solicitor General observes that the "argument rests on the
assumption that the OPSF is a form of revenue measure drawing from a special tax to be
expended for a special purpose." 13 The petitioner's perceptions are, in the Court's view, not
quite correct.

To address this critical misgiving in the position of the petitioner on these issues, the Court
recalls its holding in Valmonte v. Energy Regulatory Board, et al. 14

The foregoing arguments suggest the presence of misconceptions about the

nature and functions of the OPSF. The OPSF is a "Trust Account" which was
established "for the purpose of minimizing the frequent price changes brought
about by exchange rate adjustment and/or changes in world market prices of
crude oil and imported petroleum 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

34
 The fact that the world market prices of oil, measured by the spot market in
Rotterdam, vary from day to day is of judicial notice. Freight rates for hauling
crude oil and petroleum products from sources of supply to the Philippines may
also vary from time to time. The exchange rate of the peso vis-a-vis the U.S.
dollar and other convertible foreign currencies also changes from day to day.
These fluctuations in world market prices and in tanker rates and foreign
exchange rates would in a completely free market translate into corresponding
adjustments in domestic prices of oil and petroleum products with sympathetic
frequency. But domestic prices which vary from day to day or even only from
week to week would result in a chaotic market with unpredictable effects upon
the country's economy in general. The OPSF was established precisely to
protect local consumers from the adverse consequences that such frequent oil
price adjustments may have upon the economy. Thus, the OPSF serves as a
pocket, as it were, into which a portion of the purchase price of oil and petroleum
products paid by consumers as well as some tax revenues are inputted and from
which amounts are drawn from time to time to reimburse oil companies, when
appropriate situations arise, for increases in, as well as underrecovery of, costs
of crude importation. The OPSF is thus a buffer mechanism through which the
domestic consumer prices of oil and petroleum products are stabilized, instead of
fluctuating every so often, and oil companies are allowed to recover those
portions of their costs which they would not otherwise recover given the level of
domestic prices existing at any given time. To the extent that some tax revenues
are also put into it, the OPSF is in effect a device through which the domestic
prices of petroleum products are subsidized in part. It appears to the Court that
the establishment and maintenance of the OPSF is well within that pervasive and
non-waivable power and responsibility of the government to secure the physical
and economic survival and well-being of the community, that comprehensive
sovereign authority we designate as the police power of the State. The
stabilization, and subsidy of domestic prices of petroleum products and fuel oil
clearly critical in importance considering, among other things, the continuing high
level of dependence of the country on imported crude oil are appropriately
regarded as public purposes.

Also of relevance is this Court's ruling in relation to the sugar stabilization fund the nature of
which is not far different from the OPSF. In Gaston v. Republic Planters Bank, 16 this Court
upheld the legality of the sugar stabilization fees and explained their nature and character, viz.:

The stabilization fees collected are in the nature of a tax, which is within the
power of the State to impose for the promotion of the sugar industry (Lutz v.
Araneta, 98 Phil. 148). . . . The tax collected is not in a pure exercise of the
taxing power. It is levied with a regulatory purpose, to provide a means for the
stabilization of the sugar industry. The levy is primarily in the exercise of the
police power of the State (Lutz v. Araneta, supra).

35
 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

36
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

37
of the fund are readily discernible, and they constitute a sufficient standard upon which the
delegation of power may be justified.

In relation to the third question respecting the illegality of the reimbursements to oil
companies, paid out of the Oil Price Stabilization Fund, because allegedly in contravention of
8, paragraph 2 (2) of P.D. 1956, amended 23 the Court finds for the petitioner.

The petition assails the payment of certain items or accounts in favor of the petroleum
companies (i.e., inventory losses, financing charges, fuel oil sales to the National Power
Corporation, etc.) because not authorized by law. Petitioner contends that "these claims are not
embraced in the enumeration in 8 of P.D. 1956 . . since none of them was incurred 'as a result
of the reduction of domestic prices of petroleum products,'" 24 and since these items are
reimbursements for which the OPSF should not have responded, the amount of the P12.877
billion deficit "should be reduced by P5,277.2 million." 25 It is argued "that under the principle
of ejusdem generis . . . the term 'other factors' (as used in 8 of P.D. 1956) . . can only include
such 'other factors' which necessarily result in the reduction of domestic prices of petroleum
products." 26

The Solicitor General, for his part, contends that "(t)o place said (term) within the restrictive
confines of the rule of ejusdem generis would reduce (E.O. 137) to a meaningless provision."

This Court, in Caltex Philippines, Inc. v. The Honorable Commissioner on Audit, et al., 27 passed
upon the application of ejusdem generis to paragraph 2 of 8 of P.D. 1956, viz.:

The rule of ejusdem generis states that "[w]here words follow an enumeration of
persons or things, by words of a particular and specific meaning, such general
words are not to be construed in their widest extent, but are held to be as
applying only to persons or things 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.

38
Reimbursement for cost underrecovery from the sales of oil to the National Power Corporation
is equally permissible, not as coming within the provisions of P.D. 1956, but in virtue of other
laws and regulations as held in Caltex 29 and which have been pointed to by the Solicitor
General. At any rate, doubts about the propriety of such reimbursements have been dispelled by
the enactment of R.A. 6952, establishing the Petroleum Price Standby Fund, 2 of which
specifically authorizes the reimbursement of "cost underrecovery incurred as a result of fuel oil
sales to the National Power Corporation."

Anent the overpayment refunds mentioned by the petitioner, no substantive discussion has
been presented to show how this is prohibited by P.D. 1956. Nor has the Solicitor General taken
any effort to defend the propriety of this refund. In fine, neither of the parties, beyond the mere
mention of overpayment refunds, has at all bothered to discuss the arguments for or against the
legality of the so-called overpayment refunds. To be sure, the absence of any argument for or
against the validity of the refund cannot result in its disallowance by the Court. Unless the
impropriety or illegality of the overpayment refund has been clearly and specifically shown, there
can be no basis upon which to nullify the same.

Finally, the Court finds no necessity to rule on the remaining issue, the same having been
rendered moot and academic. As of date hereof, the pump rates of gasoline have been reduced
to levels below even those prayed for in the petition.

WHEREFORE, the petition is GRANTED insofar as it prays for the nullification of the
reimbursement of financing charges, paid pursuant to E.O. 137, and DISMISSED in all other
respects.

SO ORDERED.

REPUBLIC v. BACOLOD MURCIA

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;

39
 (c) To insure a permanent, sufficient and balanced production of sugar and its by-
products 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 1951-1952. 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

40
 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 by-
products 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, 1952-1953, 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.

41
 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.

42
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
of Collector 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

43
 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

44
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

45
 "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

46
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.

VICTORIAS MILLING v. MUNICIPALITY OF VICTORIAS

This case calls into question the validity of Ordinance No. 1, series of 1956, of the Municipality
of Victorias, Negros Occidental.

The disputed ordinance was approved by the municipal Council of Victorias on September 22,
1956 by way of an amendment to two municipal ordinances separately imposing license taxes
on operators of sugar centrals 1 and sugar refineries. 2 The changes were: with respect to sugar
centrals, by increasing the rates of license taxes; and as to sugar refineries, by increasing the
rates of license taxes as well as the range of graduated schedule of annual output capacity.

Ordinance No. 1 3 is labeled "An Ordinance Amending Ordinance No. 25, Series of 1953 and
Ordinance No. 18, Series of 1947 on Sugar Central by Increasing the Rates on Sugar Refinery
Mill by Increasing the Range of Graduated Schedule on Capacity Annual Output Respectively".
It was, as the ordinance itself states, enacted pursuant to the taxing power conferred by
Commonwealth Act 472. By Section 1 of the Ordinance: "Any person, corporation or other forms
of companies, operating sugar central or engage[d] in the manufacture of centrifugal sugar shall
be required to pay the following annual municipal license tax, payable quarterly, to wit: . . ."
Section 1 referred to prescribes a wide range of schedule. It starts with a sugar central with mill
having an annual output capacity of not less than 50,000 piculs of centrifugal sugar, in which
case an annual municipal license tax of P1,000.00 is provided. Depending upon the annual
output capacity the schedule of taxes continues with P2,000.00 progressively upward in twelve
other grades until an output capacity of 1,500,001 piculs or more shall have been reached. For
this, the annual tax is P40,000.00. The tax on sugar refineries is likewise calibrated with similar
rates. It also starts with P1,000.00 for a refinery with mill having an annual output capacity of not
less than 25,000 bags of 100 lbs. of refined sugar. Then, it continues with the second bracket of
from 25,001 bags to 75,000 bags of 100 lbs. Here, the municipal license tax is P1,500.00. Then
follow the other rates in the graduated scale with the ceiling placed at a capacity of 1,750,001
bags or more. The annual municipal license tax for the last mentioned output capacity is
P40,000.00.

Of importance are the provisions of Section 1(m) relating to sugar centrals and Section 2(m)
covering sugar refineries with specific reference to the maximum annual license tax, viz:

Section No. 1 Any person, corporation or other forms of Companies, operating Sugar
Central or engage[d] in the manufacture of centrifugal sugar shall be required to pay the
following annual municipal license tax, payable quarterly, to wit:

xxx xxx xxx

47
 (m) Sugar Central with mill having a capacity of producing an annual output of from
1,500,001 piculs or more shall be required to pay an annual municipal license tax of
P40,000.00.

Section No. 2 Any person, corporation or other forms of Companies shall be required
to pay an annual municipal license tax for the operation of Sugar Refinery Mill at the
following rates:

xxx xxx xxx

(m) Sugar Refinery with mill having a capacity of producing an annual output of from
1,750,001 bags of 100 lbs. or more shall be required to pay an annual municipal license
tax of P40,000.00.

For, the production of plaintiff Victorias Milling Co., Inc. in both its sugar central and its sugar
refinery located in the Municipality of Victorias comes within these items in the schedule.

Plaintiff filed suit below 4 to ask for judgment declaring Ordinance No. 1, series of 1956, null and
void; ordering the refund of all license taxes paid and to be paid under protest; directing the
officials of Victorias and the Province of Negros Occidental to observe, during the pendency of
the action, the provisions of section 357 of the Revised Manual of Instructions to Treasurers of
Provinces, Cities and Municipalities, 1954 edition, 5 regarding the treatment of license taxes paid
under protest by virtue of a disputed ordinance; and other reliefs. 6

The reasons put forth by plaintiff are that: (a) the ordinance exceeds the amounts fixed in
Provincial Circular 12-A issued by the Finance Department on February 27, 1940; (b) it is
discriminatory since it singles out plaintiff which is the only operator of a sugar central and a
sugar refinery within the jurisdiction of defendant municipality; (c) it constitutes double taxation;
and (d) the national government has preempted the field of taxation with respect to sugar
centrals or refineries.

Upon the complaint as supplemented and amended, and the answer thereto, and following
hearing on the merits, the trial court rendered its judgment. After declaring that "[t]here is no
doubt that" the ordinance in question refers to license taxes or fees," and that "[i]t is settled that
a license tax should be limited to the cost of licensing, regulating and surveillance," 7 the trial
court ruled that said license taxes in dispute are unreasonable, 8 and held that: "If the defendant
has the power to tax the plaintiff for purposes of revenue, it may do so by proper municipal
legislation, but not in the guise of a license tax." 9 The court added: "The Court is not, however,
prepared to order the refund of all the license taxes paid by the plaintiff under protest and
amounting, up to the second quarter of 1960, to P280,000.00, considering that the plaintiff
appears to have agreed to the payment of the license taxes at the rates fixed prior to Ordinance
No. 1, series of 1956; that the defendant had evidently not complied with the provisions of
Section 357 of the Revised Manual of Instructions to Treasurers of Provinces, Cities and
Municipalities, 1954 Edition, as the plaintiff herein seeks an order enjoining the defendant and
its appropriate officials to carry out said provisions; that the financial position of the defendant

48
would surely be disrupted if ordered to refund, while the plaintiff may perhaps easily forego or
forget what it had already parted with". 10 It disposes of the suit in the following manner:

WHEREFORE, judgment is rendered (a) declaring that Ordinance No. 1, series of 1956,
of the municipality of Victorias, Negros Occidental, is invalid; (b) ordering all officials of
the defendant to observe the provisions of Section 357 of the Revised Manual of
Instructions to Treasurers of Provinces, Cities and Municipalities, 1954 Edition, with
particular reference to any license taxes paid by the plaintiff under said Ordinance No. 1,
series of 1956, after notice of this decision; and (c) ordering the defendant to refund to
the plaintiff any and all such license taxes paid under protest after notice of this
decision. 11

Both plaintiff and defendant appealed direct to this Court. Plaintiff questions that portion of the
decision denying the refund of the license taxes paid under protest in the amount of P280,000
covering the period from the first quarter of 1957 to the second quarter of 1960; and balked at
the court's order limiting refund to "any and all such license taxes paid under protest after notice
of this decision." Defendant, upon the other hand, challenges the correctness of the court's
decision invalidating Ordinance No. 1, series of 1956.

The questions raised in the appeals will be discussed in their proper sequence.

1. We first grapple with the threshold question: Was Ordinance No. 1, series of 1956, passed by
defendant's municipal council as a regulatory enactment or as a revenue measure?

The trial court says, and plaintiff seconds, that the amounts set forth in the ordinance in question
did exceed the cost of licensing, regulating and surveillance, and that defendant cannot impose
a tax for revenue in the guise of a police or a regulatory measure. Our finding, however, is
the other way.1awphl.nt

The ordinance itself recites that its source of taxing power emanates from Commonwealth Act
472, Section 1 of which reads:

Section 1. A municipal council or municipal district council shall have authority to impose
municipal license taxes upon persons engaged in any occupation or business, or
exercising privileges in the municipality or municipal district, by requiring them to secure
licenses at rates fixed by the municipal council, or municipal district council, and to
collect fees and charges for services rendered by the municipality or municipal district
and shall otherwise have power to levy for public local purposes, and for school
purposes, including teachers' salaries, just and uniform taxes other than percentage
taxes and taxes on specified articles.

Under the statute just quoted and pertinent jurisprudence, a municipality is authorized to impose
three kinds of licenses: (1) license for regulation of useful occupations or enterprises; (2) license
for restriction or regulation of non-useful occupations or enterprises; and (3) license for
revenue. 12 The first two easily fall within the broad police power granted under the general

49
welfare clause. 13 The third class, however, is for revenue purposes. It is not a license fee,
properly speaking, and yet it is generally so termed. It rests on the taxing power. That taxing
power must be expressly conferred by statute upon the municipality. 14 It is so granted under
Commonwealth Act 472.

To be recalled at this point is that Ordinance No. 1, series of 1956, is but an amendment of
Ordinance No. 18, series of 1947, in reference to refineries, and Ordinance No. 25, series of
1953, covering sugar centrals. Ordinance No. 18 imposes "municipal taxes on persons, firms or
corporations operating refinery mills in this municipality." 15Ordinance No. 25 speaks of
municipal taxes "relative to the output of the sugar centrals." 16

What are these taxes for? Resolution No. 60 of the municipal council of Victorias, 17 adopted
also on September 22, 1956 in conjunction with Ordinance No. 1, series of 1956, furnishes a
ready answer. It reads in part:

WHEREAS, the Municipal Treasurer informed the Municipal Council of the revenue of
the Municipality and the heavy obligations which confront it because of the
implementation of Minimum Wage Law on the salaries and wages it pays to its municipal
employees and laborers thus greatly draining the Municipal Treasury;

WHEREAS, this local administration is committed to the plan of ameliorating the

deplorable situation existing in the barrios, sitios and rural areas by giving them essential
and necessary facilities calculated to improve conditions thereat thru improvements of
roads and feeder roads;

WHEREAS, one of the causes of the municipality's financial difficulty is low rates of
municipal taxes imposed by some of the ordinances enacted by the local legislative
body;

WHEREAS, [in] . . . the ordinances known as Ordinance No. 25, Series of 1953, dealing
on the operation of Sugar Central, and Ordinance No. 18, Series of 1947, which
exclusively deals with the operation of Sugar Refinery Mill, the rates so given are rates
suggested and determined by the Provincial Circular No. 12-A, dated February 27, 1940
issued by the Department of Finance as regards to Sugar Centrals;

WHEREAS, the Municipal Council has come to the conclusion that the rates provided for
in such ordinances are no longer adequate if made in keeping with the present high cost
of living;

WHEREAS, the Municipal Council has also taken cognizance of the fact that the price of
sugar per picul today is more than twice its pre-war average price; . . . . 18

Given the purposes just mentioned, we find no warrant in logic to give our assent to the view
that the ordinance in question is solely for regulatory purpose. Plain is the meaning conveyed.

50
The ordinance is for raising money. To say otherwise is to misread the purpose of the
ordinance.1awphl.nt

We should not hang so heavy a meaning on the use of the term "municipal license tax". This
does not necessarily connote the idea that the tax is imposed as the lower court would want
it to mean a revenue measure in the guise of a license tax. For really, this runs counter to the
declared purpose to make money.

Besides, the term "license tax" has not acquired a fixed meaning. It is often "used
indiscriminately to designate impositions exacted for the exercise of various privileges." 19 It
does not refer solely to a license for regulation. In many instances, it refers to "revenue-raising
exactions on privileges or activities." 20 On the other hand, license fees are commonly called
taxes. But, legally speaking, the latter are "for the purpose of raising revenues," in contrast to
the former which are imposed "in the exercise of police power for purposes of regulation." 21

We accordingly say that the designation given by the municipal authorities does not decide
whether the imposition is properly a license tax or a license fee. The determining factors are the
purpose and effect of the imposition as may be apparent from the provisions of the
ordinance. 22 Thus, "[w]hen no police inspection, supervision, or regulation is provided, nor any
standard set for the applicant 23 to establish, or that he agrees to attain or maintain, but any and
all persons engaged in the business designated, without qualification or hindrance, may come,
and a license on payment of the stipulated sum will issue, to do business, subject to no
prescribed rule of conduct and under no guardian eye, but according to the unrestrained
judgment or fancy of the applicant and licensee, the presumption is strong that the power of
taxation, and not the police power, is being exercised." 24

Precisely because of these considerations the present imposition must be treated as a levy for
revenue purposes. A quick glance at the big amount of maximum annual tax set forth in the
ordinance, P40,000.00 for sugar centrals, and P40,000.00 for sugar refineries, will readily
convince one that the tax is really a revenue tax. And then, we read in the ordinance nothing
which would as much as indicate that the tax imposed is merely for police inspection,
supervision or regulation.

Our view that the tax imposed by the ordinance is for revenue purposes finds support in judicial
pronouncements which have gained foothold in this jurisdiction. In Standard Vacuum vs.
Antigua, 25 this Court had occasion to pass upon a similar ordinance. In categorical terms, we
there stated: "We are satisfied that the graduated license tax imposed by the ordinance in
question is an occupation tax, imposed not under the police or regulatory power of the
municipality but by virtue of its taxing power for purposes of revenue, and is in accordance with
the last part of Section 1 of Commonwealth Act No. 472. It is, therefore, valid." 26

The present case is not to be analogized with Panaligan vs. City of Tacloban cited in the
decision below. 27 For there, the inspection fee sought to be collected upon every head of
specified animals to be transported out of the City of Tacloban (P2.00 per hog, P10.00 per cow

51
and 20.00 per carabao) was in reality an export tax specifically withheld from municipal
taxing power under Section 2287 of the Revised Administrative Code.

So also do we say that the cases of Pacific Commercial Co. vs. Romualdez, 28 Lacson vs. City
of Bacolod, 29 and Santos vs. Municipal Government of Caloocan, 30 used by plaintiff as
references, are entirely inopposite. In Pacific Commercial, the tax involved on frozen meat
was nullified because tax measures on cold stores were not then within the legislative grant to
the City of Manila. In Lacson, the City of Bacolod taxed every admission ticket sold in the
moviehouses. And justification for this imposition was moored to the general welfare clause of
the city charter. This Court held the ordinance ultra vires for the reason that the authority to tax
cannot be derived from the general welfare clause. In Santos, the taxes in controversy were
internal organs fees, meat inspection fees and corral fees, separate from the slaughter or
slaughterhouse fees. In annulling the taxes there questioned, this Court declared: "[W]hen the
Council ordained the payment of internal organs fees, meat inspection fees and corral fees,
aside from the slaughter or slaughterhouse fees, it overstepped the limits of its statutory grant
[Sec. 1, C.A. 655]. Only one fee was allowed by that law to be charged and that was slaughter
or slaughterhouse fees."

In the cases cited then, the tax ordinances did not find plain and clear statutory prop. Such
infirmity is not present here.

We, accordingly, rule that Ordinance No. 1, series of 1956, of the Municipality of Victorias, was
promulgated not in the exercise of the municipality's regulatory power but as a revenue
measure a tax on occupation or business. The authority to impose such tax is backed by the
express grant of power in Section 1 of Commonwealth Act 472.

2. Not that the disputed ordinance lacks the imprimatur of the Secretary of Finance required in
paragraph 2, Section 4, of Commonwealth Act 472. This legal provision necessitates such
approval "[w]henever the rate of fixed municipal license taxes on businesses not excepted in
this Act or otherwise covered by the preceding paragraph and subject to the fixed annual tax
imposed in section one hundred eighty-two of the National Internal Revenue Law, is in excess of
fifty pesos per annum; . . . ."

The ordinance here challenged was recommended by the Provincial Board of Negros
Occidental in its resolution (No. 1864) of October 26, 1956. 31 And, the Undersecretary of
Finance in his letter to the municipal council of Victorias on December 18, 1956 approved said
ordinance. But considering that it is amendatory in nature, that approval was coupled with the
mandate that the ordinance "should take effect at the beginning of the ensuing calendar year
[1957] pursuant to Section 2309 of the Revised Administrative Code." 32

3. Plaintiff argues that the municipality is bereft of authority to enact the ordinance in question
because the national government "had preempted it from entering the field of taxation of sugar
centrals and sugar refineries." 33 Plaintiff seeks refuge in Section 189 of the National Internal
Revenue Code which subjects proprietors or operators of sugar centrals or sugar refineries to
percentage tax.

52
The implausibility of this position is at once apparent. We are not dealing here with percentage
tax. Rather, we are concerned with a tax specifically for operators of sugar centrals and sugar
refineries. The rates imposed are based on the maximum annual output capacity. Which is not a
percentage. Because it is not a share. Nor is it a tax based on the amount of the proceeds
realized out of the sale of sugar, centrifugal or refined. 34

What can be said at most is that the national government has preempted the field of percentage
taxation. Section 1 of Commonwealth Act 472, while granting municipalities power to levy taxes,
expressly removes from them the power to exact "percentage taxes".

It is correct to say that preemption in the matter of taxation simply refers to an instance where
the national government elects to tax a particular area, impliedly withholding from the local
government the delegated power to tax the same field. This doctrine primarily rests upon the
intention of Congress. 35 Conversely, should Congress allow municipal corporations to cover
fields of taxation it already occupies, then the doctrine of preemption will not apply.

In the case at bar, Section 4(1) of Commonwealth Act 472 clearly and specifically allows
municipal councils to tax persons engaged in "the same businesses or occupation" on which
"fixed internal revenue privilege taxes" are "regularly imposed by the National Government."
With certain exceptions specified in Section 3 of the same statute. Our case does not fall within
the exceptions. It would therefore be futile to argue that Congress exclusively reserved to the
national government the right to impose the disputed taxes.

We rule that there is no preemption.

4. Petitioner advances the theory that the ordinance is excessive.

An ordinance carries with it the presumption of validity. The question of reasonableness though
is open to judicial inquiry. Much should be left thus to the discretion of municipal authorities.
Courts will go slow in writing off an ordinance as unreasonable unless the amount is so
excessive as to be prohibitive, arbitrary, unreasonable, oppressive, or confiscatory. 36 A rule
which has gained acceptance is that factors relevant to such an inquiry are the municipal
conditions as a whole and the nature of the business made subject to imposition. 37

Plaintiff has however not sufficiently proven that, taking these factors together, the license taxes
are unreasonable. The presumption of validity subsists. For, plaintiff has limited itself to insisting
that the amounts levied exceed the cost of regulation and that the municipality has adequate
funds for the alleged purposes as evidenced by the municipality's cash surplus for the fiscal
year ending 1956.

The cost of regulation cannot be taken as a gauge, if the municipality really intended to enact a
revenue ordinance. For, "if the charge exceeds the expense of issuance of a license and costs
of regulation, it is a tax." 38 And if it is, and it is validly imposed, as in this case, "the rule that
license fees for regulation must bear a reasonable relation to the expense of the regulation has
no application." 39

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And then, a cash surplus alone cannot stop a municipality from enacting a revenue ordinance
increasing license taxes in anticipation of municipal needs. Discretion to determine the amount
of revenue required for the needs of the municipality is lodged with the municipal authorities.
Again, judicial intervention steps in only when there is a flagrant, oppressive and excessive
abuse of power by said municipal authorities. 40

Not that defendant municipality was without reason. On February 27, 1940, the Secretary of
Finance, later President, Manuel A. Roxas, issued Provincial Circular 12-A. In that circular, the
then Finance Secretary stated that his "Department has reached the conclusion that a tax on
the basis of one centavo for every picul of annual output capacity of sugar centrals ... would be
just and reasonable." At that time, the price of sugar was around P6.00 per picul. Sixteen years
later 1956 when Ordinance No. 1 was approved, the market quotation for export sugar
ranged from P12.00 to P15.00 per picul. 41 And yet, since then the rate per output capacity of a
sugar central in Ordinance No. 1 was merely from one centavo to two centavos. There is a
statement in the municipality's brief 42that thereafter the price of sugar had never gone below
P16.00 per picul; instead it had gone up.

The reasonableness of the ordinance may not be disputed. It is not confiscatory.

There was misapprehension in the decision below in its statement that the increase of rates for
refineries was 2,000%. We should not overlook the fact that the original maximum rate covering
refineries in Ordinance No. 18, series of 1947, was P2,000.00; but that was only for a refinery
with an output capacity of 90,000 or more sacks. Under Section 2(c) of Ordinance No. 1, series
of 1956, where the refineries have an output capacity of from 75,001 bags to 100,000 bags, the
tax remains at P2,000.00. From here on, the ordinance provides for ten more scales for the
graduation of the tax depending upon the output capacity (P3,000.00, P4,000.00, P5,000.00,
P10,000.00, P15,000.00, P20,000.00, P25,000.00, P30,000.00, P35,000.00 and P40,000.00).
But it is only where a refinery has an output capacity of 1,750,001 or more bags that the present
ordinance imposes a tax of P40,000.00. The happenstance that plaintiff's refinery is in the last
bracket calling upon it to pay P40,000.00 per annum does not make the ordinance in question
unreasonable.

Neither may we tag the ordinance with excessiveness if we consider the capital invested by
plaintiff in both its sugar central and sugar refinery and its annual income from both. Plaintiff's
capital investment in the sugar central and sugar refinery is more or less P26,000,000.00. 43 And
here are its annual net income: for the year 1956 P3,852,910; for the year 1957
P3,854,520; for the year 1958 P7,230,493; for the year 1959 P5,951,187; and for the year
1960 P7,809,250. 44 If these figures mean anything at all, they show that the ordinance in
question is neither confiscatory nor unjust and unreasonable.

5. Upon the averment that in the Municipality of Victorias plaintiff is the only operator of a sugar
central and sugar refinery, plaintiff now presses its argument that Ordinance No. 1, series of
1956, is discriminatory. The ordinance does not single out Victorias as the only object of the
ordinance. Said ordinance is made to apply to any sugar central or sugar refinery which may

54
happen to operate in the municipality. So it is, that the fact that plaintiff is actually the sole
operator of a sugar central and a sugar refinery does not make the ordinance discriminatory.
Argument along the same lines was rejected in Shell Co. of P.I., Ltd. vs. Vao, 45 this Court
holding that the circumstance "that there is no other person in the locality who exercises" the
occupation designated as installation manager "does not make the ordinance discriminatory and
hostile, inasmuch as it is and will be applicable to any person or firm who exercises such calling
or occupation." And in Ormoc Sugar Company, Inc. vs. Municipal Board of Ormoc
City, 46 declaratory relief was sought to test the validity of a municipal ordinance which provides
a city tax of twenty centavos per picul of centrifugal sugar and one per centum on the gross sale
of its derivatives and by-products "produced by the Ormoc Sugar Company, Incorporated, or by
any other sugar mill in Ormoc City." Mr. Justice Enrique Fernando, delivering the opinion of this
Court, declared that the ordinance did not suffer "from a constitutional or statutory infirmity." And
yet, in Ormoc, it is to be observed that Section 1 of the ordinance spelled out Ormoc Sugar
Company, Incorporated specifically by name. Not even the name of plaintiff herein was ever
mentioned in the ordinance now disputed.

No discrimination exists.

6. As infirm is plaintiff's stand that its business is not confined to the Municipality of Victorias. It
suffices that plantiff engages in a business or occupation subject to an exaction by the
municipality within the territorial boundaries of that municipality. Plaintiff's sugar central and
sugar refinery are located within the Municipality of Victorias. In this central and refinery, plaintiff
manufactures centrifugal sugar and refined sugar, respectively.

But plaintiff insists that plaintiff's sugar milling and refining operations are not wholly performed
within the territorial limits of Victorias. According to plaintiff, transportation of canes from
plantation to the mill site, operation and maintenance of telephone system, inspection of crop
progress and other related activities, are conducted not only in defendant's municipality but also
in the municipalities of Cadiz, Manapla, Sagay and Saravia as well. 47 We fail to see the
relevance of these facts. Because, if we follow plaintiff's ratiocination, neither Victorias nor any
of the municipalities just adverted to would be able to impose the tax. One thing certain, of
course, is that the tax is imposed upon the business of operating a sugar central and a sugar
refinery. And the situs of that business is precisely the Municipality of Victorias.

7. Plaintiff finally impleads double taxation. Its reason is that in computing the amount of taxes
to be paid by the sugar refinery the cost of the raw sugar coming from the sugar central is not
deducted; ergo, plaintiff is taxed twice on the raw sugar.

Double taxation has been otherwise described as "direct duplicate taxation." 48 For double
taxation to exist, "the same property must be taxed twice, when it should be taxed but
once." 49 Double taxation has also been "defined as taxing the same person twice by the same
jurisdiction for the same thing." 50 As stated in Manila Motor Company, Inc. vs. Ciudad de
Manila, 51 there is double taxation "cuando la misma propiedad se sujeta a dos impuestos por la
misma entidad o Gobierno, para el mismo fin y durante el mismo periodo de tiempo."

55
With the foregoing precepts in mind, we find no difficulty in saying that plaintiff's argument on
double taxation does not inspire assent. First. The two taxes cover two different objects. Section
1 of the ordinance taxes a person operating sugar centrals or engaged in the manufacture of
centrifugal sugar. While under Section 2, those taxed are the operators of sugar refinery mills.
One occupation or business is different from the other. Second. The disputed taxes are imposed
on occupation or business. Both taxes are not on sugar. The amount thereof depends on the
annual output capacity of the mills concerned, regardless of the actual sugar milled. Plaintiff's
argument perhaps could make out a point if the object of taxation here were the sugar it
produces, not the business of producing it.

There is no double taxation.

For the reasons given

The judgment under review is hereby reversed; and

Judgment is hereby rendered: (a) declaring valid and subsisting Ordinance No. 1, series of
1956, of the Municipality of Victorias, Province of Negros Occidental; and (b) dismissing
plaintiff's complaint as supplemented and amended. Costs against plaintiff. So ordered.

56