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G.R. No.

L-41631 December 17, 1976 Resolving the accompanying prayer for the issuance of a writ of preliminary
injunction, respondent Judge issued an order on March 11, 1975, denying the plea for
HON. RAMON D. BAGATSING, as Mayor of the City of Manila; ROMAN G. failure of the respondent Federation of Manila Market Vendors, Inc. to exhaust the
GARGANTIEL, as Secretary to the Mayor; THE MARKET administrative remedies outlined in the Local Tax Code.
ADMINISTRATOR; and THE MUNICIPAL BOARD OF
MANILA, petitioners, After due hearing on the merits, respondent Judge rendered its decision on August
vs. 29, 1975, declaring the nullity of Ordinance No. 7522 of the City of Manila on the
HON. PEDRO A. RAMIREZ, in his capacity as Presiding Judge of the Court of primary ground of non-compliance with the requirement of publication under the
First Instance of Manila, Branch XXX and the FEDERATION OF MANILA Revised City Charter. Respondent Judge ruled:
MARKET VENDORS, INC., respondents.
There is, therefore, no question that the ordinance in question was
Santiago F. Alidio and Restituto R. Villanueva for petitioners. not published at all in two daily newspapers of general circulation
in the City of Manila before its enactment. Neither was it published
Antonio H. Abad, Jr. for private respondent. in the same manner after approval, although it was posted in the
legislative hall and in all city public markets and city public
Federico A. Blay for petitioner for intervention. libraries. There being no compliance with the mandatory
requirement of publication before and after approval, the ordinance
in question is invalid and, therefore, null and void.

Petitioners moved for reconsideration of the adverse decision, stressing that (a) only
MARTIN, J.: a post-publication is required by the Local Tax Code; and (b) private respondent
failed to exhaust all administrative remedies before instituting an action in court.
The chief question to be decided in this case is what law shall govern the publication
of a tax ordinance enacted by the Municipal Board of Manila, the Revised City On September 26, 1975, respondent Judge denied the motion.
Charter (R.A. 409, as amended), which requires publication of the ordinance before
its enactment and after its approval, or the Local Tax Code (P.D. No. 231), which
only demands publication after approval. Forthwith, petitioners brought the matter to Us through the present petition for
review on certiorari.
On June 12, 1974, the Municipal Board of Manila enacted Ordinance No. 7522, "AN
ORDINANCE REGULATING THE OPERATION OF PUBLIC MARKETS AND We find the petition impressed with merits.
PRESCRIBING FEES FOR THE RENTALS OF STALLS AND PROVIDING
PENALTIES FOR VIOLATION THEREOF AND FOR OTHER PURPOSES." The 1. The nexus of the present controversy is the apparent conflict between the Revised
petitioner City Mayor, Ramon D. Bagatsing, approved the ordinance on June 15, Charter of the City of Manila and the Local Tax Code on the manner of publishing a
1974. tax ordinance enacted by the Municipal Board of Manila. For, while Section 17 of
the Revised Charter provides:
On February 17, 1975, respondent Federation of Manila Market Vendors, Inc.
commenced Civil Case 96787 before the Court of First Instance of Manila presided Each proposed ordinance shall be published in two daily
over by respondent Judge, seeking the declaration of nullity of Ordinance No. 7522 newspapers of general circulation in the city, and shall not be
for the reason that (a) the publication requirement under the Revised Charter of the discussed or enacted by the Board until after the third day
City of Manila has not been complied with; (b) the Market Committee was not given following such publication. * * * Each approved ordinance * * *
any participation in the enactment of the ordinance, as envisioned by Republic Act shall be published in two daily newspapers of general circulation in
6039; (c) Section 3 (e) of the Anti-Graft and Corrupt Practices Act has been violated; the city, within ten days after its approval; and shall take effect and
and (d) the ordinance would violate Presidential Decree No. 7 of September 30, 1972 be in force on and after the twentieth day following its publication,
prescribing the collection of fees and charges on livestock and animal products. if no date is fixed in the ordinance.
Section 43 of the Local Tax Code directs: against the Local Tax Code which was decreed on June 1, 1973. The law-making
power cannot be said to have intended the establishment of conflicting and hostile
Within ten days after their approval, certified true copies of all systems upon the same subject, or to leave in force provisions of a prior law by
provincial, city, municipal and barrio ordinances levying or which the new will of the legislating power may be thwarted and overthrown. Such a
imposing taxes, fees or other charges shall be published for three result would render legislation a useless and Idle ceremony, and subject the law to
consecutive days in a newspaper or publication widely circulated the reproach of uncertainty and unintelligibility. 5
within the jurisdiction of the local government, or posted in the
local legislative hall or premises and in two other conspicuous The case of City of Manila v. Teotico 6 is opposite. In that case, Teotico sued the City
places within the territorial jurisdiction of the local government. In of Manila for damages arising from the injuries he suffered when he fell inside an
either case, copies of all provincial, city, municipal and barrio uncovered and unlighted catchbasin or manhole on P. Burgos Avenue. The City of
ordinances shall be furnished the treasurers of the respective Manila denied liability on the basis of the City Charter (R.A. 409) exempting the
component and mother units of a local government for City of Manila from any liability for damages or injury to persons or property arising
dissemination. from the failure of the city officers to enforce the provisions of the charter or any
other law or ordinance, or from negligence of the City Mayor, Municipal Board, or
In other words, while the Revised Charter of the City of Manila requires other officers while enforcing or attempting to enforce the provisions of the charter
publication before the enactment of the ordinance and after the approval thereof in or of any other law or ordinance. Upon the other hand, Article 2189 of the Civil Code
two daily newspapers of general circulation in the city, the Local Tax Code only makes cities liable for damages for the death of, or injury suffered by any persons by
prescribes for publication after the approval of "ordinances levying or imposing reason of the defective condition of roads, streets, bridges, public buildings, and
taxes, fees or other charges" either in a newspaper or publication widely circulated other public works under their control or supervision. On review, the Court held the
within the jurisdiction of the local government or by posting the ordinance in the Civil Code controlling. It is true that, insofar as its territorial application is
local legislative hall or premises and in two other conspicuous places within the concerned, the Revised City Charter is a special law and the subject matter of the two
territorial jurisdiction of the local government. Petitioners' compliance with the Local laws, the Revised City Charter establishes a general rule of liability arising from
Tax Code rather than with the Revised Charter of the City spawned this litigation. negligence in general, regardless of the object thereof, whereas the Civil Code
constitutes a particular prescription for liability due to defective streets in particular.
There is no question that the Revised Charter of the City of Manila is a special In the same manner, the Revised Charter of the City prescribes a rule for the
act since it relates only to the City of Manila, whereas the Local Tax Code is a publication of "ordinance" in general, while the Local Tax Code establishes a rule for
general law because it applies universally to all local governments. Blackstone the publication of "ordinance levying or imposing taxes fees or other charges in
defines general law as a universal rule affecting the entire community and special particular.
law as one relating to particular persons or things of a class. 1 And the rule
commonly said is that a prior special law is not ordinarily repealed by a subsequent In fact, there is no rule which prohibits the repeal even by implication of a special or
general law. The fact that one is special and the other general creates a presumption specific act by a general or broad one. 7 A charter provision may be impliedly
that the special is to be considered as remaining an exception of the general, one as a modified or superseded by a later statute, and where a statute is controlling, it must
general law of the land, the other as the law of a particular case. 2 However, the rule be read into the charter notwithstanding any particular charter provision. 8 A
readily yields to a situation where the special statute refers to a subject in general, subsequent general law similarly applicable to all cities prevails over any conflicting
which the general statute treats in particular. The exactly is the circumstance charter provision, for the reason that a charter must not be inconsistent with the
obtaining in the case at bar. Section 17 of the Revised Charter of the City of Manila general laws and public policy of the state. 9 A chartered city is not an independent
speaks of "ordinance" in general, i.e., irrespective of the nature and scope sovereignty. The state remains supreme in all matters not purely local. Otherwise
thereof, whereas, Section 43 of the Local Tax Code relates to "ordinances levying or stated, a charter must yield to the constitution and general laws of the state, it is to
imposing taxes, fees or other charges" in particular. In regard, therefore, to have read into it that general law which governs the municipal corporation and which
ordinances in general, the Revised Charter of the City of Manila is doubtless the corporation cannot set aside but to which it must yield. When a city adopts a
dominant, but, that dominant force loses its continuity when it approaches the realm charter, it in effect adopts as part of its charter general law of such character. 10
of "ordinances levying or imposing taxes, fees or other charges" in particular. There,
the Local Tax Code controls. Here, as always, a general provision must give way to a 2. The principle of exhaustion of administrative remedies is strongly asserted by
particular provision. 3 Special provision governs. 4 This is especially true where the petitioners as having been violated by private respondent in bringing a direct suit in
law containing the particular provision was enacted later than the one containing the court. This is because Section 47 of the Local Tax Code provides that any question or
general provision. The City Charter of Manila was promulgated on June 18, 1949 as issue raised against the legality of any tax ordinance, or portion thereof, shall be
referred for opinion to the city fiscal in the case of tax ordinance of a city. The underscored phrase suggests, its recommendation is without binding effect on the
opinion of the city fiscal is appealable to the Secretary of Justice, whose decision Municipal Board and the City Mayor. Its prior acquiescence of an intended or
shall be final and executory unless contested before a competent court within thirty proposed city ordinance is not a condition sine qua non before the Municipal Board
(30) days. But, the petition below plainly shows that the controversy between the could enact such ordinance. The native power of the Municipal Board to legislate
parties is deeply rooted in a pure question of law: whether it is the Revised Charter of remains undisturbed even in the slightest degree. It can move in its own initiative and
the City of Manila or the Local Tax Code that should govern the publication of the the Market Committee cannot demur. At most, the Market Committee may serve as a
tax ordinance. In other words, the dispute is sharply focused on the applicability of legislative aide of the Municipal Board in the enactment of city ordinances affecting
the Revised City Charter or the Local Tax Code on the point at issue, and not on the the city markets or, in plain words, in the gathering of the necessary data, studies and
legality of the imposition of the tax. Exhaustion of administrative remedies before the collection of consensus for the proposal of ordinances regarding city markets.
resort to judicial bodies is not an absolute rule. It admits of exceptions. Where the Much less could it be said that Republic Act 6039 intended to delegate to the Market
question litigated upon is purely a legal one, the rule does not apply. 11 The principle Committee the adoption of regulatory measures for the operation and administration
may also be disregarded when it does not provide a plain, speedy and adequate of the city markets. Potestas delegata non delegare potest.
remedy. It may and should be relaxed when its application may cause great and
irreparable damage. 12 5. Private respondent bewails that the market stall fees imposed in the disputed
ordinance are diverted to the exclusive private use of the Asiatic Integrated
3. It is maintained by private respondent that the subject ordinance is not a "tax Corporation since the collection of said fees had been let by the City of Manila to the
ordinance," because the imposition of rentals, permit fees, tolls and other fees is not said corporation in a "Management and Operating Contract." The assumption is of
strictly a taxing power but a revenue-raising function, so that the procedure for course saddled on erroneous premise. The fees collected do not go direct to the
publication under the Local Tax Code finds no application. The pretense bears its private coffers of the corporation. Ordinance No. 7522 was not made for the
own marks of fallacy. Precisely, the raising of revenues is the principal object of corporation but for the purpose of raising revenues for the city. That is the object it
taxation. Under Section 5, Article XI of the New Constitution, "Each local serves. The entrusting of the collection of the fees does not destroy the public
government unit shall have the power to create its own sources of revenue and to purpose of the ordinance. So long as the purpose is public, it does not matter whether
levy taxes, subject to such provisions as may be provided by law." 13 And one of the agency through which the money is dispensed is public or private. The right to
those sources of revenue is what the Local Tax Code points to in particular: "Local tax depends upon the ultimate use, purpose and object for which the fund is raised. It
governments may collect fees or rentals for the occupancy or use of public markets is not dependent on the nature or character of the person or corporation whose
and premises * * *." 14 They can provide for and regulate market stands, stalls and intermediate agency is to be used in applying it. The people may be taxed for a
privileges, and, also, the sale, lease or occupancy thereof. They can license, or permit public purpose, although it be under the direction of an individual or private
the use of, lease, sell or otherwise dispose of stands, stalls or marketing privileges. 15 corporation. 18

It is a feeble attempt to argue that the ordinance violates Presidential Decree No. 7, Nor can the ordinance be stricken down as violative of Section 3(e) of the Anti-Graft
dated September 30, 1972, insofar as it affects livestock and animal products, and Corrupt Practices Act because the increased rates of market stall fees as levied
because the said decree prescribes the collection of other fees and charges thereon by the ordinance will necessarily inure to the unwarranted benefit and advantage of
"with the exception of ante-mortem and post-mortem inspection fees, as well as the the corporation. 19 We are concerned only with the issue whether the ordinance in
delivery, stockyard and slaughter fees as may be authorized by the Secretary of question is intra vires. Once determined in the affirmative, the measure may not be
Agriculture and Natural Resources." 16Clearly, even the exception clause of the invalidated because of consequences that may arise from its enforcement. 20
decree itself permits the collection of the proper fees for livestock. And the Local Tax
Code (P.D. 231, July 1, 1973) authorizes in its Section 31: "Local governments may ACCORDINGLY, the decision of the court below is hereby reversed and set aside.
collect fees for the slaughter of animals and the use of corrals * * * " Ordinance No. 7522 of the City of Manila, dated June 15, 1975, is hereby held to
have been validly enacted. No. costs.
4. The non-participation of the Market Committee in the enactment of Ordinance No.
7522 supposedly in accordance with Republic Act No. 6039, an amendment to the SO ORDERED.
City Charter of Manila, providing that "the market committee shall formulate,
recommend and adopt, subject to the ratification of the municipal board, and
approval of the mayor, policies and rules or regulation repealing or maneding
existing provisions of the market code" does not infect the ordinance with any germ
of invalidity. 17 The function of the committee is purely recommendatory as the G.R. No. 168056 September 1, 2005
ABAKADA GURO PARTY LIST (Formerly AASJAS) OFFICERS SAMSON S. CENTER"; CARMELITA BALDONADO doing business under the name and style
ALCANTARA and ED VINCENT S. ALBANO, Petitioners, of "FIRST CHOICE SERVICE CENTER"; MERCEDITAS A. GARCIA doing
vs. business under the name and style of "LORPED SERVICE CENTER"; RHEAMAR
THE HONORABLE EXECUTIVE SECRETARY EDUARDO ERMITA; A. RAMOS doing business under the name and style of "RJRAM PTT GAS
HONORABLE SECRETARY OF THE DEPARTMENT OF FINANCE CESAR STATION"; MA. ISABEL VIOLAGO doing business under the name and style of
PURISIMA; and HONORABLE COMMISSIONER OF INTERNAL "VIOLAGO-PTT SERVICE CENTER"; MOTORISTS’ HEART CORPORATION
REVENUE GUILLERMO PARAYNO, JR., Respondent. represented by its Vice-President for Operations, JOSELITO F. FLORDELIZA;
MOTORISTS’ HARVARD CORPORATION represented by its Vice-President for
x-------------------------x Operations, JOSELITO F. FLORDELIZA; MOTORISTS’ HERITAGE
CORPORATION represented by its Vice-President for Operations, JOSELITO F.
G.R. No. 168207 FLORDELIZA; PHILIPPINE STANDARD OIL CORPORATION represented by its
Vice-President for Operations, JOSELITO F. FLORDELIZA; ROMEO MANUEL
doing business under the name and style of "ROMMAN GASOLINE STATION";
AQUILINO Q. PIMENTEL, JR., LUISA P. EJERCITO-ESTRADA, JINGGOY E. ANTHONY ALBERT CRUZ III doing business under the name and style of "TRUE
ESTRADA, PANFILO M. LACSON, ALFREDO S. LIM, JAMBY A.S. SERVICE STATION", Petitioners,
MADRIGAL, AND SERGIO R. OSMEÑA III, Petitioners, vs.
vs. CESAR V. PURISIMA, in his capacity as Secretary of the Department of
EXECUTIVE SECRETARY EDUARDO R. ERMITA, CESAR V. PURISIMA, Finance and GUILLERMO L. PARAYNO, JR., in his capacity as Commissioner
SECRETARY OF FINANCE, GUILLERMO L. PARAYNO, JR., of Internal Revenue, Respondent.
COMMISSIONER OF THE BUREAU OF INTERNAL
REVENUE, Respondent.
x-------------------------x
x-------------------------x
G.R. No. 168463
G.R. No. 168461
FRANCIS JOSEPH G. ESCUDERO, VINCENT CRISOLOGO, EMMANUEL
JOEL J. VILLANUEVA, RODOLFO G. PLAZA, DARLENE ANTONINO-
ASSOCIATION OF PILIPINAS SHELL DEALERS, INC. represented by its CUSTODIO, OSCAR G. MALAPITAN, BENJAMIN C. AGARAO, JR. JUAN
President, ROSARIO ANTONIO; PETRON DEALERS’ ASSOCIATION EDGARDO M. ANGARA, JUSTIN MARC SB. CHIPECO, FLORENCIO G.
represented by its President, RUTH E. BARBIBI; ASSOCIATION OF CALTEX NOEL, MUJIV S. HATAMAN, RENATO B. MAGTUBO, JOSEPH A. SANTIAGO,
DEALERS’ OF THE PHILIPPINES represented by its President, MERCEDITAS A. TEOFISTO DL. GUINGONA III, RUY ELIAS C. LOPEZ, RODOLFO Q.
GARCIA; ROSARIO ANTONIO doing business under the name and style of "ANB AGBAYANI and TEODORO A. CASIÑO, Petitioners,
NORTH SHELL SERVICE STATION"; LOURDES MARTINEZ doing business vs.
under the name and style of "SHELL GATE – N. DOMINGO"; BETHZAIDA TAN CESAR V. PURISIMA, in his capacity as Secretary of Finance, GUILLERMO
doing business under the name and style of "ADVANCE SHELL STATION"; L. PARAYNO, JR., in his capacity as Commissioner of Internal Revenue, and
REYNALDO P. MONTOYA doing business under the name and style of "NEW EDUARDO R. ERMITA, in his capacity as Executive Secretary,Respondent.
LAMUAN SHELL SERVICE STATION"; EFREN SOTTO doing business under the
name and style of "RED FIELD SHELL SERVICE STATION"; DONICA
CORPORATION represented by its President, DESI TOMACRUZ; RUTH E. x-------------------------x
MARBIBI doing business under the name and style of "R&R PETRON STATION";
PETER M. UNGSON doing business under the name and style of "CLASSIC STAR G.R. No. 168730
GASOLINE SERVICE STATION"; MARIAN SHEILA A. LEE doing business
under the name and style of "NTE GASOLINE & SERVICE STATION"; JULIAN BATAAN GOVERNOR ENRIQUE T. GARCIA, JR. Petitioner,
CESAR P. POSADAS doing business under the name and style of "STARCARGA vs.
ENTERPRISES"; ADORACION MAÑEBO doing business under the name and HON. EDUARDO R. ERMITA, in his capacity as the Executive Secretary; HON.
style of "CMA MOTORISTS CENTER"; SUSAN M. ENTRATA doing business MARGARITO TEVES, in his capacity as Secretary of Finance; HON. JOSE
under the name and style of "LEONA’S GASOLINE STATION and SERVICE MARIO BUNAG, in his capacity as the OIC Commissioner of the Bureau of Internal
Revenue; and HON. ALEXANDER AREVALO, in his capacity as the OIC on February 8, 2005. The House of Representatives approved the bill on second and
Commissioner of the Bureau of Customs, Respondent. third reading on February 28, 2005.

DECISION Meanwhile, the Senate Committee on Ways and Means approved Senate Bill No.
19504 on March 7, 2005, "in substitution of Senate Bill Nos. 1337, 1838 and 1873,
AUSTRIA-MARTINEZ, J.: taking into consideration House Bill Nos. 3555 and 3705." Senator Ralph G. Recto
sponsored Senate Bill No. 1337, while Senate Bill Nos. 1838 and 1873 were both
The expenses of government, having for their object the interest of all, should be sponsored by Sens. Franklin M. Drilon, Juan M. Flavier and Francis N. Pangilinan.
borne by everyone, and the more man enjoys the advantages of society, the more he The President certified the bill on March 11, 2005, and was approved by the Senate
ought to hold himself honored in contributing to those expenses. on second and third reading on April 13, 2005.

-Anne Robert Jacques Turgot (1727-1781) On the same date, April 13, 2005, the Senate agreed to the request of the House of
Representatives for a committee conference on the disagreeing provisions of the
proposed bills.
French statesman and economist
Before long, the Conference Committee on the Disagreeing Provisions of House Bill
Mounting budget deficit, revenue generation, inadequate fiscal allocation for No. 3555, House Bill No. 3705, and Senate Bill No. 1950, "after having met and
education, increased emoluments for health workers, and wider coverage for full discussed in full free and conference," recommended the approval of its report,
value-added tax benefits … these are the reasons why Republic Act No. 9337 (R.A. which the Senate did on May 10, 2005, and with the House of Representatives
No. 9337)1 was enacted. Reasons, the wisdom of which, the Court even with its agreeing thereto the next day, May 11, 2005.
extensive constitutional power of review, cannot probe. The petitioners in these
cases, however, question not only the wisdom of the law, but also perceived
constitutional infirmities in its passage. On May 23, 2005, the enrolled copy of the consolidated House and Senate version
was transmitted to the President, who signed the same into law on May 24, 2005.
Thus, came R.A. No. 9337.
Every law enjoys in its favor the presumption of constitutionality. Their arguments
notwithstanding, petitioners failed to justify their call for the invalidity of the law.
Hence, R.A. No. 9337 is not unconstitutional. July 1, 2005 is the effectivity date of R.A. No. 9337.5 When said date came, the
Court issued a temporary restraining order, effective immediately and continuing
until further orders, enjoining respondents from enforcing and implementing the law.
LEGISLATIVE HISTORY
Oral arguments were held on July 14, 2005. Significantly, during the hearing, the
R.A. No. 9337 is a consolidation of three legislative bills namely, House Bill Nos. Court speaking through Mr. Justice Artemio V. Panganiban, voiced the rationale for
3555 and 3705, and Senate Bill No. 1950. its issuance of the temporary restraining order on July 1, 2005, to wit:

House Bill No. 35552 was introduced on first reading on January 7, 2005. The House J. PANGANIBAN : . . . But before I go into the details of your presentation, let me
Committee on Ways and Means approved the bill, in substitution of House Bill No. just tell you a little background. You know when the law took effect on July 1, 2005,
1468, which Representative (Rep.) Eric D. Singson introduced on August 8, 2004. the Court issued a TRO at about 5 o’clock in the afternoon. But before that, there
The President certified the bill on January 7, 2005 for immediate enactment. On was a lot of complaints aired on television and on radio. Some people in a gas station
January 27, 2005, the House of Representatives approved the bill on second and third were complaining that the gas prices went up by 10%. Some people were
reading. complaining that their electric bill will go up by 10%. Other times people riding in
domestic air carrier were complaining that the prices that they’ll have to pay would
House Bill No. 37053 on the other hand, substituted House Bill No. 3105 introduced have to go up by 10%. While all that was being aired, per your presentation and per
by Rep. Salacnib F. Baterina, and House Bill No. 3381 introduced by Rep. Jacinto V. our own understanding of the law, that’s not true. It’s not true that the e-vat law
Paras. Its "mother bill" is House Bill No. 3555. The House Committee on Ways and necessarily increased prices by 10% uniformly isn’t it?
Means approved the bill on February 2, 2005. The President also certified it as urgent
ATTY. BANIQUED : No, Your Honor.
J. PANGANIBAN : It is not? cases it should be 6% depending on these mitigating measures and the location and
situation of each product, of each service, of each company, isn’t it?
ATTY. BANIQUED : It’s not, because, Your Honor, there is an Executive Order that
granted the Petroleum companies some subsidy . . . interrupted ATTY. BANIQUED : Yes, Your Honor.

J. PANGANIBAN : That’s correct . . . J. PANGANIBAN : Alright. So that’s one reason why we had to issue a TRO
pending the clarification of all these and we wish the government will take time to
ATTY. BANIQUED : . . . and therefore that was meant to temper the impact . . . clarify all these by means of a more detailed implementing rules, in case the law is
interrupted upheld by this Court. . . .6

J. PANGANIBAN : . . . mitigating measures . . . The Court also directed the parties to file their respective Memoranda.

ATTY. BANIQUED : Yes, Your Honor. G.R. No. 168056

J. PANGANIBAN : As a matter of fact a part of the mitigating measures would be Before R.A. No. 9337 took effect, petitioners ABAKADA GURO Party List, et al.,
the elimination of the Excise Tax and the import duties. That is why, it is not correct filed a petition for prohibition on May 27, 2005. They question the constitutionality
to say that the VAT as to petroleum dealers increased prices by 10%. of Sections 4, 5 and 6 of R.A. No. 9337, amending Sections 106, 107 and 108,
respectively, of the National Internal Revenue Code (NIRC). Section 4 imposes a
ATTY. BANIQUED : Yes, Your Honor. 10% VAT on sale of goods and properties, Section 5 imposes a 10% VAT on
importation of goods, and Section 6 imposes a 10% VAT on sale of services and use
or lease of properties. These questioned provisions contain a
J. PANGANIBAN : And therefore, there is no justification for increasing the retail uniform proviso authorizing the President, upon recommendation of the Secretary of
price by 10% to cover the E-Vat tax. If you consider the excise tax and the import Finance, to raise the VAT rate to 12%, effective January 1, 2006, after any of the
duties, the Net Tax would probably be in the neighborhood of 7%? We are not going following conditions have been satisfied, to wit:
into exact figures I am just trying to deliver a point that different industries, different
products, different services are hit differently. So it’s not correct to say that all prices
must go up by 10%. . . . That the President, upon the recommendation of the Secretary of Finance, shall,
effective January 1, 2006, raise the rate of value-added tax to twelve percent (12%),
after any of the following conditions has been satisfied:
ATTY. BANIQUED : You’re right, Your Honor.
(i) Value-added tax collection as a percentage of Gross Domestic Product (GDP) of
J. PANGANIBAN : Now. For instance, Domestic Airline companies, Mr. Counsel, the previous year exceeds two and four-fifth percent (2 4/5%); or
are at present imposed a Sales Tax of 3%. When this E-Vat law took effect the Sales
Tax was also removed as a mitigating measure. So, therefore, there is no justification
to increase the fares by 10% at best 7%, correct? (ii) National government deficit as a percentage of GDP of the previous year exceeds
one and one-half percent (1 ½%).
ATTY. BANIQUED : I guess so, Your Honor, yes.
Petitioners argue that the law is unconstitutional, as it constitutes abandonment by
Congress of its exclusive authority to fix the rate of taxes under Article VI, Section
J. PANGANIBAN : There are other products that the people were complaining on 28(2) of the 1987 Philippine Constitution.
that first day, were being increased arbitrarily by 10%. And that’s one reason among
many others this Court had to issue TRO because of the confusion in the
implementation. That’s why we added as an issue in this case, even if it’s tangentially G.R. No. 168207
taken up by the pleadings of the parties, the confusion in the implementation of the
E-vat. Our people were subjected to the mercy of that confusion of an across the On June 9, 2005, Sen. Aquilino Q. Pimentel, Jr., et al., filed a petition
board increase of 10%, which you yourself now admit and I think even the for certiorari likewise assailing the constitutionality of Sections 4, 5 and 6 of R.A.
Government will admit is incorrect. In some cases, it should be 3% only, in some No. 9337.
Aside from questioning the so-called stand-by authority of the President to increase without due process of law. Petitioners further contend that like any other property or
the VAT rate to 12%, on the ground that it amounts to an undue delegation of property right, the input tax credit may be transferred or disposed of, and that by
legislative power, petitioners also contend that the increase in the VAT rate to 12% limiting the same, the government gets to tax a profit or value-added even if there is
contingent on any of the two conditions being satisfied violates the due process no profit or value-added.
clause embodied in Article III, Section 1 of the Constitution, as it imposes an unfair
and additional tax burden on the people, in that: (1) the 12% increase is ambiguous Petitioners also believe that these provisions violate the constitutional guarantee of
because it does not state if the rate would be returned to the original 10% if the equal protection of the law under Article III, Section 1 of the Constitution, as the
conditions are no longer satisfied; (2) the rate is unfair and unreasonable, as the limitation on the creditable input tax if: (1) the entity has a high ratio of input tax; or
people are unsure of the applicable VAT rate from year to year; and (3) the increase (2) invests in capital equipment; or (3) has several transactions with the government,
in the VAT rate, which is supposed to be an incentive to the President to raise the is not based on real and substantial differences to meet a valid classification.
VAT collection to at least 2 4/5 of the GDP of the previous year, should only be based
on fiscal adequacy. Lastly, petitioners contend that the 70% limit is anything but progressive, violative of
Article VI, Section 28(1) of the Constitution, and that it is the smaller businesses
Petitioners further claim that the inclusion of a stand-by authority granted to the with higher input tax to output tax ratio that will suffer the consequences thereof for
President by the Bicameral Conference Committee is a violation of the "no- it wipes out whatever meager margins the petitioners make.
amendment rule" upon last reading of a bill laid down in Article VI, Section 26(2) of
the Constitution. G.R. No. 168463

G.R. No. 168461 Several members of the House of Representatives led by Rep. Francis Joseph G.
Escudero filed this petition for certiorari on June 30, 2005. They question the
Thereafter, a petition for prohibition was filed on June 29, 2005, by the Association constitutionality of R.A. No. 9337 on the following grounds:
of Pilipinas Shell Dealers, Inc., et al., assailing the following provisions of R.A. No.
9337: 1) Sections 4, 5, and 6 of R.A. No. 9337 constitute an undue delegation of legislative
power, in violation of Article VI, Section 28(2) of the Constitution;
1) Section 8, amending Section 110 (A)(2) of the NIRC, requiring that the input tax
on depreciable goods shall be amortized over a 60-month period, if the acquisition, 2) The Bicameral Conference Committee acted without jurisdiction in deleting
excluding the VAT components, exceeds One Million Pesos (₱1, 000,000.00); the no pass on provisions present in Senate Bill No. 1950 and House Bill No. 3705;
and
2) Section 8, amending Section 110 (B) of the NIRC, imposing a 70% limit on the
amount of input tax to be credited against the output tax; and 3) Insertion by the Bicameral Conference Committee of Sections 27, 28, 34, 116,
117, 119, 121, 125,7 148, 151, 236, 237 and 288, which were present in Senate Bill
3) Section 12, amending Section 114 (c) of the NIRC, authorizing the Government or No. 1950, violates Article VI, Section 24(1) of the Constitution, which provides that
any of its political subdivisions, instrumentalities or agencies, including GOCCs, to all appropriation, revenue or tariff bills shall originate exclusively in the House of
deduct a 5% final withholding tax on gross payments of goods and services, which Representatives
are subject to 10% VAT under Sections 106 (sale of goods and properties) and 108
(sale of services and use or lease of properties) of the NIRC. G.R. No. 168730

Petitioners contend that these provisions are unconstitutional for being arbitrary, On the eleventh hour, Governor Enrique T. Garcia filed a petition for certiorari and
oppressive, excessive, and confiscatory. prohibition on July 20, 2005, alleging unconstitutionality of the law on the ground
that the limitation on the creditable input tax in effect allows VAT-registered
Petitioners’ argument is premised on the constitutional right of non-deprivation of establishments to retain a portion of the taxes they collect, thus violating the
life, liberty or property without due process of law under Article III, Section 1 of the principle that tax collection and revenue should be solely allocated for public
Constitution. According to petitioners, the contested sections impose limitations on purposes and expenditures. Petitioner Garcia further claims that allowing these
the amount of input tax that may be claimed. Petitioners also argue that the input tax
partakes the nature of a property that may not be confiscated, appropriated, or limited
establishments to pass on the tax to the consumers is inequitable, in violation of 1. Whether Sections 4, 5 and 6 of R.A. No. 9337, amending Sections 106, 107 and
Article VI, Section 28(1) of the Constitution. 108 of the NIRC, violate the following provisions of the Constitution:

RESPONDENTS’ COMMENT a. Article VI, Section 28(1), and

The Office of the Solicitor General (OSG) filed a Comment in behalf of respondents. b. Article VI, Section 28(2)
Preliminarily, respondents contend that R.A. No. 9337 enjoys the presumption of
constitutionality and petitioners failed to cast doubt on its validity. 2. Whether Section 8 of R.A. No. 9337, amending Sections 110(A)(2) and 110(B) of
the NIRC; and Section 12 of R.A. No. 9337, amending Section 114(C) of the NIRC,
Relying on the case of Tolentino vs. Secretary of Finance, 235 SCRA violate the following provisions of the Constitution:

630 (1994), respondents argue that the procedural issues raised by petitioners, i.e., a. Article VI, Section 28(1), and
legality of the bicameral proceedings, exclusive origination of revenue measures and
the power of the Senate concomitant thereto, have already been settled. With regard b. Article III, Section 1
to the issue of undue delegation of legislative power to the President, respondents
contend that the law is complete and leaves no discretion to the President but to RULING OF THE COURT
increase the rate to 12% once any of the two conditions provided therein arise.
As a prelude, the Court deems it apt to restate the general principles and concepts of
Respondents also refute petitioners’ argument that the increase to 12%, as well as the value-added tax (VAT), as the confusion and inevitably, litigation, breeds from a
70% limitation on the creditable input tax, the 60-month amortization on the fallacious notion of its nature.
purchase or importation of capital goods exceeding ₱1,000,000.00, and the 5% final
withholding tax by government agencies, is arbitrary, oppressive, and confiscatory,
and that it violates the constitutional principle on progressive taxation, among others. The VAT is a tax on spending or consumption. It is levied on the sale, barter,
exchange or lease of goods or properties and services.8 Being an indirect tax on
expenditure, the seller of goods or services may pass on the amount of tax paid to the
Finally, respondents manifest that R.A. No. 9337 is the anchor of the government’s buyer,9 with the seller acting merely as a tax collector.10 The burden of VAT is
fiscal reform agenda. A reform in the value-added system of taxation is the core intended to fall on the immediate buyers and ultimately, the end-consumers.
revenue measure that will tilt the balance towards a sustainable macroeconomic
environment necessary for economic growth.
In contrast, a direct tax is a tax for which a taxpayer is directly liable on the
transaction or business it engages in, without transferring the burden to someone
ISSUES else.11 Examples are individual and corporate income taxes, transfer taxes, and
residence taxes.12
The Court defined the issues, as follows:
In the Philippines, the value-added system of sales taxation has long been in
PROCEDURAL ISSUE existence, albeit in a different mode. Prior to 1978, the system was a single-stage tax
computed under the "cost deduction method" and was payable only by the original
Whether R.A. No. 9337 violates the following provisions of the Constitution: sellers. The single-stage system was subsequently modified, and a mixture of the
"cost deduction method" and "tax credit method" was used to determine the value-
a. Article VI, Section 24, and added tax payable.13 Under the "tax credit method," an entity can credit against or
subtract from the VAT charged on its sales or outputs the VAT paid on its purchases,
b. Article VI, Section 26(2) inputs and imports.14

SUBSTANTIVE ISSUES It was only in 1987, when President Corazon C. Aquino issued Executive Order No.
273, that the VAT system was rationalized by imposing a multi-stage tax rate of 0%
or 10% on all sales using the "tax credit method."15
E.O. No. 273 was followed by R.A. No. 7716 or the Expanded VAT Law,16 R.A. No. constitutional power to promulgate and implement its own rules of procedure, the
8241 or the Improved VAT Law,17 R.A. No. 8424 or the Tax Reform Act of respective rules of each house of Congress provided for the creation of a Bicameral
1997,18 and finally, the presently beleaguered R.A. No. 9337, also referred to by Conference Committee.
respondents as the VAT Reform Act.
Thus, Rule XIV, Sections 88 and 89 of the Rules of House of Representatives
The Court will now discuss the issues in logical sequence. provides as follows:

PROCEDURAL ISSUE Sec. 88. Conference Committee. – In the event that the House does not agree with the
Senate on the amendment to any bill or joint resolution, the differences may be
I. settled by the conference committees of both chambers.

Whether R.A. No. 9337 violates the following provisions of the Constitution: In resolving the differences with the Senate, the House panel shall, as much as
possible, adhere to and support the House Bill. If the differences with the Senate are
a. Article VI, Section 24, and so substantial that they materially impair the House Bill, the panel shall report such
fact to the House for the latter’s appropriate action.
b. Article VI, Section 26(2)
Sec. 89. Conference Committee Reports. – . . . Each report shall contain a detailed,
sufficiently explicit statement of the changes in or amendments to the subject
A. The Bicameral Conference Committee measure.

Petitioners Escudero, et al., and Pimentel, et al., allege that the Bicameral ...
Conference Committee exceeded its authority by:
The Chairman of the House panel may be interpellated on the Conference Committee
1) Inserting the stand-by authority in favor of the President in Sections 4, 5, and 6 of Report prior to the voting thereon. The House shall vote on the Conference
R.A. No. 9337; Committee Report in the same manner and procedure as it votes on a bill on third
and final reading.
2) Deleting entirely the no pass-on provisions found in both the House and Senate
bills; Rule XII, Section 35 of the Rules of the Senate states:

3) Inserting the provision imposing a 70% limit on the amount of input tax to be Sec. 35. In the event that the Senate does not agree with the House of
credited against the output tax; and Representatives on the provision of any bill or joint resolution, the differences shall
be settled by a conference committee of both Houses which shall meet within ten
4) Including the amendments introduced only by Senate Bill No. 1950 regarding (10) days after their composition. The President shall designate the members of the
other kinds of taxes in addition to the value-added tax. Senate Panel in the conference committee with the approval of the Senate.

Petitioners now beseech the Court to define the powers of the Bicameral Conference Each Conference Committee Report shall contain a detailed and sufficiently explicit
Committee. statement of the changes in, or amendments to the subject measure, and shall be
signed by a majority of the members of each House panel, voting separately.
It should be borne in mind that the power of internal regulation and discipline are
intrinsic in any legislative body for, as unerringly elucidated by Justice Story, "[i]f A comparative presentation of the conflicting House and Senate provisions and a
the power did not exist, it would be utterly impracticable to transact the reconciled version thereof with the explanatory statement of the conference
business of the nation, either at all, or at least with decency, deliberation, and committee shall be attached to the report.
order."19 Thus, Article VI, Section 16 (3) of the Constitution provides that "each
House may determine the rules of its proceedings." Pursuant to this inherent ...
The creation of such conference committee was apparently in response to a problem, or waiver at the pleasure of the body adopting them.’ And it has been said that
not addressed by any constitutional provision, where the two houses of Congress find "Parliamentary rules are merely procedural, and with their observance, the
themselves in disagreement over changes or amendments introduced by the other courts have no concern. They may be waived or disregarded by the legislative
house in a legislative bill. Given that one of the most basic powers of the legislative body." Consequently, "mere failure to conform to parliamentary usage will not
branch is to formulate and implement its own rules of proceedings and to discipline invalidate the action (taken by a deliberative body) when the requisite number
its members, may the Court then delve into the details of how Congress complies of members have agreed to a particular measure."21 (Emphasis supplied)
with its internal rules or how it conducts its business of passing legislation? Note that
in the present petitions, the issue is not whether provisions of the rules of both houses The foregoing declaration is exactly in point with the present cases, where petitioners
creating the bicameral conference committee are unconstitutional, but whether the allege irregularities committed by the conference committee in introducing changes
bicameral conference committee has strictly complied with the rules of both or deleting provisions in the House and Senate bills. Akin to the Fariñas case,22 the
houses, thereby remaining within the jurisdiction conferred upon it by present petitions also raise an issue regarding the actions taken by the conference
Congress. committee on matters regarding Congress’ compliance with its own internal rules. As
stated earlier, one of the most basic and inherent power of the legislature is the power
In the recent case of Fariñas vs. The Executive Secretary,20 the Court En to formulate rules for its proceedings and the discipline of its members. Congress is
Banc, unanimously reiterated and emphasized its adherence to the "enrolled bill the best judge of how it should conduct its own business expeditiously and in the
doctrine," thus, declining therein petitioners’ plea for the Court to go behind the most orderly manner. It is also the sole
enrolled copy of the bill. Assailed in said case was Congress’s creation of two sets of
bicameral conference committees, the lack of records of said committees’ concern of Congress to instill discipline among the members of its conference
proceedings, the alleged violation of said committees of the rules of both houses, and committee if it believes that said members violated any of its rules of proceedings.
the disappearance or deletion of one of the provisions in the compromise bill Even the expanded jurisdiction of this Court cannot apply to questions regarding
submitted by the bicameral conference committee. It was argued that such only the internal operation of Congress, thus, the Court is wont to deny a review of
irregularities in the passage of the law nullified R.A. No. 9006, or the Fair Election the internal proceedings of a co-equal branch of government.
Act.
Moreover, as far back as 1994 or more than ten years ago, in the case of Tolentino vs.
Striking down such argument, the Court held thus: Secretary of Finance,23 the Court already made the pronouncement that "[i]f a
change is desired in the practice [of the Bicameral Conference Committee] it
Under the "enrolled bill doctrine," the signing of a bill by the Speaker of the House must be sought in Congress since this question is not covered by any
and the Senate President and the certification of the Secretaries of both Houses of constitutional provision but is only an internal rule of each house." 24 To date,
Congress that it was passed are conclusive of its due enactment. A review of cases Congress has not seen it fit to make such changes adverted to by the Court. It seems,
reveals the Court’s consistent adherence to the rule. The Court finds no reason to therefore, that Congress finds the practices of the bicameral conference committee to
deviate from the salutary rule in this case where the irregularities alleged by the be very useful for purposes of prompt and efficient legislative action.
petitioners mostly involved the internal rules of Congress, e.g., creation of the
2nd or 3rd Bicameral Conference Committee by the House. This Court is not the Nevertheless, just to put minds at ease that no blatant
proper forum for the enforcement of these internal rules of Congress, whether
House or Senate. Parliamentary rules are merely procedural and with their irregularities tainted the proceedings of the bicameral
observance the courts have no concern. Whatever doubts there may be as to the conference committees, the Court deems it necessary to dwell
formal validity of Rep. Act No. 9006 must be resolved in its favor.The Court on the issue. The Court observes that there was a necessity for
reiterates its ruling in Arroyo vs. De Venecia, viz.: a conference committee because a comparison of the
provisions of House Bill Nos. 3555 and 3705 on one hand, and
But the cases, both here and abroad, in varying forms of expression, all deny to Senate Bill No. 1950 on the other, reveals that there were
the courts the power to inquire into allegations that, in enacting a law, a House
of Congress failed to comply with its own rules, in the absence of showing that
indeed disagreements. As pointed out in the petitions, said
there was a violation of a constitutional provision or the rights of private disagreements were as follows:
individuals. In Osmeña v. Pendatun, it was held: "At any rate, courts have declared
that ‘the rules adopted by deliberative bodies are subject to revocation, modification House Bill No. 3555 House Bill No.3705 Senate Bill No. 1950
With regard to "Stand-By Authority" in favor of President equally distributed over equally distributed over
Provides for 12% VAT Provides for 12% VAT in Provides for a single rate 5 years or the 5 years or the
on every sale of goods general on sales of goods or of 10% VAT on sale of depreciable life of such depreciable life of such
or properties (amending properties and reduced goods or properties capital goods; the input capital goods; the input
Sec. 106 of NIRC); rates for sale of certain (amending Sec. 106 of tax credit for goods and tax credit for goods and
12% VAT on locally manufactured goods NIRC), 10% VAT on sale services other than services other than
importation of goods and petroleum products and of services including sale capital goods shall not capital goods shall not
(amending Sec. 107 of raw materials to be used in of electricity by exceed 5% of the total exceed 90% of the
NIRC); and 12% VAT the manufacture thereof generation companies, amount of such goods output VAT.
on sale of services and (amending Sec. 106 of transmission and and services; and for
use or lease of NIRC); 12% VAT on distribution companies, persons engaged in
properties (amending importation of goods and and use or lease of retail trading of goods,
Sec. 108 of NIRC) reduced rates for certain properties (amending the allowable input tax
imported products Sec. 108 of NIRC) credit shall not exceed
including petroleum 11% of the total amount
products (amending Sec. of goods purchased.
107 of NIRC); and 12% With regard to amendments to be made to NIRC provisions rega
VAT on sale of services and No similar provision No similar provision
use or lease of properties
and a reduced rate for
certain services including
power generation The disagreements between the provisions in the House bills and the Senate bill were
(amending Sec. 108 of with regard to (1) what rate of VAT is to be imposed; (2) whether only the VAT
NIRC) imposed on electricity generation, transmission and distribution companies should
With regard to the "no pass-on" provision not be passed on to consumers, as proposed in the Senate bill, or both the VAT
No similar provision Provides that the VAT Provides that the VAT imposed on electricity generation, transmission and distribution companies and the
imposed on power imposed on sales of VAT imposed on sale of petroleum products should not be passed on to consumers,
generation and on the sale electricity by generation as proposed in the House bill; (3) in what manner input tax credits should be limited;
of petroleum products shall companies and services (4) and whether the NIRC provisions on corporate income taxes, percentage,
be absorbed by generation of transmission franchise and excise taxes should be amended.
companies or sellers, companies and
respectively, and shall not distribution companies, There being differences and/or disagreements on the foregoing provisions of the
be passed on to consumers as well as those of House and Senate bills, the Bicameral Conference Committee was mandated by the
franchise grantees of rules of both houses of Congress to act on the same by settling said differences
electric utilities shall not and/or disagreements. The Bicameral Conference Committee acted on the
apply to residential disagreeing provisions by making the following changes:
end-users. VAT shall be
absorbed by generation, 1. With regard to the disagreement on the rate of VAT to be imposed, it would appear
transmission, and from the Conference Committee Report that the Bicameral Conference Committee
distribution companies. tried to bridge the gap in the difference between the 10% VAT rate proposed by the
With regard to 70% limit on input tax credit Senate, and the various rates with 12% as the highest VAT rate proposed by the
House, by striking a compromise whereby the present 10% VAT rate would be
Provides that the input No similar provision Provides that the input
retained until certain conditions arise, i.e., the value-added tax collection as a
tax credit for capital tax credit for capital
percentage of gross domestic product (GDP) of the previous year exceeds 2 4/5%, or
goods on which a VAT goods on which a VAT
National Government deficit as a percentage of GDP of the previous year exceeds
has been paid shall be has been paid shall be
1½%, when the President, upon recommendation of the Secretary of Finance shall between the disagreeing provisions in the House bill and the Senate bill. The term
raise the rate of VAT to 12% effective January 1, 2006. "settle" is synonymous to "reconcile" and "harmonize." 25 To reconcile or harmonize
disagreeing provisions, the Bicameral Conference Committee may then (a) adopt the
2. With regard to the disagreement on whether only the VAT imposed on electricity specific provisions of either the House bill or Senate bill, (b) decide that neither
generation, transmission and distribution companies should not be passed on to provisions in the House bill or the provisions in the Senate bill would
consumers or whether both the VAT imposed on electricity generation, transmission
and distribution companies and the VAT imposed on sale of petroleum products may be carried into the final form of the bill, and/or (c) try to arrive at a compromise
be passed on to consumers, the Bicameral Conference Committee chose to settle between the disagreeing provisions.
such disagreement by altogether deleting from its Report any no pass-on provision.
In the present case, the changes introduced by the Bicameral Conference Committee
3. With regard to the disagreement on whether input tax credits should be limited or on disagreeing provisions were meant only to reconcile and harmonize the
not, the Bicameral Conference Committee decided to adopt the position of the House disagreeing provisions for it did not inject any idea or intent that is wholly foreign to
by putting a limitation on the amount of input tax that may be credited against the the subject embraced by the original provisions.
output tax, although it crafted its own language as to the amount of the limitation on
input tax credits and the manner of computing the same by providing thus: The so-called stand-by authority in favor of the President, whereby the rate of 10%
VAT wanted by the Senate is retained until such time that certain conditions arise
(A) Creditable Input Tax. – . . . when the 12% VAT wanted by the House shall be imposed, appears to be a
compromise to try to bridge the difference in the rate of VAT proposed by the two
... houses of Congress. Nevertheless, such compromise is still totally within the subject
of what rate of VAT should be imposed on taxpayers.
Provided, The input tax on goods purchased or imported in a calendar month for use
in trade or business for which deduction for depreciation is allowed under this Code, The no pass-on provision was deleted altogether. In the transcripts of the proceedings
shall be spread evenly over the month of acquisition and the fifty-nine (59) of the Bicameral Conference Committee held on May 10, 2005, Sen. Ralph Recto,
succeeding months if the aggregate acquisition cost for such goods, excluding the Chairman of the Senate Panel, explained the reason for deleting the no pass-
VAT component thereof, exceeds one million Pesos (₱1,000,000.00): PROVIDED, on provision in this wise:
however, that if the estimated useful life of the capital good is less than five (5)
years, as used for depreciation purposes, then the input VAT shall be spread over . . . the thinking was just to keep the VAT law or the VAT bill simple. And we were
such shorter period: . . . thinking that no sector should be a beneficiary of legislative grace, neither should
any sector be discriminated on. The VAT is an indirect tax. It is a pass on-tax. And
(B) Excess Output or Input Tax. – If at the end of any taxable quarter the output tax let’s keep it plain and simple. Let’s not confuse the bill and put a no pass-on
exceeds the input tax, the excess shall be paid by the VAT-registered person. If the provision. Two-thirds of the world have a VAT system and in this two-thirds of the
input tax exceeds the output tax, the excess shall be carried over to the succeeding globe, I have yet to see a VAT with a no pass-though provision. So, the thinking of
quarter or quarters: PROVIDED that the input tax inclusive of input VAT carried the Senate is basically simple, let’s keep the VAT simple. 26 (Emphasis supplied)
over from the previous quarter that may be credited in every quarter shall not exceed
seventy percent (70%) of the output VAT: PROVIDED, HOWEVER, THAT any Rep. Teodoro Locsin further made the manifestation that the no pass-on provision
input tax attributable to zero-rated sales by a VAT-registered person may at his option "never really enjoyed the support of either House."27
be refunded or credited against other internal revenue taxes, . . .
With regard to the amount of input tax to be credited against output tax, the
4. With regard to the amendments to other provisions of the NIRC on corporate Bicameral Conference Committee came to a compromise on the percentage rate of
income tax, franchise, percentage and excise taxes, the conference committee the limitation or cap on such input tax credit, but again, the change introduced by the
decided to include such amendments and basically adopted the provisions found in Bicameral Conference Committee was totally within the intent of both houses to put
Senate Bill No. 1950, with some changes as to the rate of the tax to be imposed. a cap on input tax that may be

Under the provisions of both the Rules of the House of Representatives and Senate credited against the output tax. From the inception of the subject revenue bill in the
Rules, the Bicameral Conference Committee is mandated to settle the differences House of Representatives, one of the major objectives was to "plug a glaring
loophole in the tax policy and administration by creating vital restrictions on the Petitioners’ argument that the practice where a bicameral conference committee is
claiming of input VAT tax credits . . ." and "[b]y introducing limitations on the allowed to add or delete provisions in the House bill and the Senate bill after these
claiming of tax credit, we are capping a major leakage that has placed our collection had passed three readings is in effect a circumvention of the "no amendment rule"
efforts at an apparent disadvantage."28 (Sec. 26 (2), Art. VI of the 1987 Constitution), fails to convince the Court to deviate
from its ruling in the Tolentino case that:
As to the amendments to NIRC provisions on taxes other than the value-added tax
proposed in Senate Bill No. 1950, since said provisions were among those referred to Nor is there any reason for requiring that the Committee’s Report in these cases must
it, the conference committee had to act on the same and it basically adopted the have undergone three readings in each of the two houses. If that be the case, there
version of the Senate. would be no end to negotiation since each house may seek modification of the
compromise bill. . . .
Thus, all the changes or modifications made by the Bicameral Conference
Committee were germane to subjects of the provisions referred Art. VI. § 26 (2) must, therefore, be construed as referring only to bills
introduced for the first time in either house of Congress, not to the conference
to it for reconciliation. Such being the case, the Court does not see any grave abuse committee report.32 (Emphasis supplied)
of discretion amounting to lack or excess of jurisdiction committed by the Bicameral
Conference Committee. In the earlier cases of Philippine Judges Association vs. The Court reiterates here that the "no-amendment rule" refers only to the
Prado29 and Tolentino vs. Secretary of Finance,30 the Court recognized the long- procedure to be followed by each house of Congress with regard to bills initiated
standing legislative practice of giving said conference committee ample latitude for in each of said respective houses, before said bill is transmitted to the other
compromising differences between the Senate and the House. Thus, in house for its concurrence or amendment. Verily, to construe said provision in a
the Tolentino case, it was held that: way as to proscribe any further changes to a bill after one house has voted on it
would lead to absurdity as this would mean that the other house of Congress would
. . . it is within the power of a conference committee to include in its report an be deprived of its constitutional power to amend or introduce changes to said bill.
entirely new provision that is not found either in the House bill or in the Senate bill. Thus, Art. VI, Sec. 26 (2) of the Constitution cannot be taken to mean that the
If the committee can propose an amendment consisting of one or two provisions, introduction by the Bicameral Conference Committee of amendments and
there is no reason why it cannot propose several provisions, collectively considered modifications to disagreeing provisions in bills that have been acted upon by both
as an "amendment in the nature of a substitute," so long as such amendment is houses of Congress is prohibited.
germane to the subject of the bills before the committee. After all, its report was not
final but needed the approval of both houses of Congress to become valid as an act of C. R.A. No. 9337 Does Not Violate Article VI, Section 24 of the Constitution on
the legislative department. The charge that in this case the Conference Committee Exclusive Origination of Revenue Bills
acted as a third legislative chamber is thus without any basis.31 (Emphasis
supplied) Coming to the issue of the validity of the amendments made regarding the NIRC
provisions on corporate income taxes and percentage, excise taxes. Petitioners refer
B. R.A. No. 9337 Does Not Violate Article VI, Section 26(2) of the Constitution on to the following provisions, to wit:
the "No-Amendment Rule"
Section 27 Rates of Income Tax on Domestic Corporation
Article VI, Sec. 26 (2) of the Constitution, states: 28(A)(1) Tax on Resident Foreign Corporation
28(B)(1) Inter-corporate Dividends
No bill passed by either House shall become a law unless it has passed three readings 34(B)(1) Inter-corporate Dividends
on separate days, and printed copies thereof in its final form have been distributed to 116 Tax on Persons Exempt from VAT
its Members three days before its passage, except when the President certifies to the
117 Percentage Tax on domestic carriers and keepers of Garage
necessity of its immediate enactment to meet a public calamity or emergency. Upon
the last reading of a bill, no amendment thereto shall be allowed, and the vote 119 Tax on franchises
thereon shall be taken immediately thereafter, and the yeas and nays entered in the 121 Tax on banks and Non-Bank Financial Intermediaries
Journal. 148 Excise Tax on manufactured oils and other fuels
151 Excise Tax on mineral products
236 Registration requirements law – must substantially be the same as the House bill would be to deny the
237 Issuance of receipts or sales or commercial invoices Senate’s power not only to "concur with amendments" but also to "propose
288 Disposition of Incremental Revenue amendments." It would be to violate the coequality of legislative power of the two
houses of Congress and in fact make the House superior to the Senate.
Petitioners claim that the amendments to these provisions of the NIRC did not at all
originate from the House. They aver that House Bill No. 3555 proposed amendments …
only regarding Sections 106, 107, 108, 110 and 114 of the NIRC, while House Bill
No. 3705 proposed amendments only to Sections 106, 107,108, 109, 110 and 111 of …Given, then, the power of the Senate to propose amendments, the Senate can
the NIRC; thus, the other sections of the NIRC which the Senate amended but which propose its own version even with respect to bills which are required by the
amendments were not found in the House bills are not intended to be amended by the Constitution to originate in the House.
House of Representatives. Hence, they argue that since the proposed amendments did
not originate from the House, such amendments are a violation of Article VI, Section ...
24 of the Constitution.
Indeed, what the Constitution simply means is that the initiative for filing revenue,
The argument does not hold water. tariff or tax bills, bills authorizing an increase of the public debt, private bills and
bills of local application must come from the House of Representatives on the theory
Article VI, Section 24 of the Constitution reads: that, elected as they are from the districts, the members of the House can be
expected to be more sensitive to the local needs and problems. On the other
Sec. 24. All appropriation, revenue or tariff bills, bills authorizing increase of the hand, the senators, who are elected at large, are expected to approach the same
public debt, bills of local application, and private bills shall originate exclusively in problems from the national perspective. Both views are thereby made to bear on
the House of Representatives but the Senate may propose or concur with the enactment of such laws.33 (Emphasis supplied)
amendments.
Since there is no question that the revenue bill exclusively originated in the House of
In the present cases, petitioners admit that it was indeed House Bill Nos. 3555 and Representatives, the Senate was acting within its
3705 that initiated the move for amending provisions of the NIRC dealing mainly
with the value-added tax. Upon transmittal of said House bills to the Senate, the constitutional power to introduce amendments to the House bill when it included
Senate came out with Senate Bill No. 1950 proposing amendments not only to NIRC provisions in Senate Bill No. 1950 amending corporate income taxes, percentage,
provisions on the value-added tax but also amendments to NIRC provisions on other excise and franchise taxes. Verily, Article VI, Section 24 of the Constitution does not
kinds of taxes. Is the introduction by the Senate of provisions not dealing directly contain any prohibition or limitation on the extent of the amendments that may be
with the value- added tax, which is the only kind of tax being amended in the House introduced by the Senate to the House revenue bill.
bills, still within the purview of the constitutional provision authorizing the Senate to
propose or concur with amendments to a revenue bill that originated from the Furthermore, the amendments introduced by the Senate to the NIRC provisions that
House? had not been touched in the House bills are still in furtherance of the intent of the
House in initiating the subject revenue bills. The Explanatory Note of House Bill No.
The foregoing question had been squarely answered in the Tolentino case, wherein 1468, the very first House bill introduced on the floor, which was later substituted by
the Court held, thus: House Bill No. 3555, stated:

. . . To begin with, it is not the law – but the revenue bill – which is required by the One of the challenges faced by the present administration is the urgent and daunting
Constitution to "originate exclusively" in the House of Representatives. It is task of solving the country’s serious financial problems. To do this, government
important to emphasize this, because a bill originating in the House may undergo expenditures must be strictly monitored and controlled and revenues must be
such extensive changes in the Senate that the result may be a rewriting of the whole. . significantly increased. This may be easier said than done, but our fiscal authorities
. . At this point, what is important to note is that, as a result of the Senate action, a are still optimistic the government will be operating on a balanced budget by the year
distinct bill may be produced. To insist that a revenue statute – and not only the 2009. In fact, several measures that will result to significant expenditure savings
bill which initiated the legislative process culminating in the enactment of the have been identified by the administration. It is supported with a credible package
of revenue measures that include measures to improve tax administration and
control the leakages in revenues from income taxes and the value-added tax that, the rate will slide back, not to its old rate of 32 percent, but two notches lower,
(VAT). (Emphasis supplied) to 30 percent.

Rep. Eric D. Singson, in his sponsorship speech for House Bill No. 3555, declared Clearly, we are telling those with the capacity to pay, corporations, to bear with this
that: emergency provision that will be in effect for 1,200 days, while we put our fiscal
house in order. This fiscal medicine will have an expiry date.
In the budget message of our President in the year 2005, she reiterated that we all
acknowledged that on top of our agenda must be the restoration of the health of our For their assistance, a reward of tax reduction awaits them. We intend to keep the
fiscal system. length of their sacrifice brief. We would like to assure them that not because there is
a light at the end of the tunnel, this government will keep on making the tunnel long.
In order to considerably lower the consolidated public sector deficit and eventually
achieve a balanced budget by the year 2009, we need to seize windows of The responsibility will not rest solely on the weary shoulders of the small man. Big
opportunities which might seem poignant in the beginning, but in the long run business will be there to share the burden.35
prove effective and beneficial to the overall status of our economy. One such
opportunity is a review of existing tax rates, evaluating the relevance given our As the Court has said, the Senate can propose amendments and in fact, the
present conditions.34 (Emphasis supplied) amendments made on provisions in the tax on income of corporations are germane to
the purpose of the house bills which is to raise revenues for the government.
Notably therefore, the main purpose of the bills emanating from the House of
Representatives is to bring in sizeable revenues for the government Likewise, the Court finds the sections referring to other percentage and excise taxes
germane to the reforms to the VAT system, as these sections would cushion the
to supplement our country’s serious financial problems, and improve tax effects of VAT on consumers. Considering that certain goods and services which
administration and control of the leakages in revenues from income taxes and value- were subject to percentage tax and excise tax would no longer be VAT-exempt, the
added taxes. As these house bills were transmitted to the Senate, the latter, consumer would be burdened more as they would be paying the VAT in addition to
approaching the measures from the point of national perspective, can introduce these taxes. Thus, there is a need to amend these sections to soften the impact of
amendments within the purposes of those bills. It can provide for ways that would VAT. Again, in his sponsorship speech, Sen. Recto said:
soften the impact of the VAT measure on the consumer, i.e., by distributing the
burden across all sectors instead of putting it entirely on the shoulders of the However, for power plants that run on oil, we will reduce to zero the present excise
consumers. The sponsorship speech of Sen. Ralph Recto on why the provisions on tax on bunker fuel, to lessen the effect of a VAT on this product.
income tax on corporation were included is worth quoting:
For electric utilities like Meralco, we will wipe out the franchise tax in exchange for
All in all, the proposal of the Senate Committee on Ways and Means will raise ₱64.3 a VAT.
billion in additional revenues annually even while by mitigating prices of power,
services and petroleum products. And in the case of petroleum, while we will levy the VAT on oil products, so as not
to destroy the VAT chain, we will however bring down the excise tax on socially
However, not all of this will be wrung out of VAT. In fact, only ₱48.7 billion amount sensitive products such as diesel, bunker, fuel and kerosene.
is from the VAT on twelve goods and services. The rest of the tab – ₱10.5 billion-
will be picked by corporations. ...

What we therefore prescribe is a burden sharing between corporate Philippines and What do all these exercises point to? These are not contortions of giving to the left
the consumer. Why should the latter bear all the pain? Why should the fiscal hand what was taken from the right. Rather, these sprang from our concern of
salvation be only on the burden of the consumer? softening the impact of VAT, so that the people can cushion the blow of higher prices
they will have to pay as a result of VAT.36
The corporate world’s equity is in form of the increase in the corporate income tax
from 32 to 35 percent, but up to 2008 only. This will raise ₱10.5 billion a year. After
The other sections amended by the Senate pertained to matters of tax administration (i) value-added tax collection as a percentage of Gross Domestic Product (GDP)
which are necessary for the implementation of the changes in the VAT system. of the previous year exceeds two and four-fifth percent (2 4/5%) or

To reiterate, the sections introduced by the Senate are germane to the subject matter (ii) national government deficit as a percentage of GDP of the previous year
and purposes of the house bills, which is to supplement our country’s fiscal deficit, exceeds one and one-half percent (1 ½%).
among others. Thus, the Senate acted within its power to propose those amendments.
SEC. 5. Section 107 of the same Code, as amended, is hereby further amended to
SUBSTANTIVE ISSUES read as follows:

I. SEC. 107. Value-Added Tax on Importation of Goods. –

Whether Sections 4, 5 and 6 of R.A. No. 9337, amending Sections 106, 107 and 108 (A) In General. – There shall be levied, assessed and collected on every importation
of the NIRC, violate the following provisions of the Constitution: of goods a value-added tax equivalent to ten percent (10%) based on the total value
used by the Bureau of Customs in determining tariff and customs duties, plus
a. Article VI, Section 28(1), and customs duties, excise taxes, if any, and other charges, such tax to be paid by the
importer prior to the release of such goods from customs custody: Provided, That
b. Article VI, Section 28(2) where the customs duties are determined on the basis of the quantity or volume of
the goods, the value-added tax shall be based on the landed cost plus excise taxes, if
any: provided, further, that the President, upon the recommendation of the
A. No Undue Delegation of Legislative Power Secretary of Finance, shall, effective January 1, 2006, raise the rate of value-
added tax to twelve percent (12%) after any of the following conditions has been
Petitioners ABAKADA GURO Party List, et al., Pimentel, Jr., et al., and Escudero, et satisfied.
al. contend in common that Sections 4, 5 and 6 of R.A. No. 9337, amending Sections
106, 107 and 108, respectively, of the NIRC giving the President the stand-by (i) value-added tax collection as a percentage of Gross Domestic Product (GDP)
authority to raise the VAT rate from 10% to 12% when a certain condition is met, of the previous year exceeds two and four-fifth percent (2 4/5%) or
constitutes undue delegation of the legislative power to tax.
(ii) national government deficit as a percentage of GDP of the previous year
The assailed provisions read as follows: exceeds one and one-half percent (1 ½%).

SEC. 4. Sec. 106 of the same Code, as amended, is hereby further amended to read SEC. 6. Section 108 of the same Code, as amended, is hereby further amended to
as follows: read as follows:

SEC. 106. Value-Added Tax on Sale of Goods or Properties. – SEC. 108. Value-added Tax on Sale of Services and Use or Lease of Properties –

(A) Rate and Base of Tax. – There shall be levied, assessed and collected on every (A) Rate and Base of Tax. – There shall be levied, assessed and collected, a value-
sale, barter or exchange of goods or properties, a value-added tax equivalent to ten added tax equivalent to ten percent (10%) of gross receipts derived from the sale or
percent (10%) of the gross selling price or gross value in money of the goods or exchange of services: provided, that the President, upon the recommendation of
properties sold, bartered or exchanged, such tax to be paid by the seller or the Secretary of Finance, shall, effective January 1, 2006, raise the rate of value-
transferor: provided, that the President, upon the recommendation of the added tax to twelve percent (12%), after any of the following conditions has
Secretary of Finance, shall, effective January 1, 2006, raise the rate of value- been satisfied.
added tax to twelve percent (12%), after any of the following conditions has
been satisfied.
(i) value-added tax collection as a percentage of Gross Domestic Product (GDP)
of the previous year exceeds two and four-fifth percent (2 4/5%) or
(ii) national government deficit as a percentage of GDP of the previous year The principle of separation of powers ordains that each of the three great branches of
exceeds one and one-half percent (1 ½%). (Emphasis supplied) government has exclusive cognizance of and is supreme in matters falling within its
own constitutionally allocated sphere. 37 A logical
Petitioners allege that the grant of the stand-by authority to the President to increase
the VAT rate is a virtual abdication by Congress of its exclusive power to tax because corollary to the doctrine of separation of powers is the principle of non-delegation of
such delegation is not within the purview of Section 28 (2), Article VI of the powers, as expressed in the Latin maxim: potestas delegata non
Constitution, which provides: delegari potest which means "what has been delegated, cannot be delegated."38 This
doctrine is based on the ethical principle that such as delegated power constitutes not
The Congress may, by law, authorize the President to fix within specified limits, and only a right but a duty to be performed by the delegate through the instrumentality of
may impose, tariff rates, import and export quotas, tonnage and wharfage dues, and his own judgment and not through the intervening mind of another.39
other duties or imposts within the framework of the national development program of
the government. With respect to the Legislature, Section 1 of Article VI of the Constitution provides
that "the Legislative power shall be vested in the Congress of the Philippines which
They argue that the VAT is a tax levied on the sale, barter or exchange of goods and shall consist of a Senate and a House of Representatives." The powers which
properties as well as on the sale or exchange of services, which cannot be included Congress is prohibited from delegating are those which are strictly, or inherently and
within the purview of tariffs under the exempted delegation as the latter refers to exclusively, legislative. Purely legislative power, which can never be delegated, has
customs duties, tolls or tribute payable upon merchandise to the government and been described as the authority to make a complete law – complete as to the time
usually imposed on goods or merchandise imported or exported. when it shall take effect and as to whom it shall be applicable – and to
determine the expediency of its enactment.40 Thus, the rule is that in order that a
Petitioners ABAKADA GURO Party List, et al., further contend that delegating to the court may be justified in holding a statute unconstitutional as a delegation of
President the legislative power to tax is contrary to republicanism. They insist that legislative power, it must appear that the power involved is purely legislative in
accountability, responsibility and transparency should dictate the actions of Congress nature – that is, one appertaining exclusively to the legislative department. It is the
and they should not pass to the President the decision to impose taxes. They also nature of the power, and not the liability of its use or the manner of its exercise,
argue that the law also effectively nullified the President’s power of control, which which determines the validity of its delegation.
includes the authority to set aside and nullify the acts of her subordinates like the
Secretary of Finance, by mandating the fixing of the tax rate by the President upon Nonetheless, the general rule barring delegation of legislative powers is subject to
the recommendation of the Secretary of Finance. the following recognized limitations or exceptions:

Petitioners Pimentel, et al. aver that the President has ample powers to cause, (1) Delegation of tariff powers to the President under Section 28 (2) of Article VI of
influence or create the conditions provided by the law to bring about either or both the Constitution;
the conditions precedent.
(2) Delegation of emergency powers to the President under Section 23 (2) of Article
On the other hand, petitioners Escudero, et al. find bizarre and revolting the situation VI of the Constitution;
that the imposition of the 12% rate would be subject to the whim of the Secretary of
Finance, an unelected bureaucrat, contrary to the principle of no taxation without (3) Delegation to the people at large;
representation. They submit that the Secretary of Finance is not mandated to give a
favorable recommendation and he may not even give his recommendation. (4) Delegation to local governments; and
Moreover, they allege that no guiding standards are provided in the law on what
basis and as to how he will make his recommendation. They claim, nonetheless, that (5) Delegation to administrative bodies.
any recommendation of the Secretary of Finance can easily be brushed aside by the
President since the former is a mere alter ego of the latter, such that, ultimately, it is
the President who decides whether to impose the increased tax rate or not. In every case of permissible delegation, there must be a showing that the delegation
itself is valid. It is valid only if the law (a) is complete in itself, setting forth therein
the policy to be executed, carried out, or implemented by the delegate; 41 and (b) fixes
A brief discourse on the principle of non-delegation of powers is instructive. a standard — the limits of which are sufficiently determinate and determinable — to
which the delegate must conform in the performance of his functions.42 A sufficient legislative act, is determined by the legislature. In other words, the legislature,
standard is one which defines legislative policy, marks its limits, maps out its as it is its duty to do, determines that, under given circumstances, certain
boundaries and specifies the public agency to apply it. It indicates the circumstances executive or administrative action is to be taken, and that, under other
under which the legislative command is to be effected. 43 Both tests are intended to circumstances, different or no action at all is to be taken. What is thus left to the
prevent a total transference of legislative authority to the delegate, who is not administrative official is not the legislative determination of what public policy
allowed to step into the shoes of the legislature and exercise a power essentially demands, but simply the ascertainment of what the facts of the case require to
legislative.44 be done according to the terms of the law by which he is governed. The
efficiency of an Act as a declaration of legislative will must, of course, come
In People vs. Vera,45 the Court, through eminent Justice Jose P. Laurel, expounded on from Congress, but the ascertainment of the contingency upon which the Act
the concept and extent of delegation of power in this wise: shall take effect may be left to such agencies as it may designate. The legislature,
then, may provide that a law shall take effect upon the happening of future
In testing whether a statute constitutes an undue delegation of legislative power or specified contingencies leaving to some other person or body the power to
not, it is usual to inquire whether the statute was complete in all its terms and determine when the specified contingency has arisen. (Emphasis supplied).46
provisions when it left the hands of the legislature so that nothing was left to the
judgment of any other appointee or delegate of the legislature. In Edu vs. Ericta,47 the Court reiterated:

... What cannot be delegated is the authority under the Constitution to make laws and to
alter and repeal them; the test is the completeness of the statute in all its terms and
‘The true distinction’, says Judge Ranney, ‘is between the delegation of power to provisions when it leaves the hands of the legislature. To determine whether or not
make the law, which necessarily involves a discretion as to what it shall be, and there is an undue delegation of legislative power, the inquiry must be directed to the
conferring an authority or discretion as to its execution, to be exercised under scope and definiteness of the measure enacted. The legislative does not abdicate its
and in pursuance of the law. The first cannot be done; to the latter no valid functions when it describes what job must be done, who is to do it, and what is
objection can be made.’ the scope of his authority. For a complex economy, that may be the only way in
which the legislative process can go forward. A distinction has rightfully been
made between delegation of power to make the laws which necessarily involves
... a discretion as to what it shall be, which constitutionally may not be done, and
delegation of authority or discretion as to its execution to be exercised under
It is contended, however, that a legislative act may be made to the effect as law after and in pursuance of the law, to which no valid objection can be made. The
it leaves the hands of the legislature. It is true that laws may be made effective on Constitution is thus not to be regarded as denying the legislature the necessary
certain contingencies, as by proclamation of the executive or the adoption by the resources of flexibility and practicability. (Emphasis supplied).48
people of a particular community. In Wayman vs. Southard, the Supreme Court of the
United States ruled that the legislature may delegate a power not legislative which it Clearly, the legislature may delegate to executive officers or bodies the power to
may itself rightfully exercise. The power to ascertain facts is such a power which determine certain facts or conditions, or the happening of contingencies, on which
may be delegated. There is nothing essentially legislative in ascertaining the the operation of a statute is, by its terms, made to depend, but the legislature must
existence of facts or conditions as the basis of the taking into effect of a law. prescribe sufficient standards, policies or limitations on their authority.49 While the
That is a mental process common to all branches of the power to tax cannot be delegated to executive agencies, details as to the enforcement
government. Notwithstanding the apparent tendency, however, to relax the rule and administration of an exercise of such power may be left to them, including the
prohibiting delegation of legislative authority on account of the complexity arising power to determine the existence of facts on which its operation depends. 50
from social and economic forces at work in this modern industrial age, the orthodox
pronouncement of Judge Cooley in his work on Constitutional Limitations finds
restatement in Prof. Willoughby's treatise on the Constitution of the United States in The rationale for this is that the preliminary ascertainment of facts as basis for the
the following language — speaking of declaration of legislative power to enactment of legislation is not of itself a legislative function, but is simply ancillary
administrative agencies: The principle which permits the legislature to provide to legislation. Thus, the duty of correlating information and making
that the administrative agent may determine when the circumstances are such recommendations is the kind of subsidiary activity which the legislature may
as require the application of a law is defended upon the ground that at the time perform through its members, or which it may delegate to others to perform.
this authority is granted, the rule of public policy, which is the essence of the Intelligent legislation on the complicated problems of modern society is impossible
in the absence of accurate information on the part of the legislators, and any The Court finds no merit to the contention of petitioners ABAKADA GURO Party
reasonable method of securing such information is proper. 51 The Constitution as a List, et al. that the law effectively nullified the President’s power of control over the
continuously operative charter of government does not require that Congress find for Secretary of Finance by mandating the fixing of the tax rate by the President upon
itself the recommendation of the Secretary of Finance. The Court cannot also subscribe to
the position of petitioners
every fact upon which it desires to base legislative action or that it make for itself
detailed determinations which it has declared to be prerequisite to application of Pimentel, et al. that the word shall should be interpreted to mean may in view of the
legislative policy to particular facts and circumstances impossible for Congress itself phrase "upon the recommendation of the Secretary of Finance." Neither does the
properly to investigate.52 Court find persuasive the submission of petitioners Escudero, et al. that any
recommendation by the Secretary of Finance can easily be brushed aside by the
In the present case, the challenged section of R.A. No. 9337 is the President since the former is a mere alter ego of the latter.
common proviso in Sections 4, 5 and 6 which reads as follows:
When one speaks of the Secretary of Finance as the alter ego of the President, it
That the President, upon the recommendation of the Secretary of Finance, shall, simply means that as head of the Department of Finance he is the assistant and agent
effective January 1, 2006, raise the rate of value-added tax to twelve percent (12%), of the Chief Executive. The multifarious executive and administrative functions of
after any of the following conditions has been satisfied: the Chief Executive are performed by and through the executive departments, and
the acts of the secretaries of such departments, such as the Department of Finance,
(i) Value-added tax collection as a percentage of Gross Domestic Product (GDP) of performed and promulgated in the regular course of business, are, unless disapproved
the previous year exceeds two and four-fifth percent (2 4/5%); or or reprobated by the Chief Executive, presumptively the acts of the Chief
Executive. The Secretary of Finance, as such, occupies a political position and holds
office in an advisory capacity, and, in the language of Thomas Jefferson, "should be
(ii) National government deficit as a percentage of GDP of the previous year exceeds of the President's bosom confidence" and, in the language of Attorney-General
one and one-half percent (1 ½%). Cushing, is "subject to the direction of the President."55

The case before the Court is not a delegation of legislative power. It is simply a In the present case, in making his recommendation to the President on the existence
delegation of ascertainment of facts upon which enforcement and administration of of either of the two conditions, the Secretary of Finance is not acting as the alter ego
the increase rate under the law is contingent. The legislature has made the operation of the President or even her subordinate. In such instance, he is not subject to the
of the 12% rate effective January 1, 2006, contingent upon a specified fact or power of control and direction of the President. He is acting as the agent of the
condition. It leaves the entire operation or non-operation of the 12% rate upon factual legislative department, to determine and declare the event upon which its expressed
matters outside of the control of the executive. will is to take effect.56 The Secretary of Finance becomes the means or tool by which
legislative policy is determined and implemented, considering that he possesses all
No discretion would be exercised by the President. Highlighting the absence of the facilities to gather data and information and has a much broader perspective to
discretion is the fact that the word shall is used in the common proviso. The use of properly evaluate them. His function is to gather and collate statistical data and other
the word shall connotes a mandatory order. Its use in a statute denotes an imperative pertinent information and verify if any of the two conditions laid out by Congress is
obligation and is inconsistent with the idea of discretion.53 Where the law is clear and present. His personality in such instance is in reality but a projection of that of
unambiguous, it must be taken to mean exactly what it says, and courts have no Congress. Thus, being the agent of Congress and not of the President, the President
choice but to see to it that the mandate is obeyed.54 cannot alter or modify or nullify, or set aside the findings of the Secretary of Finance
and to substitute the judgment of the former for that of the latter.
Thus, it is the ministerial duty of the President to immediately impose the 12% rate
upon the existence of any of the conditions specified by Congress. This is a duty Congress simply granted the Secretary of Finance the authority to ascertain the
which cannot be evaded by the President. Inasmuch as the law specifically uses the existence of a fact, namely, whether by December 31, 2005, the value-added tax
word shall, the exercise of discretion by the President does not come into play. It is a collection as a percentage of Gross Domestic Product (GDP) of the previous year
clear directive to impose the 12% VAT rate when the specified conditions are present. exceeds two and four-fifth percent (24/5%) or the national government deficit as a
The time of taking into effect of the 12% VAT rate is based on the happening of a percentage of GDP of the previous year exceeds one and one-half percent (1½%). If
certain specified contingency, or upon the ascertainment of certain facts or conditions either of these two instances has occurred, the Secretary of Finance, by legislative
by a person or body other than the legislature itself.
mandate, must submit such information to the President. Then the 12% VAT rate Therefore, no statutory construction or interpretation is needed. Neither can
must be imposed by the President effective January 1, 2006. There is no undue conditions or limitations be introduced where none is provided for. Rewriting the law
delegation of legislative power but only of the discretion as to the execution of a is a forbidden ground that only Congress may tread upon.60
law. This is constitutionally permissible.57 Congress does not abdicate its functions
or unduly delegate power when it describes what job must be done, who must do it, Thus, in the absence of any provision providing for a return to the 10% rate, which in
and what is the scope of his authority; in our complex economy that is frequently the this case the Court finds none, petitioners’ argument is, at best, purely speculative.
only way in which the legislative process can go forward.58 There is no basis for petitioners’ fear of a fluctuating VAT rate because the law itself
does not provide that the rate should go back to 10% if the conditions provided in
As to the argument of petitioners ABAKADA GURO Party List, et al. that delegating Sections 4, 5 and 6 are no longer present. The rule is that where the provision of the
to the President the legislative power to tax is contrary to the principle of law is clear and unambiguous, so that there is no occasion for the court's seeking the
republicanism, the same deserves scant consideration. Congress did not delegate the legislative intent, the law must be taken as it is, devoid of judicial addition or
power to tax but the mere implementation of the law. The intent and will to increase subtraction.61
the VAT rate to 12% came from Congress and the task of the President is to simply
execute the legislative policy. That Congress chose to do so in such a manner is not Petitioners also contend that the increase in the VAT rate, which was allegedly an
within the province of the Court to inquire into, its task being to interpret the law. 59 incentive to the President to raise the VAT collection to at least 2 4/5 of the GDP of
the previous year, should be based on fiscal adequacy.
The insinuation by petitioners Pimentel, et al. that the President has ample powers to
cause, influence or create the conditions to bring about either or both the conditions Petitioners obviously overlooked that increase in VAT collection is not
precedent does not deserve any merit as this argument is highly speculative. The the only condition. There is another condition, i.e., the national government deficit as
Court does not rule on allegations which are manifestly conjectural, as these may not a percentage of GDP of the previous year exceeds one and one-half percent (1 ½%).
exist at all. The Court deals with facts, not fancies; on realities, not appearances.
When the Court acts on appearances instead of realities, justice and law will be Respondents explained the philosophy behind these alternative conditions:
short-lived.
1. VAT/GDP Ratio > 2.8%
B. The 12% Increase VAT Rate Does Not Impose an Unfair and Unnecessary
Additional Tax Burden
The condition set for increasing VAT rate to 12% have economic or fiscal meaning.
If VAT/GDP is less than 2.8%, it means that government has weak or no capability of
Petitioners Pimentel, et al. argue that the 12% increase in the VAT rate imposes an implementing the VAT or that VAT is not effective in the function of the tax
unfair and additional tax burden on the people. Petitioners also argue that the 12% collection. Therefore, there is no value to increase it to 12% because such action will
increase, dependent on any of the 2 conditions set forth in the contested provisions, is also be ineffectual.
ambiguous because it does not state if the VAT rate would be returned to the original
10% if the rates are no longer satisfied. Petitioners also argue that such rate is unfair
and unreasonable, as the people are unsure of the applicable VAT rate from year to 2. Nat’l Gov’t Deficit/GDP >1.5%
year.
The condition set for increasing VAT when deficit/GDP is 1.5% or less means the
Under the common provisos of Sections 4, 5 and 6 of R.A. No. 9337, if any of the fiscal condition of government has reached a relatively sound position or is towards
two conditions set forth therein are satisfied, the President shall increase the VAT rate the direction of a balanced budget position. Therefore, there is no need to increase
to 12%. The provisions of the law are clear. It does not provide for a return to the the VAT rate since the fiscal house is in a relatively healthy position. Otherwise
10% rate nor does it empower the President to so revert if, after the rate is increased stated, if the ratio is more than 1.5%, there is indeed a need to increase the VAT
to 12%, the VAT collection goes below the 24/5 of the GDP of the previous year or rate.62
that the national government deficit as a percentage of GDP of the previous year
does not exceed 1½%. That the first condition amounts to an incentive to the President to increase the VAT
collection does not render it unconstitutional so long as there is a public purpose for
which the law was passed, which in this case, is mainly to raise revenue. In
fact, fiscal adequacy dictated the need for a raise in revenue.
The principle of fiscal adequacy as a characteristic of a sound tax system was Philippines will have to borrow 4 billion dollars. Of that amount, we have borrowed
originally stated by Adam Smith in his Canons of Taxation (1776), as: 1.5 billion. We issued last January a 25-year bond at 9.7 percent cost. We were trying
to access last week and the market was not as favorable and up to now we have not
IV. Every tax ought to be so contrived as both to take out and to keep out of the accessed and we might pull back because the conditions are not very good.
pockets of the people as little as possible over and above what it brings into the
public treasury of the state.63 So given this situation, we at the Department of Finance believe that we really need
to front-end our deficit reduction. Because it is deficit that is causing the increase of
It simply means that sources of revenues must be adequate to meet government the debt and we are in what we call a debt spiral. The more debt you have, the more
expenditures and their variations.64 deficit you have because interest and debt service eats and eats more of your
revenue. We need to get out of this debt spiral. And the only way, I think, we can get
The dire need for revenue cannot be ignored. Our country is in a quagmire of out of this debt spiral is really have a front-end adjustment in our revenue base. 65
financial woe. During the Bicameral Conference Committee hearing, then Finance
Secretary Purisima bluntly depicted the country’s gloomy state of economic affairs, The image portrayed is chilling. Congress passed the law hoping for rescue from an
thus: inevitable catastrophe. Whether the law is indeed sufficient to answer the state’s
economic dilemma is not for the Court to judge. In the Fariñas case, the Court
First, let me explain the position that the Philippines finds itself in right now. We are refused to consider the various arguments raised therein that dwelt on the wisdom of
in a position where 90 percent of our revenue is used for debt service. So, for every Section 14 of R.A. No. 9006 (The Fair Election Act), pronouncing that:
peso of revenue that we currently raise, 90 goes to debt service. That’s interest plus
amortization of our debt. So clearly, this is not a sustainable situation. That’s the first . . . policy matters are not the concern of the Court. Government policy is within the
fact. exclusive dominion of the political branches of the government. It is not for this
Court to look into the wisdom or propriety of legislative determination. Indeed,
The second fact is that our debt to GDP level is way out of line compared to other whether an enactment is wise or unwise, whether it is based on sound economic
peer countries that borrow money from that international financial markets. Our debt theory, whether it is the best means to achieve the desired results, whether, in short,
to GDP is approximately equal to our GDP. Again, that shows you that this is not a the legislative discretion within its prescribed limits should be exercised in a
sustainable situation. particular manner are matters for the judgment of the legislature, and the serious
conflict of opinions does not suffice to bring them within the range of judicial
cognizance.66
The third thing that I’d like to point out is the environment that we are presently
operating in is not as benign as what it used to be the past five years.
In the same vein, the Court in this case will not dawdle on the purpose of Congress
or the executive policy, given that it is not for the judiciary to "pass upon questions
What do I mean by that? of wisdom, justice or expediency of legislation."67

In the past five years, we’ve been lucky because we were operating in a period of II.
basically global growth and low interest rates. The past few months, we have seen an
inching up, in fact, a rapid increase in the interest rates in the leading economies of
the world. And, therefore, our ability to borrow at reasonable prices is going to be Whether Section 8 of R.A. No. 9337, amending Sections 110(A)(2) and 110(B) of
challenged. In fact, ultimately, the question is our ability to access the financial the NIRC; and Section 12 of R.A. No. 9337, amending Section 114(C) of the NIRC,
markets. violate the following provisions of the Constitution:

When the President made her speech in July last year, the environment was not as a. Article VI, Section 28(1), and
bad as it is now, at least based on the forecast of most financial institutions. So, we
were assuming that raising 80 billion would put us in a position where we can then b. Article III, Section 1
convince them to improve our ability to borrow at lower rates. But conditions have
changed on us because the interest rates have gone up. In fact, just within this room, A. Due Process and Equal Protection Clauses
we tried to access the market for a billion dollars because for this year alone, the
Petitioners Association of Pilipinas Shell Dealers, Inc., et al. argue that Section 8 of The non-application of the unutilized input tax in a given quarter is not ad infinitum,
R.A. No. 9337, amending Sections 110 (A)(2), 110 (B), and Section 12 of R.A. No. as petitioners exaggeratedly contend. Their analysis of the effect of the 70%
9337, amending Section 114 (C) of the NIRC are arbitrary, oppressive, excessive and limitation is incomplete and one-sided. It ends at the net effect that there will be
confiscatory. Their argument is premised on the constitutional right against unapplied/unutilized inputs VAT for a given quarter. It does not proceed further to the
deprivation of life, liberty of property without due process of law, as embodied in fact that such unapplied/unutilized input tax may be credited in the subsequent
Article III, Section 1 of the Constitution. periods as allowed by the carry-over provision of Section 110(B) or that it may later
on be refunded through a tax credit certificate under Section 112(B).
Petitioners also contend that these provisions violate the constitutional guarantee of
equal protection of the law. Therefore, petitioners’ argument must be rejected.

The doctrine is that where the due process and equal protection clauses are invoked, On the other hand, it appears that petitioner Garcia failed to comprehend the
considering that they are not fixed rules but rather broad standards, there is a need for operation of the 70% limitation on the input tax. According to petitioner, the
proof of such persuasive character as would lead to such a conclusion. Absent such a limitation on the creditable input tax in effect allows VAT-registered establishments
showing, the presumption of validity must prevail.68 to retain a portion of the taxes they collect, which violates the principle that tax
collection and revenue should be for public purposes and expenditures
Section 8 of R.A. No. 9337, amending Section 110(B) of the NIRC imposes a
limitation on the amount of input tax that may be credited against the output tax. It As earlier stated, the input tax is the tax paid by a person, passed on to him by the
states, in part: "[P]rovided, that the input tax inclusive of the input VAT carried over seller, when he buys goods. Output tax meanwhile is the tax due to the person when
from the previous quarter that may be credited in every quarter shall not exceed he sells goods. In computing the VAT payable, three possible scenarios may arise:
seventy percent (70%) of the output VAT: …"
First, if at the end of a taxable quarter the output taxes charged by the seller are equal
Input Tax is defined under Section 110(A) of the NIRC, as amended, as the value- to the input taxes that he paid and passed on by the suppliers, then no payment is
added tax due from or paid by a VAT-registered person on the importation of goods required;
or local purchase of good and services, including lease or use of property, in the
course of trade or business, from a VAT-registered person, and Output Tax is the Second, when the output taxes exceed the input taxes, the person shall be liable for
value-added tax due on the sale or lease of taxable goods or properties or services by the excess, which has to be paid to the Bureau of Internal Revenue (BIR);69 and
any person registered or required to register under the law.
Third, if the input taxes exceed the output taxes, the excess shall be carried over to
Petitioners claim that the contested sections impose limitations on the amount of the succeeding quarter or quarters. Should the input taxes result from zero-rated or
input tax that may be claimed. In effect, a portion of the input tax that has already effectively zero-rated transactions, any excess over the output taxes shall instead be
been paid cannot now be credited against the output tax. refunded to the taxpayer or credited against other internal revenue taxes, at the
taxpayer’s option.70
Petitioners’ argument is not absolute. It assumes that the input tax exceeds 70% of
the output tax, and therefore, the input tax in excess of 70% remains uncredited. Section 8 of R.A. No. 9337 however, imposed a 70% limitation on the input tax.
However, to the extent that the input tax is less than 70% of the output tax, then Thus, a person can credit his input tax only up to the extent of 70% of the output tax.
100% of such input tax is still creditable. In layman’s term, the value-added taxes that a person/taxpayer paid and passed on to
him by a seller can only be credited up to 70% of the value-added taxes that is due to
More importantly, the excess input tax, if any, is retained in a business’s books of him on a taxable transaction. There is no retention of any tax collection because the
accounts and remains creditable in the succeeding quarter/s. This is explicitly person/taxpayer has already previously paid the input tax to a seller, and the seller
allowed by Section 110(B), which provides that "if the input tax exceeds the output will subsequently remit such input tax to the BIR. The party directly liable for the
tax, the excess shall be carried over to the succeeding quarter or quarters." In payment of the tax is the seller.71 What only needs to be done is for the
addition, Section 112(B) allows a VAT-registered person to apply for the issuance of person/taxpayer to apply or credit these input taxes, as evidenced by receipts, against
a tax credit certificate or refund for any unused input taxes, to the extent that such his output taxes.
input taxes have not been applied against the output taxes. Such unused input tax
may be used in payment of his other internal revenue taxes.
Petitioners Association of Pilipinas Shell Dealers, Inc., et al. also argue that the input delay in the crediting of the input tax. Petitioners’ argument is without basis because
tax partakes the nature of a property that may not be confiscated, appropriated, or the taxpayer is not permanently deprived of his privilege to credit the input tax.
limited without due process of law.
It is worth mentioning that Congress admitted that the spread-out of the creditable
The input tax is not a property or a property right within the constitutional purview input tax in this case amounts to a 4-year interest-free loan to the government. 76 In
of the due process clause. A VAT-registered person’s entitlement to the creditable the same breath, Congress also justified its move by saying that the provision was
input tax is a mere statutory privilege. designed to raise an annual revenue of 22.6 billion.77 The legislature also dispelled
the fear that the provision will fend off foreign investments, saying that foreign
The distinction between statutory privileges and vested rights must be borne in mind investors have other tax incentives provided by law, and citing the case of China,
for persons have no vested rights in statutory privileges. The state may change or where despite a 17.5% non-creditable VAT, foreign investments were not
take away rights, which were created by the law of the state, although it may not take deterred.78 Again, for whatever is the purpose of the 60-month amortization, this
away property, which was vested by virtue of such rights.72 involves executive economic policy and legislative wisdom in which the Court
cannot intervene.
Under the previous system of single-stage taxation, taxes paid at every level of
distribution are not recoverable from the taxes payable, although it becomes part of With regard to the 5% creditable withholding tax imposed on payments made by the
the cost, which is deductible from the gross revenue. When Pres. Aquino issued E.O. government for taxable transactions, Section 12 of R.A. No. 9337, which amended
No. 273 imposing a 10% multi-stage tax on all sales, it was then that the crediting of Section 114 of the NIRC, reads:
the input tax paid on purchase or importation of goods and services by VAT-
registered persons against the output tax was introduced. 73 This was adopted by the SEC. 114. Return and Payment of Value-added Tax. –
Expanded VAT Law (R.A. No. 7716),74 and The Tax Reform Act of 1997 (R.A. No.
8424).75 The right to credit input tax as against the output tax is clearly a privilege (C) Withholding of Value-added Tax. – The Government or any of its political
created by law, a privilege that also the law can remove, or in this case, limit. subdivisions, instrumentalities or agencies, including government-owned or
controlled corporations (GOCCs) shall, before making payment on account of each
Petitioners also contest as arbitrary, oppressive, excessive and confiscatory, Section 8 purchase of goods and services which are subject to the value-added tax imposed in
of R.A. No. 9337, amending Section 110(A) of the NIRC, which provides: Sections 106 and 108 of this Code, deduct and withhold a final value-added tax at the
rate of five percent (5%) of the gross payment thereof: Provided, That the payment
SEC. 110. Tax Credits. – for lease or use of properties or property rights to nonresident owners shall be subject
to ten percent (10%) withholding tax at the time of payment. For purposes of this
(A) Creditable Input Tax. – … Section, the payor or person in control of the payment shall be considered as the
withholding agent.
Provided, That the input tax on goods purchased or imported in a calendar month for
use in trade or business for which deduction for depreciation is allowed under this The value-added tax withheld under this Section shall be remitted within ten (10)
Code, shall be spread evenly over the month of acquisition and the fifty-nine (59) days following the end of the month the withholding was made.
succeeding months if the aggregate acquisition cost for such goods, excluding the
VAT component thereof, exceeds One million pesos (₱1,000,000.00): Provided, Section 114(C) merely provides a method of collection, or as stated by respondents, a
however, That if the estimated useful life of the capital goods is less than five (5) more simplified VAT withholding system. The government in this case is constituted
years, as used for depreciation purposes, then the input VAT shall be spread over as a withholding agent with respect to their payments for goods and services.
such a shorter period: Provided, finally, That in the case of purchase of services,
lease or use of properties, the input tax shall be creditable to the purchaser, lessee or Prior to its amendment, Section 114(C) provided for different rates of value-added
license upon payment of the compensation, rental, royalty or fee. taxes to be withheld -- 3% on gross payments for purchases of goods; 6% on gross
payments for services supplied by contractors other than by public works
The foregoing section imposes a 60-month period within which to amortize the contractors; 8.5% on gross payments for services supplied by public work
creditable input tax on purchase or importation of capital goods with acquisition cost contractors; or 10% on payment for the lease or use of properties or property rights
of ₱1 Million pesos, exclusive of the VAT component. Such spread out only poses a to nonresident owners. Under the present Section 114(C), these different rates, except
for the 10% on lease or property rights payment to nonresidents, were deleted, and a subject to the value-added tax imposed in Sections 106 and 108 of this Code, deduct
uniform rate of 5% is applied. and withhold the value-added tax due at the rate of three percent (3%) of the gross
payment for the purchase of goods and six percent (6%) on gross receipts for
The Court observes, however, that the law the used the word final. In tax services rendered by contractors on every sale or installment payment which shall
usage, final, as opposed to creditable, means full. Thus, it is provided in Section be creditable against the value-added tax liability of the seller or contractor:
114(C): "final value-added tax at the rate of five percent (5%)." Provided, however, That in the case of government public works contractors, the
withholding rate shall be eight and one-half percent (8.5%): Provided, further, That
In Revenue Regulations No. 02-98, implementing R.A. No. 8424 (The Tax Reform the payment for lease or use of properties or property rights to nonresident owners
Act of 1997), the concept of final withholding tax on income was explained, to wit: shall be subject to ten percent (10%) withholding tax at the time of payment. For this
purpose, the payor or person in control of the payment shall be considered as the
withholding agent.
SECTION 2.57. Withholding of Tax at Source
The valued-added tax withheld under this Section shall be remitted within ten (10)
(A) Final Withholding Tax. – Under the final withholding tax system the amount of days following the end of the month the withholding was made. (Emphasis supplied)
income tax withheld by the withholding agent is constituted as full and final
payment of the income tax due from the payee on the said income. The liability for
payment of the tax rests primarily on the payor as a withholding agent. Thus, in case As amended, the use of the word final and the deletion of the
of his failure to withhold the tax or in case of underwithholding, the deficiency tax word creditable exhibits Congress’s intention to treat transactions with the
shall be collected from the payor/withholding agent. … government differently. Since it has not been shown that the class subject to the 5%
final withholding tax has been unreasonably narrowed, there is no reason to
invalidate the provision. Petitioners, as petroleum dealers, are not the only ones
(B) Creditable Withholding Tax. – Under the creditable withholding tax system, subjected to the 5% final withholding tax. It applies to all those who deal with the
taxes withheld on certain income payments are intended to equal or at least government.
approximate the tax due of the payee on said income. … Taxes withheld on income
payments covered by the expanded withholding tax (referred to in Sec. 2.57.2 of
these regulations) and compensation income (referred to in Sec. 2.78 also of these Moreover, the actual input tax is not totally lost or uncreditable, as petitioners
regulations) are creditable in nature. believe. Revenue Regulations No. 14-2005 or the Consolidated Value-Added Tax
Regulations 2005 issued by the BIR, provides that should the actual input tax exceed
5% of gross payments, the excess may form part of the cost. Equally, should the
As applied to value-added tax, this means that taxable transactions with the actual input tax be less than 5%, the difference is treated as income. 81
government are subject to a 5% rate, which constitutes as full payment of the tax
payable on the transaction. This represents the net VAT payable of the seller. The
other 5% effectively accounts for the standard input VAT (deemed input VAT), in lieu Petitioners also argue that by imposing a limitation on the creditable input tax, the
of the actual input VAT directly or attributable to the taxable transaction.79 government gets to tax a profit or value-added even if there is no profit or value-
added.
The Court need not explore the rationale behind the provision. It is clear that
Congress intended to treat differently taxable transactions with the Petitioners’ stance is purely hypothetical, argumentative, and again, one-sided. The
government.80 This is supported by the fact that under the old provision, the 5% tax Court will not engage in a legal joust where premises are what ifs, arguments,
withheld by the government remains creditable against the tax liability of the seller theoretical and facts, uncertain. Any disquisition by the Court on this point will only
or contractor, to wit: be, as Shakespeare describes life in Macbeth,82 "full of sound and fury, signifying
nothing."
SEC. 114. Return and Payment of Value-added Tax. –
What’s more, petitioners’ contention assumes the proposition that there is no profit or
value-added. It need not take an astute businessman to know that it is a matter of
(C) Withholding of Creditable Value-added Tax. – The Government or any of its exception that a business will sell goods or services without profit or value-added. It
political subdivisions, instrumentalities or agencies, including government-owned or cannot be overstressed that a business is created precisely for profit.
controlled corporations (GOCCs) shall, before making payment on account of each
purchase of goods from sellers and services rendered by contractors which are
The equal protection clause under the Constitution means that "no person or class of The rule of taxation shall be uniform and equitable. The Congress shall evolve a
persons shall be deprived of the same protection of laws which is enjoyed by other progressive system of taxation.
persons or other classes in the same place and in like circumstances." 83
Uniformity in taxation means that all taxable articles or kinds of property of the same
The power of the State to make reasonable and natural classifications for the class shall be taxed at the same rate. Different articles may be taxed at different
purposes of taxation has long been established. Whether it relates to the subject of amounts provided that the rate is uniform on the same class everywhere with all
taxation, the kind of property, the rates to be levied, or the amounts to be raised, the people at all times.86
methods of assessment, valuation and collection, the State’s power is entitled to
presumption of validity. As a rule, the judiciary will not interfere with such power In this case, the tax law is uniform as it provides a standard rate of 0% or 10% (or
absent a clear showing of unreasonableness, discrimination, or arbitrariness. 84 12%) on all goods and services. Sections 4, 5 and 6 of R.A. No. 9337, amending
Sections 106, 107 and 108, respectively, of the NIRC, provide for a rate of 10% (or
Petitioners point out that the limitation on the creditable input tax if the entity has a 12%) on sale of goods and properties, importation of goods, and sale of services and
high ratio of input tax, or invests in capital equipment, or has several transactions use or lease of properties. These same sections also provide for a 0% rate on certain
with the government, is not based on real and substantial differences to meet a valid sales and transaction.
classification.
Neither does the law make any distinction as to the type of industry or trade that will
The argument is pedantic, if not outright baseless. The law does not make any bear the 70% limitation on the creditable input tax, 5-year amortization of input tax
classification in the subject of taxation, the kind of property, the rates to be levied or paid on purchase of capital goods or the 5% final withholding tax by the government.
the amounts to be raised, the methods of assessment, valuation and collection. It must be stressed that the rule of uniform taxation does not deprive Congress of the
Petitioners’ alleged distinctions are based on variables that bear different power to classify subjects of taxation, and only demands uniformity within the
consequences. While the implementation of the law may yield varying end results particular class.87
depending on one’s profit margin and value-added, the Court cannot go beyond what
the legislature has laid down and interfere with the affairs of business. R.A. No. 9337 is also equitable. The law is equipped with a threshold margin. The
VAT rate of 0% or 10% (or 12%) does not apply to sales of goods or services with
The equal protection clause does not require the universal application of the laws on gross annual sales or receipts not exceeding ₱1,500,000.00.88Also, basic marine and
all persons or things without distinction. This might in fact sometimes result in agricultural food products in their original state are still not subject to the tax,89 thus
unequal protection. What the clause requires is equality among equals as determined ensuring that prices at the grassroots level will remain accessible. As was stated
according to a valid classification. By classification is meant the grouping of persons in Kapatiran ng mga Naglilingkod sa Pamahalaan ng Pilipinas, Inc. vs. Tan:90
or things similar to each other in certain particulars and different from all others in
these same particulars.85 The disputed sales tax is also equitable. It is imposed only on sales of goods or
services by persons engaged in business with an aggregate gross annual sales
Petitioners brought to the Court’s attention the introduction of Senate Bill No. 2038 exceeding ₱200,000.00. Small corner sari-sari stores are consequently exempt from
by Sens. S.R. Osmeña III and Ma. Ana Consuelo A.S. – Madrigal on June 6, 2005, its application. Likewise exempt from the tax are sales of farm and marine products,
and House Bill No. 4493 by Rep. Eric D. Singson. The proposed legislation seeks to so that the costs of basic food and other necessities, spared as they are from the
amend the 70% limitation by increasing the same to 90%. This, according to incidence of the VAT, are expected to be relatively lower and within the reach of the
petitioners, supports their stance that the 70% limitation is arbitrary and confiscatory. general public.
On this score, suffice it to say that these are still proposed legislations. Until
Congress amends the law, and absent any unequivocal basis for its It is admitted that R.A. No. 9337 puts a premium on businesses with low profit
unconstitutionality, the 70% limitation stays. margins, and unduly favors those with high profit margins. Congress was not
oblivious to this. Thus, to equalize the weighty burden the law entails, the law, under
B. Uniformity and Equitability of Taxation Section 116, imposed a 3% percentage tax on VAT-exempt persons under Section
109(v), i.e., transactions with gross annual sales and/or receipts not exceeding ₱1.5
Article VI, Section 28(1) of the Constitution reads: Million. This acts as a equalizer because in effect, bigger businesses that qualify for
VAT coverage and VAT-exempt taxpayers stand on equal-footing.
Moreover, Congress provided mitigating measures to cushion the impact of the margin, the bigger the part that the VAT eats away. At the end of the day, it is really
imposition of the tax on those previously exempt. Excise taxes on petroleum the lower income group or businesses with low-profit margins that is always hardest
products91 and natural gas92 were reduced. Percentage tax on domestic carriers was hit.
removed.93 Power producers are now exempt from paying franchise tax.94
Nevertheless, the Constitution does not really prohibit the imposition of indirect
Aside from these, Congress also increased the income tax rates of corporations, in taxes, like the VAT. What it simply provides is that Congress shall "evolve a
order to distribute the burden of taxation. Domestic, foreign, and non-resident progressive system of taxation." The Court stated in the Tolentino case, thus:
corporations are now subject to a 35% income tax rate, from a previous
32%.95 Intercorporate dividends of non-resident foreign corporations are still subject The Constitution does not really prohibit the imposition of indirect taxes which, like
to 15% final withholding tax but the tax credit allowed on the corporation’s domicile the VAT, are regressive. What it simply provides is that Congress shall ‘evolve a
was increased to 20%.96 The Philippine Amusement and Gaming Corporation progressive system of taxation.’ The constitutional provision has been interpreted to
(PAGCOR) is not exempt from income taxes anymore.97 Even the sale by an artist of mean simply that ‘direct taxes are . . . to be preferred [and] as much as possible,
his works or services performed for the production of such works was not spared. indirect taxes should be minimized.’ (E. FERNANDO, THE CONSTITUTION OF
THE PHILIPPINES 221 (Second ed. 1977)) Indeed, the mandate to Congress is not
All these were designed to ease, as well as spread out, the burden of taxation, which to prescribe, but to evolve, a progressive tax system. Otherwise, sales taxes, which
would otherwise rest largely on the consumers. It cannot therefore be gainsaid that perhaps are the oldest form of indirect taxes, would have been prohibited with the
R.A. No. 9337 is equitable. proclamation of Art. VIII, §17 (1) of the 1973 Constitution from which the present
Art. VI, §28 (1) was taken. Sales taxes are also regressive.
C. Progressivity of Taxation
Resort to indirect taxes should be minimized but not avoided entirely because it is
Lastly, petitioners contend that the limitation on the creditable input tax is anything difficult, if not impossible, to avoid them by imposing such taxes according to the
but regressive. It is the smaller business with higher input tax-output tax ratio that taxpayers' ability to pay. In the case of the VAT, the law minimizes the regressive
will suffer the consequences. effects of this imposition by providing for zero rating of certain transactions (R.A.
No. 7716, §3, amending §102 (b) of the NIRC), while granting exemptions to other
Progressive taxation is built on the principle of the taxpayer’s ability to pay. This transactions. (R.A. No. 7716, §4 amending §103 of the NIRC)99
principle was also lifted from Adam Smith’s Canons of Taxation, and it states:
CONCLUSION
I. The subjects of every state ought to contribute towards the support of the
government, as nearly as possible, in proportion to their respective abilities; that is, It has been said that taxes are the lifeblood of the government. In this case, it is just
in proportion to the revenue which they respectively enjoy under the protection of an enema, a first-aid measure to resuscitate an economy in distress. The Court is
the state. neither blind nor is it turning a deaf ear on the plight of the masses. But it does not
have the panacea for the malady that the law seeks to remedy. As in other cases, the
Taxation is progressive when its rate goes up depending on the resources of the Court cannot strike down a law as unconstitutional simply because of its yokes.
person affected.98
Let us not be overly influenced by the plea that for every wrong there is a remedy,
The VAT is an antithesis of progressive taxation. By its very nature, it is regressive. and that the judiciary should stand ready to afford relief. There are undoubtedly
The principle of progressive taxation has no relation with the VAT system inasmuch many wrongs the judicature may not correct, for instance, those involving political
as the VAT paid by the consumer or business for every goods bought or services questions. . . .
enjoyed is the same regardless of income. In
Let us likewise disabuse our minds from the notion that the judiciary is the repository
other words, the VAT paid eats the same portion of an income, whether big or small. of remedies for all political or social ills; We should not forget that the Constitution
The disparity lies in the income earned by a person or profit margin marked by a has judiciously allocated the powers of government to three distinct and separate
business, such that the higher the income or profit margin, the smaller the portion of compartments; and that judicial interpretation has tended to the preservation of the
the income or profit that is eaten by VAT. A converso, the lower the income or profit independence of the three, and a zealous regard of the prerogatives of each, knowing
full well that one is not the guardian of the others and that, for official wrong-doing, On February 14, 1963, the plaintiff-appellant, Pepsi-Cola Bottling Company of the
each may be brought to account, either by impeachment, trial or by the ballot box.100 Philippines, Inc., commenced a complaint with preliminary injunction before the
Court of First Instance of Leyte for that court to declare Section 2 of Republic Act
The words of the Court in Vera vs. Avelino101 holds true then, as it still holds true No. 2264.1 otherwise known as the Local Autonomy Act, unconstitutional as an
now. All things considered, there is no raison d'être for the unconstitutionality of undue delegation of taxing authority as well as to declare Ordinances Nos. 23 and 27,
R.A. No. 9337. series of 1962, of the municipality of Tanauan, Leyte, null and void.

WHEREFORE, Republic Act No. 9337 not being unconstitutional, the petitions in On July 23, 1963, the parties entered into a Stipulation of Facts, the material portions
G.R. Nos. 168056, 168207, 168461, 168463, and 168730, are hereby DISMISSED. of which state that, first, both Ordinances Nos. 23 and 27 embrace or cover the same
subject matter and the production tax rates imposed therein are practically the same,
There being no constitutional impediment to the full enforcement and and second, that on January 17, 1963, the acting Municipal Treasurer of Tanauan,
implementation of R.A. No. 9337, the temporary restraining order issued by the Leyte, as per his letter addressed to the Manager of the Pepsi-Cola Bottling Plant in
Court on July 1, 2005 is LIFTED upon finality of herein decision. said municipality, sought to enforce compliance by the latter of the provisions of said
Ordinance No. 27, series of 1962.
SO ORDERED.
Municipal Ordinance No. 23, of Tanauan, Leyte, which was approved on September
25, 1962, levies and collects "from soft drinks producers and manufacturers a tai of
one-sixteenth (1/16) of a centavo for every bottle of soft drink corked." 2 For the
purpose of computing the taxes due, the person, firm, company or corporation
G.R. No. L-31156 February 27, 1976 producing soft drinks shall submit to the Municipal Treasurer a monthly report, of
the total number of bottles produced and corked during the month. 3
PEPSI-COLA BOTTLING COMPANY OF THE PHILIPPINES, INC., plaintiff-
appellant, On the other hand, Municipal Ordinance No. 27, which was approved on October 28,
vs. 1962, levies and collects "on soft drinks produced or manufactured within the
MUNICIPALITY OF TANAUAN, LEYTE, THE MUNICIPAL MAYOR, ET territorial jurisdiction of this municipality a tax of ONE CENTAVO (P0.01) on each
AL., defendant appellees. gallon (128 fluid ounces, U.S.) of volume capacity." 4 For the purpose of computing
the taxes due, the person, fun company, partnership, corporation or plant producing
Sabido, Sabido & Associates for appellant. soft drinks shall submit to the Municipal Treasurer a monthly report of the total
number of gallons produced or manufactured during the month. 5
Provincial Fiscal Zoila M. Redona & Assistant Provincial Fiscal Bonifacio R Matol
and Assistant Solicitor General Conrado T. Limcaoco & Solicitor Enrique M. Reyes The tax imposed in both Ordinances Nos. 23 and 27 is denominated as "municipal
for appellees. production tax.'

On October 7, 1963, the Court of First Instance of Leyte rendered judgment


"dismissing the complaint and upholding the constitutionality of [Section 2, Republic
MARTIN, J.: Act No. 2264] declaring Ordinance Nos. 23 and 27 legal and constitutional; ordering
the plaintiff to pay the taxes due under the oft the said Ordinances; and to pay the
costs."
This is an appeal from the decision of the Court of First Instance of Leyte in its Civil
Case No. 3294, which was certified to Us by the Court of Appeals on October 6,
1969, as involving only pure questions of law, challenging the power of taxation From this judgment, the plaintiff Pepsi-Cola Bottling Company appealed to the Court
delegated to municipalities under the Local Autonomy Act (Republic Act No. 2264, of Appeals, which, in turn, elevated the case to Us pursuant to Section 31 of the
as amended, June 19, 1959). Judiciary Act of 1948, as amended.

There are three capital questions raised in this appeal:


1. — Is Section 2, Republic Act No. 2264 an undue delegation of tax does not violate the due process clause, as applied to a particular taxpayer,
power, confiscatory and oppressive? although the purpose of the tax will result in an injury rather than a benefit to such
taxpayer. Due process does not require that the property subject to the tax or the
2. — Do Ordinances Nos. 23 and 27 constitute double taxation and amount of tax to be raised should be determined by judicial inquiry, and a notice and
impose percentage or specific taxes? hearing as to the amount of the tax and the manner in which it shall be apportioned
are generally not necessary to due process of law. 12
3. — Are Ordinances Nos. 23 and 27 unjust and unfair?
There is no validity to the assertion that the delegated authority can be declared
1. The power of taxation is an essential and inherent attribute of sovereignty, unconstitutional on the theory of double taxation. It must be observed that the
belonging as a matter of right to every independent government, without being delegating authority specifies the limitations and enumerates the taxes over which
expressly conferred by the people. 6 It is a power that is purely legislative and which local taxation may not be exercised. 13 The reason is that the State has exclusively
the central legislative body cannot delegate either to the executive or judicial reserved the same for its own prerogative. Moreover, double taxation, in general, is
department of the government without infringing upon the theory of separation of not forbidden by our fundamental law, since We have not adopted as part thereof the
powers. The exception, however, lies in the case of municipal corporations, to which, injunction against double taxation found in the Constitution of the United States and
said theory does not apply. Legislative powers may be delegated to local some states of the Union.14 Double taxation becomes obnoxious only where the
governments in respect of matters of local concern. 7 This is sanctioned by taxpayer is taxed twice for the benefit of the same governmental entity 15 or by the
immemorial practice. 8 By necessary implication, the legislative power to create same jurisdiction for the same purpose, 16 but not in a case where one tax is imposed
political corporations for purposes of local self-government carries with it the power by the State and the other by the city or municipality. 17
to confer on such local governmental agencies the power to tax. 9 Under the New
Constitution, local governments are granted the autonomous authority to create their 2. The plaintiff-appellant submits that Ordinance No. 23 and 27 constitute double
own sources of revenue and to levy taxes. Section 5, Article XI provides: "Each local taxation, because these two ordinances cover the same subject matter and impose
government unit shall have the power to create its sources of revenue and to levy practically the same tax rate. The thesis proceeds from its assumption that both
taxes, subject to such limitations as may be provided by law." Withal, it cannot be ordinances are valid and legally enforceable. This is not so. As earlier quoted,
said that Section 2 of Republic Act No. 2264 emanated from beyond the sphere of Ordinance No. 23, which was approved on September 25, 1962, levies or collects
the legislative power to enact and vest in local governments the power of local from soft drinks producers or manufacturers a tax of one-sixteen (1/16) of a centavo
taxation. for .every bottle corked, irrespective of the volume contents of the bottle used. When
it was discovered that the producer or manufacturer could increase the volume
The plenary nature of the taxing power thus delegated, contrary to plaintiff- contents of the bottle and still pay the same tax rate, the Municipality of Tanauan
appellant's pretense, would not suffice to invalidate the said law as confiscatory and enacted Ordinance No. 27, approved on October 28, 1962, imposing a tax of one
oppressive. In delegating the authority, the State is not limited 6 the exact measure of centavo (P0.01) on each gallon (128 fluid ounces, U.S.) of volume capacity. The
that which is exercised by itself. When it is said that the taxing power may be difference between the two ordinances clearly lies in the tax rate of the soft drinks
delegated to municipalities and the like, it is meant that there may be delegated such produced: in Ordinance No. 23, it was 1/16 of a centavo for every bottle corked; in
measure of power to impose and collect taxes as the legislature may deem expedient. Ordinance No. 27, it is one centavo (P0.01) on each gallon (128 fluid ounces, U.S.)
Thus, municipalities may be permitted to tax subjects which for reasons of public of volume capacity. The intention of the Municipal Council of Tanauan in enacting
policy the State has not deemed wise to tax for more general purposes. 10 This is not Ordinance No. 27 is thus clear: it was intended as a plain substitute for the prior
to say though that the constitutional injunction against deprivation of property Ordinance No. 23, and operates as a repeal of the latter, even without words to that
without due process of law may be passed over under the guise of the taxing power, effect. 18 Plaintiff-appellant in its brief admitted that defendants-appellees are only
except when the taking of the property is in the lawful exercise of the taxing power, seeking to enforce Ordinance No. 27, series of 1962. Even the stipulation of facts
as when (1) the tax is for a public purpose; (2) the rule on uniformity of taxation is confirms the fact that the Acting Municipal Treasurer of Tanauan, Leyte sought t6
observed; (3) either the person or property taxed is within the jurisdiction of the compel compliance by the plaintiff-appellant of the provisions of said Ordinance No.
government levying the tax; and (4) in the assessment and collection of certain kinds 27, series of 1962. The aforementioned admission shows that only Ordinance No. 27,
of taxes notice and opportunity for hearing are provided. 11 Due process is usually series of 1962 is being enforced by defendants-appellees. Even the Provincial Fiscal,
violated where the tax imposed is for a private as distinguished from a public counsel for defendants-appellees admits in his brief "that Section 7 of Ordinance No.
purpose; a tax is imposed on property outside the State, i.e., extraterritorial taxation; 27, series of 1962 clearly repeals Ordinance No. 23 as the provisions of the latter are
and arbitrary or oppressive methods are used in assessing and collecting taxes. But, a inconsistent with the provisions of the former."
That brings Us to the question of whether the remaining Ordinance No. 27 imposes a mineral waters under Ordinance No. 54, series of 1964, as amended by Ordinance
percentage or a specific tax. Undoubtedly, the taxing authority conferred on local No. 41, series of 1968, of defendant Municipality, 29 appears not to affect the
governments under Section 2, Republic Act No. 2264, is broad enough as to extend resolution of the validity of Ordinance No. 27. Municipalities are empowered to
to almost "everything, accepting those which are mentioned therein." As long as the impose, not only municipal license taxes upon persons engaged in any business or
text levied under the authority of a city or municipal ordinance is not within the occupation but also to levy for public purposes, just and uniform taxes. The
exceptions and limitations in the law, the same comes within the ambit of the general ordinance in question (Ordinance No. 27) comes within the second power of a
rule, pursuant to the rules of exclucion attehus and exceptio firmat regulum in municipality.
cabisus non excepti 19 The limitation applies, particularly, to the prohibition against
municipalities and municipal districts to impose "any percentage tax or other taxes in ACCORDINGLY, the constitutionality of Section 2 of Republic Act No. 2264,
any form based thereon nor impose taxes on articles subject to specific tax except otherwise known as the Local Autonomy Act, as amended, is hereby upheld and
gasoline, under the provisions of the National Internal Revenue Code." For purposes Municipal Ordinance No. 27 of the Municipality of Tanauan, Leyte, series of 1962,
of this particular limitation, a municipal ordinance which prescribes a set ratio re-pealing Municipal Ordinance No. 23, same series, is hereby declared of valid and
between the amount of the tax and the volume of sale of the taxpayer imposes a sales legal effect. Costs against petitioner-appellant.
tax and is null and void for being outside the power of the municipality to
enact. 20 But, the imposition of "a tax of one centavo (P0.01) on each gallon (128 SO ORDERED.
fluid ounces, U.S.) of volume capacity" on all soft drinks produced or manufactured
under Ordinance No. 27 does not partake of the nature of a percentage tax on sales,
or other taxes in any form based thereon. The tax is levied on the produce (whether Castro, C.J., Teehankee, Barredo, Makasiar, Antonio, Esguerra, Muñoz Palma,
sold or not) and not on the sales. The volume capacity of the taxpayer's production of Aquino and Concepcion, Jr., JJ., concur.
soft drinks is considered solely for purposes of determining the tax rate on the
products, but there is not set ratio between the volume of sales and the amount of the
tax.21

Nor can the tax levied be treated as a specific tax. Specific taxes are those imposed
on specified articles, such as distilled spirits, wines, fermented liquors, products of Separate Opinions
tobacco other than cigars and cigarettes, matches firecrackers, manufactured oils and
other fuels, coal, bunker fuel oil, diesel fuel oil, cinematographic films, playing
cards, saccharine, opium and other habit-forming drugs. 22 Soft drink is not one of
those specified.
FERNANDO, J., concurring:

3. The tax of one (P0.01) on each gallon (128 fluid ounces, U.S.) of volume capacity
The opinion of the Court penned by Justice Martin is impressed with a scholarly and
on all softdrinks, produced or manufactured, or an equivalent of 1-½ centavos per
comprehensive character. Insofar as it shows adherence to tried and tested concepts
case, 23 cannot be considered unjust and unfair. 24 an increase in the tax alone would
of the law of municipal taxation, I am only in agreement. If I limit myself to
not support the claim that the tax is oppressive, unjust and confiscatory. Municipal
concurrence in the result, it is primarily because with the article on Local Autonomy
corporations are allowed much discretion in determining the reates of imposable
found in the present Constitution, I feel a sense of reluctance in restating doctrines
taxes. 25 This is in line with the constutional policy of according the widest possible
that arose from a different basic premise as to the scope of such power in accordance
autonomy to local governments in matters of local taxation, an aspect that is given
with the 1935 Charter. Nonetheless it is well-nigh unavoidable that I do so as I am
expression in the Local Tax Code (PD No. 231, July 1, 1973). 26 Unless the amount
unable to share fully what for me are the nuances and implications that could arise
is so excessive as to be prohibitive, courts will go slow in writing off an ordinance as
from the approach taken by my brethren. Likewise as to the constitutional aspect of
unreasonable. 27 Reluctance should not deter compliance with an ordinance such as
the thorny question of double taxation, I would limit myself to what has been set
Ordinance No. 27 if the purpose of the law to further strengthen local autonomy were
forth in City of Baguio v. De Leon.1
to be realized. 28
1. The present Constitution is quite explicit as to the power of taxation vested in local
Finally, the municipal license tax of P1,000.00 per corking machine with five but not
and municipal corporations. It is therein specifically provided: "Each local
more than ten crowners or P2,000.00 with ten but not more than twenty crowners
government unit shall have the power to create its own sources of revenue and to
imposed on manufacturers, producers, importers and dealers of soft drinks and/or
levy taxes subject to such limitations as may be provided by law. 2 That was not the ERNESTO M. MACEDA, petitioner,
case under the 1935 Charter. The only limitation then on the authority, plenary in vs.
character of the national government, was that while the President of the Philippines HON. CATALINO MACARAIG, JR., in his capacity as Executive Secretary,
was vested with the power of control over all executive departments, bureaus, or Office of the President, HON. VICENTE JAYME, ETC., ET AL., respondents.
offices, he could only . It exercise general supervision over all local governments as
may be provided by law ... 3As far as legislative power over local government was Angara, Abello, Concepcion & Cruz for respondent Pilipinas Shell Petroleum
concerned, no restriction whatsoever was placed on the Congress of the Philippines. Corporation.
It would appear therefore that the extent of the taxing power was solely for the
legislative body to decide. It is true that in 1939, there was a statute that enlarged the Siguion Reyna, Montecillo & Ongsiako for Caltex.
scope of the municipal taxing power. 4 Thereafter, in 1959 such competence was
further expanded in the Local Autonomy Act. 5 Nevertheless, as late as December of
1964, five years after its enactment of the Local Autonomy Act, this Court, through
Justice Dizon, in Golden Ribbon Lumber Co. v. City of Butuan, 6 reaffirmed the
traditional concept in these words: "The rule is well-settled that municipal NOCON, J.:
corporations, unlike sovereign states, after clothed with no power of taxation; that its
charter or a statute must clearly show an intent to confer that power or the municipal Just like lightning which does strike the same place twice in some instances, this
corporation cannot assume and exercise it, and that any such power granted must be matter of indirect tax exemption of the private respondent National Power
construed strictly, any doubt or ambiguity arising from the terms of the grant to be Corporation (NPC) is brought to this Court a second time. Unfazed by the Decision
resolved against the municipality."7 We promulgated on May 31, 19911 petitioner Ernesto Maceda asks this Court to
reconsider said Decision. Lest We be criticized for denying due process to the
Taxation, according to Justice Parades in the earlier case of Tan v. Municipality of petitioner. We have decided to take a second look at the issues. In the process, a
Pagbilao,8 "is an attribute of sovereignty which municipal corporations do not hearing was held on July 9, 1992 where all parties presented their respective
enjoy." 9 That case left no doubt either as to weakness of a claim "based merely by arguments. Etched in this Court's mind are the paradoxical claims by both petitioner
inferences, implications and deductions, [as they have no place in the interpretation and private respondents that their respective positions are for the benefit of the
of the power to tax of a municipal corporation." 10 As the conclusion reached by the Filipino people.
Court finds support in such grant of the municipal taxing power, I concur in the
result. 2. As to any possible infirmity based on an alleged double taxation, I would I
prefer to rely on the doctrine announced by this Court in City of Baguio v. De
Leon. 11 Thus: "As to why double taxation is not violative of due process, Justice A Chronological review of the relevant NPC laws, specially with respect to its tax
Holmes made clear in this language: 'The objection to the taxation as double may be exemption provisions, at the risk of being repetitious is, therefore, in order.
laid down on one side. ... The 14th Amendment [the due process clause) no more
forbids double taxation than it does doubling the amount of a tax, short of
On November 3, 1936, Commonwealth Act No. 120 was enacted creating the
(confiscation or proceedings unconstitutional on other grouse With that decision
National Power Corporation, a public corporation, mainly to develop hydraulic
rendered at a time when American sovereignty in the Philippines was recognized, it
power from all water sources in the Philippines.2 The sum of P250,000.00 was
possesses more than just a persuasive effect. To some, it delivered the coup justice to
appropriated out of the funds in the Philippine Treasury for the purpose of organizing
the bogey of double taxation as a constitutional bar to the exercise of the taxing
the NPC and conducting its preliminary work.3 The main source of funds for the
power. It would seem though that in the United States, as with us, its ghost, as noted
NPC was the flotation of bonds in the capital markets4 and these bonds
by an eminent critic, still stalks the juridical stage. 'In a 1947 decision, however, we
quoted with approval this excerpt from a leading American decision: 'Where, as here,
Congress has clearly expressed its intention, the statute must be sustained even . . . issued under the authority of this Act shall be exempt from the
though double taxation results. 12 payment of all taxes by the Commonwealth of the Philippines, or
by any authority, branch, division or political subdivision thereof
and subject to the provisions of the Act of Congress, approved
So I would view the issues in this suit and accordingly concur in the result.
March 24, 1934, otherwise known as the Tydings McDuffle Law,
which facts shall be stated upon the face of said bonds. . . . .5
G.R. No. 88291 June 8, 1993
On June 24, 1938, C.A. No. 344 was enacted increasing to P550,000.00 the funds the Republic of the Philippines, its provinces, cities, and
needed for the initial operations of the NPC and reiterating the provision of the municipalities.15
flotation of bonds as soon as the first construction of any hydraulic power project
was to be decided by the NPC Board.6 The provision on tax exemption in relation to On September 8, 1955, R.A. No. 1397 was enacted directing that the NPC projects to
the issuance of the NPC bonds was neither amended nor deleted. be funded by the increased indebtedness 16 should bear the National Economic
Council's stamp of approval. The tax exemption provision related to the payment of
On September 30, 1939, C.A. No. 495 was enacted removing the provision on the this total indebtedness was not amended nor deleted.
payment of the bond's principal and interest in "gold coins" but adding that payment
could be made in United States dollars.7 The provision on tax exemption in relation On June 13, 1958, R.A. No. 2055 was enacted increasing the total amount of foreign
to the issuance of the NPC bonds was neither amended nor deleted. loans NPC was authorized to incur to US$100,000,000.00 from the
US$50,000,000.00 ceiling in R.A. No. 357. 17 The tax provision related to the
On June 4, 1949, Republic Act No. 357 was enacted authorizing the President of the repayment of these loans was not amended nor deleted.
Philippines to guarantee, absolutely and unconditionally, as primary obligor, the
payment of any and all NPC loans.8 He was also authorized to contract on behalf of On June 13, 1958, R.A. No. 2058 was enacting fixing the corporate life of NPC to
the NPC with the International Bank for Reconstruction and Development (IBRD) December 31, 2000. 18 All laws or provisions of laws and executive orders contrary
for NPC loans for the accomplishment of NPC's corporate objectives9 and for the to said R.A. No. 2058 were expressly repealed. 19
reconstruction and development of the economy of the country. 10 It was expressly
stated that: On June 18, 1960, R.A. No 2641 was enacted converting the NPC from a public
corporation into a stock corporation with an authorized capital stock of
Any such loan or loans shall be exempt from taxes, duties, fees, P100,000,000.00 divided into 1,000.000 shares having a par value of P100.00 each,
imposts, charges, contributions and restrictions of the Republic of with said capital stock wholly subscribed to by the Government. 20 No tax exemption
the Philippines, its provinces, cities and municipalities. 11 was incorporated in said Act.

On the same date, R.A. No. 358 was enacted expressly authorizing the NPC, for the On June 17, 1961, R.A. No. 3043 was enacted increasing the above-mentioned
first time, to incur other types of indebtedness, aside from indebtedness incurred by authorized capital stock to P250,000,000.00 with the increase to be wholly
flotation of bonds. 12 As to the pertinent tax exemption provision, the law stated as subscribed by the Government. 21 No tax provision was incorporated in said Act.
follows:
On June 17, 1967, R.A. No 4897 was enacted. NPC's capital stock was increased
To facilitate payment of its indebtedness, the National Power again to P300,000,000.00, the increase to be wholly subscribed by the Government.
Corporation shall be exempt from all taxes, duties, fees, imposts, No tax provision was incorporated in said Act. 22
charges, and restrictions of the Republic of the Philippines, its
provinces, cities and municipalities. 13 On September 10, 1971, R.A. No. 6395 was enacted revising the charter of the NPC,
C.A. No. 120, as amended. Declared as primary objectives of the nation were:
On July 10, 1952, R.A. No. 813 was enacted amending R.A. No. 357 in that, aside
from the IBRD, the President of the Philippines was authorized to negotiate, contract Declaration of Policy. — Congress hereby declares that (1) the
and guarantee loans with the Export-Import Bank of of Washigton, D.C., U.S.A., or comprehensive development, utilization and conservation of
any other international financial institution. 14 The tax provision for repayment of Philippine water resources for all beneficial uses, including power
these loans, as stated in R.A. No. 357, was not amended. generation, and (2) the total electrification of the Philippines
through the development of power from all sources to meet the
On June 2, 1954, R.A. No. 987 was enacted specifically to withdraw NPC's tax needs of industrial development and dispersal and the needs of
exemption for real estate taxes. As enacted, the law states as follows: rural electrification are primary objectives of the nation which shall
be pursued coordinately and supported by all instrumentalities and
To facilitate payment of its indebtedness, the National Power agencies of the government, including the financial institutions. 23
Corporation shall be exempt from all taxes, except real property
tax, and from all duties, fees, imposts, charges, and restrictions of
Section 4 of C.A. No. 120, was renumbered as Section 8, and divided into sections 8 municipalities and other government agencies and
(a) (Authority to incur Domestic Indebtedness) and Section 8 (b) (Authority to Incur instrumentalities;
Foreign Loans).
(c) From all import duties, compensating taxes and advanced sales
As to the issuance of bonds by the NPC, Paragraph No. 3 of Section 8(a), states as tax, and wharfage fees on import of foreign goods required for its
follows: operations and projects; and

The bonds issued under the authority of this subsection shall be (d) From all taxes, duties, fees, imposts and all other charges its
exempt from the payment of all taxes by the Republic of the provinces, cities, municipalities and other government agencies
Philippines, or by any authority, branch, division or political and instrumentalities, on all petroleum products used by the
subdivision thereof which facts shall be stated upon the face of said Corporation in the generation, transmission, utilization, and sale of
bonds. . . . 24 electric power. 26

As to the foreign loans the NPC was authorized to contract, Paragraph No. 5, Section On November 7, 1972, Presidential Decree No. 40 was issued
8(b), states as follows: declaring that the electrification of the entire country was one of
the primary concerns of the country. And in connection with this, it
The loans, credits and indebtedness contracted under this was specifically stated that:
subsection and the payment of the principal, interest and other
charges thereon, as well as the importation of machinery, The setting up of transmission line grids and the construction of
equipment, materials and supplies by the Corporation, paid from associated generation facilities in Luzon, Mindanao and major
the proceeds of any loan, credit or indebtedeness incurred under islands of the country, including the Visayas, shall be the
this Act, shall also be exempt from all taxes, fees, imposts, other responsibility of the National Power Corporation (NPC) as the
charges and restrictions, including import restrictions, by the authorized implementing agency of the State. 27
Republic of the Philippines, or any of its agencies and political
subdivisions. 25 xxx xxx xxx

A new section was added to the charter, now known as Section 13, R.A. No. 6395, It is the ultimate objective of the State for the NPC to own and
which declares the non-profit character and tax exemptions of NPC as follows: operate as a single integrated system all generating facilities
supplying electric power to the entire area embraced by any grid
The Corporation shall be non-profit and shall devote all its returns set up by the NPC. 28
from its capital investment, as well as excess revenues from its
operation, for expansion. To enable the Corporation to pay its On January 22, 1974, P.D. No. 380 was issued giving extra powers to the NPC to
indebtedness and obligations and in furtherance and effective enable it to fulfill its role under aforesaid P.D. No. 40. Its authorized capital stock
implementation of the policy enunciated in Section one of this Act, was raised to P2,000,000,000.00, 29 its total domestic indebtedness was pegged at a
the Corporation is hereby declared exempt: maximum of P3,000,000,000.00 at any one time, 30 and the NPC was authorized to
borrow a total of US$1,000,000,000.00 31 in foreign loans.
(a) From the payment of all taxes, duties, fees, imposts, charges
costs and service fees in any court or administrative proceedings in The relevant tax exemption provision for these foreign loans states as follows:
which it may be a party, restrictions and duties to the Republic of
the Philippines, its provinces, cities, and municipalities and other The loans, credits and indebtedness contracted under this
government agencies and instrumentalities; subsection and the payment of the principal, interest and other
charges thereon, as well as the importation of machinery,
(b) From all income taxes, franchise taxes and realty taxes to be equipment, materials, supplies and services, by the Corporation,
paid to the National Government, its provinces, cities, paid from the proceeds of any loan, credit or indebtedness incurred
under this Act, shall also be exempt from all direct and indirect and the ceilings for domestic and foreign borrowings are deemed
taxes, fees, imposts, other charges and restrictions, including insufficient; 36
import restrictions previously and presently imposed, and to be
imposed by the Republic of the Philippines, or any of its agencies xxx xxx xxx
and political subdivisions. 32(Emphasis supplied)
(I)n the application of the tax exemption provisions of the Revised
Section 13(a) and 13(d) of R.A. No 6395 were amended to read as follows: Charter, the non-profit character of NPC has not been fully utilized
because of restrictive interpretation of the taxing agencies of the
(a) From the payment of all taxes, duties, fees, imposts, charges government on said provisions; 37
and restrictions to the Republic of the Philippines, its provinces,
cities, municipalities and other government agencies and xxx xxx xxx
instrumentalities including the taxes, duties, fees, imposts and
other charges provided for under the Tariff and Customs Code of (I)n order to effect the accelerated expansion program and attain
the Philippines, Republic Act Numbered Nineteen Hundred Thirty- the declared objective of total electrification of the country, further
Seven, as amended, and as further amended by Presidential Decree amendments of certain sections of Republic Act No. 6395, as
No. 34 dated October 27, 1972, and Presidential Decree No. 69, amended by Presidential Decrees Nos. 380, 395 and 758, have
dated November 24, 1972, and costs and service fees in any court become imperative; 38
or administrative proceedings in which it may be a party;
Thus NPC's capital stock was raised to P8,000,000,000.00, 39 the total domestic
xxx xxx xxx indebtedness ceiling was increased to P12,000,000,000.00, 40 the total foreign loan
ceiling was raised to US$4,000,000,000.00 41 and Section 13 of R.A. No. 6395, was
(d) From all taxes, duties, fees, imposts, and all other charges amended to read as follows:
imposed directly or indirectly by the Republic of the Philippines,
its provinces, cities, municipalities and other government agencies The Corporation shall be non-profit and shall devote all its returns
and instrumentalities, on all petroleum products used by the from its capital investment as well as excess revenues from its
Corporation in the generation, transmission, utilization and sale of operation, for expansion. To enable the Corporation to pay to its
electric power. 33 (Emphasis supplied) indebtedness and obligations and in furtherance and effective
implementation of the policy enunciated in Section one of this Act,
On February 26, 1970, P.D. No. 395 was issued removing certain restrictions in the the Corporation, including its subsidiaries, is hereby declared
NPC's sale of electricity to its different customers. 34 No tax exemption provision was exempt from the payment of all forms of taxes, duties, fees,
amended, deleted or added. imposts as well as costs and service fees including filing fees,
appeal bonds, supersedeas bonds, in any court or administrative
On July 31, 1975, P.D. No. 758 was issued directing that P200,000,000.00 would be proceedings. 42
appropriated annually to cover the unpaid subscription of the Government in the
NPC authorized capital stock, which amount would be taken from taxes accruing to II
the General Funds of the Government, proceeds from loans, issuance of bonds,
treasury bills or notes to be issued by the Secretary of Finance for this particular On the other hand, the pertinent tax laws involved in this controversy are P.D. Nos.
purpose. 35 882, 1177, 1931 and Executive Order No. 93 (S'86).

On May 27, 1976 P.D. No. 938 was issued On January 30, 1976, P.D. No. 882 was issued withdrawing the tax exemption of
NPC with regard to imports as follows:
(I)n view of the accelerated expansion programs for generation and
transmission facilities which includes nuclear power generation,
the present capitalization of National Power Corporation (NPC)
WHEREAS, importations by certain government agencies, Sec. 6. . . . . Section 13 of Republic Act No. 6395; . . .. and all
including government-owned or controlled corporation, are exempt similar provisions of all general and special laws and decrees are
from the payment of customs duties and compensating tax; and hereby amended accordingly.

WHEREAS, in order to reduce foreign exchange spending and to xxx xxx xxx
protect domestic industries, it is necessary to restrict and regulate
such tax-free importations. On July 30, 1977, P.D. 1177 was issued as it was

NOW THEREFORE, I, FERDINAND E. MARCOS, President of . . . declared the policy of the State to formulate and implement a
the Philippines, by virtue of the powers vested in me by the National Budget that is an instrument of national development,
Constitution, and do hereby decree and order the following: reflective of national objectives, strategies and plans. The budget
shall be supportive of and consistent with the socio-economic
Sec. 1. All importations of any government agency, including development plan and shall be oriented towards the achievement of
government-owned or controlled corporations which are exempt explicit objectives and expected results, to ensure that funds are
from the payment of customs duties and internal revenue taxes, utilized and operations are conducted effectively, economically and
shall be subject to the prior approval of an Inter-Agency efficiently. The national budget shall be formulated within a
Committee which shall insure compliance with the following context of a regionalized government structure and of the totality
conditions: of revenues and other receipts, expenditures and borrowings of all
levels of government-owned or controlled corporations. The
(a) That no such article of local manufacture are available in budget shall likewise be prepared within the context of the national
sufficient quantity and comparable quality at reasonable prices; long-term plan and of a long-term budget program. 43

(b) That the articles to be imported are directly and actually needed In line with such policy, the law decreed that
and will be used exclusively by the grantee of the exemption for its
operations and projects or in the conduct of its functions; and All units of government, including government-owned or controlled corporations,
shall pay income taxes, customs duties and other taxes and fees are imposed under
(c) The shipping documents covering the importation are in the revenues laws: provided, that organizations otherwise exempted by law from the
name of the grantee to whom the goods shall be delivered directly payment of such taxes/duties may ask for a subsidy from the General Fund in the
by customs authorities. exact amount of taxes/duties due: provided, further, that a procedure shall be
established by the Secretary of Finance and the Commissioner of the Budget,
xxx xxx xxx whereby such subsidies shall automatically be considered as both revenue and
expenditure of the General Fund. 44
Sec. 3. The Committee shall have the power to regulate and control
the tax-free importation of government agencies in accordance The law also declared that —
with the conditions set forth in Section 1 hereof and the regulations
to be promulgated to implement the provisions of this Decree. [A]ll laws, decrees, executive orders, rules and regulations or parts
Provided, however, That any government agency or government- thereof which are inconsistent with the provisions of the Decree
owned or controlled corporation, or any local manufacturer or are hereby repealed and/or modified accordingly. 45
business firm adversely affected by any decision or ruling of the
Inter-Agency Committee may file an appeal with the Office of the On July 11, 1984, most likely due to the economic morass the Government found
President within ten days from the date of notice thereof. . . . . itself in after the Aquino assassination, P.D. No. 1931 was issued to reiterate that:

xxx xxx xxx


WHEREAS, Presidential Decree No. 1177 has already expressly On December 17, 1986, E.O. No. 93 (S'86) was issued with a view to correct
repealed the grant of tax privileges to any government-owned or presidential restoration or grant of tax exemption to other government and private
controlled corporation and all other units of government; 46 entities without benefit of review by the Fiscal Incentives Review Board, to wit:

and since there was a WHEREAS, Presidential Decree Nos. 1931 and 1955 issued on
June 11, 1984 and October 14, 1984, respectively, withdrew the tax
. . . need for government-owned or controlled corporations and all and duty exemption privileges, including the preferential tax
other units of government enjoying tax privileges to share in the treatment, of government and private entities with certain
requirements of development, fiscal or otherwise, by paying the exceptions, in order that the requirements of national economic
duties, taxes and other charges due from them. 47 development, in terms of fiscals and other resources, may be met
more adequately;
it was decreed that:
xxx xxx xxx
Sec. 1. The provisions of special on general law to the contrary
notwithstanding, all exemptions from the payment of duties, taxes, WHEREAS, in addition to those tax and duty exemption privileges
fees, imposts and other charges heretofore granted in favor of were restored by the Fiscal Incentives Review Board (FIRB), a
government-owned or controlled corporations including their number of affected entities, government and private, had their tax
subsidiaries, are hereby withdrawn. and duty exemption privileges restored or granted by Presidential
action without benefit or review by the Fiscal Incentives Review
Sec. 2. The President of the Philippines and/or the Minister of Board (FIRB);
Finance, upon the recommendation of the Fiscal Incentives Review
Board created under Presidential Decree No. 776, is hereby xxx xxx xxx
empowered to restore, partially or totally, the exemptions
withdrawn by Section 1 above, any applicable tax and duty, taking Since it was decided that:
into account, among others, any or all of the following:
[A]ssistance to government and private entities may be better
1) The effect on the relative price levels; provided where necessary by explicit subsidy and budgetary
support rather than tax and duty exemption privileges if only to
2) The relative contribution of the corporation to the revenue improve the fiscal monitoring aspects of government operations.
generation effort;
It was thus ordered that:
3) The nature of the activity in which the corporation is engaged in;
or Sec. 1. The Provisions of any general or special law to the contrary
notwithstanding, all tax and duty incentives granted to government
4) In general the greater national interest to be served. and private entities are hereby withdrawn, except:

xxx xxx xxx a) those covered by the non-impairment clause of the Constitution;

Sec. 5. The provisions of Presidential Decree No. 1177 as well as b) those conferred by effective internation agreement to which the
all other laws, decrees, executive orders, administrative orders, Government of the Republic of the Philippines is a signatory;
rules, regulations or parts thereof which are inconsistent with this
Decree are hereby repealed, amended or modified accordingly. c) those enjoyed by enterprises registered with:
(i) the Board of Investment pursuant to d) prescribe the date of period of effectivity of the restoration of
Presidential Decree No. 1789, as amended; tax and/or duty exemption;

(ii) the Export Processing Zone Authority, e) formulate and submit to the President for approval, a complete
pursuant to Presidential Decree No. 66 as system for the grant of subsidies to deserving beneficiaries, in lieu
amended; of or in combination with the restoration of tax and duty
exemptions or preferential treatment in taxation, indicating the
(iii) the Philippine Veterans Investment source of funding therefor, eligible beneficiaries and the terms and
Development Corporation Industrial Authority conditions for the grant thereof taking into consideration the
pursuant to Presidential Decree No. 538, was international commitment of the Philippines and the necessary
amended. precautions such that the grant of subsidies does not become the
basis for countervailing action.
d) those enjoyed by the copper mining industry pursuant to the
provisions of Letter of Instructions No. 1416; Sec. 3. In the discharge of its authority hereunder, the Fiscal
Incentives Review Board shall take into account any or all of the
e) those conferred under the four basic codes namely: following considerations:

(i) the Tariff and Customs Code, as amended; a) the effect on relative price levels;

(ii) the National Internal Revenue Code, as b) relative contribution of the beneficiary to the revenue generation
amended; effort;

(iii) the Local Tax Code, as amended; c) nature of the activity the beneficiary is engaged; and

(iv) the Real Property Tax Code, as amended; d) in general, the greater national interest to be served.

f) those approved by the President upon the xxx xxx xxx


recommendation of the Fiscal Incentives Review
Board. Sec. 5. All laws, orders, issuances, rules and regulations or parts
thereof inconsistent with this Executive Order are hereby repealed
Sec. 2. The Fiscal Incentives Review Board created under or modified accordingly.
Presidential Decree No. 776, as amended, is hereby authorized to:
E.O. No. 93 (S'86) was decreed to be effective 48 upon the promulgation of the rules
a) restore tax and/or duty exemptions withdrawn hereunder in and regulations, to be issued by the Ministry of Finance. 49 Said rules and regulations
whole or in part; were promulgated and published in the Official Gazette
on February 23, 1987. These became effective on the 15th day after
promulgation 50 in the Official Gasetter, 51 which 15th day was March 10, 1987.
b) revise the scope and coverage of tax and/or duty exemption that
may be restored;
III
c) impose conditions for the restoration of tax and/or duty
exemption; Now to some definitions. We refer to the very simplistic approach that all would-be
lawyers, learn in their TAXATION I course, which fro convenient reference, is as
follows:
Classifications or kinds of Taxes: When the NPC was authorized to contract with the IBRD for foreign financing, any
loans obtained were to be completely tax exempt.
According to Persons who pay or who bear the burden:
After the NPC was authorized to borrow from other sources of funds — aside
a. Direct Tax — the where the person supposed to pay the tax issuance of bonds — it was again specifically exempted from all types of taxes "to
really pays it. WITHOUT transferring the burden to someone else. facilitate payment of its indebtedness." Even when the ceilings for domestic and
foreign borrowings were periodically increased, the tax exemption privileges of the
Examples: Individual income tax, corporate income tax, transfer NPC were maintained.
taxes (estate tax, donor's tax), residence tax, immigration tax
NPC's tax exemption from real estate taxes was, however, specifically withdrawn by
b. Indirect Tax — that where the tax is imposed upon Rep. Act No. 987, as above stated. The exemption was, however, restored by R.A.
goods BEFORE reaching the consumer who ultimately pays for it, No. 6395.
not as a tax, but as a part of the purchase price.
Section 13, R.A. No. 6395, was very comprehensive in its enumeration of the tax
Examples: the internal revenue indirect taxes (specific tax, exemptions allowed NPC. Its section 13(d) is the starting point of this bone of
percentage taxes, (VAT) and the tariff and customs indirect taxes contention among the parties. For easy reference, it is reproduced as follows:
(import duties, special import tax and other dues) 52
[T]he Corporation is hereby declared exempt:
IV
xxx xxx xxx
To simply matter, the issues raised by petitioner in his motion for reconsideration can
be reduced to the following: (d) From all taxes, duties, fees, imposts and all other charges
imposed by the Republic of the Philippines, its provinces, cities,
(1) What kind of tax exemption privileges did NPC have? municipalities and other government agencies and
instrumentalities, on all petroleum products used by the
Corporation in the generation, transmission, utilization, and sale of
(2) For what periods in time were these privileges being enjoyed? electric power.

(3) If there are taxes to be paid, who shall pay for these taxes? P.D. No. 380 added phrase "directly or indirectly" to said Section 13(d), which now
reads as follows:
V
xxx xxx xxx
Petitioner contends that P.D. No. 938 repealed the indirect tax exemption of NPC as
the phrase "all forms of taxes etc.," in its section 10, amending Section 13, R.A. No. (d) From all taxes, duties, fees, imposts, and all other charges
6395, as amended by P.D. No. 380, does not expressly include "indirect taxes." imposed directly or indirectly by the Republic of the Philippines,
its provinces, cities, municipalities and other government agencies
His point is not well-taken. and instrumentalities, on all petroleum products used by the
Corporation in the generation, transmission, utilization and sale of
A chronological review of the NPC laws will show that it has been the lawmaker's electric power. (Emphasis supplied)
intention that the NPC was to be completely tax exempt from all forms of taxes —
direct and indirect. Then came P.D. No. 938 which amended Sec. 13(a), (b), (c) and (d) into one very
simple paragraph as follows:
NPC's tax exemptions at first applied to the bonds it was authorized to float to
finance its operations upon its creation by virtue of C.A. No. 120.
The Corporation shall be non-profit and shall devote all its returns amendments, P.D. No. 380, P.D. No. 395 and P.D. No. 759, AND came up 55 with a
from its capital investment as well as excess revenues from its very simple Section 13, R.A. No. 6395, as amended by P.D. No. 938.
operation, for expansion. To enable the Corporation to pay its
indebtedness and obligations and in furtherance and effective One common theme in all these laws is that the NPC must be enable to pay its
implementation of the policy enunciated in Section one of this Act, indebtedness 56 which, as of P.D. No. 938, was P12 Billion in total domestic
the Corporation, including its subsidiaries, is hereby declared indebtedness, at any one time, and U$4 Billion in total foreign loans at any one time.
exempt from the payment of ALL FORMS OF taxes, duties, fees, The NPC must be and has to be exempt from all forms of taxes if this goal is to be
imposts as well as costs and service fees including filing fees, achieved.
appeal bonds, supersedeas bonds, in any court or administrative
proceedings. (Emphasis supplied) By virtue of P.D. No. 938 NPC's capital stock was raised to P8 Billion. It must be
remembered that to pay the government share in its capital stock P.D. No. 758 was
Petitioner reminds Us that: issued mandating that P200 Million would be appropriated annually to cover the said
unpaid subscription of the Government in NPC's authorized capital stock. And
[I]t must be borne in mind that Presidential Decree Nos. 380 significantly one of the sources of this annual appropriation of P200 million is TAX
and 938 were issued by one man, acting as such the Executive and MONEY accruing to the General Fund of the Government. It does not stand to
Legislative. 53 reason then that former President Marcos would order P200 Million to be taken
partially or totally from tax money to be used to pay the Government subscription in
xxx xxx xxx the NPC, on one hand, and then order the NPC to pay all its indirect taxes, on the
other.
[S]ince both presidential decrees were made by the same person, it
would have been very easy for him to retain the same or similar The above conclusion that then President Marcos lumped up Sections 13 (b), 13 (c)
language used in P.D. No. 380 P.D. No. 938 if his intention were to and (d) into the phrase "All FORMS OF" is supported by the fact that he did not do
preserve the indirect tax exemption of NPC. 54 the same for the tax exemption provision for the foreign loans to be incurred.

Actually, P.D. No. 938 attests to the ingenuousness of then President Marcos no The tax exemption on foreign loans found in Section 8(b), R.A. No. 6395, reads as
matter what his fault were. It should be noted that section 13, R.A. No. 6395, follows:
provided for tax exemptions for the following items:
The loans, credits and indebtedness contracted under this
13(a) : court or administrative proceedings; subsection and the payment of the principal, interest and other
charges thereon, as well as the importation of machinery,
13(b) : income, franchise, realty taxes; equipment, materials and supplies by the Corporation, paid from
the proceeds of any loan, credit or indebtedness incurred under this
Act, shall also be exempt from all taxes, fees, imposts, other
13(c) : import of foreign goods required for its operations and charges and restrictions, including import restrictions, by the
projects; Republic of the Philippines, or any of its agencies and political
subdivisions. 57
13(d) : petroleum products used in generation of electric power.
The same was amended by P.D. No. 380 as follows:
P.D. No. 938 lumped up 13(b), 13(c), and 13(d) into the phrase "ALL FORMS OF
TAXES, ETC.,", included 13(a) under the "as well as" clause and added PNOC The loans, credits and indebtedness contracted this subsection and
subsidiaries as qualified for tax exemptions. the payment of the principal, interest and other charges thereon, as
well as the importation of machinery, equipment, materials,
This is the only conclusion one can arrive at if he has read all the NPC laws in the supplies and services, by the Corporation, paid from the proceeds
order of enactment or issuance as narrated above in part I hereof. President Marcos of any loan, credit or indebtedness incurred under this Act, shall
must have considered all the NPC statutes from C.A. No. 120 up to its latest also be exempt from all direct and indirect taxes, fees, imposts,
other charges and restrictions, including import matter of P.D. No. 1177 abolishing NPC's tax exemption privileges was not
restrictions previously and presently imposed, and to be seasonably invoked 65 by the petitioner.
imposed by the Republic of the Philippines, or any of its agencies
and political subdivisions. 58(Emphasis supplied) Be that as it may, the Court still has to discuss the effect of P.D. No. 1177 on the
NPC tax exemption privileges as this statute has been reiterated twice in P.D. No.
P.D. No. 938 did not amend the same 59 and so the tax exemption provision in 1931. The express repeal of tax privileges of any government-owned or controlled
Section 8 (b), R.A. No. 6395, as amended by P.D. No. 380, still stands. Since the corporation (GOCC). NPC included, was reiterated in the fourth whereas clause of
subject matter of this particular Section 8 (b) had to do only with loans and P.D. No. 1931's preamble. The subsidy provided for in Section 23, P.D. No. 1177,
machinery imported, paid for from the proceeds of these foreign loans, THERE WAS being inconsistent with Section 2, P.D. No. 1931, was deemed repealed as the Fiscal
NO OTHER SUBJECT MATTER TO LUMP IT UP WITH, and so, the tax exemption Incentives Revenue Board was tasked with recommending the partial or total
stood as is — with the express mention of "direct restoration of tax exemptions withdrawn by Section 1, P.D. No. 1931.
and indirect" tax exemptions. And this "direct and indirect" tax exemption privilege
extended to "taxes, fees, imposts, other charges . . . to be imposed" in the future — The records before Us do not indicate whether or not NPC asked for the subsidy
surely, an indication that the lawmakers wanted the NPC to be exempt from ALL contemplated in Section 23, P.D. No. 1177. Considering, however, that under Section
FORMS of taxes — direct and indirect. 16 of P.D. No. 1177, NPC had to submit to the Office of the President its request for
the P200 million mandated by P.D. No. 758 to be appropriated annually by the
It is crystal clear, therefore, that NPC had been granted tax exemption privileges for Government to cover its unpaid subscription to the NPC authorized capital stock and
both direct and indirect taxes under P.D. No. 938. that under Section 22, of the same P.D. No. NPC had to likewise submit to the Office
of the President its internal operating budget for review due to capital inputs of the
VI government (P.D. No. 758) and to the national government's guarantee of the
domestic and foreign indebtedness of the NPC, it is clear that NPC was covered by
Five (5) years on into the now discredited New Society, the Government decided to P.D. No. 1177.
rationalize government receipts and expenditures by formulating and implementing a
National Budget. 60 The NPC, being a government owned and controlled corporation There is reason to believe that NPC availed of subsidy granted to exempt GOCC's
had to be shed off its tax exemption status privileges under P.D. No. 1177. It was, that suddenly found themselves having to pay taxes. It will be noted that Section 23,
however, allowed to ask for a subsidy from the General Fund in the exact amount of P.D. No. 1177, mandated that the Secretary of Finance and the Commissioner of the
taxes/duties due. Budget had to establish the necessary procedure to accomplish the tax payment/tax
subsidy scheme of the Government. In effect, NPC, did not put any cash to pay any
Actually, much earlier, P.D. No. 882 had already repealed NPC's tax-free importation tax as it got from the General Fund the amounts necessary to pay different revenue
privileges. It allowed, however, NPC to appeal said repeal with the Office of the collectors for the taxes it had to pay.
President and to avail of tax-free importation privileges under its Section 1, subject
to the prior approval of an Inter-Agency Committed created by virtue of said P.D. In his memorandum filed July 16, 1992, petitioner submits:
No. 882. It is presumed that the NPC, being the special creation of the State, was
allowed to continue its tax-free importations. [T]hat with the enactment of P.D. No. 1177 on July 30, 1977, the
NPC lost all its duty and tax exemptions, whether direct or indirect.
This Court notes that petitioner brought to the attention of this Court, the matter of And so there was nothing to be withdrawn or to be restored under
the abolition of NPC's tax exemption privileges by P.D. No. 1177 61 only in his P.D. No. 1931, issued on June 11, 1984. This is evident from
Common Reply/Comment to private Respondents' "Opposition" and "Comment" to sections 1 and 2 of said P.D. No. 1931, which reads:
Motion for Reconsideration, four (4) months AFTER the motion for Reconsideration
had been filed. During oral arguments heard on July 9, 1992, he proceeded to discuss "Section 1. The provisions of special or general
this tax exemption withdrawal as explained by then Secretary of Justice Vicente law to the contrary notwithstanding, all
Abad Santos in opinion No. 133 (S '77). 62 A careful perusal of petitioner's senate exemptions from the payment of duties, taxes,
Blue Ribbon Committee Report No. 474, the basis of the petition at bar, fails to yield fees, imports and other charges heretofore
any mention of said P.D. No. 1177's effect on NPC's tax exemption granted in favor of government-owned or
privileges. 63 Applying by analogy Pulido vs. Pablo, 64 the court declares that the
controlled corporations including their The NPC tax privileges withdrawn by Section 1. P.D. No. 1931, were, therefore, the
subsidiaries are hereby withdrawn." same NPC tax exemption privileges withdrawn by Section 23, P.D. No. 1177. NPC
could no longer obtain a subsidy for the taxes it had to pay. It could, however, under
Sec. 2. The President of the Philippines and/or P.D. No. 1931, ask for a total restoration of its tax exemption privileges, which, it
the Minister of Finance, upon the did, and the same were granted under FIRB Resolutions Nos. 10-85 67 and 1-86 68 as
recommendation of the Fiscal Incentives Review approved by the Minister of Finance.
Board created under P.D. No. 776, is hereby
empowered to restore partially or totally, the Consequently, contrary to petitioner's submission, FIRB Resolutions Nos. 10-85 and
exemptions withdrawn by section 1 above. . . . 1-86 were both legally and validly issued by the FIRB pursuant to P.D. No. 1931.
FIRB did not created NPC's tax exemption status but merely restored it. 69
Hence, P.D. No. 1931 did not have any effect or did it change
NPC's status. Since it had already lost all its tax exemptions Some quarters have expressed the view that P.D. No. 1931 was illegally issued under
privilege with the issuance of P.D. No. 1177 seven (7) years earlier the now rather infamous Amendment No. 6 70 as there was no showing that President
or on July 30, 1977, there were no tax exemptions to be withdrawn Marcos' encroachment on legislative prerogatives was justified under the then
by section 1 which could later be restored by the Minister of prevailing condition that he could legislate "only if the Batasang Pambansa 'failed or
Finance upon the recommendation of the FIRB under Section 2 of was unable to act inadequately on any matter that in his judgment required
P.D. No. 1931. Consequently, FIRB resolutions No. 10-85, and 1- immediate action' to meet the 'exigency'. 71
86, were all illegally and validly issued since FIRB acted beyond
their statutory authority by creating and not merely restoring the Actually under said Amendment No. 6, then President Marcos could issue decrees
tax exempt status of NPC. The same is true for FIRB Res. No. 17- not only when the Interim Batasang Pambansa failed or was unable to act adequately
87 which restored NPC's tax exemption under E.O. No. 93 which on any matter for any reason that in his (Marcos') judgment required immediate
likewise abolished all duties and tax exemptions but allowed the action, but also when there existed a grave emergency or a threat or thereof. It must
President upon recommendation of the FIRB to restore those be remembered that said Presidential Decree was issued only around nine (9) months
abolished. after the Philippines unilaterally declared a moratorium on its foreign debt
payments 72 as a result of the economic crisis triggered by loss of confidence in the
The Court disagrees. government brought about by the Aquino assassination. The Philippines was then
trying to reschedule its debt payments. 73 One of the big borrowers was the
Applying by analogy the weight of authority that: NPC 74 which had a US$ 2.1 billion white elephant of a Bataan Nuclear Power Plant
on its back. 75 From all indications, it must have been this grave emergency of a debt
When a revised and consolidated act re-enacts in the same or rescheduling which compelled Marcos to issue P.D. No. 1931, under his Amendment
substantially the same terms the provisions of the act or acts so 6 power. 76
revised and consolidated, the revision and consolidation shall be
taken to be a continuation of the former act or acts, although the The rule, therefore, that under the 1973 Constitution "no law granting a tax
former act or acts may be expressly repealed by the revised and exemption shall be passed without the concurrence of a majority of all the members
consolidated act; and all rights of the Batasang Pambansa" 77 does not apply as said P.D. No. 1931 was not passed by
and liabilities under the former act or acts are preserved and may the Interim Batasang Pambansa but by then President Marcos under His Amendment
be enforced. 66 No. 6 power.

the Court rules that when P.D. No. 1931 basically reenacted in its Section 1 the first P.D. No. 1931 was, therefore, validly issued by then President Marcos under his
half of Section 23, P.D. No. 1177, on withdrawal of tax exemption privileges of all Amendment No. 6 authority.
GOCC's said Section 1, P.D. No. 1931 was deemed to be a continuation of the first
half of Section 23, P.D. No. 1177, although the second half of Section 23, P.D. No. Under E.O No. 93 (S'86) NPC's tax exemption privileges were again clipped by, this
177, on the subsidy scheme for former tax exempt GOCCs had been expressly time, President Aquino. Its section 2 allowed the NPC to apply for the restoration of
repealed by Section 2 with its institution of the FIRB recommendation of partial/total its tax exemption privileges. The same was granted under FIRB Resolution No. 17-
restoration of tax exemption privileges.
87 78 dated June 24, 1987 which restored NPC's tax exemption privileges effective, which was allegedly not a delegate of the legislature, the power delegated to her
starting March 10, 1987, the date of effectivity of E.O. No. 93 (S'86). thereunder.

FIRB Resolution No. 17-87 was approved by the President on October 5, A misconception must be cleared up.
1987. 79 There is no indication, however, from the records of the case whether or not
similar approvals were given by then President Marcos for FIRB Resolutions Nos. When E.O No. 93 (S'86) was issued, President Aquino was exercising both
10-85 and 1- 86. This has led some quarters to believe that a "travesty of justice" Executive and Legislative powers. Thus, there was no power delegated to her, rather
might have occurred when the Minister of Finance approved his own it was she who was delegating her power. She delegated it to the FIRB, which, for
recommendation as Chairman of the Fiscal Incentives Review Board as what purposes of E.O No. 93 (S'86), is a delegate of the legislature. Clearly, she was not
happened in Zambales Chromate vs. Court of Appeals 80 when the Secretary of sub-delegating her power.
Agriculture and Natural Resources approved a decision earlier rendered by him when
he was the Director of Mines, 81 and in Anzaldo vs. Clave 82 where Presidential And E.O. No. 93 (S'86), as a delegating law, was complete in itself — it set forth the
Executive Assistant Clave affirmed, on appeal to Malacañang, his own decision as policy to be carried out 85 and it fixed the standard to which the delegate had to
Chairman of the Civil Service Commission. 83 conform in the performance of his functions, 86 both qualities having been enunciated
by this Court in Pelaez vs. Auditor General. 87
Upon deeper analysis, the question arises as to whether one can talk about "due
process" being violated when FIRB Resolutions Nos. 10-85 and 1-86 were approved Thus, after all has been said, it is clear that the NPC had its tax exemption privileges
by the Minister of Finance when the same were recommended by him in his capacity restored from June 11, 1984 up to the present.
as Chairman of the Fiscal Incentives Review Board. 84
VII
In Zambales Chromite and Anzaldo, two (2) different parties were involved: mining
groups and scientist-doctors, respectively. Thus, there was a need for procedural due
process to be followed. The next question that projects itself is — who pays the tax?

In the case of the tax exemption restoration of NPC, there is no other comparable The answer to the question could be gleamed from the manner by which the
entity — not even a single public or private corporation — whose rights would be Commissaries of the Armed Forces of the Philippines sell their goods.
violated if NPC's tax exemption privileges were to be restored. While there might
have been a MERALCO before Martial Law, it is of public knowledge that the By virtue of P.D. No. 83, 88 veterans, members of the Armed of the Philippines, and
MERALCO generating plants were sold to the NPC in line with the State policy that their defendants but groceries and other goods free of all taxes and duties if bought
NPC was to be the State implementing arm for the electrification of the entire from any AFP Commissaries.
country. Besides, MERALCO was limited to Manila and its environs. And as of
1984, there was no more MERALCO — as a producer of electricity — which could In practice, the AFP Commissary suppliers probably treat the unchargeable
have objected to the restoration of NPC's tax exemption privileges. specific, ad valorem and other taxes on the goods earmarked for AFP Commissaries
as an added cost of operation and distribute it over the total units of goods sold as it
It should be noted that NPC was not asking to be granted tax exemption privileges would any other cost. Thus, even the ordinary supermarket buyer probably pays for
for the first time. It was just asking that its tax exemption privileges be restored. It is the specific, ad valorem and other taxes which theses suppliers do not charge the
for these reasons that, at least in NPC's case, the recommendation and approval of AFP Commissaries. 89
NPC's tax exemption privileges under FIRB Resolution Nos. 10-85 and 1-86, done
by the same person acting in his dual capacities as Chairman of the Fiscal Incentives IN MUCH THE SAME MANNER, it is clear that private respondents-oil companies
Review Board and Minister of Finance, respectively, do not violate procedural due have to absorb the taxes they add to the bunker fuel oil they sell to NPC.
process.
It should be stated at this juncture that, as early as May 14, 1954, the Secretary of
While as above-mentioned, FIRB Resolution No. 17-87 was approved by President Justice renders an opinion, 90wherein he stated and We quote:
Aquino on October 5, 1987, the view has been expressed that President Aquino, at
least with regard to E.O. 93 (S'86), had no authority to sub-delegate to the FIRB, xxx xxx xxx
Republic Act No. 358 exempts the National Power Corporation on June 16, 1987 by virtue of which the ad valorem tax rate on bunker fuel oil was
from "all taxes, duties, fees, imposts, charges, and restrictions of reduced to ZERO (0%) PER CENTUM. Said E.O. no. 195 reads as follows:
the Republic of the Philippines and its provinces, cities, and
municipalities." This exemption is broad enough to include all EXECUTIVE ORDER NO. 195
taxes, whether direct or indirect, which the National Power
Corporation may be required to pay, such as the specific tax on AMENDING PARAGRAPH (b) OF SECTION 128 OF THE
petroleum products. That it is indirect or is of no amount [should NATIONAL INTERNAL REVENUE CODE, AS AMENDED BY
be of no moment], for it is the corporation that ultimately pays REVISING THE EXCISE TAX RATES OF CERTAIN
it. The view which refuses to accord the exemption because the tax PETROLEUM PRODUCTS.
is first paid by the seller disregards realities and gives more
importance to form than to substance. Equity and law always exalt
substance over from. xxx xxx xxx

xxx xxx xxx Sec. 1. Paragraph (b) of Section 128 of the National Internal
Revenue Code, as amended, is hereby amended to read as follows:
Tax exemptions are undoubtedly to be construed strictly but not so
grudgingly as knowledge that many impositions taxpayers have to Par. (b) — For products subject to ad valorem tax only:
pay are in the nature of indirect taxes. To limit the exemption
granted the National Power Corporation to direct taxes PRODUCT AD VALOREM TAX RATE
notwithstanding the general and broad language of the statue will
be to thwrat the legislative intention in giving exemption from all 1. . . .
forms of taxes and impositions without distinguishing between
those that are direct and those that are not. (Emphasis supplied) 2. . . .

In view of all the foregoing, the Court rules and declares that the oil companies 3. . . .
which supply bunker fuel oil to NPC have to pay the taxes imposed upon said bunker
fuel oil sold to NPC. By the very nature of indirect taxation, the economic burden of
4. Fuel oil, commercially known as bunker oil and on similar fuel
such taxation is expected to be passed on through the channels of commerce to the
oils having more or less the same generating power 0%
user or consumer of the goods sold. Because, however, the NPC has been exempted
from both direct and indirect taxation, the NPC must beheld exempted from
absorbing the economic burden of indirect taxation. This means, on the one hand, xxx xxx xxx
that the oil companies which wish to sell to NPC absorb all or part of the economic
burden of the taxes previously paid to BIR, which could they shift to NPC if NPC Sec. 3. This Executive Order shall take effect immediately.
did not enjoy exemption from indirect taxes. This means also, on the other hand, that
the NPC may refuse to pay the part of the "normal" purchase price of bunker fuel oil Done in the city of Manila, this 17th day of June, in the year of Our
which represents all or part of the taxes previously paid by the oil companies to BIR. Lord, nineteen hundred and eighty-seven. (Emphasis supplied)
If NPC nonetheless purchases such oil from the oil companies — because to do so
may be more convenient and ultimately less costly for NPC than NPC itself The oil companies can now deliver bunker fuel oil to NPC without having to worry
importing and hauling and storing the oil from overseas — NPC is entitled to be about who is going to bear the economic burden of the ad valorem taxes. What this
reimbursed by the BIR for that part of the buying price of NPC which verifiably Court will now dispose of are petitioner's complaints that some indirect tax money
represents the tax already paid by the oil company-vendor to the BIR. has been illegally refunded by the Bureau of Internal Revenue to the NPC and that
more claims for refunds by the NPC are being processed for payment by the BIR.
It should be noted at this point in time that the whole issue of who WILL pay these
indirect taxes HAS BEEN RENDERED moot and academic by E.O. No. 195 issued A case in point is the Tax Credit Memo issued by the Bureau of Internal Revenue in
favor of the NPC last July 7, 1986 for P58.020.110.79 which were for "erroneously
paid specific and ad valorem taxes during the period from October 31, 1984 to April Inasmuch as NPC filled its claim for P58.020,110.79 on September 11, 1985, 95 the
27, 1985. 91 Petitioner asks Us to declare this Tax Credit Memo illegal as the PNC Commissioner correctly issued the Tax Credit Memo in view of NPC's indirect tax
did not have indirect tax exemptions with the enactment of P.D. No. 938. As We have exemption.
already ruled otherwise, the only questions left are whether NPC Is entitled to a tax
refund for the tax component of the price of the bunker fuel oil purchased from Petitioner, however, asks Us to restrain the Commissioner from acting favorably on
Caltex (Phils.) Inc. and whether the Bureau of Internal Revenue properly refunded NPC's claim for P410.580,000.00 which represents specific and ad valorem taxes
the amount to NPC. paid by the oil companies to the BIR from June 11, 1984 to the early part of 1986. 96

After P.D. No. 1931 was issued on June 11, 1984 withdrawing the A careful examination of petitioner's pleadings and annexes attached thereto does not
tax exemptions of all GOCCs — NPC included, it was only on May 8, 1985 when reveal when the alleged claim for a P410,580,000.00 tax refund was filed. It is only
the BIR issues its letter authority to the NPC authorizing it to withdraw tax-free stated In paragraph No. 2 of the Deed of Assignment 97executed by and between NPC
bunker fuel oil from the oil companies pursuant to FIRB Resolution No. 10- and Caltex (Phils.) Inc., as follows:
85. 92 Since the tax exemption restoration was retroactive to June 11, 1984 there was
a need. therefore, to recover said amount as Caltex (PhiIs.) Inc. had already paid the That the ASSIGNOR(NPC) has a pending tax credit claim with the
BIR the specific and ad valorem taxes on the bunker oil it sold NPC during the Bureau of Internal Revenue amounting to P442,887,716.16.
period above indicated and had billed NPC correspondingly. 93 It should be noted that P58.020,110.79 of which is due to Assignor's oil purchases from
the NPC, in its letter-claim dated September 11, 1985 to the Commissioner of the the Assignee (Caltex [Phils.] Inc.)
Bureau of Internal Revenue DID NOT CATEGORICALLY AND
UNEQUIVOCALLY STATE that itself paid the P58.020,110.79 as part of the bunker
fuel oil price it purchased from Caltex (Phils) Inc. 94 Actually, as the Court sees it, this is a clear case of a "Mexican standoff." We cannot
restrain the BIR from refunding said amount because of Our ruling that NPC has
both direct and indirect tax exemption privileges. Neither can We order the BIR to
The law governing recovery of erroneously or illegally, collected taxes is section 230 refund said amount to NPC as there is no pending petition for review on certiorari of
of the National Internal Revenue Code of 1977, as amended which reads as follows: a suit for its collection before Us. At any rate, at this point in time, NPC can no
longer file any suit to collect said amount EVEN IF lt has previously filed a claim
Sec. 230. Recover of tax erroneously or illegally collected. — No with the BIR because it is time-barred under Section 230 of the National Internal
suit or proceeding shall be maintained in any court for the recovery Revenue Code of 1977. as amended, which states:
of any national internal revenue tax hereafter alleged to have been
erroneously or illegally assessed or collected, or of any penalty In any case, no such suit or proceeding shall be begun after the
claimed to have been collected without authority, or of any sum expiration of two years from the date of payment of the tax or
alleged to have been excessive or in any Manner wrongfully penalty REGARDLESS of any supervening cause that may arise
collected. until a claim for refund or credit has been duly filed with after payment. . . . (Emphasis supplied)
the Commissioner; but such suit or proceeding may be maintained,
whether or not such tax, penalty, or sum has been paid under
protest or duress. The date of the Deed of Assignment is June 6. 1986. Even if We were to assume that
payment by NPC for the amount of P410,580,000.00 had been made on said date. it
is clear that more than two (2) years had already elapsed from said date. At the same
In any case, no such suit or proceeding shall be begun after the time, We should note that there is no legal obstacle to the BIR granting, even without
expiration of two years from the date of payment of the tax or a suit by NPC, the tax credit or refund claimed by NPC, assuming that NPC's claim
penalty regardless of any supervening cause that may arise after had been made seasonably, and assuming the amounts covered had actually been
payment; Provided, however, That the Commissioner may, even paid previously by the oil companies to the BIR.
without a written claim therefor, refund or credit any tax, where on
the face of the return upon which payment was made, such
payment appears clearly, to have been erroneously paid. WHEREFORE, in view of all the foregoing, the Motion for Reconsideration of
petitioner is hereby DENIED for lack of merit and the decision of this Court
promulgated on May 31, 1991 is hereby AFFIRMED.
xxx xxx xxx
SO ORDERED.
G.R. No. 120082 September 11, 1996 communication in the country;
and
MACTAN CEBU INTERNATIONAL AIRPORT AUTHORITY, petitioner,
vs. b) upgrade the services and
HON. FERDINAND J. MARCOS, in his capacity as the Presiding Judge of the facilities of the airports and to
Regional Trial Court, Branch 20, Cebu City, THE CITY OF CEBU, represented formulate internationally
by its Mayor HON. TOMAS R. OSMEÑA, and EUSTAQUIO B. acceptable standards of airport
CESA, respondents. accommodation and service.

Since the time of its creation, petitioner MCIAA enjoyed the


privilege of exemption from payment of realty taxes in accordance
DAVIDE, JR., J.: with Section 14 of its Charter.

For review under Rule 45 of the Rules of Court on a pure question of law Sec. 14. Tax Exemptions. — The authority shall
are the decision of 22 March 19951of the Regional Trial Court (RTC) of be exempt from realty taxes imposed by the
Cebu City, Branch 20, dismissing the petition for declaratory relief in Civil National Government or any of its political
Case No. CEB-16900 entitled "Mactan Cebu International Airport Authority subdivisions, agencies and instrumentalities . . .
vs. City of Cebu", and its order of 4, May 19952 denying the motion to
reconsider the decision. On October 11, 1994, however, Mr. Eustaquio B. Cesa, Officer-in-
Charge, Office of the Treasurer of the City of Cebu, demanded
We resolved to give due course to this petition for its raises issues dwelling payment for realty taxes on several parcels of land belonging to the
on the scope of the taxing power of local government-owned and controlled petitioner (Lot Nos. 913-G, 743, 88 SWO, 948-A, 989-A, 474,
corporations. 109(931), I-M, 918, 919, 913-F, 941, 942, 947, 77 Psd., 746 and
991-A), located at Barrio Apas and Barrio Kasambagan, Lahug,
The uncontradicted factual antecedents are summarized in the instant Cebu City, in the total amount of P2,229,078.79.
petition as follows:
Petitioner objected to such demand for payment as baseless and
Petitioner Mactan Cebu International Airport Authority (MCIAA) unjustified, claiming in its favor the aforecited Section 14 of RA
was created by virtue of Republic Act No. 6958, mandated to 6958 which exempt it from payment of realty taxes. It was also
"principally undertake the economical, efficient and effective asserted that it is an instrumentality of the government performing
control, management and supervision of the Mactan International governmental functions, citing section 133 of the Local
Airport in the Province of Cebu and the Lahug Airport in Cebu Government Code of 1991 which puts limitations on the taxing
City, . . . and such other Airports as may be established in the powers of local government units:
Province of Cebu . . . (Sec. 3, RA 6958). It is also mandated to:
Sec. 133. Common Limitations on the Taxing
a) encourage, promote and Powers of Local Government Units. — Unless
develop international and otherwise provided herein, the exercise of the
domestic air traffic in the taxing powers of provinces, cities,
Central Visayas and Mindanao municipalities, and barangay shall not extend to
regions as a means of making the levy of the following:
the regions centers of
international trade and tourism, a) . . .
and accelerating the
development of the means of xxx xxx xxx
transportation and
o) Taxes, fees or charges of taxing powers of local government units do not extend to the levy
any kind on the National of taxes or fees of any kind on an instrumentality of the national
Government, its agencies and government. Petitioner insisted that while it is indeed a
instrumentalities, and local government-owned corporation, it nonetheless stands on the same
government units. (Emphasis footing as an agency or instrumentality of the national government.
supplied) Petitioner insisted that while it is indeed a government-owned
corporation, it nonetheless stands on the same footing as an agency
Respondent City refused to cancel and set aside petitioner's realty or instrumentality of the national government by the very nature of
tax account, insisting that the MCIAA is a government-controlled its powers and functions.
corporation whose tax exemption privilege has been withdrawn by
virtue of Sections 193 and 234 of the Local Governmental Code Respondent City, however, asserted that MACIAA is not an
that took effect on January 1, 1992: instrumentality of the government but merely a government-owned
corporation performing proprietary functions As such, all
Sec. 193. Withdrawal of Tax Exemption Privilege. — Unless exemptions previously granted to it were deemed withdrawn by
otherwise provided in this Code, tax exemptions or incentives operation of law, as provided under Sections 193 and 234 of the
granted to, or presently enjoyed by all persons whether natural or Local Government Code when it took effect on January 1, 1992.3
juridical, including government-owned or controlled corporations,
except local water districts, cooperatives duly registered under RA The petition for declaratory relief was docketed as Civil Case No. CEB-
No. 6938, non-stock, and non-profit hospitals and educational 16900.
institutions, are hereby withdrawn upon the effectivity of this Code.
(Emphasis supplied) In its decision of 22 March 1995,4 the trial court dismissed the petition in
light of its findings, to wit:
xxx xxx xxx
A close reading of the New Local Government Code of 1991 or
Sec. 234. Exemptions from Real Property taxes. — . . . RA 7160 provides the express cancellation and withdrawal of
exemption of taxes by government owned and controlled
(a) . . . corporation per Sections after the effectivity of said Code on
January 1, 1992, to wit: [proceeds to quote Sections 193 and 234]
xxx xxx xxx
Petitioners claimed that its real properties assessed by respondent
(c) . . . City Government of Cebu are exempted from paying realty taxes
in view of the exemption granted under RA 6958 to pay the same
(citing Section 14 of RA 6958).
Except as provided herein, any exemption from
payment of real property tax previously granted
to, or presently enjoyed by all persons, whether However, RA 7160 expressly provides that "All general and special
natural or juridical, including government-owned laws, acts, city charters, decress [sic], executive orders,
or controlled corporations are hereby withdrawn proclamations and administrative regulations, or part or parts
upon the effectivity of this Code. thereof which are inconsistent with any of the provisions of this
Code are hereby repealed or modified accordingly." ([f], Section
534, RA 7160).
As the City of Cebu was about to issue a warrant of levy against
the properties of petitioner, the latter was compelled to pay its tax
account "under protest" and thereafter filed a Petition for With that repealing clause in RA 7160, it is safe to infer and state
Declaratory Relief with the Regional Trial Court of Cebu, Branch that the tax exemption provided for in RA 6958 creating petitioner
20, on December 29, 1994. MCIAA basically contended that the had been expressly repealed by the provisions of the New Local
Government Code of 1991.
So that petitioner in this case has to pay the assessed realty tax of Department of Transportation and Communication (DOTC),8 the petitioner
its properties effective after January 1, 1992 until the present. "may stand in [sic] the same footing as an agency or instrumentality of the
national government." Hence, its tax exemption privilege under Section 14
This Court's ruling finds expression to give impetus and meaning of its Charter "cannot be considered withdrawn with the passage of the
to the overall objectives of the New Local Government Code of Local Government Code of 1991 (hereinafter LGC) because Section 133
1991, RA 7160. "It is hereby declared the policy of the State that thereof specifically states that the taxing powers of local government units
the territorial and political subdivisions of the State shall enjoy shall not extend to the levy of taxes of fees or charges of any kind on the
genuine and meaningful local autonomy to enable them to attain national government its agencies and instrumentalities."
their fullest development as self-reliant communities and make
them more effective partners in the attainment of national goals. As to the second assigned error, the petitioner contends that being an
Towards this end, the State shall provide for a more responsive and instrumentality of the National Government, respondent City of Cebu has
accountable local government structure instituted through a system no power nor authority to impose realty taxes upon it in accordance with the
of decentralization whereby local government units shall be given aforesaid Section 133 of the LGC, as explained in Basco vs. Philippine
more powers, authority, responsibilities, and resources. The Amusement and Gaming Corporation;9
process of decentralization shall proceed from the national
government to the local government units. . . .5 Local governments have no power to tax instrumentalities of the
National Government. PAGCOR is a government owned or
Its motion for reconsideration having been denied by the trial court in its 4 controlled corporation with an original character, PD 1869. All its
May 1995 order, the petitioner filed the instant petition based on the shares of stock are owned by the National Government. . . .
following assignment of errors:
PAGCOR has a dual role, to operate and regulate gambling
I RESPONDENT JUDGE ERRED IN FAILING casinos. The latter joke is governmental, which places it in the
TO RULE THAT THE PETITIONER IS category of an agency or instrumentality of the Government. Being
VESTED WITH GOVERNMENT POWERS an instrumentality of the Government, PAGCOR should be and
AND FUNCTIONS WHICH PLACE IT IN THE actually is exempt from local taxes. Otherwise, its operation might
SAME CATEGORY AS AN be burdened, impeded or subjected to control by a mere Local
INSTRUMENTALITY OR AGENCY OF THE government.
GOVERNMENT.
The states have no power by taxation or otherwise, to retard,
II RESPONDENT JUDGE ERRED IN RULING impede, burden or in any manner control the operation of
THAT PETITIONER IS LIABLE TO PAY constitutional laws enacted by Congress to carry into execution the
REAL PROPERTY TAXES TO THE CITY OF powers vested in the federal government. (McCulloch v. Maryland,
CEBU. 4 Wheat 316, 4 L Ed. 579).

Anent the first assigned error, the petitioner asserts that although it is a This doctrine emanates from the "supremacy" of the National
government-owned or controlled corporation it is mandated to perform Government over local government.
functions in the same category as an instrumentality of Government. An
instrumentality of Government is one created to perform governmental Justice Holmes, speaking for the Supreme Court, make references
functions primarily to promote certain aspects of the economic life of the to the entire absence of power on the part of the States to touch, in
people.6 Considering its task "not merely to efficiently operate and manage that way (taxation) at least, the instrumentalities of the United
the Mactan-Cebu International Airport, but more importantly, to carry out States (Johnson v. Maryland, 254 US 51) and it can be agreed that
the Government policies of promoting and developing the Central Visayas no state or political subdivision can regulate a federal
and Mindanao regions as centers of international trade and tourism, and instrumentality in such a way as to prevent it from consummating
accelerating the development of the means of transportation and its federal responsibilities, or even to seriously burden it in the
communication in the country,"7and that it is an attached agency of the
accomplishment of them. (Antieau Modern Constitutional Law, security against its abuse is to be found only in the responsibility of the
Vol. 2, p. 140) legislature which imposes the tax on the constituency who are to pay it.
Nevertheless, effective limitations thereon may be imposed by the people
Otherwise mere creature of the State can defeat National policies through their Constitutions.13 Our Constitution, for instance, provides that
thru extermination of what local authorities may perceive to be the rule of taxation shall be uniform and equitable and Congress shall
undesirable activities or enterprise using the power to tax as "a toll evolve a progressive system of taxation.14 So potent indeed is the power that
for regulation" (U.S. v. Sanchez, 340 US 42). The power to tax it was once opined that "the power to tax involves the power to
which was called by Justice Marshall as the "power to destroy" destroy."15 Verily, taxation is a destructive power which interferes with the
(McCulloch v. Maryland, supra) cannot be allowed to defeat an personal and property for the support of the government. Accordingly, tax
instrumentality or creation of the very entity which has the inherent statutes must be construed strictly against the government and liberally in
power to wield it. (Emphasis supplied) favor of the taxpayer.16 But since taxes are what we pay for civilized
society,17 or are the lifeblood of the nation, the law frowns against
It then concludes that the respondent Judge "cannot therefore correctly say exemptions from taxation and statutes granting tax exemptions are thus
that the questioned provisions of the Code do not contain any distinction construed strictissimi juris against the taxpayers and liberally in favor of the
between a governmental function as against one performing merely taxing authority.18 A claim of exemption from tax payment must be clearly
proprietary ones such that the exemption privilege withdrawn under the said shown and based on language in the law too plain to be mistaken.19 Elsewise
Code would apply to allgovernment corporations." For it is clear from stated, taxation is the rule, exemption therefrom is the
Section 133, in relation to Section 234, of the LGC that the legislature exception.20 However, if the grantee of the exemption is a political
meant to exclude instrumentalities of the national government from the subdivision or instrumentality, the rigid rule of construction does not apply
taxing power of the local government units. because the practical effect of the exemption is merely to reduce the amount
of money that has to be handled by the government in the course of its
operations.21
In its comment respondent City of Cebu alleges that as local a government
unit and a political subdivision, it has the power to impose, levy, assess, and
collect taxes within its jurisdiction. Such power is guaranteed by the The power to tax is primarily vested in the Congress; however, in our
Constitution10 and enhanced further by the LGC. While it may be true that jurisdiction, it may be exercised by local legislative bodies, no longer
under its Charter the petitioner was exempt from the payment of realty merely by virtue of a valid delegation as before, but pursuant to direct
taxes,11 this exemption was withdrawn by Section 234 of the LGC. In authority conferred by Section 5, Article X of the Constitution.22 Under the
response to the petitioner's claim that such exemption was not repealed latter, the exercise of the power may be subject to such guidelines and
because being an instrumentality of the National Government, Section 133 limitations as the Congress may provide which, however, must be consistent
of the LGC prohibits local government units from imposing taxes, fees, or with the basic policy of local autonomy.
charges of any kind on it, respondent City of Cebu points out that the
petitioner is likewise a government-owned corporation, and Section 234 There can be no question that under Section 14 of R.A. No. 6958 the
thereof does not distinguish between government-owned corporation, and petitioner is exempt from the payment of realty taxes imposed by the
Section 234 thereof does not distinguish between government-owned National Government or any of its political subdivisions, agencies, and
corporation, and Section 234 thereof does not distinguish between instrumentalities. Nevertheless, since taxation is the rule and exemption
government-owned or controlled corporations performing governmental and therefrom the exception, the exemption may thus be withdrawn at the
purely proprietary functions. Respondent city of Cebu urges this the Manila pleasure of the taxing authority. The only exception to this rule is where the
International Airport Authority is a governmental-owned corporation, 12 and exemption was granted to private parties based on material consideration of
to reject the application of Basco because it was "promulgated . . . before a mutual nature, which then becomes contractual and is thus covered by the
the enactment and the singing into law of R.A. No. 7160," and was not, non-impairment clause of the Constitution.23
therefore, decided "in the light of the spirit and intention of the framers of
the said law. The LGC, enacted pursuant to Section 3, Article X of the constitution
provides for the exercise by local government units of their power to tax,
As a general rule, the power to tax is an incident of sovereignty and is the scope thereof or its limitations, and the exemption from taxation.
unlimited in its range, acknowledging in its very nature no limits, so that
Section 133 of the LGC prescribes the common limitations on the taxing (i) Percentage or value added tax (VAT) on sales,
powers of local government units as follows: barters or exchanges or similar transactions on
goods or services except as otherwise provided
Sec. 133. Common Limitations on the Taxing Power of Local herein;
Government Units. — Unless otherwise provided herein, the
exercise of the taxing powers of provinces, cities, municipalities, (j) Taxes on the gross receipts of transportation
and barangays shall not extend to the levy of the following: contractor and person engage in the
transportation of passengers of freight by hire
(a) Income tax, except when levied on banks and and common carriers by air, land, or water,
other financial institutions; except as provided in this code;

(b) Documentary stamp tax; (k) Taxes on premiums paid by ways reinsurance
or retrocession;
(c) Taxes on estates, "inheritance, gifts, legacies
and other acquisitions mortis causa, except as (l) Taxes, fees, or charges for the registration of
otherwise provided herein motor vehicles and for the issuance of all kinds
of licenses or permits for the driving of thereof,
(d) Customs duties, registration fees of vessels except, tricycles;
and wharfage on wharves, tonnage dues, and all
other kinds of customs fees charges and dues (m) Taxes, fees, or other charges on Philippine
except wharfage on wharves constructed and product actually exported, except as otherwise
maintained by the local government unit provided herein;
concerned:
(n) Taxes, fees, or charges, on Countryside and
(e) Taxes, fees and charges and other imposition Barangay Business Enterprise and Cooperatives
upon goods carried into or out of, or passing duly registered under R.A. No. 6810 and
through, the territorial jurisdictions of local Republic Act Numbered Sixty nine hundred
government units in the guise or charges for thirty-eight (R.A. No. 6938) otherwise known as
wharfages, tolls for bridges or otherwise, or other the "Cooperative Code of the Philippines; and
taxes, fees or charges in any form whatsoever
upon such goods or merchandise; (o) TAXES, FEES, OR CHARGES OF ANY
KIND ON THE NATIONAL GOVERNMENT,
(f) Taxes fees or charges on agricultural and ITS AGENCIES AND INSTRUMENTALITIES,
aquatic products when sold by marginal farmers AND LOCAL GOVERNMENT UNITS. (emphasis
or fishermen; supplied)

(g) Taxes on business enterprise certified to be Needless to say the last item (item o) is pertinent in this case. The "taxes,
the Board of Investment as pioneer or non- fees or charges" referred to are "of any kind", hence they include all of
pioneer for a period of six (6) and four (4) years, these, unless otherwise provided by the LGC. The term "taxes" is well
respectively from the date of registration; understood so as to need no further elaboration, especially in the light of the
above enumeration. The term "fees" means charges fixed by law or
(h) Excise taxes on articles enumerated under the Ordinance for the regulation or inspection of business activity,24 while
National Internal Revenue Code, as amended, "charges" are pecuniary liabilities such as rents or fees against person or
and taxes, fees or charges on petroleum products; property.25
Among the "taxes" enumerated in the LGC is real property tax, which is Except as provided herein, any exemptions from
governed by Section 232. It reads as follows: payment of real property tax previously granted
to or presently enjoyed by, all persons whether
Sec. 232. Power to Levy Real Property Tax. — A province or city natural or juridical, including all government
or a municipality within the Metropolitan Manila Area may levy on owned or controlled corporations are hereby
an annual ad valorem tax on real property such as land, building, withdrawn upon the effectivity of his Code.
machinery and other improvements not hereafter specifically
exempted. These exemptions are based on the ownership, character, and use of the
property. Thus;
Section 234 of LGC provides for the exemptions from payment of real
property taxes and withdraws previous exemptions therefrom granted to (a) Ownership Exemptions. Exemptions from
natural and juridical persons, including government owned and controlled real property taxes on the basis of ownership are
corporations, except as provided therein. It provides: real properties owned by: (i) the Republic, (ii) a
province, (iii) a city, (iv) a municipality, (v) a
Sec. 234. Exemptions from Real Property Tax. — The following barangay, and (vi) registered cooperatives.
are exempted from payment of the real property tax:
(b) Character Exemptions. Exempted from real
(a) Real property owned by the Republic of the property taxes on the basis of their character are:
Philippines or any of its political subdivisions (i) charitable institutions, (ii) houses and temples
except when the beneficial use thereof had been of prayer like churches, parsonages or convents
granted, for reconsideration or otherwise, to a appurtenant thereto, mosques, and (iii) non profit
taxable person; or religious cemeteries.

(b) Charitable institutions, churches, parsonages (c) Usage exemptions. Exempted from real
or convents appurtenants thereto, mosques property taxes on the basis of the actual, direct
nonprofits or religious cemeteries and all lands, and exclusive use to which they are devoted are:
building and improvements actually, directly, and (i) all lands buildings and improvements which
exclusively used for religious charitable or are actually, directed and exclusively used for
educational purposes; religious, charitable or educational purpose; (ii)
all machineries and equipment actually, directly
(c) All machineries and equipment that are and exclusively used or by local water districts or
actually, directly and exclusively used by local by government-owned or controlled corporations
water districts and government-owned or engaged in the supply and distribution of water
controlled corporations engaged in the supply and/or generation and transmission of electric
and distribution of water and/or generation and power; and (iii) all machinery and equipment
transmission of electric power; used for pollution control and environmental
protection.
(d) All real property owned by duly registered
cooperatives as provided for under R.A. No. To help provide a healthy environment in the midst of the
6938; and; modernization of the country, all machinery and equipment for
pollution control and environmental protection may not be taxed
by local governments.
(e) Machinery and equipment used for pollution
control and environmental protection.
2. Other Exemptions Withdrawn. All other
exemptions previously granted to natural or
juridical persons including government-owned or Instead of the clause "unless otherwise provided herein," with the "herein"
controlled corporations are withdrawn upon the to mean, of course, the section, it should have used the clause "unless
effectivity of the Code.26 otherwise provided in this Code." The former results in absurdity since the
section itself enumerates what are beyond the taxing powers of local
Section 193 of the LGC is the general provision on withdrawal of tax government units and, where exceptions were intended, the exceptions were
exemption privileges. It provides: explicitly indicated in the text. For instance, in item (a) which excepts the
income taxes "when livied on banks and other financial institutions", item
Sec. 193. Withdrawal of Tax Exemption Privileges. — Unless (d) which excepts "wharfage on wharves constructed and maintained by the
otherwise provided in this code, tax exemptions or incentives local government until concerned"; and item (1) which excepts taxes, fees,
granted to or presently enjoyed by all persons, whether natural or and charges for the registration and issuance of license or permits for the
juridical, including government-owned, or controlled corporations, driving of "tricycles". It may also be observed that within the body itself of
except local water districts, cooperatives duly registered under the section, there are exceptions which can be found only in other parts of
R.A. 6938, non stock and non profit hospitals and educational the LGC, but the section interchangeably uses therein the clause "except as
constitutions, are hereby withdrawn upon the effectivity of this otherwise provided herein" as in items (c) and (i), or the clause "except as
Code. otherwise provided herein" as in items (c) and (i), or the clause "excepts as
provided in this Code" in item (j). These clauses would be obviously
unnecessary or mere surplus-ages if the opening clause of the section were"
On the other hand, the LGC authorizes local government units to grant tax "Unless otherwise provided in this Code" instead of "Unless otherwise
exemption privileges. Thus, Section 192 thereof provides: provided herein". In any event, even if the latter is used, since under Section
232 local government units have the power to levy real property tax, except
Sec. 192. Authority to Grant Tax Exemption Privileges. — Local those exempted therefrom under Section 234, then Section 232 must be
government units may, through ordinances duly approved, grant deemed to qualify Section 133.
tax exemptions, incentives or reliefs under such terms and
conditions as they may deem necessary. Thus, reading together Section 133, 232 and 234 of the LGC, we conclude
that as a general rule, as laid down in Section 133 the taxing powers of local
The foregoing sections of the LGC speaks of: (a) the limitations on the government units cannot extend to the levy of inter alia, "taxes, fees, and
taxing powers of local government units and the exceptions to such charges of any kind of the National Government, its agencies and
limitations; and (b) the rule on tax exemptions and the exceptions thereto. instrumentalties, and local government units"; however, pursuant to Section
The use of exceptions of provisos in these section, as shown by the 232, provinces, cities, municipalities in the Metropolitan Manila Area may
following clauses: impose the real property tax except on, inter alia, "real property owned by
the Republic of the Philippines or any of its political subdivisions except
(1) "unless otherwise provided herein" in the when the beneficial used thereof has been granted, for consideration or
opening paragraph of Section 133; otherwise, to a taxable person", as provided in item (a) of the first paragraph
of Section 234.
(2) "Unless otherwise provided in this Code" in
section 193; As to tax exemptions or incentives granted to or presently enjoyed by
natural or juridical persons, including government-owned and controlled
(3) "not hereafter specifically exempted" in corporations, Section 193 of the LGC prescribes the general rule, viz., they
Section 232; and are withdrawn upon the effectivity of the LGC, except upon the effectivity
of the LGC, except those granted to local water districts, cooperatives duly
registered under R.A. No. 6938, non stock and non-profit hospitals and
(4) "Except as provided herein" in the last
educational institutions, and unless otherwise provided in the LGC. The
paragraph of Section 234
latter proviso could refer to Section 234, which enumerates the properties
exempt from real property tax. But the last paragraph of Section 234 further
initially hampers a ready understanding of the sections. Note, too, that the qualifies the retention of the exemption in so far as the real property taxes
aforementioned clause in section 133 seems to be inaccurately worded. are concerned by limiting the retention only to those enumerated there-in;
all others not included in the enumeration lost the privilege upon the Government, its agencies and instrumentalities" "in Section 133(o),but only
effectivity of the LGC. Moreover, even as the real property is owned by the the phrase "Republic of the Philippines or any of its political subdivision "in
Republic of the Philippines, or any of its political subdivisions covered by Section 234(a).
item (a) of the first paragraph of Section 234, the exemption is withdrawn if
the beneficial use of such property has been granted to taxable person for The terms "Republic of the Philippines" and "National Government" are not
consideration or otherwise. interchangeable. The former is boarder and synonymous with "Government
of the Republic of the Philippines" which the Administrative Code of the
Since the last paragraph of Section 234 unequivocally withdrew, upon the 1987 defines as the "corporate governmental entity though which the
effectivity of the LGC, exemptions from real property taxes granted to functions of the government are exercised through at the Philippines,
natural or juridical persons, including government-owned or controlled including, saves as the contrary appears from the context, the various arms
corporations, except as provided in the said section, and the petitioner is, through which political authority is made effective in the Philippines,
undoubtedly, a government-owned corporation, it necessarily follows that whether pertaining to the autonomous reason, the provincial, city, municipal
its exemption from such tax granted it in Section 14 of its charter, R.A. No. or barangay subdivision or other forms of local government."27 These
6958, has been withdrawn. Any claim to the contrary can only be justified if autonomous regions, provincial, city, municipal or barangay subdivisions"
the petitioner can seek refuge under any of the exceptions provided in are the political subdivision.28
Section 234, but not under Section 133, as it now asserts, since, as shown
above, the said section is qualified by Section 232 and 234. On the other hand, "National Government" refers "to the entire machinery
of the central government, as distinguished from the different forms of local
In short, the petitioner can no longer invoke the general rule in Section 133 Governments."29 The National Government then is composed of the three
that the taxing powers of the local government units cannot extend to the great departments the executive, the legislative and the judicial. 30
levy of:
An "agency" of the Government refers to "any of the various units of the
(o) taxes, fees, or charges of any kind on the Government, including a department, bureau, office instrumentality, or
National Government, its agencies, or government-owned or controlled corporation, or a local government or a
instrumentalities, and local government units. distinct unit therein;"31 while an "instrumentality" refers to "any agency of
the National Government, not integrated within the department framework,
I must show that the parcels of land in question, which are real property, are vested with special functions or jurisdiction by law, endowed with some if
any one of those enumerated in Section 234, either by virtue of ownership, not all corporate powers, administering special funds, and enjoying
character, or use of the property. Most likely, it could only be the first, but operational autonomy; usually through a charter. This term includes
not under any explicit provision of the said section, for one exists. In light regulatory agencies, chartered institutions and government-owned and
of the petitioner's theory that it is an "instrumentality of the Government", it controlled corporations".32
could only be within be first item of the first paragraph of the section by
expanding the scope of the terms Republic of the Philippines" to embrace . . If Section 234(a) intended to extend the exception therein to the withdrawal
. . . . "instrumentalities" and "agencies" or expediency we quote: of the exemption from payment of real property taxes under the last
sentence of the said section to the agencies and instrumentalities of the
(a) real property owned by the Republic of the National Government mentioned in Section 133(o), then it should have
Philippines, or any of the Philippines, or any of restated the wording of the latter. Yet, it did not Moreover, that Congress did
its political subdivisions except when the not wish to expand the scope of the exemption in Section 234(a) to include
beneficial use thereof has been granted, for real property owned by other instrumentalities or agencies of the
consideration or otherwise, to a taxable person. government including government-owned and controlled corporations is
further borne out by the fact that the source of this exemption is Section
This view does not persuade us. In the first place, the petitioner's claim that 40(a) of P.D. No. 646, otherwise known as the Real Property Tax Code,
it is an instrumentality of the Government is based on Section 133(o), which which reads:
expressly mentions the word "instrumentalities"; and in the second place it
fails to consider the fact that the legislature used the phrase "National
Sec 40. Exemption from Real Property Tax. — The exemption Section 15 of the petitioner's Charter provides:
shall be as follows:
Sec. 15. Transfer of Existing Facilities and Intangible Assets. —
(a) Real property owned by the All existing public airport facilities, runways, lands, buildings and
Republic of the Philippines or other properties, movable or immovable, belonging to or presently
any of its political subdivisions administered by the airports, and all assets, powers, rights, interests
and any government-owned or and privileges relating on airport works, or air operations,
controlled corporations so including all equipment which are necessary for the operations of
exempt by is air navigation, acrodrome control towers, crash, fire, and rescue
charter: Provided, however, facilities are hereby transferred to the Authority: Provided
that this exemption shall not however, that the operations control of all equipment necessary for
apply to real property of the the operation of radio aids to air navigation, airways
above mentioned entities the communication, the approach control office, and the area control
beneficial use of which has center shall be retained by the Air Transportation Office. No
been granted, for consideration equipment, however, shall be removed by the Air Transportation
or otherwise, to a taxable Office from Mactan without the concurrence of the authority. The
person. authority may assist in the maintenance of the Air Transportation
Office equipment.
Note that as a reproduced in Section 234(a), the phrase "and any
government-owned or controlled corporation so exempt by its charter" was The "airports" referred to are the "Lahug Air Port" in Cebu City and the
excluded. The justification for this restricted exemption in Section 234(a) "Mactan International AirPort in the Province of Cebu",36 which belonged to
seems obvious: to limit further tax exemption privileges, specially in light the Republic of the Philippines, then under the Air Transportation Office
of the general provision on withdrawal of exemption from payment of real (ATO).37
property taxes in the last paragraph of property taxes in the last paragraph of
Section 234. These policy considerations are consistent with the State policy It may be reasonable to assume that the term "lands" refer to "lands" in
to ensure autonomy to local governments33 and the objective of the LGC Cebu City then administered by the Lahug Air Port and includes the parcels
that they enjoy genuine and meaningful local autonomy to enable them to of land the respondent City of Cebu seeks to levy on for real property taxes.
attain their fullest development as self-reliant communities and make them This section involves a "transfer" of the "lands" among other things, to the
effective partners in the attainment of national goals.34 The power to tax is petitioner and not just the transfer of the beneficial use thereof, with the
the most effective instrument to raise needed revenues to finance and ownership being retained by the Republic of the Philippines.
support myriad activities of local government units for the delivery of basic
services essential to the promotion of the general welfare and the This "transfer" is actually an absolute conveyance of the ownership thereof
enhancement of peace, progress, and prosperity of the people. It may also because the petitioner's authorized capital stock consists of, inter alia "the
be relevant to recall that the original reasons for the withdrawal of tax value of such real estate owned and/or administered by the
exemption privileges granted to government-owned and controlled airports."38 Hence, the petitioner is now the owner of the land in question
corporations and all other units of government were that such privilege and the exception in Section 234(c) of the LGC is inapplicable.
resulted in serious tax base erosion and distortions in the tax treatment of
similarly situated enterprises, and there was a need for this entities to share
in the requirements of the development, fiscal or otherwise, by paying the Moreover, the petitioner cannot claim that it was never a "taxable person"
taxes and other charges due from them.35 under its Charter. It was only exempted from the payment of real property
taxes. The grant of the privilege only in respect of this tax is conclusive
proof of the legislative intent to make it a taxable person subject to all taxes,
The crucial issues then to be addressed are: (a) whether the parcels of land except real property tax.
in question belong to the Republic of the Philippines whose beneficial use
has been granted to the petitioner, and (b) whether the petitioner is a
"taxable person". Finally, even if the petitioner was originally not a taxable person for
purposes of real property tax, in light of the forgoing disquisitions, it had
already become even if it be conceded to be an "agency" or 2432, as amended, were ratified by the Congress of the United States on March 4,
"instrumentality" of the Government, a taxable person for such purpose in 1915. The ratifying clause reads as follows:
view of the withdrawal in the last paragraph of Section 234 of exemptions
from the payment of real property taxes, which, as earlier adverted to, The internal-revenue taxes imposed by the Philippine Legislature under the
applies to the petitioner. law enacted by that body on December twenty-third, nineteen hundred and
fourteen (Act No. 2432), as amended by the law enacted by it on January
Accordingly, the position taken by the petitioner is untenable. Reliance sixteenth, nineteen hundred and fifteen (Act No. 2445), are hereby legalized
on Basco vs. Philippine Amusement and Gaming Corporation39 is and ratified, and the collection of all such taxes heretofore or hereafter is
unavailing since it was decided before the effectivity of the LGC. Besides, hereby legalized, ratified and confirmed as fully to all intents and purposes
nothing can prevent Congress from decreeing that even instrumentalities or as if the same had by prior Act of Congress been specifically authorized and
agencies of the government performing governmental functions may be directed.
subject to tax. Where it is done precisely to fulfill a constitutional mandate
and national policy, no one can doubt its wisdom. Francis A. Churchill and Stewart Tait, copartners doing business under the firm name
and style of the Mercantile Advertising Agency, owners of a sign or billboard
WHEREFORE, the instant petition is DENIED. The challenged decision containing an area of 52 square meters constructed on private property in the city of
and order of the Regional Trial Court of Cebu, Branch 20, in Civil Case No. Manila and exposed to public view, were taxes thereon P104. The tax was paid under
CEB-16900 are AFFIRMED. protest and the plaintiffs having exhausted all their administrative remedies instituted
the present action under section 140 of Act No. 2339 against the Collector of Internal
No pronouncement as to costs. Revenue to recover back the amount thus paid. From a judgment dismissing the
complaint upon the merits, with costs, the plaintiffs appealed.
SO ORDERED.
It is now urged that the trial court erred:

(1) In not holding that the tax as imposed by virtue of Act No. 2339, as
G.R. No. 11572 September 22, 1916 amended by Act No. 2432, as amended by Act No. 2445, constitutes
deprivation of property without compensation or due process of law,
because it is confiscatory and unjustly discriminatory and (2) in not holding
FRANCIS A. CHURCHILL and STEWART TAIT, ET AL, plaintiffs-appellants, that the said tax is void for lack of uniformity, because it is not graded
vs. according to value; because the classification on which it is based on any
VENANCIO CONCEPCION, as Acting Collector of Internal reasonable ground; and furthermore, because it constitutes double taxation.
Revenue, defendant-appellee.
We will first inquire whether the tax in question is confiscatory as to the business of
Aitken and De Selms for appellants. the plaintiff Upon this point the lower court, in accepting the testimony of the
Attorney-General Avanceña for appellee. plaintiff, Churchill, to the effect that "the billboard in question cost P300 to
construct, that its annual gross earning power is P268, and that the annual tax is
TRENT, J.: P104," found "that for a five years' period the gross income from the billboard would
be P1,340, and that the expenditures for original construction and taxes would
Section 100 of Act No. 2339, passed February 27, 1914, effective July 1, 1914, amount to P820, leaving a balance of P520," held that "unless the tax equals or
imposed an annual tax of P4 per square meter upon "electric signs, billboards, and exceeds the gross income, the court would hardly be justified in declaring the tax
spaces used for posting or displaying temporary signs, and all signs displayed on confiscatory." These findings of fact and conclusions of law are attacked upon the
premises not occupied by buildings." This section was subsequently amended by Act ground that the court failed to take into-consideration the pertinent facts that the
No. 2432, effective January 1, 1915, by reducing the tax on such signs, billboards, annual depreciation of the billboard is 20 per cent; that at the end of five years the
etc., to P2 per square meter or fraction thereof. Section 26 of Act No. 2432 was in capital of P300 would be completely lost; that the plaintiffs are entitled to receive a
turn amended by Act No. 2445, but this amendment does not in any way affect the reasonable rate of interest on this capital; and that there should be charged against the
questions involved in the case under consideration. The taxes imposed by Act No. billboard its proportion of the overhead charges such as labor, management,
maintenance, rental of office premises, rental or purchase of ground space for board, It was agreed that Tait, the other plaintiff, would testify to the same effect. The
repair, paints, oils, etc., resulting in an actual loss per year on the business, instead of parties, plaintiffs and defendant, further agreed "that a number of persons have
an apparent profit of P520 for five years, or P44 for one year. If these contentions voluntarily and without protest paid the taxes imposed by section 100 of Act No.
rested upon a sound basis it might be said that the tax is, in a sense, confiscatory; but 2339, as amended by Act No. 2432, and in turn amended by Act No. 2445."
they do not, as we will attempt to show from the evidence of record.
It will thus be seen that the contention that the rates charged for advertising cannot be
The plaintiff Churchill testified in part as follows: raised is purely hypothetical, based entirely upon the opinion of the plaintiffs,
unsupported by actual test, and that the plaintiffs themselves admit that a number of
Q. In your opinion, Mr. Churchill, state what you would think of the other persons have voluntarily and without protest paid the tax herein complained of.
rates that are charged by you for advertising purposes in connection with Under these circumstances, can it be held as a matter of fact that the tax is
this board; could they be raised? — confiscatory or that, as a matter of law, the tax is unconstitutional? Is the exercise of
the taxing power of the Legislature dependent upon and restricted by the opinion of
A. No. two interested witnesses? There can be but one answer to these questions, especially
in view of the fact that others are paying the tax and presumably making a reasonable
profit from their business.
Q. Why? —
In Chicago and Grand Trunk Railway Co. vs. Wellman (143 U. S., 339), a question
A. The business wouldn't allow it; the business wouldn't afford it; similar to the one now under consideration was raised and decided by the Supreme
and otherwise it would mean bankruptcy to try to increase it. Court of the United States. The principal contention made in that case was that an
Act of the Legislature of Michigan fixing the amount per mile to be charged by
Q. Who couldn't afford it? Explain it fully Mr. Churchill? — railways for the transportation of a passenger was unconstitutional, on the ground
that the rate so fixed was confiscatory. It was agreed in the pleadings that the total
A. The merchants couldn't afford to pay more. On cross-examination: earnings and income of the company from all sources for a given year were less than
the expenses for the same period. In addition to this agreed statement of facts, two
Q. It is a fact, it is not, Mr. Churchill, that since the passage of Act witnesses were called, one the traffic manager and the other the treasurer of the
No. 2339 you have never made any attempt to raise the advertising rates? — company. Their testimony was to the effect that in view of the competition prevailing
at Chicago for through business, it was impossible to increase the freight rates then
charged by the company because it would throw the volume of business into the
A. It would be impossible to raise them.
hands of competing roads. In overruling the contention of the company that the act in
question was unconstitutional on the ground that the rate fixed thereby was
Q. My question is: You have never made any attempt to raise them? confiscatory, the court said:

Surely, before the courts are called upon to adjudge an act of the legislature
A. We have talked it over with the merchants and talked over the fixing the maximum passenger rates for railroad companies to be
price on the event of a tax being put at a reasonable amount, about putting unconstitutional, on the ground that its enforcement would prevent the
up some increase. stockholders from receiving any dividends on their investments, or the
bondholders any interest on their loans, they should be fully advised as to
Q. But you have never made an actual attempt to increase your rates? what is done with the receipts and earnings of the company; for if so
— advised, it might clearly appear that a prudent and honest management
would, within the rates prescribed, secure to the bondholders their interest,
A. I would consider that an actual attempt. and to the stockholders reasonable dividends. While the protection of vested
rights of property is a supreme duty of the courts, it has not come to this,
Q. You have never fixed the rate higher than it is now? — that the legislative power rests subservient to the discretion of any railroad
corporation which may, by exorbitant and unreasonable salaries, or in some
other improper way, transfer its earnings into what it is pleased to call
A. No; no.
`operating expenses.'
It is further alleged that the tax in question is unconstitutional because "the law authority not conferred. (McCray vs. U.S., supra.) But the instant case is not one of
herein complained of was enacted for the sole purpose of destroying billboards and that character, for the reason that the tax herein complained of falls far short of being
advertising business depending on the use of signs or billboards." If it be conceded confiscatory. Consequently, it cannot be held that the Legislature has gone beyond
that the Legislature has the power to impose a tax upon signs, signboards, and the power conferred upon it by the Philippine Bill in so far as the amount of the tax is
billboards, then "the judicial cannot prescribed to the legislative department of the concerned.
Government limitation upon the exercise of its acknowledge powers." (Veazie Bank
vs. Fenno, 8 Wall., 533, 548.) That the Philippine Legislature has the power to Is the tax void for lack of uniformity or because it is not graded according to value or
impose such taxes, we think there can be no serious doubt, because "the power to constitutes double taxation, or because the classification upon which it is based is
impose taxes is one so unlimited in force and so searching in extent, that the courts mere arbitrary selection and not based on any reasonable grounds? The only
scarcely venture to declare that it is subject to any restrictions whatever, except such limitation, in so far as these questions are concerned, placed upon the Philippine
as rest in the discretion of the authority which exercises it. It reaches to every trade Legislature in the exercise of its taxing power is that found in section 5 of the
or occupation; to every object of industry, use, or enjoyment; to every species of Philippine Bill, wherein it is declared "that the rule of taxation in said Islands shall
possession; and it imposes a burden which, in case of failure to discharge it, may be be uniform."
followed by seizure and sale or confiscation of property. No attribute of sovereignty
is more pervading, and at no point does the power of the government affect more Uniformity in taxation — says Black on Constitutional Law, page 292 —
constantly and intimately all the relations of life than through the exactions made means that all taxable articles or kinds of property, of the same class, shall
under it." (Cooley's Constitutional Limitations, 6th Edition, p. 587.) be taxed at the same rate. It does not mean that lands, chattels, securities,
incomes, occupations, franchises, privileges, necessities, and luxuries, shall
In McCray vs. U.S. (195 U.S., 27), the court, in ruling adversely to the contention all be assessed at the same rate. Different articles may be taxed at different
that a federal tax on oleomargarine artificially colored was void because the real amounts, provided the rate is uniform on the same class everywhere, with
purpose of Congress was not to raise revenue but to tax out of existence a substance all people, and at all times.
not harmful of itself and one which might be lawfully manufactured and sold, said:
A tax is uniform when it operates with the same force and effect in every place where
Whilst, as a result of our written constitution, it is axiomatic that the judicial the subject of it is found (State Railroad Tax Cases, 92 U.S., 575.) The words
department of the government is charged with the solemn duty of enforcing "uniform throughout the United States," as required of a tax by the Constitution, do
the Constitution, and therefore, in cases property presented, of determining not signify an intrinsic, but simply a geographical, uniformity, and such uniformity is
whether a given manifestation of authority has exceeded the power therefore the only uniformity which is prescribed by the Constitution. (Patton vs.
conferred by that instrument, no instance is afforded from the foundation of Brady, 184 U.S., 608; 46 L. Ed., 713.) A tax is uniform, within the constitutional
the government where an act which was within a power conferred, was requirement, when it operates with the same force and effect in every place where the
declared to be repugnant to the Constitution, because it appeared to the subject of it is found. (Edye vs. Robertson, 112 U.S., 580; 28 L. Ed., 798.)
judicial mind that the particular exertion of constitutional power was either "Uniformity," as applied to the constitutional provision that all taxes shall be
unwise or unjust. To announce such a principle would amount to declaring uniform, means that all property belonging to the same class shall be taxed alike.
that, in our constitutional system, the judiciary was not only charged with (Adams vs. Mississippi State Bank, 23 South, 395, citing Mississippi Mills vs Cook,
the duty of upholding the Constitution, but also with the responsibility of 56 Miss., 40.) The statute under consideration imposes a tax of P2 per square meter
correcting every possible abuse arising from the exercise by the other or fraction thereof upon every electric sign, bill-board, etc., wherever found in the
departments of their conceded authority. So to hold would be to overthrow Philippine Islands. Or in other words, "the rule of taxation" upon such signs is
the entire distinction between the legislative, judicial, and executive uniform throughout the Islands. The rule, which we have just quoted from the
departments of the government, upon which our system is founded, and Philippine Bill, does not require taxes to be graded according to the value of the
would be a mere act of judicial usurpation. subject or subjects upon which they are imposed, especially those levied as privilege
or occupation taxes. We can hardly see wherein the tax in question constitutes double
If a case were presented where the abuse of the taxing power of the local legislature taxation. The fact that the land upon which the billboards are located is taxed at so
was to extreme as to make it plain to the judicial mind that the power had been much per unit and the billboards at so much per square meter does not constitute
exercised for the sole purpose of destroying rights which could not be rightfully "double taxation." Double taxation, within the true meaning of that expression, does
destroyed consistently with the principles of freedom and justice upon which the not necessarily affect its validity. (1 Cooley on Taxation, 3d ed., 389.) And again, it is
Philippine Government rests, then it would be the duty of the courts to say that such not for the judiciary to say that the classification upon which the tax is based "is
an arbitrary act was not merely an abuse of the power, but was the exercise of an mere arbitrary selection and not based upon any reasonable grounds." The
Legislature selected signs and billboards as a subject for taxation and it must be a. For every ticket sold the price of which is from P0.25 to P0.99
presumed that it, in so doing, acted with a full knowledge of the situation.
b. For every ticket sold the price of which is from P1 to P1.99
For the foregoing reasons, the judgment appealed from is affirmed, with costs against c. For every ticket sold the price of which is from P2 to P2.99
the appellants. So ordered.
d. for every ticket sold the price of which is from P3 to P4.99
e. or every ticket sold the price of which is from P5 to P5.99
f. For every ticket sold the price of which is from P0 to P14.99
G.R. No. L-1104 May 31, 1949
g. For ticket sold thee price of which is from P15 or more
EASTERN THEATRICAL CO., INC., ET AL., plaintiffs-appellants,
vs. SEC. 2 It shall be the duty of every proprietor lessee, promoter, or
VICTOR, ALFONSO as City Treasurer of Manila, THE MUNICIPAL BOARD operatorof such cinematographs, theater, vaudeville companies, theatrical
OF THE CITY OF MANILA, and JUAN NOLASCO, as Mayor of the City of show and boxing exhibition to provide himself with tickets which shall be
Manila, defendants-appellees. serially numbered, indication therein the name of amusement place and the
fee charge for admission. Before such ticket are sold he same shall be
Francisco Zulueta and Poblador Jr. for appellants. presented to the office of the city Treasurer for registration. Tickets once
City Fiscal Jose P. Bengzon and Assistant City Fiscal Julio Villamor for appellees. issued and presented at the gate of entrance shall be cut by the gatekeeper
Assistant Solicitor General Carmelino G. Alvendia, Solicitor Guillermo E.Torres and into halves, the first half to be returned to the customer and the other half to
Manuel D. Baldeo as amicus curiae. be retained by the gate keeper.

PERFECTO, J.: It shall also be the duty of said proprietor lessee promoter or operator to
deliver to the Office of the City Treasurer the fees corresponding to the
Twelve corporation engaged in motion picture business have initiated these number of ticket old by him within two days after the performances or
proceeding through a complaint dated May 5, 1946, to impugn the validity of exhibition has taken place.
Ordinance No. 2958 of the City of Manila which was enacted by the municipalBoard
of said city on April 25 1946 approved by the Mayor on April 27, 1946 and took SEC. 3. The fees herein prescribed shall not be paid where the admission
effect on May 1, 1946 said ordinance reading as follows: fees or charge are collection for and in behalf of any charitable education or
religion institution or association.
AN ORDINANCE IMPOSING A FEE ON THE PRICE OF
EVERY ADMISSION TICKET SOLD BY CINEMATOGRAPHS, All place of amusement which are operate by U.S. Army and Navy with
THEATERS VAUDEVILLE COMPANIES THEATRICAL fund belonging to the U.S. Government are hereby exempted from fees
SHOWS AND BOXING EXHIBITION AND PROVIDING FOR herein imposed.
OTHER PURPOSES.
SEC. 4. Any person violation any of the provision of this ordinance shall
SEC. 1. In addition to the fees paid by cinematographers, upon conviction thereof be punished by a fine of not more than P200 or by
imprisonment for not more than six months or by both such fine and
theaters, vaudeville companies, theatrical shows and imprisonment in the discretion of the court. If the violation is committed by
boxing exhibitions, as provided for in sections 633 and the club firm or corporation the manager the managing director or person
778 of Ordinance No. 1600, known as the Revised charged with the management of the business of such club firm or
Ordinance of the City of Manila, as amended, there shall corporation shall be criminally responsible therefor.
be collected from the place of amusement which are
specifically mentioned above the following fees on the SEC. 5. This Ordinance shall take effect on the May 1, 1946.
price of every admission ticket sold by such enterprises:
Plaintiffs, operator of theaters in Manila And distributor of local or imported films Appellants contend that the lower court erred in holding that under section 2444 (m)
allege that they are interested in the provision of section 1,2 and 4 of said ordinance of the Revised administrative Code the Municipal Board of the City ofManila had
which they impugn as null and void upon the following grounds: (a) For violation the power to enact Ordinance No. 2958.
the Constitution more particular the provision regarding the uniformity and equality
of taxation and thee equal protection of the laws; (b) because the Municipal Board of Section 2444 (m) of the Revised Administrative code reads as follows:
Manila exceeded and over-stepped the power granted it the Charter of the City of
Manila; (c) because it contravenes violates and is inconsistent with, existing To tax fix the license fee and regulate the business of hotels restaurants
nationallegislation more particularly revenue and tax laws and (d) because it is refreshment places, cafes, lodging houses, boarding houses livery garages
unfair, unjust, arbitrary capricious unreasonable oppressive and is contrary to and warehouses, pawnshops theaters, cinematographs; and further to fix the
violation our basic and recognizes principles of taxation and licensing laws. location of and to tax fix the license fee for and regulate the businessof
lively stables, the license fee for and regulate the business of livery stable,
Defendants allege as affirmative defenses the following: (a) That the ordinance was boarding stables, embalmers, public billiard table public pool tables,
passed by the Municipal Board of Manila by virtue of its express legislative power to bowling alleys, dance halls, public dancing halls, cabarets, circusand other
tax fix the license fee and regulate the business of theaters, cinematographs and similar parades, public vehicles, race tracks, horse races,Junk dealers,
further to fix the location of and to tax, fix the license fee for and regulate the theatrical performances, public exhibitions, circus andother performances
business of theatrical performances public exhibition circus and other performances and places of amusements, match factories, blacksmith shops, foundries,
and places of amusement; (b) that the graduated tax required by said ordinance being steam boilers, lumber yards, shipyards, thestorage and sale of gunpowder,
applied to all cinematographs, theaters, vaudeville companies theatricalshow and tar, pitch, resin, coal, oil, gasoline,benzene, turpentine, 'hemp, cotton,
boxing exhibitions similarly situated and as a class without distinction or exception nitroglycerin, petroleum or any Ofthe products thereof and of all other
the same does not violate the prohibition against uniformity and equality of taxation; highly combustible or explosivematerials and other establishment likely to
(c) that the graduated tax onadmission tickets to theaters and other places of endanger the public safety or give rise to conflagration or explosion and
amusement imposed by the National Internal Revenue Code (Commonwealth Act subject to the provision of ordinance issue by the (Philippines Health
No. 466) is collected by and for the purposes of the National Government, whereas, Service) Bureau of Health in accordance with law tanneries, renders tallow
Ordinance No.2958 imposes and requires the collection of a similar tax by and for chandlers bone factories and soap factories.
the purposes of the Government of the City of Manila, and there is no case of double
taxation, (d) that said ordinance having been enacted under the express power of the Appellants line of argument runs as follows:
Municipal Board to tax for revenue as distinguishedfrom its power to license for
purely police purposes, the fact that the amount collected thereunder are higher than
what are needed for police regulation and supervision does not render said ordinance By virtue of the specific power granted in the above quoted provision of the Revised
unfair unjust capricious unreasonable and oppressive; (e) that consideration the Administration Code Ordinance No. 2958 was enacted.
nature of the business of the plaintiffs and the enormous volume of business they
handle the graduated tax fixed by the ordinance is not unreasonable. On August 7, 1940 the National Assembly enacted Commonwealth Act No. 466,
known as the National Internal Revenue Code section 18, 260 and 261 of which read
Defendants allege also that since May 1, 1946, when the ordinance in question took as follows:
effect plaintiffs have been charging the theater-going public increased prices for
admission to the cinematographs owned and operated to the graduated tax imposed SEC. 18. Sources of revenue. — The following taxes fees and charges are
by said ordinance and as a result while refusing to pay said tax but at the same time deemed to be national internal revenue taxes:
collecting an amount equal to said tax plaintiffs have taken undue advantage of said
ordinance to realized more profits. (a) Income tax;
(b) Estate inheritance and gift taxes;
On September 5, 1946, Judge Emilio Pena of the court of first Instance of Manila (c) Specific taxes on certain articles;
rendered a decision upholding the validity of Ordinance No. 2958. (d) Privilege taxes on business or occupation;
(e) Documentary stamp taxes;
Plaintiffs appellants assign in the their brief three errors committed by the trial court. (f) Mining taxes;
We will consider them separately. (g) Miscellaneous taxes fees and charges, namely, taxes on banks
and insurance companies franchise taxes on amusements charges
on forest product fees for sealing weights and measures firearms paid for admission: Provided, however, That in the case of race tracks, this
license fees radio registration fees and water rentals. tax is in addition to the privilege tax prescribed in seciton 193. for the
purpose of the amusement tax, the term "gross receipts" embraces all the
SEC. 260. Amusement taxes. — There shall be collected from the proprietor, receipts of the proprietor, lessee, or operator of the amusement place,
lessee, or operation of theater cinematographs, concert halls, circuses, excluding the receipts derived by him from the sale of liquors, beverages, or
boxing exhibition and other places of amusement the following taxes: other articles subject to specific tax, or from any business subject to tax
under this Code. (This section was amended by section 8, Republic Act No.
(a) When the amount paid for admission exceeds twenty-nine centavos, two 39, effective October 1, 1946. We are quoting the original provision to show
centavos on each admission; the status of the law when the Ordinance was passed.)

(b) When the amount paid for admission exceeds twenty-nine but does not SEC. 261. Exemption. — The tax herein imposed shall not be paid where
exceed thirty-nine centavos, three centavos on each admission; the admission fee or charges are collected by or for and in behalf of any
religious, charitable, scientific, or educational institution or association, and
where no part of the net proceeds of such admission fees or charges inures
(c) When the amount paid for admission exceeds thirty-nine centavos but to the benefit of any private stockholder or individual.
does not exceed forty-nine centavos four centavos on each admission.
Ordinance No. 2958 does not specify the kind of the tax sought to be imposed but the
(d) When the amount paid for admission exceeds forty-nine centavos but seven schedules and other details of said ordinance are, in every respect, identical
does not exceed fifty-nine centavos five admission. with the amusement tax provided by section 260 of Commonwealth Act No. 466.

(e) When the amount paid for admission exceeds fifty-nine centavos but But, plaintiffs argue, that section 2444(m) of the Revised Administrative Code
does not exceed sixty-nine centavos six centavos on each admission. confers upon the City of Manila the power to impose a tax on business but not on
amusement and, consequently, Ordinance No. 2958 was enacted beyond the charter
(f) When the amount paid for admission exceeds sixty-nine centavos but powers of the City of Manila.
does not exceed seventy nine centavos seven centavos on each admission.
The whole argument of plaintiffs hinges, therefore, on the assumption that the power
(g) When the amount paid for admission exceeds seventy nine centavos but granted to the City of Manila by section 2444(m) of the Revised Administrative
does not exceed eighty-nine centavos eight centavos on each admission; Code is limited to the authority to impose a tax on business, with exclusion of the
power to impose a tax amusement; but, the assumption is based on an arbitrary
(h) When the amount paid for admission exceeds eighty-nine centavos but labeling of the kind of tax authorized by said section 2444(m). The distinction made
does not exceed ninty-nine centavos, nine centavos on each admission; by plaintiffs as to the power to tax on business and the power to tax on amusement
has no ground under the provisions of section 2444(m) of the Revised Administrative
(i) When the amount paid for admission exceeds ninety-nine centavos, ten Code. The tax therein authorized cannot be defined as tax on business and cannot be
centavos on each admission. restricted within a smaller scope than what is authorized by the words used, to the
extent of excluding what plaintiffs describe as tax on amusement.
In the case of theaters or cinematographs, the taxes herein prescribed shall
first be decuted and withheld by the proprietros, lessees, or operators of The very fact that section 2444 (m) of the Revised Administrative Code includes
such theaters or cinematogrphs and paid to the Collector of Internal theaters, cinematographs, public billiard tables, public pool tables, bowling alleys,
Revenue before the gross receipts are divided between the proprietros, dance halls, public dancing halls, cabarets, circuses and other similar places, race
lessees, or operators of the theaters of cinematographs and the distributors tracks, horse races, theatrical performances, public exhibition, circus and other
of the cinematographic films. performances and places of amusements, will show conclusively that the power to
tax amusement is expressly included within the power granted by section 2444(m) of
the Revised Administrative Code.
In the case of cockpits, race tracks, and cabarets, there shall be collected
from the proprietor, lessee, or operator a tax equivalent to ten per centum of
the gross receipts, irrespective of whether or not any amount is charged or
Plaintiffs-appellants contend that the lower court erred in not holding that section ANTERO M. SISON, JR., petitioner,
2444 (m) of the Revised Administrative Code was repealed or the power therein vs.
contained was withdrawn by the National Assembly by the enactment of RUBEN B. ANCHETA, Acting Commissioner, Bureau of Internal Revenue;
Commonwealth Act No. 466 known as the National Internal Revenue Code. ROMULO VILLA, Deputy Commissioner, Bureau of Internal Revenue;
TOMAS TOLEDO Deputy Commissioner, Bureau of Internal Revenue;
In support of this contention, plaintiffs aver that the Charter of the City of Manila, MANUEL ALBA, Minister of Budget, FRANCISCO TANTUICO, Chairman,
containing section 2444(m) of the Revised Administrative Code, was enacted on Commissioner on Audit, and CESAR E. A. VIRATA, Minister of
December 8, 1929. On April 25, 1940, the National Assembly enacted Finance, respondents.
Commonwealth Act No. 466, including provisions on amusement tax, covering the
whole field on taxation and provided for more than what the ordinance in question Antero Sison for petitioner and for his own behalf.
has provided. As a result, there are two taxing powers seeking to occupy exactly the
same field of legislation, and so the apparent conflict must be resolved with the The Solicitor General for respondents.
conclusion that, with the enactment of Commonwealth Act No. 466, as later
amended by Republic Act No. 39, section 2444(m) of the Revised Administrative
Code has been impliedly repealed and the power therein delegated to the City of
Manila withdrawn.
FERNANDO, C.J.:
We see absolutely no force in plaintiffs' contention. The conflict pointed out by them
is imaginary. Both provisions of law may stand together and be enforced at the same The success of the challenge posed in this suit for declaratory relief or prohibition
time without any incompatibility among themselves. proceeding 1 on the validity of Section I of Batas Pambansa Blg. 135 depends upon a
showing of its constitutional infirmity. The assailed provision further amends Section
21 of the National Internal Revenue Code of 1977, which provides for rates of tax on
Finally, plaintiffs contend that the trial court erred in not holding that Ordinance No. citizens or residents on (a) taxable compensation income, (b) taxable net income, (c)
2958 violated the principle of equality and uniformity of taxation enjoined by the royalties, prizes, and other winnings, (d) interest from bank deposits and yield or any
Constitution (sec. 22, sub-sec. 1, Art. VI, Constitution of the philippines). other monetary benefit from deposit substitutes and from trust fund and similar
arrangements, (e) dividends and share of individual partner in the net profits of
To support this contenttion, appellantts point out to the fact that the ordinance in taxable partnership, (f) adjusted gross income. 2 Petitioner 3 as taxpayer alleges that
question does not tax "many more kinds of amusements" than those therein specified, by virtue thereof, "he would be unduly discriminated against by the imposition of
such as "race tracks, cockpits, cabarets, concert halls, circuses, and other places of higher rates of tax upon his income arising from the exercise of his profession vis-a-
amusement." the argument has absolutely no merit. The fact that some places of visthose which are imposed upon fixed income or salaried individual taxpayers. 4 He
amusement are not taxed while others, such as cinematographs, theaters, vaudeville characterizes the above sction as arbitrary amounting to class legislation, oppressive
companies, theatrical shows, and boxing exhibitions and other kinds of amusements and capricious in character 5 For petitioner, therefore, there is a transgression of both
or places of amusement are taxed, is no argument at all against the equality and the equal protection and due process clauses 6 of the Constitution as well as of the
uniformity of the tax imposition. Equality and uniformity of the tax imposition. rule requiring uniformity in taxation. 7
Equality and uniformity in taxation means that all taxable articles or kinds of
property of the same class shall be taxed at the same rate. The taxing power has the The Court, in a resolution of January 26, 1982, required respondents to file an
authority to make reasonable and natural classifications for purposes of taxation; and answer within 10 days from notice. Such an answer, after two extensions were
the appellants cannot point out what places of amusement taxed by the ordinance do granted the Office of the Solicitor General, was filed on May 28, 1982. 8The facts as
not constitute a class by themselves and which can be confused with those not alleged were admitted but not the allegations which to their mind are "mere
included in the ordinance. arguments, opinions or conclusions on the part of the petitioner, the truth [for them]
being those stated [in their] Special and Affirmative Defenses." 9 The answer then
The judgment of the trial court is affirmed with costs against appellants. affirmed: "Batas Pambansa Big. 135 is a valid exercise of the State's power to tax.
The authorities and cases cited while correctly quoted or paraghraph do not support
petitioner's stand." 10 The prayer is for the dismissal of the petition for lack of merit.

G.R. No. L-59431 July 25, 1984 This Court finds such a plea more than justified. The petition must be dismissed.
1. It is manifest that the field of state activity has assumed a much wider scope, The 5. It is undoubted that the due process clause may be invoked where a taxing statute
reason was so clearly set forth by retired Chief Justice Makalintal thus: "The areas is so arbitrary that it finds no support in the Constitution. An obvious example is
which used to be left to private enterprise and initiative and which the government where it can be shown to amount to the confiscation of property. That would be a
was called upon to enter optionally, and only 'because it was better equipped to clear abuse of power. It then becomes the duty of this Court to say that such an
administer for the public welfare than is any private individual or group of arbitrary act amounted to the exercise of an authority not conferred. That properly
individuals,' continue to lose their well-defined boundaries and to be absorbed within calls for the application of the Holmes dictum. It has also been held that where the
activities that the government must undertake in its sovereign capacity if it is to meet assailed tax measure is beyond the jurisdiction of the state, or is not for a public
the increasing social challenges of the times." 11 Hence the need for more revenues. purpose, or, in case of a retroactive statute is so harsh and unreasonable, it is subject
The power to tax, an inherent prerogative, has to be availed of to assure the to attack on due process grounds. 19
performance of vital state functions. It is the source of the bulk of public funds. To
praphrase a recent decision, taxes being the lifeblood of the government, their 6. Now for equal protection. The applicable standard to avoid the charge that there is
prompt and certain availability is of the essence. 12 a denial of this constitutional mandate whether the assailed act is in the exercise of
the lice power or the power of eminent domain is to demonstrated that the
2. The power to tax moreover, to borrow from Justice Malcolm, "is an attribute of governmental act assailed, far from being inspired by the attainment of the common
sovereignty. It is the strongest of all the powers of of government." 13 It is, of course, weal was prompted by the spirit of hostility, or at the very least, discrimination that
to be admitted that for all its plenitude 'the power to tax is not unconfined. There are finds no support in reason. It suffices then that the laws operate equally and
restrictions. The Constitution sets forth such limits . Adversely affecting as it does uniformly on all persons under similar circumstances or that all persons must be
properly rights, both the due process and equal protection clauses inay properly be treated in the same manner, the conditions not being different, both in the privileges
invoked, all petitioner does, to invalidate in appropriate cases a revenue measure. if it conferred and the liabilities imposed. Favoritism and undue preference cannot be
were otherwise, there would -be truth to the 1803 dictum of Chief Justice Marshall allowed. For the principle is that equal protection and security shall be given to every
that "the power to tax involves the power to destroy." 14 In a separate opinion person under circumtances which if not Identical are analogous. If law be looked
in Graves v. New York, 15 Justice Frankfurter, after referring to it as an 1, unfortunate upon in terms of burden or charges, those that fall within a class should be treated in
remark characterized it as "a flourish of rhetoric [attributable to] the intellectual the same fashion, whatever restrictions cast on some in the group equally binding on
fashion of the times following] a free use of absolutes." 16 This is merely to the rest." 20 That same formulation applies as well to taxation measures. The equal
emphasize that it is riot and there cannot be such a constitutional mandate. Justice protection clause is, of course, inspired by the noble concept of approximating the
Frankfurter could rightfully conclude: "The web of unreality spun from Marshall's Ideal of the laws benefits being available to all and the affairs of men being governed
famous dictum was brushed away by one stroke of Mr. Justice Holmess pen: 'The by that serene and impartial uniformity, which is of the very essence of the Idea of
power to tax is not the power to destroy while this Court sits." 17 So it is in the law. There is, however, wisdom, as well as realism in these words of Justice
Philippines. Frankfurter: "The equality at which the 'equal protection' clause aims is not a
disembodied equality. The Fourteenth Amendment enjoins 'the equal protection of
3. This Court then is left with no choice. The Constitution as the fundamental law the laws,' and laws are not abstract propositions. They do not relate to abstract units
overrides any legislative or executive, act that runs counter to it. In any case A, B and C, but are expressions of policy arising out of specific difficulties, address
therefore where it can be demonstrated that the challenged statutory provision — as to the attainment of specific ends by the use of specific remedies. The Constitution
petitioner here alleges — fails to abide by its command, then this Court must so does not require things which are different in fact or opinion to be treated in law as
declare and adjudge it null. The injury thus is centered on the question of whether the though they were the same." 21 Hence the constant reiteration of the view that
imposition of a higher tax rate on taxable net income derived from business or classification if rational in character is allowable. As a matter of fact, in a leading
profession than on compensation is constitutionally infirm. case of Lutz V. Araneta, 22 this Court, through Justice J.B.L. Reyes, went so far as to
hold "at any rate, it is inherent in the power to tax that a state be free to select the
4, The difficulty confronting petitioner is thus apparent. He alleges arbitrariness. A subjects of taxation, and it has been repeatedly held that 'inequalities which result
mere allegation, as here. does not suffice. There must be a factual foundation of such from a singling out of one particular class for taxation, or exemption infringe no
unconstitutional taint. Considering that petitioner here would condemn such a constitutional limitation.'" 23
provision as void or its face, he has not made out a case. This is merely to adhere to
the authoritative doctrine that were the due process and equal protection clauses are 7. Petitioner likewise invoked the kindred concept of uniformity. According to the
invoked, considering that they arc not fixed rules but rather broad standards, there is Constitution: "The rule of taxation shag be uniform and equitable." 24 This
a need for of such persuasive character as would lead to such a conclusion. Absent requirement is met according to Justice Laurel in Philippine Trust Company v.
such a showing, the presumption of validity must prevail. 18 Yatco,25 decided in 1940, when the tax "operates with the same force and effect in
every place where the subject may be found. " 26 He likewise added: "The rule of BRITISH AMERICAN TOBACCO, Petitioner,
uniformity does not call for perfect uniformity or perfect equality, because this is vs.
hardly attainable." 27 The problem of classification did not present itself in that case. JOSE ISIDRO N. CAMACHO, in his capacity as Secretary of the Department
It did not arise until nine years later, when the Supreme Court held: "Equality and of Finance and GUILLERMO L. PARAYNO, JR., in his capacity as
uniformity in taxation means that all taxable articles or kinds of property of the same Commissioner of the Bureau of Internal Revenue, Respondents.
class shall be taxed at the same rate. The taxing power has the authority to make Philip Morris Philippines Manufacturing, Inc., fortune tobacco, corp.,
reasonable and natural classifications for purposes of taxation, ... . 28 As clarified by MIGHTY CORPOR.A.TION, and JT InTERNATIONAL, S.A., Respondents-in-
Justice Tuason, where "the differentiation" complained of "conforms to the practical Intervention.
dictates of justice and equity" it "is not discriminatory within the meaning of this
clause and is therefore uniform." 29 There is quite a similarity then to the standard of RESOLUTION
equal protection for all that is required is that the tax "applies equally to all persons,
firms and corporations placed in similar situation."30 YNARES-SANTIAGO, J.:

8. Further on this point. Apparently, what misled petitioner is his failure to take into On August 20, 2008, the Court rendered a Decision partially granting the petition in
consideration the distinction between a tax rate and a tax base. There is no legal this case, viz:
objection to a broader tax base or taxable income by eliminating all deductible items
and at the same time reducing the applicable tax rate. Taxpayers may be classified
into different categories. To repeat, it. is enough that the classification must rest upon WHEREFORE, the petition is PARTIALLY GRANTED and the decision of the
substantial distinctions that make real differences. In the case of the gross income Regional Trial Court of Makati, Branch 61, in Civil Case No. 03-1032, is
taxation embodied in Batas Pambansa Blg. 135, the, discernible basis of AFFIRMED with MODIFICATION. As modified, this Court declares that:
classification is the susceptibility of the income to the application of generalized
rules removing all deductible items for all taxpayers within the class and fixing a set (1) Section 145 of the NIRC, as amended by Republic Act No. 9334, is
of reduced tax rates to be applied to all of them. Taxpayers who are recipients of CONSTITUTIONAL; and that
compensation income are set apart as a class. As there is practically no overhead
expense, these taxpayers are e not entitled to make deductions for income tax (2) Section 4(B)(e)(c), 2nd paragraph of Revenue Regulations No. 1-97, as
purposes because they are in the same situation more or less. On the other hand, in amended by Section 2 of Revenue Regulations 9-2003, and Sections II(1)
the case of professionals in the practice of their calling and businessmen, there is no (b), II(4)(b), II(6), II(7), III (Large Tax Payers Assistance Division II) II(b)
uniformity in the costs or expenses necessary to produce their income. It would not of Revenue Memorandum Order No. 6-2003, insofar as pertinent to
be just then to disregard the disparities by giving all of them zero deduction and cigarettes packed by machine, are INVALID insofar as they grant the BIR
indiscriminately impose on all alike the same tax rates on the basis of gross income. the power to reclassify or update the classification of new brands every two
There is ample justification then for the Batasang Pambansa to adopt the gross years or earlier.
system of income taxation to compensation income, while continuing the system of
net income taxation as regards professional and business income. SO ORDERED.

9. Nothing can be clearer, therefore, than that the petition is without merit, In its Motion for Reconsideration, petitioner insists that the assailed provisions (1)
considering the (1) lack of factual foundation to show the arbitrary character of the violate the equal protection and uniformity of taxation clauses of the Constitution,
assailed provision; 31 (2) the force of controlling doctrines on due process, equal (2) contravene Section 19,1 Article XII of the Constitution on unfair competition, and
protection, and uniformity in taxation and (3) the reasonableness of the distinction (3) infringe the constitutional provisions on regressive and inequitable taxation.
between compensation and taxable net income of professionals and businessman Petitioner further argues that assuming the assailed provisions are constitutional,
certainly not a suspect classification, petitioner is entitled to a downward reclassification of Lucky Strike from the
premium-priced to the high-priced tax bracket.
WHEREFORE, the petition is dismissed. Costs against petitioner.
The Court is not persuaded.
G.R. No. 163583 April 15, 2009
The assailed law does not violate the equal protection and uniformity of taxation From the foregoing, it is quite evident that the classification freeze provision could
clauses. hardly be considered arbitrary, or motivated by a hostile or oppressive attitude to
unduly favor older brands over newer brands. Congress was unequivocal in its
Petitioner argues that the classification freeze provision violates the equal protection unwillingness to delegate the power to periodically adjust the excise tax rate and tax
and uniformity of taxation clauses because Annex "D" brands are taxed based on brackets as well as to periodically resurvey and reclassify the cigarette brands based
their 1996 net retail prices while new brands are taxed based on their present day net on the increase in the consumer price index to the DOF and the BIR. Congress
retail prices. Citing Ormoc Sugar Co. v. Treasurer of Ormoc City,2 petitioner asserts doubted the constitutionality of such delegation of power, and likewise, considered
that the assailed provisions accord a special or privileged status to Annex "D" brands the ethical implications thereof. Curiously, the classification freeze provision was put
while at the same time discriminate against other brands. in place of the periodic adjustment and reclassification provision because of the
belief that the latter would foster an anti-competitive atmosphere in the market. Yet,
These contentions are without merit and a rehash of petitioner’s previous arguments as it is, this same criticism is being foisted by petitioner upon the classification freeze
before this Court. As held in the assailed Decision, the instant case neither involves a provision.
suspect classification nor impinges on a fundamental right. Consequently, the
rational basis test was properly applied to gauge the constitutionality of the assailed To our mind, the classification freeze provision was in the main the result of
law in the face of an equal protection challenge. It has been held that "in the areas of Congress’s earnest efforts to improve the efficiency and effectivity of the tax
social and economic policy, a statutory classification that neither proceeds along administration over sin products while trying to balance the same with other State
suspect lines nor infringes constitutional rights must be upheld against equal interests. In particular, the questioned provision addressed Congress’s administrative
protection challenge if there is any reasonably conceivable state of facts that could concerns regarding delegating too much authority to the DOF and BIR as this will
provide a rational basis for the classification."3 Under the rational basis test, it is open the tax system to potential areas for abuse and corruption. Congress may have
sufficient that the legislative classification is rationally related to achieving some reasonably conceived that a tax system which would give the least amount of
legitimate State interest. As the Court ruled in the assailed Decision, viz: discretion to the tax implementers would address the problems of tax avoidance and
tax evasion.
A legislative classification that is reasonable does not offend the constitutional
guaranty of the equal protection of the laws. The classification is considered valid To elaborate a little, Congress could have reasonably foreseen that, under the DOF
and reasonable provided that: (1) it rests on substantial distinctions; (2) it is germane proposal and the Senate Version, the periodic reclassification of brands would tempt
to the purpose of the law; (3) it applies, all things being equal, to both present and the cigarette manufacturers to manipulate their price levels or bribe the tax
future conditions; and (4) it applies equally to all those belonging to the same class. implementers in order to allow their brands to be classified at a lower tax bracket
even if their net retail prices have already migrated to a higher tax bracket after the
The first, third and fourth requisites are satisfied. The classification freeze provision adjustment of the tax brackets to the increase in the consumer price index.
was inserted in the law for reasons of practicality and expediency. That is, since a Presumably, this could be done when a resurvey and reclassification is forthcoming.
new brand was not yet in existence at the time of the passage of RA 8240, then As briefly touched upon in the Congressional deliberations, the difference of the
Congress needed a uniform mechanism to fix the tax bracket of a new brand. The excise tax rate between the medium-priced and the high-priced tax brackets under
current net retail price, similar to what was used to classify the brands under Annex RA 8240, prior to its amendment, was P3.36. For a moderately popular brand which
"D" as of October 1, 1996, was thus the logical and practical choice. Further, with sells around 100 million packs per year, this easily translates to P336,000,000. The
the amendments introduced by RA 9334, the freezing of the tax classifications now incentive for tax avoidance, if not outright tax evasion, would clearly be present.
expressly applies not just to Annex "D" brands but to newer brands introduced after Then again, the tax implementers may use the power to periodically adjust the tax
the effectivity of RA 8240 on January 1, 1997 and any new brand that will be rate and reclassify the brands as a tool to unduly oppress the taxpayer in order for the
introduced in the future. (However, as will be discussed later, the intent to apply the government to achieve its revenue targets for a given year.
freezing mechanism to newer brands was already in place even prior to the
amendments introduced by RA 9334 to RA 8240.) This does not explain, however, Thus, Congress sought to, among others, simplify the whole tax system for sin
why the classification is "frozen" after its determination based on current net retail products to remove these potential areas of abuse and corruption from both the side
price and how this is germane to the purpose of the assailed law. An examination of of the taxpayer and the government. Without doubt, the classification freeze
the legislative history of RA 8240 provides interesting answers to this question. provision was an integral part of this overall plan. This is in line with one of the
avowed objectives of the assailed law "to simplify the tax administration and
xxxx compliance with the tax laws that are about to unfold in order to minimize losses
arising from inefficiencies and tax avoidance scheme, if not outright tax evasion."
RA 9334 did not alter this classification freeze provision of RA 8240. On the In the instant case, there is no question that the classification freeze provision meets
contrary, Congress affirmed this freezing mechanism by clarifying the wording of the the geographical uniformity requirement because the assailed law applies to all
law. We can thus reasonably conclude, as the deliberations on RA 9334 readily show, cigarette brands in the Philippines. And, for reasons already adverted to in our
that the administrative concerns in tax administration, which moved Congress to August 20, 2008 Decision, the above four-fold test has been met in the present case.
enact the classification freeze provision in RA 8240, were merely continued by RA
9334. Indeed, administrative concerns may provide a legitimate, rational basis for Petitioner’s reliance on Ormoc Sugar Co. is misplaced. In said case, the controverted
legislative classification. In the case at bar, these administrative concerns in the municipal ordinance specifically named and taxed only the Ormoc Sugar Company,
measurement and collection of excise taxes on sin products are readily apparent as and excluded any subsequently established sugar central from its coverage. Thus, the
afore-discussed. ordinance was found unconstitutional on equal protection grounds because its terms
do not apply to future conditions as well. This is not the case here. The classification
Aside from the major concern regarding the elimination of potential areas for abuse freeze provision uniformly applies to all cigarette brands whether existing or to be
and corruption from the tax administration of sin products, the legislative introduced in the market at some future time. It does not purport to exempt any brand
deliberations also show that the classification freeze provision was intended to from its operation nor single out a brand for the purpose of imposition of excise
generate buoyant and stable revenues for government. With the frozen tax taxes.
classifications, the revenue inflow would remain stable and the government would be
able to predict with a greater degree of certainty the amount of taxes that a cigarette At any rate, petitioner’s real disagreement lies with the legitimate State interests.
manufacturer would pay given the trend in its sales volume over time. The reason for Although it concedes that the Court utilized the rationality test and that the
this is that the previously classified cigarette brands would be prevented from classification freeze provision was necessitated by several legitimate State interests,
moving either upward or downward their tax brackets despite the changes in their net however, it refuses to accept the justifications given by Congress for the
retail prices in the future and, as a result, the amount of taxes due from them would classification freeze provision. As we elucidated in our August 20, 2008 Decision,
remain predictable. The classification freeze provision would, thus, aid in the this line of argumentation revolves around the wisdom and expediency of the
revenue planning of the government. assailed law which we cannot inquire into, much less overrule. Equal protection is
not a license for courts to judge the wisdom, fairness, or logic of legislative
All in all, the classification freeze provision addressed Congress’s administrative choices.11 We reiterate, therefore, that petitioner’s remedy is with Congress and not
concerns in the simplification of tax administration of sin products, elimination of this Court.
potential areas for abuse and corruption in tax collection, buoyant and stable revenue
generation, and ease of projection of revenues. Consequently, there can be no denial The assailed provisions do not violate the constitutional prohibition on unfair
of the equal protection of the laws since the rational-basis test is amply satisfied. competition.

Moreover, petitioner’s contention that the assailed provisions violate the uniformity Petitioner asserts that the Court erroneously applied the rational basis test allegedly
of taxation clause is similarly unavailing. In Churchill v. Concepcion, 4 we explained because this test does not apply in a constitutional challenge based on a violation of
that a tax "is uniform when it operates with the same force and effect in every place Section 19, Article XII of the Constitution on unfair competition. Citing Tatad v.
where the subject of it is found."5 It does not signify an intrinsic but simply a Secretary of the Department of Energy,12 it argues that the classification freeze
geographical uniformity.6 A levy of tax is not unconstitutional because it is not provision gives the brands under Annex "D" a decisive edge because it constitutes a
intrinsically equal and uniform in its operation.7 The uniformity rule does not substantial barrier to the entry of prospective players; that the Annex "D" provision is
prohibit classification for purposes of taxation.8 As ruled in Tan v. Del Rosario, Jr.:9 no different from the 4% tariff differential which we invalidated in Tatad; that some
of the new brands, like Astro, Memphis, Capri, L&M, Bowling Green, Forbes, and
Uniformity of taxation, like the kindred concept of equal protection, merely requires Canon, which were introduced into the market after the effectivity of the assailed law
that all subjects or objects of taxation, similarly situated, are to be treated alike both on January 1, 1997, were "killed" by Annex "D" brands because the former brands
in privileges and liabilities (citations omitted). Uniformity does not forfend were reclassified by the BIR to higher tax brackets; that the finding that price is not
classification as long as: (1) the standards that are used therefor are substantial and the only factor in the market as there are other factors like consumer preference,
not arbitrary, (2) the categorization is germane to achieve the legislative purpose, (3) active ingredients, etc. is contrary to the evidence presented and the deliberations in
the law applies, all things being equal, to both present and future conditions, and (4) Congress; that the classification freeze provision will encourage predatory pricing in
the classification applies equally well to all those belonging to the same class contravention of the constitutional prohibition on unfair competition; and that the
(citations omitted).10 cumulative effect of the operation of the classification freeze provision is to
perpetuate the oligopoly of intervenors Philip Morris and Fortune Tobacco in Second, we cannot lend credence to petitioner’s claim that it cannot produce
contravention of the constitutional edict for the State to regulate or prohibit cigarettes that can compete with Marlboro and Philip Morris in the high-priced tax
monopolies, and to disallow combinations in restraint of trade and unfair bracket. Except for its self-serving testimonial evidence, no sufficient documentary
competition. evidence was presented to substantiate this claim. The current net retail price, which
is the basis for determining the tax bracket of a cigarette brand, more or less consists
The argument lacks merit. While previously arguing that the rational basis test was of the costs of raw materials, labor, advertising and profit margin. To a large extent,
not satisfied, petitioner now asserts that this test does not apply in this case and that these factors are controllable by the manufacturer, as such, the decision to enter
the proper matrix to evaluate the constitutionality of the assailed law is the which tax bracket will depend on the pricing strategy adopted by the individual
prohibition on unfair competition under Section 19, Article XII of the Constitution. It manufacturer. The same holds true for its claims that other new brands, like Astro,
should be noted that during the trial below, petitioner did not invoke said Memphis, Capri, L&M, Bowling Green, Forbes, and Canon, were "killed" by Annex
constitutional provision as it relied solely on the alleged violation of the equal "D" brands due to the effects of the operation of the classification freeze provision
protection and uniformity of taxation clauses. Well-settled is the rule that points of over time. The evidence that petitioner presented before the trial court failed to
law, theories, issues and arguments not adequately brought to the attention of the substantiate the basis for these claims.
lower court will not be ordinarily considered by a reviewing court as they cannot be
raised for the first time on appeal.13 At any rate, even if we were to relax this rule, as Essentially, petitioner would want us to accept its conclusions of law without first
previously stated, the evidence presented before the trial court is insufficient to laying down the factual foundations of its arguments. This Court, which is not a trier
establish the alleged violation of the constitutional proscription against unfair of facts, cannot take judicial notice of the factual premises of these arguments as
competition. petitioner now seems to suggest. The evidence should have been presented before the
trial court to allow it to examine and determine for itself whether such factual
Indeed, in Tatad we ruled that a law which imposes substantial barriers to the entry premises, as supported by sufficient documentary evidence, provide reasonable basis
and exit of new players in our downstream oil industry may be struck down for being for petitioner’s conclusion that there arose an unconstitutional unfair competition due
violative of Section 19, Article XII of the Constitution.14However, we went on to say to the operation of the classification freeze provision. Petitioner should be reminded
in that case that "if they are insignificant impediments, they need not be stricken that it appealed this case from the adverse ruling of the trial court directly to this
down."15 As we stated in our August 20, 2008 Decision, petitioner failed to Court on pure questions of law instead of resorting to the Court of Appeals.
convincingly prove that there is a substantial barrier to the entry of new brands in the
cigarette market due to the classification freeze provision. We further observed that Third, Tatad is not applicable to the instant case. In Tatad, we found that the 4% tariff
several new brands were introduced in the market after the assailed law went into differential between imported crude oil and imported refined petroleum products
effect thus negating petitioner’s sweeping claim that the classification freeze erects a high barrier to the entry of new players because (1) it imposes an undue
provision is an insurmountable barrier to the entry of new brands. We also noted that burden on new players to spend billions of pesos to build refineries in order to
price is not the only factor affecting competition in the market for there are other compete with the old players, and (2) new players, who opt not to build refineries,
factors such as taste, brand loyalty, etc. suffer from the huge disadvantage of increasing their product cost by 4%.16 The tariff
was imposed on the raw materials uniformly used by the players in the oil industry.
We see no reason to depart from these findings for the following reasons: Thus, the adverse effect on competition arising from this discriminatory treatment
was readily apparent. In contrast, the excise tax under the assailed law is imposed
First, petitioner did not lay down the factual foundations, as supported by verifiable based on the current net retail price of a cigarette brand. As previously explained, the
documentary proof, which would establish, among others, the cigarette brands in current net retail price is determined by the pricing strategy of the manufacturer. This
competition with each other; the current net retail prices of Annex "D" brands, as Court cannot simply speculate that the reason why a new brand cannot enter a
determined through a market survey, to provide a sufficient point of comparison with specific tax bracket and compete with the brands therein was because of the
those covered by the BIR’s market survey of new brands; and the causal connection classification freeze provision, rather than the manufacturer’s own pricing decision
with as well as the extent of the impact on the competition in the cigarette market of or some other factor solely attributable to the manufacturer. Again, the burden of
the classification freeze provision. Other than petitioner’s self-serving allegations proof in this regard is on petitioner which it failed to muster.
and testimonial evidence, no adequate documentary evidence was presented to
substantiate its claims. Absent ample documentary proof, we cannot accept Fourth, the finding in our August 20, 2008 Decision that price is not the only factor
petitioner’s claim that the classification freeze provision is an insurmountable barrier which affects consumer behavior in the cigarette market is based on petitioner’s own
to the entry of new players. evidence. On cross-examination, petitioner’s witness admitted that notwithstanding
the change in price, a cigarette smoker may prefer the old brand because of its
addictive formulation.17 As a result, even if we were to assume that the classification provides that Congress shall evolve a progressive system of taxation. As we
freeze provision distorts the pricing scheme of the market players, it is not clear explained in Tolentino v. Secretary of Finance:191avvphi1.zw+
whether a substantial barrier to the entry of new players would thereby be created
because of these other factors affecting consumer behavior. [R]egressivity is not a negative standard for courts to enforce. What Congress is
required by the Constitution to do is to "evolve a progressive system of taxation."
Last, the claim that the assailed provisions encourage predatory pricing was never This is a directive to Congress, just like the directive to it to give priority to the
raised nor substantiated before the trial court. It is merely an afterthought and cannot enactment of laws for the enhancement of human dignity and the reduction of social,
be given weight. economic and political inequalities [Art. XIII, Section 1] or for the promotion of the
right to "quality education" [Art. XIV, Section 1]. These provisions are put in the
In sum, the totality of the evidence presented by petitioner before the trial court Constitution as moral incentives to legislation, not as judicially enforceable rights. 20
failed to convincingly establish the alleged violation of the constitutional prohibition
on unfair competition. It is a basic postulate that the one who challenges the Petitioner is not entitled to a downward reclassification of Lucky Strike.
constitutionality of a law carries the heavy burden of proof for laws enjoy a strong
presumption of constitutionality as it is an act of a co-equal branch of government. Petitioner alleges that assuming the assailed law is constitutional, its Lucky Strike
Petitioner failed to carry this burden. brand should be reclassified from the premium-priced to the high-priced tax bracket.
Relying on BIR Ruling No. 018-2001 dated May 10, 2001, it claims that it timely
The assailed law does not transgress the constitutional provisions on regressive and sought redress from the BIR to have the market survey conducted within three
inequitable taxation. months from product launch, as provided for under Section 4(B)21 of Revenue
Regulations No. 1-97, in order to determine the actual current net retail price of
Petitioner argues that the classification freeze provision is a form of regressive and Lucky Strike, and thus, fix its tax classification. Further, the upward reclassification
inequitable tax system which is proscribed under Article VI, Section 28(1)18 of the of Lucky Strike amounts to deprivation of property right without due process of law.
Constitution. It claims that people in equal positions should be treated alike. The use The conduct of the market survey after two years from product launch constitutes
of different tax bases for brands under Annex "D" vis-à-vis new brands is gross neglect on the part of the BIR. Consequently, for failure of the BIR to conduct
discriminatory, and thus, iniquitous. Petitioner further posits that the classification a timely market survey, Lucky Strike’s classification based on its suggested gross
freeze provision is regressive in character. It asserts that the harmonization of retail price should be deemed its official tax classification. Finally, petitioner asserts
revenue flow projections and ease of tax administration cannot override this that had the market survey been timely conducted sometime in 2001, the current net
constitutional command. retail price of Lucky Strike would have been found to be under the high-priced tax
bracket.
We note that the points raised by petitioner with respect to alleged inequitable
taxation perpetuated by the classification freeze provision are a mere reformulation These contentions are untenable and misleading.
of its equal protection challenge. As stated earlier, the assailed provisions do not
infringe the equal protection clause because the four-fold test is satisfied. In First, BIR Ruling No. 018-2001 was requested by petitioner for the purpose of fixing
particular, the classification freeze provision has been found to rationally further Lucky Strike’s initial tax classification based on its suggested gross retail price
legitimate State interests consistent with rationality review. Petitioner’s repackaged relative to its planned introduction of Lucky Strike in the market sometime in 2001
argument has, therefore, no merit. and not for the conduct of the market survey within three months from product
launch. In fact, the said Ruling contained an express reservation that the tax
Anent the issue of regressivity, it may be conceded that the assailed law imposes an classification of Lucky Strike set therein "is without prejudice, however, to the
excise tax on cigarettes which is a form of indirect tax, and thus, regressive in subsequent conduct of a survey x x x in order to determine if the actual gross retail
character. While there was an attempt to make the imposition of the excise tax more price thereof is consistent with [petitioner’s] suggested gross retail price." 22 In short,
equitable by creating a four-tiered taxation system where higher priced cigarettes are petitioner acknowledged that the initial tax classification of Lucky Strike may be
taxed at a higher rate, still, every consumer, whether rich or poor, of a cigarette brand modified depending on the outcome of the survey which will determine the actual
within a specific tax bracket pays the same tax rate. To this extent, the tax does not current net retail price of Lucky Strike in the market.
take into account the person’s ability to pay. Nevertheless, this does not mean that the
assailed law may be declared unconstitutional for being regressive in character Second, there was no upward reclassification of Lucky Strike because it was taxed
because the Constitution does not prohibit the imposition of indirect taxes but merely based on its suggested gross retail price from the time of its introduction in the
market in 2001 until the BIR market survey in 2003. We reiterate that Lucky Strikes’ G.R. No. 81820 June 30, 1988
actual current net retail price was surveyed for the first time in 2003 and was found
to be from ₱10.34 to ₱11.53 per pack, which is within the premium-priced tax KILUSANG MAYO UNO LABOR CENTER (KMU), its officers and affiliated
bracket. There was, thus, no prohibited upward reclassification of Lucky Strike by labor federations and alliances, petitioners,
the BIR based on its current net retail price. vs.
THE EXECUTIVE SECRETARY, SECRETARY OF FINANCE, THE
Third, the failure of the BIR to conduct the market survey within the three-month COMMISSIONER OF INTERNAL REVENUE, and SECRETARY OF
period under the revenue regulations then in force can in no way make the initial tax BUDGET, respondents.
classification of Lucky Strike based on its suggested gross retail price permanent.
Otherwise, this would contravene the clear mandate of the law which provides that G.R. No. 81921 June 30, 1988
the basis for the tax classification of a new brand shall be the current net retail price
and not the suggested gross retail price. It is a basic principle of law that the State INTEGRATED CUSTOMS BROKERS ASSOCIATION OF THE
cannot be estopped by the mistakes of its agents. PHILIPPINES and JESUS B. BANAL, petitioners,
vs.
Last, the issue of timeliness of the market survey was never raised before the trial The HON. COMMISSIONER, BUREAU OF INTERNAL
court because petitioner’s theory of the case was wholly anchored on the alleged REVENUE, respondent.
unconstitutionality of the classification freeze provision. As a consequence, no
documentary evidence as to the actual net retail price of Lucky Strike in 2001, based G.R. No. 82152 June 30, 1988
on a market survey at least comparable to the one mandated by law, was presented
before the trial court. Evidently, it cannot be assumed that had the BIR conducted the
market survey within three months from its product launch sometime in 2001, Lucky RICARDO C. VALMONTE, petitioner,
Strike would have been found to fall under the high-priced tax bracket and not the vs.
premium-priced tax bracket. To so hold would run roughshod over the State’s right to THE EXECUTIVE SECRETARY, SECRETARY OF FINANCE,
due process. Verily, petitioner prosecuted its case before the trial court solely on the COMMISSIONER OF INTERNAL REVENUE and SECRETARY OF
theory that the assailed law is unconstitutional instead of merely challenging the BUDGET, respondent.
timeliness of the market survey. The rule is that a party is bound by the theory he
adopts and by the cause of action he stands on. He cannot be permitted after having Franklin S. Farolan for petitioner Kapatiran in G.R. No. 81311.
lost thereon to repudiate his theory and cause of action, and thereafter, adopt another
and seek to re-litigate the matter anew either in the same forum or on Jaime C. Opinion for individual petitioners in G.R. No. 81311.
appeal.23 Having pursued one theory and lost thereon, petitioner may no longer
pursue another inconsistent theory without thereby trifling with court processes and Banzuela, Flores, Miralles, Rañeses, Sy, Taquio and Associates for petitioners in
burdening the courts with endless litigation. G.R. No 81820.

WHEREFORE, the motion for reconsideration is DENIED. Union of Lawyers and Advocates for Peoples Right collaborating counsel for
petitioners in G.R. No 81820.
SO ORDERED.
Jose C. Leabres and Joselito R. Enriquez for petitioners in G.R. No. 81921.
G.R. No. 81311 June 30, 1988

KAPATIRAN NG MGA NAGLILINGKOD SA PAMAHALAAN NG


PILIPINAS, INC., HERMINIGILDO C. DUMLAO, GERONIMO Q. PADILLA, J.:
QUADRA, and MARIO C. VILLANUEVA, petitioners,
vs.
These four (4) petitions, which have been consolidated because of the similarity of
HON. BIENVENIDO TAN, as Commissioner of Internal Revenue, respondent.
the main issues involved therein, seek to nullify Executive Order No. 273 (EO 273,
for short), issued by the President of the Philippines on 25 July 1987, to take effect tax system computed under the "cost subtraction method" or "cost deduction
on 1 January 1988, and which amended certain sections of the National Internal method" and was imposed only on original sale, barter or exchange of articles by
Revenue Code and adopted the value-added tax (VAT, for short), for being manufacturers, producers, or importers. Subsequent sales of such articles were not
unconstitutional in that its enactment is not alledgedly within the powers of the subject to sales tax. However, with the issuance of PD 1991 on 31 October 1985, a
President; that the VAT is oppressive, discriminatory, regressive, and violates the due 3% tax was imposed on a second sale, which was reduced to 1.5% upon the issuance
process and equal protection clauses and other provisions of the 1987 Constitution. of PD 2006 on 31 December 1985, to take effect 1 January 1986. Reduced sales
taxes were imposed not only on the second sale, but on every subsequent sale, as
The Solicitor General prays for the dismissal of the petitions on the ground that the well. EO 273 merely increased the VAT on every sale to 10%, unless zero-rated or
petitioners have failed to show justification for the exercise of its judicial powers, exempt.
viz. (1) the existence of an appropriate case; (2) an interest, personal and substantial,
of the party raising the constitutional questions; (3) the constitutional question should Petitioners first contend that EO 273 is unconstitutional on the Ground that the
be raised at the earliest opportunity; and (4) the question of constitutionality is President had no authority to issue EO 273 on 25 July 1987.
directly and necessarily involved in a justiciable controversy and its resolution is
essential to the protection of the rights of the parties. According to the Solicitor The contention is without merit.
General, only the third requisite — that the constitutional question should be raised
at the earliest opportunity — has been complied with. He also questions the legal It should be recalled that under Proclamation No. 3, which decreed a Provisional
standing of the petitioners who, he contends, are merely asking for an advisory Constitution, sole legislative authority was vested upon the President. Art. II, sec. 1
opinion from the Court, there being no justiciable controversy for resolution. of the Provisional Constitution states:

Objections to taxpayers' suit for lack of sufficient personality standing, or interest Sec. 1. Until a legislature is elected and convened under a new
are, however, in the main procedural matters. Considering the importance to the Constitution, the President shall continue to exercise legislative
public of the cases at bar, and in keeping with the Court's duty, under the 1987 powers.
Constitution, to determine wether or not the other branches of government have kept
themselves within the limits of the Constitution and the laws and that they have not
abused the discretion given to them, the Court has brushed aside technicalities of On 15 October 1986, the Constitutional Commission of 1986 adopted a new
procedure and has taken cognizance of these petitions. Constitution for the Republic of the Philippines which was ratified in a plebiscite
conducted on 2 February 1987. Article XVIII, sec. 6 of said Constitution, hereafter
referred to as the 1987 Constitution, provides:
But, before resolving the issues raised, a brief look into the tax law in question is in
order.
Sec. 6. The incumbent President shall continue to exercise
legislative powers until the first Congress is convened.
The VAT is a tax levied on a wide range of goods and services. It is a tax on the
value, added by every seller, with aggregate gross annual sales of articles and/or
services, exceeding P200,00.00, to his purchase of goods and services, unless It should be noted that, under both the Provisional and the 1987 Constitutions, the
exempt. VAT is computed at the rate of 0% or 10% of the gross selling price of goods President is vested with legislative powers until a legislature under a new
or gross receipts realized from the sale of services. Constitution is convened. The first Congress, created and elected under the 1987
Constitution, was convened on 27 July 1987. Hence, the enactment of EO 273 on 25
July 1987, two (2) days before Congress convened on 27 July 1987, was within the
The VAT is said to have eliminated privilege taxes, multiple rated sales tax on President's constitutional power and authority to legislate.
manufacturers and producers, advance sales tax, and compensating tax on
importations. The framers of EO 273 that it is principally aimed to rationalize the
system of taxing goods and services; simplify tax administration; and make the tax Petitioner Valmonte claims, additionally, that Congress was really convened on 30
system more equitable, to enable the country to attain economic recovery. June 1987 (not 27 July 1987). He contends that the word "convene" is synonymous
with "the date when the elected members of Congress assumed office."
The VAT is not entirely new. It was already in force, in a modified form, before EO
273 was issued. As pointed out by the Solicitor General, the Philippine sales tax The contention is without merit. The word "convene" which has been interpreted to
system, prior to the issuance of EO 273, was essentially a single stage value added mean "to call together, cause to assemble, or convoke," 1 is clearly different from
assumption of office by the individual members of Congress or their taking the oath Petitioners have failed to show that EO 273 was issued capriciously and whimsically
of office. As an example, we call to mind the interim National Assembly created or in an arbitrary or despotic manner by reason of passion or personal hostility. It
under the 1973 Constitution, which had not been "convened" but some members of appears that a comprehensive study of the VAT had been extensively discussed by
the body, more particularly the delegates to the 1971 Constitutional Convention who this framers and other government agencies involved in its implementation, even
had opted to serve therein by voting affirmatively for the approval of said under the past administration. As the Solicitor General correctly sated. "The signing
Constitution, had taken their oath of office. of E.O. 273 was merely the last stage in the exercise of her legislative powers. The
legislative process started long before the signing when the data were gathered,
To uphold the submission of petitioner Valmonte would stretch the definition of the proposals were weighed and the final wordings of the measure were drafted, revised
word "convene" a bit too far. It would also defeat the purpose of the framers of the and finalized. Certainly, it cannot be said that the President made a jump, so to speak,
1987 Constitutional and render meaningless some other provisions of said on the Congress, two days before it convened." 3
Constitution. For example, the provisions of Art. VI, sec. 15, requiring Congress
to convene once every year on the fourth Monday of July for its regular session Next, the petitioners claim that EO 273 is oppressive, discriminatory, unjust and
would be a contrariety, since Congress would already be deemed to be in session regressive, in violation of the provisions of Art. VI, sec. 28(1) of the 1987
after the individual members have taken their oath of office. A portion of the Constitution, which states:
provisions of Art. VII, sec. 10, requiring Congress to convene for the purpose of
enacting a law calling for a special election to elect a President and Vice-President in Sec. 28 (1) The rule of taxation shall be uniform and equitable. The
case a vacancy occurs in said offices, would also be a surplusage. The portion of Art. Congress shall evolve a progressive system of taxation.
VII, sec. 11, third paragraph, requiring Congress to convene, if not in session, to
decide a conflict between the President and the Cabinet as to whether or not the The petitioners" assertions in this regard are not supported by facts and
President and the Cabinet as to whether or not the President can re-assume the circumstances to warrant their conclusions. They have failed to adequately show that
powers and duties of his office, would also be redundant. The same is true with the the VAT is oppressive, discriminatory or unjust. Petitioners merely rely upon
portion of Art. VII, sec. 18, which requires Congress to convene within twenty-four newspaper articles which are actually hearsay and have evidentiary value. To justify
(24) hours following the declaration of martial law or the suspension of the privilage the nullification of a law. there must be a clear and unequivocal breach of the
of the writ of habeas corpus. Constitution, not a doubtful and argumentative implication. 4

The 1987 Constitution mentions a specific date when the President loses her power As the Court sees it, EO 273 satisfies all the requirements of a valid tax. It is
to legislate. If the framers of said Constitution had intended to terminate the exercise uniform. The court, in City of Baguio vs. De Leon, 5 said:
of legislative powers by the President at the beginning of the term of office of the
members of Congress, they should have so stated (but did not) in clear and
unequivocal terms. The Court has not power to re-write the Constitution and give it a ... In Philippine Trust Company v. Yatco (69 Phil. 420), Justice
meaning different from that intended. Laurel, speaking for the Court, stated: "A tax is considered uniform
when it operates with the same force and effect in every place
where the subject may be found."
The Court also finds no merit in the petitioners' claim that EO 273 was issued by the
President in grave abuse of discretion amounting to lack or excess of jurisdiction.
"Grave abuse of discretion" has been defined, as follows: There was no occasion in that case to consider the possible effect
on such a constitutional requirement where there is a classification.
The opportunity came in Eastern Theatrical Co. v. Alfonso (83
Grave abuse of discretion" implies such capricious and whimsical Phil. 852, 862). Thus: "Equality and uniformity in taxation means
exercise of judgment as is equivalent to lack of jurisdiction (Abad that all taxable articles or kinds of property of the same class shall
Santos vs. Province of Tarlac, 38 Off. Gaz. 834), or, in other be taxed at the same rate. The taxing power has the authority to
words, where the power is exercised in an arbitrary or despotic make reasonable and natural classifications for purposes of
manner by reason of passion or personal hostility, and it must be so taxation; . . ." About two years later, Justice Tuason, speaking for
patent and gross as to amount to an evasion of positive duty or to a this Court in Manila Race Horses Trainers Assn. v. de la Fuente (88
virtual refusal to perform the duty enjoined or to act at all in Phil. 60, 65) incorporated the above excerpt in his opinion and
contemplation of law. (Tavera-Luna, Inc. vs. Nable, 38 Off. Gaz. continued; "Taking everything into account, the differentiation
62). 2 against which the plaintiffs complain conforms to the practical
dictates of justice and equity and is not discriminatory within the Sec. 102. Value-added tax on sale of services. — There shall be
meaning of the Constitution." levied, assessed and collected, a value-added tax equivalent to 10%
percent of gross receipts derived by any person engaged in the sale
To satisfy this requirement then, all that is needed as held in of services. The phrase sale of services" means the performance of
another case decided two years later, (Uy Matias v. City of Cebu, all kinds of services for others for a fee, remuneration or
93 Phil. 300) is that the statute or ordinance in question "applies consideration, including those performed or rendered by
equally to all persons, firms and corporations placed in similar construction and service contractors; stock, real estate,
situation." This Court is on record as accepting the view in a commercial, customs and immigration brokers; lessors of personal
leading American case (Carmichael v. Southern Coal and Coke property; lessors or distributors of cinematographic films; persons
Co., 301 US 495) that "inequalities which result from a singling engaged in milling, processing, manufacturing or repacking goods
out of one particular class for taxation or exemption infringe no for others; and similar services regardless of whether or not the
constitutional limitation." (Lutz v. Araneta, 98 Phil. 148, 153). performance thereof call for the exercise or use of the physical or
mental faculties: ...
The sales tax adopted in EO 273 is applied similarly on all goods and services sold to
the public, which are not exempt, at the constant rate of 0% or 10%. With the insertion of the clarificatory phrase "except customs brokers" in Sec. 103(r),
a potential conflict between the two sections, (Secs. 102 and 103), insofar as customs
The disputed sales tax is also equitable. It is imposed only on sales of goods or brokers are concerned, is averted.
services by persons engage in business with an aggregate gross annual sales
exceeding P200,000.00. Small corner sari-sari stores are consequently exempt from At any rate, the distinction of the customs brokers from the other professionals who
its application. Likewise exempt from the tax are sales of farm and marine products, are subject to occupation tax under the Local Tax Code is based upon material
spared as they are from the incidence of the VAT, are expected to be relatively lower differences, in that the activities of customs brokers (like those of stock, real estate
and within the reach of the general public. 6 and immigration brokers) partake more of a business, rather than a profession and
were thus subjected to the percentage tax under Sec. 174 of the National Internal
The Court likewise finds no merit in the contention of the petitioner Integrated Revenue Code prior to its amendment by EO 273. EO 273 abolished the percentage
Customs Brokers Association of the Philippines that EO 273, more particularly the tax and replaced it with the VAT. If the petitioner Association did not protest the
new Sec. 103 (r) of the National Internal Revenue Code, unduly discriminates classification of customs brokers then, the Court sees no reason why it should protest
against customs brokers. The contested provision states: now.

Sec. 103. Exempt transactions. — The following shall be exempt The Court takes note that EO 273 has been in effect for more than five (5) months
from the value-added tax: now, so that the fears expressed by the petitioners that the adoption of the VAT will
trigger skyrocketing of prices of basic commodities and services, as well as mass
actions and demonstrations against the VAT should by now be evident. The fact that
xxx xxx xxx nothing of the sort has happened shows that the fears and apprehensions of the
petitioners appear to be more imagined than real. It would seem that the VAT is not
(r) Service performed in the exercise of profession or calling as bad as we are made to believe.
(except customs brokers) subject to the occupation tax under the
Local Tax Code, and professional services performed by registered In any event, if petitioners seriously believe that the adoption and continued
general professional partnerships; application of the VAT are prejudicial to the general welfare or the interests of the
majority of the people, they should seek recourse and relief from the political
The phrase "except customs brokers" is not meant to discriminate against customs branches of the government. The Court, following the time-honored doctrine of
brokers. It was inserted in Sec. 103(r) to complement the provisions of Sec. 102 of separation of powers, cannot substitute its judgment for that of the President as to the
the Code, which makes the services of customs brokers subject to the payment of the wisdom, justice and advisability of the adoption of the VAT. The Court can only look
VAT and to distinguish customs brokers from other professionals who are subject to into and determine whether or not EO 273 was enacted and made effective as law, in
the payment of an occupation tax under the Local Tax Code. Pertinent provisions of the manner required by, and consistent with, the Constitution, and to make sure that
Sec. 102 read: it was not issued in grave abuse of discretion amounting to lack or excess of
jurisdiction; and, in this regard, the Court finds no reason to impede its application or assessments. The Commissioner cancelled the assessments for 1970 and 1971 but
continued implementation. insisted on those for 1968 and 1969.

WHEREFORE, the petitions are DISMISSED. Without pronouncement as to costs. The petitioner filed a petition for review with the Tax Court, which on February 26,
1982 held the petitioner liable only for the income tax for the period from January 1
SO ORDERED. to August 3, 1969 or before the passage of Republic Act No. 6020 which reiterated its
tax exemption. The petitioner appealed to this Court.
G.R. No. L-60126 September 25, 1985
It contends that the Tax Court erred (1) in not holding that the franchise tax paid by
CAGAYAN ELECTRIC POWER & LIGHT CO., INC., petitioner, the petitioner is a commutative tax which already includes the income tax; (2) in
vs. holding that Republic Act No. 5431 as amended, altered or repealed petitioner's
COMMISSIONER OF INTERNAL REVENUE and COURT OF franchise; (3) in holding that petitioner's franchise is a contract which can be
APPEALS, respondents. impaired by an implied repeal and (4) in not holding that section 24(d) of the Tax
Code should be construed strictly against the Government.
Quasha, De Guzman Makalintal & Barot for petitioner.
We hold that Congress could impair petitioner's legislative franchise by making it
liable for income tax from which heretofore it was exempted by virtue of the
AQUINO, J.: exemption provided for in section 3 of its franchise.

This is about the liability of petitioner Cagayan Electric Power & Light Co., Inc. for The Constitution provides that a franchise is subject to amendment, alteration or
income tax amounting to P75,149.73 for the more than seven-month period of the repeal by the Congress when the public interest so requires (Sec. 8, Art. XIV, 1935
year 1969 in addition to franchise tax. Constitution; Sec. 5, Art. XIV, 1973 Constitution),

The petitioner is the holder of a legislative franchise, Republic Act No. 3247, under Section 1 of petitioner's franchise, Republic Act No. 3247, provides that it is subject
which its payment of 3% tax on its gross earnings from the sale of electric current is to the provisions of the Constitution and to the terms and conditions established in
"in lieu of all taxes and assessments of whatever authority upon privileges, earnings, Act No. 3636 whose section 12 provides that the franchise is subject to amendment,
income, franchise, and poles, wires, transformers, and insulators of the grantee, from alteration or repeal by Congress.
which taxes and assessments the grantee is hereby expressly exempted" (Sec. 3).
Republic Act No. 5431, in amending section 24 of the Tax Code by subjecting to
On June 27, 1968, Republic Act No. 5431 amended section 24 of the Tax Code by income tax all corporate taxpayers not expressly exempted therein and in section 27
making liable for income tax all corporate taxpayers not specifically exempt under of the Code, had the effect of withdrawing petitioner's exemption from income tax.
paragraph (c) (1) of said section and section 27 of the Tax Code notwithstanding the
"provisions of existing special or general laws to the contrary". Thus, franchise
companies were subjected to income tax in addition to franchise tax. The Tax Court acted correctly in holding that the exemption was restored by the
subsequent enactment on August 4, 1969 of Republic Act No. 6020 which reenacted
the said tax exemption. Hence, the petitioner is liable only for the income tax for the
However, in petitioner's case, its franchise was amended by Republic Act No. 6020, period from January 1 to August 3, 1969 when its tax exemption was modified by
effective August 4, 1969, by authorizing the petitioner to furnish electricity to the Republic Act No. 5431.
municipalities of Villanueva and Jasaan, Misamis Oriental in addition to Cagayan de
Oro City and the municipalities of Tagoloan and Opol. The amendment reenacted the
tax exemption in its original charter or neutralized the modification made by It is relevant to note that franchise companies, like the Philippine Long Distance
Republic Act No. 5431 more than a year before. Telephone Company, have been paying income tax in addition to the franchise tax.

By reason of the amendment to section 24 of the Tax Code, the Commissioner of However, it cannot be denied that the said 1969 assessment appears to be highly
Internal Revenue in a demand letter dated February 15, 1973 required the petitioner controversial. The Commissioner at the outset was not certain as to petitioner's
to pay deficiency income taxes for 1968-to 1971. The petitioner contested the
income tax liability. It had reason not to pay income tax because of the tax exemption 1. That plaintiff's warehouse in the City of Butuan serves as a storage for its
in its franchise. products the "Pepsi-Cola" soft drinks for sale to customers in the City of
Butuan and all the municipalities in the Province of Agusan. These "Pepsi-
For this reason, it should be liable only for tax proper and should not be held liable Cola Cola" soft drinks are bottled in Cebu City and shipped to the Butuan
for the surcharge and interest. (Advertising Associates, Inc. vs. Commissioner of City warehouse of plaintiff for distribution and sale in the City of Butuan
Internal Revenue and Court of Tax Appeals, G. R. No. 59758, December 26, and all municipalities of Agusan. .
1984,133 SCRA 765; Imus Electric Co., Inc. vs. Commissioner of Internal Revenue,
125 Phil. 1024; C.M. Hoskins & Co., Inc. vs. Commissioner of Internal Revenue, L- 2. That on August 16, 1960, the City of Butuan enacted Ordinance No. 110
28383, June 22, 1976, 71 SCRA 511.) which was subsequently amended by Ordinance No. 122 and effective
November 28, 1960. A copy of Ordinance No. 110, Series of 1960 and
WHEREFORE, the judgment of the Tax Court is affirmed with the modification that Ordinance No. 122 are incorporated herein as Exhibits "A" and "B",
the petitioner is liable only for the tax proper and that it should not pay the respectively.
delinquency penalties. No costs.
3. That Ordinance No. 110 as amended, imposes a tax on any person,
SO ORDERED. association, etc., of P0.10 per case of 24 bottles of Pepsi-Cola and the
plaintiff paid under protest the amount of P4,926.63 from August 16 to
G.R. No. L-22814 August 28, 1968 December 31, 1960 and the amount of P9,250.40 from January 1 to July 30,
1961.
PEPSI-COLA BOTTLING CO. OF THE PHILIPPINES, INC., plaintiff-
appellant, 4. That the plaintiff filed the foregoing complaint for the recovery of the
vs. total amount of P14,177.03 paid under protest and those that if may later on
CITY OF BUTUAN, MEMBERS OF THE MUNICIPAL BOARD, pay until the termination of this case on the ground that Ordinance No. 110
THE CITY MAYOR and THE CITY TREASURER, all of the CITY OF as amended of the City of Butuan is illegal, that the tax imposed is
BUTUAN, defendants-appellees. excessive and that it is unconstitutional.

Sabido, Sabido and Associates for plaintiff-appellant. 5. That pursuant to Ordinance No. 110 as amended, the City Treasurer of
The City Attorney of Butuan City for defendants-appellees. Butuan City, has prepared a form to be accomplished by the plaintiff for the
computation of the tax. A copy of the form is enclosed herewith as Exhibit
"C".
CONCEPCION, C.J.:
6. That the Profit and Loss Statement of the plaintiff for the period from
Direct appeal to this Court, from a decision of the Court of First Instance of Agusan, January 1, 1961 to July 30, 1961 of its warehouse in Butuan City is
dismissing plaintiff's complaint, with costs. incorporated herein as Exhibits "D" to "D-1" to "D-5". In this Profit and
Loss Statement, the defendants claim that the plaintiff is not entitled to a
Plaintiff, Pepsi-Cola Bottling Company of the Philippines, is a domestic corporation depreciation of P3,052.63 but only P1,202.55 in which case the profit of
with offices and principal place of business in Quezon City. The defendants are the plaintiff will be increased from P1,254.44 to P3,104.52. The plaintiff differs
City of Butuan, its City Mayor, the members of its municipal board and its City only on the claim of depreciation which the company claims to be
Treasurer. Plaintiff — seeks to recover the sums paid by it to the City of Butuan — P3,052.62. This is in accordance with the findings of the representative of
hereinafter referred to as the City and collected by the latter, pursuant to its the undersigned City Attorney who verified the records of the plaintiff.
Municipal Ordinance No. 110, as amended by Municipal Ordinance No. 122, both
series of 1960, which plaintiff assails as null and void, and to prevent the 7. That beginning November 21, 1960, the price of Pepsi-Cola per case of
enforcement thereof. Both parties submitted the case for decision in the lower court 24 bottles was increased to P1.92 which price is uniform throughout the
upon a stipulation to the effect: Philippines. Said increase was made due to the increase in the production
cost of its manufacture.
8. That the parties reserve the right to submit arguments on the The third objection is, likewise, untenable. The tax of "P0.10 per case of 24
constitutionality and illegality of Ordinance No. 110, as amended of the bottles," of soft drinks or carbonated drinks — in the production and sale of which
City of Butuan in their respective memoranda. plaintiff is engaged — or less than P0.0042 per bottle, is manifestly too small to be
excessive, oppressive, or confiscatory.
xxx xxx x x x1äwphï1.ñët
The first and the fourth objections merit, however, serious consideration. In this
Section 1 of said Ordinance No. 110, as amended, states what products are "liquors", connection, it is noteworthy that the tax prescribed in section 3 of Ordinance No.
within the purview thereof. Section 2 provides for the payment by "any agent and/or 110, as originally approved, was imposed upon dealers "engaged in selling" soft
consignee" of any dealer "engaged in selling liquors, imported or local, in the City," drinks or carbonated drinks. Thus, it would seem that the intent was then to levy a
of taxes at specified rates. Section 3 prescribes a tax of P0.10 per case of 24 bottles tax upon the sale of said merchandise. As amended by Ordinance No. 122, the tax is,
of the soft drinks and carbonated beverages therein named, and "all other soft drinks however, imposed only upon "any agent and/or consignee of any person, association,
or carbonated drinks." Section 3-A, defines the meaning of the term "consignee or partnership, company or corporation engaged in selling ... soft drinks or carbonated
agent" for purposes of the ordinance. Section 4 provides that said taxes "shall be paid drinks." And, pursuant to section 3-A, which was inserted by said Ordinance No.
at the end of every calendar month." Pursuant to Section 5, the taxes "shall be based 122:
and computed from the cargo manifest or bill of lading or any other record showing
the number of cases of soft drinks, liquors or all other soft drinks or carbonated ... — Definition of the Term Consignee or Agent. — For purposes of this
drinks received within the month." Sections 6, 7 and 8 specify the surcharge to be Ordinance, a consignee of agent shall mean any person, association,
added for failure to pay the taxes within the period prescribed and the penalties partnership, company or corporation who acts in the place of another by
imposable for "deliberate and willful refusal to pay the tax mentioned in Sections 2 authority from him or one entrusted with the business of another or to
and 3" or for failure "to furnish the office of the City Treasurer a copy of the bill of whom is consigned or shipped no less than 1,000 cases of hard liquors or
lading or cargo manifest or record of soft drinks, liquors or carbonated drinks for sale soft drinks every month for resale, either retail or wholesale.
in the City." Section 9 makes the ordinance applicable to soft drinks, liquors or
carbonated drinks "received outside" but "sold within" the City. Section 10 of the As a consequence, merchants engaged in the sale of soft drink or carbonated drinks,
ordinance provides that the revenue derived therefrom "shall be alloted as follows: are not subject to the tax, unless they are agents and/or consignees of another
40% for Roads and Bridges Fund; 40% for the General Fund and 20% for the School dealer, who, in the very nature of things, must be one engaged in business outside the
Fund." City. Besides, the tax would not be applicable to such agent and/or consignee, if less
than 1,000 cases of soft drinks are consigned or shipped to him every month. When
Plaintiff maintains that the disputed ordinance is null and void because: (1) it we consider, also, that the tax "shall be based and computed from the cargo
partakes of the nature of an import tax; (2) it amounts to double taxation; (3) it is manifest or bill of lading ... showing the number of cases" — not sold — but
excessive, oppressive and confiscatory; (4) it is highly unjust and discriminatory; and "received" by the taxpayer, the intention to limit the application of the ordinance to
(5) section 2 of Republic Act No. 2264, upon the authority of which it was enacted, soft drinks and carbonated drinks brought into the City from outside thereof becomes
is an unconstitutional delegation of legislative powers. apparent. Viewed from this angle, the tax partakes of the nature of an import duty,
which is beyond defendant's authority to impose by express provision of law.4
The second and last objections are manifestly devoid of merit. Indeed —
independently of whether or not the tax in question, when considered in relation to Even however, if the burden in question were regarded as a tax on the sale of said
the sales tax prescribed by Acts of Congress, amounts to double taxation, on which beverages, it would still be invalid, as discriminatory, and hence, violative of the
we need not and do not express any opinion - double taxation, in general, is not uniformity required by the Constitution and the law therefor, since only sales by
forbidden by our fundamental law. We have not adopted, as part thereof, the "agents or consignees" of outside dealers would be subject to the tax. Sales by local
injunction against double taxation found in the Constitution of the United States and dealers, not acting for or on behalf of other merchants, regardless of the volume of
of some States of the Union.1 Then, again, the general principle against delegation of their sales, and even if the same exceeded those made by said agents or consignees of
legislative powers, in consequence of the theory of separation of powers2 is subject to producers or merchants established outside the City of Butuan, would
one well-established exception, namely: legislative powers may be delegated to local be exempt from the disputed tax.
governments — to which said theory does not apply3 — in respect of matters of local
concern. It is true that the uniformity essential to the valid exercise of the power of taxation
does not require identity or equality under all circumstances, or negate the authority
to classify the objects of taxation.5 The classification made in the exercise of this without providing itself with the necessary Mayor's permit and municipal license, in
authority, to be valid, must, however, be reasonable6 and this requirement is not violation of Ordinance No. 3000, as amended, and Ordinances Nos. 2529, 3028 and
deemed satisfied unless: (1) it is based upon substantial distinctions which make real 3364, and required plaintiff to secure, within three days, the corresponding permit
differences; (2) these are germane to the purpose of the legislation or ordinance; (3) and license fees, together with compromise covering the period from the 4th quarter
the classification applies, not only to present conditions, but, also, to future of 1945 to the 2nd quarter of 1953, in the total sum of P5,821.45 (Annex A).
conditions substantially identical to those of the present; and (4) the classification
applies equally all those who belong to the same class.7 Plaintiff protested against this requirement, but the City Treasurer demanded that
plaintiff deposit and pay under protest the sum of P5,891.45, if suit was to be taken
These conditions are not fully met by the ordinance in question.8 Indeed, if its in court regarding the same (Annex B). To avoid the closing of its business as well as
purpose were merely to levy a burden upon the sale of soft drinks or carbonated further fines and penalties in the premises on October 24, 1953, plaintiff paid to the
beverages, there is no reason why sales thereof by sealers other than agents or defendant under protest the said permit and license fees in the aforementioned
consignees of producers or merchants established outside the City of Butuan should amount, giving at the same time notice to the City Treasurer that suit would be taken
be exempt from the tax. in court to question the legality of the ordinances under which, the said fees were
being collected (Annex C), which was done on the same date by filing the complaint
WHEREFORE, the decision appealed from is hereby reversed, and another one shall that gave rise to this action. In its complaint plaintiff prays that judgment be rendered
be entered annulling Ordinance No. 110, as amended by Ordinance No. 122, and declaring the said Municipal Ordinance No. 3000, as amended, and Ordinances Nos.
sentencing the City of Butuan to refund to plaintiff herein the amounts collected from 2529, 3028 and 3364 illegal and unconstitutional, and that the defendant be ordered
and paid under protest by the latter, with interest thereon at the legal rate from the to refund to the plaintiff the sum of P5,891.45 paid under protest, together with legal
date of the promulgation of this decision, in addition to the costs, and defendants interest thereon, and the costs, plaintiff further praying for such other relief and
herein are, accordingly, restrained and prohibited permanently from enforcing said remedy as the court may deem just equitable.
Ordinance, as amended. It is so ordered.
Defendant answered the complaint, maintaining in turn that said ordinances were
G.R. No. L-9637 April 30, 1957 enacted by the Municipal Board of the City of Manila by virtue of the power granted
to it by section 2444, subsection (m-2) of the Revised Administrative Code,
AMERICAN BIBLE SOCIETY, plaintiff-appellant, superseded on June 18, 1949, by section 18, subsection (1) of Republic Act No. 409,
vs. known as the Revised Charter of the City of Manila, and praying that the complaint
CITY OF MANILA, defendant-appellee. be dismissed, with costs against plaintiff. This answer was replied by the plaintiff
reiterating the unconstitutionality of the often-repeated ordinances.
City Fiscal Eugenio Angeles and Juan Nabong for appellant.
Assistant City Fiscal Arsenio Nañawa for appellee. Before trial the parties submitted the following stipulation of facts:

FELIX, J.: COME NOW the parties in the above-entitled case, thru their undersigned
attorneys and respectfully submit the following stipulation of facts:
Plaintiff-appellant is a foreign, non-stock, non-profit, religious, missionary
corporation duly registered and doing business in the Philippines through its 1. That the plaintiff sold for the use of the purchasers at
Philippine agency established in Manila in November, 1898, with its principal office its principal office at 636 Isaac Peral, Manila, Bibles, New
at 636 Isaac Peral in said City. The defendant appellee is a municipal corporation Testaments, bible portions and bible concordance in
with powers that are to be exercised in conformity with the provisions of Republic English and other foreign languages imported by it from
Act No. 409, known as the Revised Charter of the City of Manila.
the United States as well as Bibles, New Testaments and
In the course of its ministry, plaintiff's Philippine agency has been distributing and
bible portions in the local dialects imported and/or
selling bibles and/or gospel portions thereof (except during the Japanese occupation) purchased locally; that from the fourth quarter of 1945 to
throughout the Philippines and translating the same into several Philippine dialects. the first quarter of 1953 inclusive the sales made by the
On May 29 1953, the acting City Treasurer of the City of Manila informed plaintiff plaintiff were as follows:
that it was conducting the business of general merchandise since November, 1945,
Quarter Amount of Sales 4th quarter 1950 45,287.92

4th quarter 1945 P1,244.21 1st quarter 1951 37,841.21

1st quarter 1946 2,206.85 2nd quarter 1951 29,103.98

2nd quarter 1946 1,950.38 3rd quarter 1951 20,181.10

3rd quarter 1946 2,235.99 4th quarter 1951 22,968.91

4th quarter 1946 3,256.04 1st quarter 1952 23,002.65

1st quarter 1947 13,241.07 2nd quarter 1952 17,626.96

2nd quarter 1947 15,774.55 3rd quarter 1952 17,921.01

3rd quarter 1947 14,654.13 4th quarter 1952 24,180.72

4th quarter 1947 12,590.94 1st quarter 1953 29,516.21

1st quarter 1948 11,143.90


2. That the parties hereby reserve the right to present evidence of other facts
not herein stipulated.
2nd quarter 1948 14,715.26
WHEREFORE, it is respectfully prayed that this case be set for hearing so
3rd quarter 1948 38,333.83 that the parties may present further evidence on their behalf. (Record on
Appeal, pp. 15-16).
4th quarter 1948 16,179.90
When the case was set for hearing, plaintiff proved, among other things, that it has
1st quarter 1949 23,975.10 been in existence in the Philippines since 1899, and that its parent society is in New
York, United States of America; that its, contiguous real properties located at Isaac
2nd quarter 1949 17,802.08 Peral are exempt from real estate taxes; and that it was never required to pay any
municipal license fee or tax before the war, nor does the American Bible Society in
3rd quarter 1949 16,640.79 the United States pay any license fee or sales tax for the sale of bible therein.
Plaintiff further tried to establish that it never made any profit from the sale of its
bibles, which are disposed of for as low as one third of the cost, and that in order to
4th quarter 1949 15,961.38
maintain its operating cost it obtains substantial remittances from its New York office
and voluntary contributions and gifts from certain churches, both in the United States
1st quarter 1950 18,562.46 and in the Philippines, which are interested in its missionary work. Regarding
plaintiff's contention of lack of profit in the sale of bibles, defendant retorts that the
2nd quarter 1950 21,816.32 admissions of plaintiff-appellant's lone witness who testified on cross-examination
that bibles bearing the price of 70 cents each from plaintiff-appellant's New York
3rd quarter 1950 25,004.55 office are sold here by plaintiff-appellant at P1.30 each; those bearing the price of
$4.50 each are sold here at P10 each; those bearing the price of $7 each are sold here not the ordinances of the City of Manila, Nos. 3000, as amended, and 2529, 3028 and
at P15 each; and those bearing the price of $11 each are sold here at P22 each, 3364, are constitutional and valid; and (2) whether the provisions of said ordinances
clearly show that plaintiff's contention that it never makes any profit from the sale of are applicable or not to the case at bar.
its bible, is evidently untenable.
Section 1, subsection (7) of Article III of the Constitution of the Republic of the
After hearing the Court rendered judgment, the last part of which is as follows: Philippines, provides that:

As may be seen from the repealed section (m-2) of the Revised (7) No law shall be made respecting an establishment of religion, or
Administrative Code and the repealing portions (o) of section 18 of prohibiting the free exercise thereof, and the free exercise and enjoyment of
Republic Act No. 409, although they seemingly differ in the way the religious profession and worship, without discrimination or preference, shall
legislative intent is expressed, yet their meaning is practically the same for forever be allowed. No religion test shall be required for the exercise of
the purpose of taxing the merchandise mentioned in said legal provisions, civil or political rights.
and that the taxes to be levied by said ordinances is in the nature of
percentage graduated taxes (Sec. 3 of Ordinance No. 3000, as amended, and Predicated on this constitutional mandate, plaintiff-appellant contends that
Sec. 1, Group 2, of Ordinance No. 2529, as amended by Ordinance No. Ordinances Nos. 2529 and 3000, as respectively amended, are unconstitutional and
3364). illegal in so far as its society is concerned, because they provide for religious
censorship and restrain the free exercise and enjoyment of its religious profession, to
IN VIEW OF THE FOREGOING CONSIDERATIONS, this Court is of the wit: the distribution and sale of bibles and other religious literature to the people of
opinion and so holds that this case should be dismissed, as it is hereby the Philippines.
dismissed, for lack of merits, with costs against the plaintiff.
Before entering into a discussion of the constitutional aspect of the case, We shall
Not satisfied with this verdict plaintiff took up the matter to the Court of Appeals first consider the provisions of the questioned ordinances in relation to their
which certified the case to Us for the reason that the errors assigned to the lower application to the sale of bibles, etc. by appellant. The records, show that by letter of
Court involved only questions of law. May 29, 1953 (Annex A), the City Treasurer required plaintiff to secure a Mayor's
permit in connection with the society's alleged business of distributing and selling
Appellant contends that the lower Court erred: bibles, etc. and to pay permit dues in the sum of P35 for the period covered in this
litigation, plus the sum of P35 for compromise on account of plaintiff's failure to
1. In holding that Ordinances Nos. 2529 and 3000, as respectively amended, secure the permit required by Ordinance No. 3000 of the City of Manila, as
are not unconstitutional; amended. This Ordinance is of general application and not particularly directed
against institutions like the plaintiff, and it does not contain any provisions whatever
prescribing religious censorship nor restraining the free exercise and enjoyment of
2. In holding that subsection m-2 of Section 2444 of the Revised any religious profession. Section 1 of Ordinance No. 3000 reads as follows:
Administrative Code under which Ordinances Nos. 2592 and 3000 were
promulgated, was not repealed by Section 18 of Republic Act No. 409;
SEC. 1. PERMITS NECESSARY. — It shall be unlawful for any person or
entity to conduct or engage in any of the businesses, trades, or
3. In not holding that an ordinance providing for taxes based on gross sales occupations enumerated in Section 3 of this Ordinance or other businesses,
or receipts, in order to be valid under the new Charter of the City of Manila, trades, or occupations for which a permit is required for the proper
must first be approved by the President of the Philippines; and supervision and enforcement of existing laws and ordinances governing the
sanitation, security, and welfare of the public and the health of the
4. In holding that, as the sales made by the plaintiff-appellant have assumed employees engaged in the business specified in said section 3
commercial proportions, it cannot escape from the operation of said hereof, WITHOUT FIRST HAVING OBTAINED A PERMIT THEREFOR
municipal ordinances under the cloak of religious privilege. FROM THE MAYOR AND THE NECESSARY LICENSE FROM THE
CITY TREASURER.
The issues. — As may be seen from the proceeding statement of the case, the issues
involved in the present controversy may be reduced to the following: (1) whether or
The business, trade or occupation of the plaintiff involved in this case is not Chapter 60 of the Revised Administrative Code which includes section 2444,
particularly mentioned in Section 3 of the Ordinance, and the record does not show subsection (m-2) of said legal body, as amended by Act No. 3659, approved on
that a permit is required therefor under existing laws and ordinances for the proper December 8, 1929, empowers the Municipal Board of the City of Manila:
supervision and enforcement of their provisions governing the sanitation, security
and welfare of the public and the health of the employees engaged in the business of (M-2) To tax and fix the license fee on (a) dealers in new automobiles or
the plaintiff. However, sections 3 of Ordinance 3000 contains item No. 79, which accessories or both, and (b) retail dealers in new (not yet used) merchandise,
reads as follows: which dealers are not yet subject to the payment of any municipal tax.

79. All other businesses, trades or occupations not For the purpose of taxation, these retail dealers shall be classified as (1)
mentioned in this Ordinance, except those upon which the retail dealers in general merchandise, and (2) retail dealers exclusively
City is not empowered to license or to tax P5.00 engaged in the sale of (a) textiles . . . (e) books, including stationery, paper
and office supplies, . . .: PROVIDED, HOWEVER, That the combined total
Therefore, the necessity of the permit is made to depend upon the power of the City tax of any debtor or manufacturer, or both, enumerated under these
to license or tax said business, trade or occupation. subsections (m-1) and (m-2), whether dealing in one or all of the articles
mentioned herein, SHALL NOT BE IN EXCESS OF FIVE HUNDRED
As to the license fees that the Treasurer of the City of Manila required the society to PESOS PER ANNUM.
pay from the 4th quarter of 1945 to the 1st quarter of 1953 in the sum of P5,821.45,
including the sum of P50 as compromise, Ordinance No. 2529, as amended by and appellee's counsel maintains that City Ordinances Nos. 2529 and 3000, as
Ordinances Nos. 2779, 2821 and 3028 prescribes the following: amended, were enacted in virtue of the power that said Act No. 3669 conferred upon
the City of Manila. Appellant, however, contends that said ordinances are longer in
SEC. 1. FEES. — Subject to the provisions of section 578 of the Revised force and effect as the law under which they were promulgated has been expressly
Ordinances of the City of Manila, as amended, there shall be paid to the repealed by Section 102 of Republic Act No. 409 passed on June 18, 1949, known as
City Treasurer for engaging in any of the businesses or occupations below the Revised Manila Charter.
enumerated, quarterly, license fees based on gross sales or receipts realized
during the preceding quarter in accordance with the rates herein prescribed: Passing upon this point the lower Court categorically stated that Republic Act No.
PROVIDED, HOWEVER, That a person engaged in any businesses or 409 expressly repealed the provisions of Chapter 60 of the Revised Administrative
occupation for the first time shall pay the initial license fee based on the Code but in the opinion of the trial Judge, although Section 2444 (m-2) of the former
probable gross sales or receipts for the first quarter beginning from the date Manila Charter and section 18 (o) of the new seemingly differ in the way the
of the opening of the business as indicated herein for the corresponding legislative intent was expressed, yet their meaning is practically the same for the
business or occupation. purpose of taxing the merchandise mentioned in both legal provisions and,
consequently, Ordinances Nos. 2529 and 3000, as amended, are to be considered as
xxx xxx xxx still in full force and effect uninterruptedly up to the present.

GROUP 2. — Retail dealers in new (not yet used) merchandise, which Often the legislature, instead of simply amending the pre-existing statute,
dealers are not yet subject to the payment of any municipal tax, such as will repeal the old statute in its entirety and by the same enactment re-enact
(1) retail dealers in general merchandise; (2) retail dealers exclusively all or certain portions of the preexisting law. Of course, the problem created
engaged in the sale of . . . books, including stationery. by this sort of legislative action involves mainly the effect of the repeal
upon rights and liabilities which accrued under the original statute. Are
xxx xxx xxx those rights and liabilities destroyed or preserved? The authorities are
divided as to the effect of simultaneous repeals and re-enactments. Some
adhere to the view that the rights and liabilities accrued under the repealed
As may be seen, the license fees required to be paid quarterly in Section 1 of said act are destroyed, since the statutes from which they sprang are actually
Ordinance No. 2529, as amended, are not imposed directly upon any religious terminated, even though for only a very short period of time. Others, and
institution but upon those engaged in any of the business or occupations therein they seem to be in the majority, refuse to accept this view of the situation,
enumerated, such as retail "dealers in general merchandise" which, it is alleged, and consequently maintain that all rights an liabilities which have accrued
cover the business or occupation of selling bibles, books, etc.
under the original statute are preserved and may be enforced, since the re- Plaintiff, however, argues that the questioned ordinances, to be valid, must first be
enactment neutralizes the repeal, therefore, continuing the law in force approved by the President of the Philippines as per section 18, subsection (ii) of
without interruption. (Crawford-Statutory Construction, Sec. 322). Republic Act No. 409, which reads as follows:

Appellant's counsel states that section 18 (o) of Republic Act No, 409 introduces a (ii) To tax, license and regulate any business, trade or occupation being
new and wider concept of taxation and is different from the provisions of Section conducted within the City of Manila, not otherwise enumerated in the
2444(m-2) that the former cannot be considered as a substantial re-enactment of the preceding subsections, including percentage taxes based on gross sales or
provisions of the latter. We have quoted above the provisions of section 2444(m-2) of receipts, subject to the approval of the PRESIDENT, except amusement
the Revised Administrative Code and We shall now copy hereunder the provisions of taxes.
Section 18, subdivision (o) of Republic Act No. 409, which reads as follows:
but this requirement of the President's approval was not contained in section 2444 of
(o) To tax and fix the license fee on dealers in general merchandise, the former Charter of the City of Manila under which Ordinance No. 2529 was
including importers and indentors, except those dealers who may be promulgated. Anyway, as stated by appellee's counsel, the business of "retail dealers
expressly subject to the payment of some other municipal tax under the in general merchandise" is expressly enumerated in subsection (o), section 18 of
provisions of this section. Republic Act No. 409; hence, an ordinance prescribing a municipal tax on said
business does not have to be approved by the President to be effective, as it is not
Dealers in general merchandise shall be classified as (a) wholesale dealers among those referred to in said subsection (ii). Moreover, the questioned ordinances
and (b) retail dealers. For purposes of the tax on retail dealers, general are still in force, having been promulgated by the Municipal Board of the City of
merchandise shall be classified into four main classes: namely (1) luxury Manila under the authority granted to it by law.
articles, (2) semi-luxury articles, (3) essential commodities, and (4)
miscellaneous articles. A separate license shall be prescribed for each class The question that now remains to be determined is whether said ordinances are
but where commodities of different classes are sold in the same inapplicable, invalid or unconstitutional if applied to the alleged business of
establishment, it shall not be compulsory for the owner to secure more than distribution and sale of bibles to the people of the Philippines by a religious
one license if he pays the higher or highest rate of tax prescribed by corporation like the American Bible Society, plaintiff herein.
ordinance. Wholesale dealers shall pay the license tax as such, as may be
provided by ordinance. With regard to Ordinance No. 2529, as amended by Ordinances Nos. 2779, 2821 and
3028, appellant contends that it is unconstitutional and illegal because it restrains the
For purposes of this section, the term "General merchandise" shall include free exercise and enjoyment of the religious profession and worship of appellant.
poultry and livestock, agricultural products, fish and other allied products.
Article III, section 1, clause (7) of the Constitution of the Philippines aforequoted,
The only essential difference that We find between these two provisions that may guarantees the freedom of religious profession and worship. "Religion has been
have any bearing on the case at bar, is that, while subsection (m-2) prescribes that the spoken of as a profession of faith to an active power that binds and elevates man to
combined total tax of any dealer or manufacturer, or both, enumerated under its Creator" (Aglipay vs. Ruiz, 64 Phil., 201).It has reference to one's views of his
subsections (m-1) and (m-2), whether dealing in one or all of the articles mentioned relations to His Creator and to the obligations they impose of reverence to His being
therein, shall not be in excess of P500 per annum, the corresponding section 18, and character, and obedience to His Will (Davis vs. Beason, 133 U.S., 342). The
subsection (o) of Republic Act No. 409, does not contain any limitation as to the constitutional guaranty of the free exercise and enjoyment of religious profession and
amount of tax or license fee that the retail dealer has to pay per annum. Hence, and in worship carries with it the right to disseminate religious information. Any restraints
accordance with the weight of the authorities above referred to that maintain that "all of such right can only be justified like other restraints of freedom of expression on
rights and liabilities which have accrued under the original statute are preserved and the grounds that there is a clear and present danger of any substantive evil which the
may be enforced, since the reenactment neutralizes the repeal, therefore continuing State has the right to prevent". (Tañada and Fernando on the Constitution of the
the law in force without interruption", We hold that the questioned ordinances of the Philippines, Vol. 1, 4th ed., p. 297). In the case at bar the license fee herein involved
City of Manila are still in force and effect. is imposed upon appellant for its distribution and sale of bibles and other religious
literature:
In the case of Murdock vs. Pennsylvania, it was held that an ordinance religion and inevitably tends to suppress their exercise. That is almost
requiring that a license be obtained before a person could canvass or solicit uniformly recognized as the inherent vice and evil of this flat license tax."
orders for goods, paintings, pictures, wares or merchandise cannot be made
to apply to members of Jehovah's Witnesses who went about from door to Nor could dissemination of religious information be conditioned upon the
door distributing literature and soliciting people to "purchase" certain approval of an official or manager even if the town were owned by a
religious books and pamphlets, all published by the Watch Tower Bible & corporation as held in the case of Marsh vs. State of Alabama (326 U.S.
Tract Society. The "price" of the books was twenty-five cents each, the 501), or by the United States itself as held in the case of Tucker vs. Texas
"price" of the pamphlets five cents each. It was shown that in making the (326 U.S. 517). In the former case the Supreme Court expressed the opinion
solicitations there was a request for additional "contribution" of twenty-five that the right to enjoy freedom of the press and religion occupies a preferred
cents each for the books and five cents each for the pamphlets. Lesser sum position as against the constitutional right of property owners.
were accepted, however, and books were even donated in case interested
persons were without funds. "When we balance the constitutional rights of owners of property against
those of the people to enjoy freedom of press and religion, as we must here,
On the above facts the Supreme Court held that it could not be said that we remain mindful of the fact that the latter occupy a preferred position. . . .
petitioners were engaged in commercial rather than a religious venture. In our view the circumstance that the property rights to the premises where
Their activities could not be described as embraced in the occupation of the deprivation of property here involved, took place, were held by others
selling books and pamphlets. Then the Court continued: than the public, is not sufficient to justify the State's permitting a
corporation to govern a community of citizens so as to restrict their
"We do not mean to say that religious groups and the press are free from all fundamental liberties and the enforcement of such restraint by the
financial burdens of government. See Grosjean vs. American Press Co., 297 application of a State statute." (Tañada and Fernando on the Constitution of
U.S., 233, 250, 80 L. ed. 660, 668, 56 S. Ct. 444. We have here something the Philippines, Vol. 1, 4th ed., p. 304-306).
quite different, for example, from a tax on the income of one who engages
in religious activities or a tax on property used or employed in connection Section 27 of Commonwealth Act No. 466, otherwise known as the National Internal
with activities. It is one thing to impose a tax on the income or property of a Revenue Code, provides:
preacher. It is quite another to exact a tax from him for the privilege of
delivering a sermon. The tax imposed by the City of Jeannette is a flat SEC. 27. EXEMPTIONS FROM TAX ON CORPORATIONS. — The
license tax, payment of which is a condition of the exercise of these following organizations shall not be taxed under this Title in respect to
constitutional privileges. The power to tax the exercise of a privilege is the income received by them as such —
power to control or suppress its enjoyment. . . . Those who can tax the
exercise of this religious practice can make its exercise so costly as to
deprive it of the resources necessary for its maintenance. Those who can tax (e) Corporations or associations organized and operated exclusively
the privilege of engaging in this form of missionary evangelism can close for religious, charitable, . . . or educational purposes, . . .: Provided,
all its doors to all those who do not have a full purse. Spreading religious however, That the income of whatever kind and character from any of its
beliefs in this ancient and honorable manner would thus be denied the properties, real or personal, or from any activity conducted for profit,
needy. . . . regardless of the disposition made of such income, shall be liable to the tax
imposed under this Code;
It is contended however that the fact that the license tax can suppress or
control this activity is unimportant if it does not do so. But that is to Appellant's counsel claims that the Collector of Internal Revenue has exempted the
disregard the nature of this tax. It is a license tax — a flat tax imposed on plaintiff from this tax and says that such exemption clearly indicates that the act of
the exercise of a privilege granted by the Bill of Rights . . . The power to distributing and selling bibles, etc. is purely religious and does not fall under the
impose a license tax on the exercise of these freedom is indeed as potent as above legal provisions.
the power of censorship which this Court has repeatedly struck down. . . . It
is not a nominal fee imposed as a regulatory measure to defray the expenses It may be true that in the case at bar the price asked for the bibles and other religious
of policing the activities in question. It is in no way apportioned. It is flat pamphlets was in some instances a little bit higher than the actual cost of the same
license tax levied and collected as a condition to the pursuit of activities but this cannot mean that appellant was engaged in the business or occupation of
whose enjoyment is guaranteed by the constitutional liberties of press and selling said "merchandise" for profit. For this reason We believe that the provisions
of City of Manila Ordinance No. 2529, as amended, cannot be applied to appellant, JUAN T. DAVID, petitioner,
for in doing so it would impair its free exercise and enjoyment of its religious vs.
profession and worship as well as its rights of dissemination of religious beliefs. TEOFISTO T. GUINGONA, JR., as Executive Secretary; ROBERTO DE
OCAMPO, as Secretary of Finance; LIWAYWAY VINZONS-CHATO, as
With respect to Ordinance No. 3000, as amended, which requires the obtention the Commissioner of Internal Revenue; and their AUTHORIZED AGENTS OR
Mayor's permit before any person can engage in any of the businesses, trades or REPRESENTATIVES, respondents.
occupations enumerated therein, We do not find that it imposes any charge upon the
enjoyment of a right granted by the Constitution, nor tax the exercise of religious G.R. No. 115543 August 25, 1994
practices. In the case of Coleman vs. City of Griffin, 189 S.E. 427, this point was
elucidated as follows: RAUL S. ROCO and the INTEGRATED BAR OF THE
PHILIPPINES, petitioners,
An ordinance by the City of Griffin, declaring that the practice of vs.
distributing either by hand or otherwise, circulars, handbooks, advertising, THE SECRETARY OF THE DEPARTMENT OF FINANCE; THE
or literature of any kind, whether said articles are being delivered free, or COMMISSIONERS OF THE BUREAU OF INTERNAL REVENUE AND
whether same are being sold within the city limits of the City of Griffin, BUREAU OF CUSTOMS, respondents.
without first obtaining written permission from the city manager of the City
of Griffin, shall be deemed a nuisance and punishable as an offense against G.R. No. 115544 August 25, 1994
the City of Griffin, does not deprive defendant of his constitutional right of
the free exercise and enjoyment of religious profession and worship, even PHILIPPINE PRESS INSTITUTE, INC.; EGP PUBLISHING CO., INC.;
though it prohibits him from introducing and carrying out a scheme or PUBLISHING CORPORATION; PHILIPPINE JOURNALISTS, INC.; JOSE
purpose which he sees fit to claim as a part of his religious system. L. PAVIA; and OFELIA L. DIMALANTA, petitioners,
vs.
It seems clear, therefore, that Ordinance No. 3000 cannot be considered HON. LIWAYWAY V. CHATO, in her capacity as Commissioner of Internal
unconstitutional, even if applied to plaintiff Society. But as Ordinance No. 2529 of Revenue; HON. TEOFISTO T. GUINGONA, JR., in his capacity as Executive
the City of Manila, as amended, is not applicable to plaintiff-appellant and Secretary; and HON. ROBERTO B. DE OCAMPO, in his capacity as Secretary
defendant-appellee is powerless to license or tax the business of plaintiff Society of Finance, respondents.
involved herein for, as stated before, it would impair plaintiff's right to the free
exercise and enjoyment of its religious profession and worship, as well as its rights G.R. No. 115754 August 25, 1994
of dissemination of religious beliefs, We find that Ordinance No. 3000, as amended
is also inapplicable to said business, trade or occupation of the plaintiff.
CHAMBER OF REAL ESTATE AND BUILDERS ASSOCIATIONS, INC.,
(CREBA), petitioner,
Wherefore, and on the strength of the foregoing considerations, We hereby reverse vs.
the decision appealed from, sentencing defendant return to plaintiff the sum of THE COMMISSIONER OF INTERNAL REVENUE, respondent.
P5,891.45 unduly collected from it. Without pronouncement as to costs. It is so
ordered.
G.R. No. 115781 August 25, 1994
G.R. No. 115455 August 25, 1994
KILOSBAYAN, INC., JOVITO R. SALONGA, CIRILO A. RIGOS, ERME
CAMBA, EMILIO C. CAPULONG, JR., JOSE T. APOLO, EPHRAIM
ARTURO M. TOLENTINO, petitioner, TENDERO, FERNANDO SANTIAGO, JOSE ABCEDE, CHRISTINE TAN,
vs. FELIPE L. GOZON, RAFAEL G. FERNANDO, RAOUL V. VICTORINO,
THE SECRETARY OF FINANCE and THE COMMISSIONER OF JOSE CUNANAN, QUINTIN S. DOROMAL, MOVEMENT OF ATTORNEYS
INTERNAL REVENUE, respondents. FOR BROTHERHOOD, INTEGRITY AND NATIONALISM, INC.
("MABINI"), FREEDOM FROM DEBT COALITION, INC., PHILIPPINE
G.R. No. 115525 August 25, 1994 BIBLE SOCIETY, INC., and WIGBERTO TAÑADA, petitioners,
vs.
THE EXECUTIVE SECRETARY, THE SECRETARY OF FINANCE, THE Estelito P. Mendoza for petitioner in G.R. No. 115852.
COMMISSIONER OF INTERNAL REVENUE and THE COMMISSIONER
OF CUSTOMS, respondents. Panganiban, Benitez, Parlade, Africa & Barinaga Law Offices for petitioners in
G.R. No. 115873.
G.R. No. 115852 August 25, 1994
R.B. Rodriguez & Associates for petitioners in G.R. No. 115931.
PHILIPPINE AIRLINES, INC., petitioner,
vs. Reve A.V. Saguisag for MABINI.
THE SECRETARY OF FINANCE, and COMMISSIONER OF INTERNAL
REVENUE, respondents.

G.R. No. 115873 August 25, 1994 MENDOZA, J.:

COOPERATIVE UNION OF THE PHILIPPINES, petitioners, The value-added tax (VAT) is levied on the sale, barter or exchange of goods and
vs. properties as well as on the sale or exchange of services. It is equivalent to 10% of
HON. LIWAYWAY V. CHATO, in her capacity as the Commissioner of Internal the gross selling price or gross value in money of goods or properties sold, bartered
Revenue, HON. TEOFISTO T. GUINGONA, JR., in his capacity as Executive or exchanged or of the gross receipts from the sale or exchange of services. Republic
Secretary, and HON. ROBERTO B. DE OCAMPO, in his capacity as Secretary Act No. 7716 seeks to widen the tax base of the existing VAT system and enhance its
of Finance, respondents. administration by amending the National Internal Revenue Code.

G.R. No. 115931 August 25, 1994 These are various suits for certiorari and prohibition, challenging the
constitutionality of Republic Act No. 7716 on various grounds summarized in the
PHILIPPINE EDUCATIONAL PUBLISHERS ASSOCIATION, INC., and resolution of July 6, 1994 of this Court, as follows:
ASSOCIATION OF PHILIPPINE BOOK-SELLERS, petitioners,
vs. I. Procedural Issues:
HON. ROBERTO B. DE OCAMPO, as the Secretary of Finance; HON.
LIWAYWAY V. CHATO, as the Commissioner of Internal Revenue and HON.
GUILLERMO PARAYNO, JR., in his capacity as the Commissioner of A. Does Republic Act No. 7716 violate Art. VI, § 24 of the
Customs, respondents. Constitution?

Arturo M. Tolentino for and in his behalf. B. Does it violate Art. VI, § 26(2) of the Constitution?

Donna Celeste D. Feliciano and Juan T. David for petitioners in G.R. No. 115525. C. What is the extent of the power of the Bicameral Conference
Committee?
Roco, Bunag, Kapunan, Migallos and Jardeleza for petitioner R.S. Roco.
II. Substantive Issues:
Villaranza and Cruz for petitioners in G.R. No. 115544.
A. Does the law violate the following provisions in the Bill of
Rights (Art. III)?
Carlos A. Raneses and Manuel M. Serrano for petitioner in G.R. No. 115754.
1. §1
Salonga, Hernandez & Allado for Freedon From Debts Coalition, Inc. & Phil. Bible
Society.
2. § 4
3. § 5 It appears that on various dates between July 22, 1992 and August 31, 1993, several
bills 1 were introduced in the House of Representatives seeking to amend certain
4. § 10 provisions of the National Internal Revenue Code relative to the value-added tax or
VAT. These bills were referred to the House Ways and Means Committee which
B. Does the law violate the following other provisions of the recommended for approval a substitute measure, H. No. 11197, entitled
Constitution?
AN ACT RESTRUCTURING THE VALUE-ADDED TAX (VAT)
1. Art. VI, § 28(1) SYSTEM TO WIDEN ITS TAX BASE AND ENHANCE ITS
ADMINISTRATION, AMENDING FOR THESE PURPOSES
SECTIONS 99, 100, 102, 103, 104, 105, 106, 107, 108 AND 110
2. Art. VI, § 28(3) OF TITLE IV, 112, 115 AND 116 OF TITLE V, AND 236, 237
AND 238 OF TITLE IX, AND REPEALING SECTIONS 113
These questions will be dealt in the order they are stated above. As will presently be AND 114 OF TITLE V, ALL OF THE NATIONAL INTERNAL
explained not all of these questions are judicially cognizable, because not all REVENUE CODE, AS AMENDED
provisions of the Constitution are self executing and, therefore, judicially
enforceable. The other departments of the government are equally charged with the The bill (H. No. 11197) was considered on second reading starting November 6,
enforcement of the Constitution, especially the provisions relating to them. 1993 and, on November 17, 1993, it was approved by the House of Representatives
after third and final reading.
I. PROCEDURAL ISSUES
It was sent to the Senate on November 23, 1993 and later referred by that body to its
The contention of petitioners is that in enacting Republic Act No. 7716, or the Committee on Ways and Means.
Expanded Value-Added Tax Law, Congress violated the Constitution because,
although H. No. 11197 had originated in the House of Representatives, it was not On February 7, 1994, the Senate Committee submitted its report recommending
passed by the Senate but was simply consolidated with the Senate version (S. No. approval of S. No. 1630, entitled
1630) in the Conference Committee to produce the bill which the President signed
into law. The following provisions of the Constitution are cited in support of the
proposition that because Republic Act No. 7716 was passed in this manner, it did not AN ACT RESTRUCTURING THE VALUE-ADDED TAX (VAT)
originate in the House of Representatives and it has not thereby become a law: SYSTEM TO WIDEN ITS TAX BASE AND ENHANCE ITS
ADMINISTRATION, AMENDING FOR THESE PURPOSES
SECTIONS 99, 100, 102, 103, 104, 105, 107, 108, AND 110 OF
Art. VI, § 24: All appropriation, revenue or tariff bills, bills TITLE IV, 112 OF TITLE V, AND 236, 237, AND 238 OF TITLE
authorizing increase of the public debt, bills of local application, IX, AND REPEALING SECTIONS 113, 114 and 116 OF TITLE
and private bills shall originate exclusively in the House of V, ALL OF THE NATIONAL INTERNAL REVENUE CODE, AS
Representatives, but the Senate may propose or concur with AMENDED, AND FOR OTHER PURPOSES
amendments.
It was stated that the bill was being submitted "in substitution of Senate Bill No.
Id., § 26(2): No bill passed by either House shall become a law 1129, taking into consideration P.S. Res. No. 734 and H.B. No. 11197."
unless it has passed three readings on separate days, and printed
copies thereof in its final form have been distributed to its
Members three days before its passage, except when the President On February 8, 1994, the Senate began consideration of the bill (S. No. 1630). It
certifies to the necessity of its immediate enactment to meet a finished debates on the bill and approved it on second reading on March 24, 1994.
public calamity or emergency. Upon the last reading of a bill, no On the same day, it approved the bill on third reading by the affirmative votes of 13
amendment thereto shall be allowed, and the vote thereon shall be of its members, with one abstention.
taken immediately thereafter, and the yeas and nays entered in the
Journal. H. No. 11197 and its Senate version (S. No. 1630) were then referred to a conference
committee which, after meeting four times (April 13, 19, 21 and 25, 1994),
recommended that "House Bill No. 11197, in consolidation with Senate Bill No.
1630, be approved in accordance with the attached copy of the bill as reconciled and legislative power which under the Constitution is vested not in any particular
approved by the conferees." chamber but in the Congress of the Philippines, consisting of "a Senate and a House
of Representatives." 4 The exercise of the treaty-ratifying power is not the exercise of
The Conference Committee bill, entitled "AN ACT RESTRUCTURING THE legislative power. It is the exercise of a check on the executive power. There is,
VALUE-ADDED TAX (VAT) SYSTEM, WIDENING ITS TAX BASE AND therefore, no justification for comparing the legislative powers of the House and of
ENHANCING ITS ADMINISTRATION AND FOR THESE PURPOSES the Senate on the basis of the possession of such nonlegislative power by the Senate.
AMENDING AND REPEALING THE RELEVANT PROVISIONS OF THE The possession of a similar power by the U.S. Senate 5 has never been thought of as
NATIONAL INTERNAL REVENUE CODE, AS AMENDED, AND FOR OTHER giving it more legislative powers than the House of Representatives.
PURPOSES," was thereafter approved by the House of Representatives on April 27,
1994 and by the Senate on May 2, 1994. The enrolled bill was then presented to the In the United States, the validity of a provision (§ 37) imposing an ad valorem tax
President of the Philippines who, on May 5, 1994, signed it. It became Republic Act based on the weight of vessels, which the U.S. Senate had inserted in the Tariff Act
No. 7716. On May 12, 1994, Republic Act No. 7716 was published in two of 1909, was upheld against the claim that the provision was a revenue bill which
newspapers of general circulation and, on May 28, 1994, it took effect, although its originated in the Senate in contravention of Art. I, § 7 of the U.S. Constitution. 6 Nor
implementation was suspended until June 30, 1994 to allow time for the registration is the power to amend limited to adding a provision or two in a revenue bill
of business entities. It would have been enforced on July 1, 1994 but its enforcement emanating from the House. The U.S. Senate has gone so far as changing the whole of
was stopped because the Court, by the vote of 11 to 4 of its members, granted a bills following the enacting clause and substituting its own versions. In 1883, for
temporary restraining order on June 30, 1994. example, it struck out everything after the enacting clause of a tariff bill and wrote in
its place its own measure, and the House subsequently accepted the amendment. The
First. Petitioners' contention is that Republic Act No. 7716 did not "originate U.S. Senate likewise added 847 amendments to what later became the Payne-Aldrich
exclusively" in the House of Representatives as required by Art. VI, §24 of the Tariff Act of 1909; it dictated the schedules of the Tariff Act of 1921; it rewrote an
Constitution, because it is in fact the result of the consolidation of two distinct bills, extensive tax revision bill in the same year and recast most of the tariff bill of
H. No. 11197 and S. No. 1630. In this connection, petitioners point out that although 1922. 7 Given, then, the power of the Senate to propose amendments, the Senate can
Art. VI, SS 24 was adopted from the American Federal Constitution, 2 it is notable in propose its own version even with respect to bills which are required by the
two respects: the verb "shall originate" is qualified in the Philippine Constitution by Constitution to originate in the House.
the word "exclusively" and the phrase "as on other bills" in the American version is
omitted. This means, according to them, that to be considered as having originated in It is insisted, however, that S. No. 1630 was passed not in substitution of H. No.
the House, Republic Act No. 7716 must retain the essence of H. No. 11197. 11197 but of another Senate bill (S. No. 1129) earlier filed and that what the Senate
did was merely to "take [H. No. 11197] into consideration" in enacting S. No. 1630.
This argument will not bear analysis. To begin with, it is not the law — but the There is really no difference between the Senate preserving H. No. 11197 up to the
revenue bill — which is required by the Constitution to "originate exclusively" in the enacting clause and then writing its own version following the enacting clause
House of Representatives. It is important to emphasize this, because a bill originating (which, it would seem, petitioners admit is an amendment by substitution), and, on
in the House may undergo such extensive changes in the Senate that the result may the other hand, separately presenting a bill of its own on the same subject matter. In
be a rewriting of the whole. The possibility of a third version by the conference either case the result are two bills on the same subject.
committee will be discussed later. At this point, what is important to note is that, as a
result of the Senate action, a distinct bill may be produced. To insist that a revenue Indeed, what the Constitution simply means is that the initiative for filing revenue,
statute — and not only the bill which initiated the legislative process culminating in tariff, or tax bills, bills authorizing an increase of the public debt, private bills and
the enactment of the law — must substantially be the same as the House bill would bills of local application must come from the House of Representatives on the theory
be to deny the Senate's power not only to "concur with amendments" but also to that, elected as they are from the districts, the members of the House can be expected
"propose amendments." It would be to violate the coequality of legislative power of to be more sensitive to the local needs and problems. On the other hand, the senators,
the two houses of Congress and in fact make the House superior to the Senate. who are elected at large, are expected to approach the same problems from the
national perspective. Both views are thereby made to bear on the enactment of such
The contention that the constitutional design is to limit the Senate's power in respect laws.
of revenue bills in order to compensate for the grant to the Senate of the treaty-
ratifying power 3 and thereby equalize its powers and those of the House overlooks Nor does the Constitution prohibit the filing in the Senate of a substitute bill in
the fact that the powers being compared are different. We are dealing here with the anticipation of its receipt of the bill from the House, so long as action by the Senate
as a body is withheld pending receipt of the House bill. The Court cannot, therefore, the House of Representatives on the same day (May 14, 1968) after the bill had been
understand the alarm expressed over the fact that on March 1, 1993, eight months certified by the President as urgent. 12
before the House passed H. No. 11197, S. No. 1129 had been filed in the Senate.
After all it does not appear that the Senate ever considered it. It was only after the There is, therefore, no merit in the contention that presidential certification dispenses
Senate had received H. No. 11197 on November 23, 1993 that the process of only with the requirement for the printing of the bill and its distribution three days
legislation in respect of it began with the referral to the Senate Committee on Ways before its passage but not with the requirement of three readings on separate days,
and Means of H. No. 11197 and the submission by the Committee on February 7, also.
1994 of S. No. 1630. For that matter, if the question were simply the priority in the
time of filing of bills, the fact is that it was in the House that a bill (H. No. 253) to It is nonetheless urged that the certification of the bill in this case was invalid
amend the VAT law was first filed on July 22, 1992. Several other bills had been filed because there was no emergency, the condition stated in the certification of a
in the House before S. No. 1129 was filed in the Senate, and H. No. 11197 was only "growing budget deficit" not being an unusual condition in this country.
a substitute of those earlier bills.
It is noteworthy that no member of the Senate saw fit to controvert the reality of the
Second. Enough has been said to show that it was within the power of the Senate to factual basis of the certification. To the contrary, by passing S. No. 1630 on second
propose S. No. 1630. We now pass to the next argument of petitioners that S. No. and third readings on March 24, 1994, the Senate accepted the President's
1630 did not pass three readings on separate days as required by the certification. Should such certification be now reviewed by this Court, especially
Constitution 8 because the second and third readings were done on the same day, when no evidence has been shown that, because S. No. 1630 was taken up on second
March 24, 1994. But this was because on February 24, 1994 9 and again on March and third readings on the same day, the members of the Senate were deprived of the
22, 1994, 10 the President had certified S. No. 1630 as urgent. The presidential time needed for the study of a vital piece of legislation?
certification dispensed with the requirement not only of printing but also that of
reading the bill on separate days. The phrase "except when the President certifies to
the necessity of its immediate enactment, etc." in Art. VI, § 26(2) qualifies the two The sufficiency of the factual basis of the suspension of the writ of habeas corpus or
stated conditions before a bill can become a law: (i) the bill has passed three readings declaration of martial law under Art. VII, § 18, or the existence of a national
on separate days and (ii) it has been printed in its final form and distributed three emergency justifying the delegation of extraordinary powers to the President under
days before it is finally approved. Art. VI, § 23(2), is subject to judicial review because basic rights of individuals may
be at hazard. But the factual basis of presidential certification of bills, which involves
doing away with procedural requirements designed to insure that bills are duly
In other words, the "unless" clause must be read in relation to the "except" clause, considered by members of Congress, certainly should elicit a different standard of
because the two are really coordinate clauses of the same sentence. To construe the review.
"except" clause as simply dispensing with the second requirement in the "unless"
clause (i.e., printing and distribution three days before final approval) would not only
violate the rules of grammar. It would also negate the very premise of the "except" Petitioners also invite attention to the fact that the President certified S. No. 1630 and
clause: the necessity of securing the immediate enactment of a bill which is certified not H. No. 11197. That is because S. No. 1630 was what the Senate was considering.
in order to meet a public calamity or emergency. For if it is only the printing that is When the matter was before the House, the President likewise certified H. No. 9210
dispensed with by presidential certification, the time saved would be so negligible as the pending in the House.
to be of any use in insuring immediate enactment. It may well be doubted whether
doing away with the necessity of printing and distributing copies of the bill three Third. Finally it is contended that the bill which became Republic Act No. 7716 is
days before the third reading would insure speedy enactment of a law in the face of the bill which the Conference Committee prepared by consolidating H. No. 11197
an emergency requiring the calling of a special election for President and Vice- and S. No. 1630. It is claimed that the Conference Committee report included
President. Under the Constitution such a law is required to be made within seven provisions not found in either the House bill or the Senate bill and that these
days of the convening of Congress in emergency session. 11 provisions were "surreptitiously" inserted by the Conference Committee. Much is
made of the fact that in the last two days of its session on April 21 and 25, 1994 the
That upon the certification of a bill by the President the requirement of three readings Committee met behind closed doors. We are not told, however, whether the
on separate days and of printing and distribution can be dispensed with is supported provisions were not the result of the give and take that often mark the proceedings of
by the weight of legislative practice. For example, the bill defining conference committees.
the certiorari jurisdiction of this Court which, in consolidation with the Senate
version, became Republic Act No. 5440, was passed on second and third readings in
Nor is there anything unusual or extraordinary about the fact that the Conference Nonetheless, it is argued that under the respective Rules of the Senate and the House
Committee met in executive sessions. Often the only way to reach agreement on of Representatives a conference committee can only act on the differing provisions
conflicting provisions is to meet behind closed doors, with only the conferees of a Senate bill and a House bill, and that contrary to these Rules the Conference
present. Otherwise, no compromise is likely to be made. The Court is not about to Committee inserted provisions not found in the bills submitted to it. The following
take the suggestion of a cabal or sinister motive attributed to the conferees on the provisions are cited in support of this contention:
basis solely of their "secret meetings" on April 21 and 25, 1994, nor read anything
into the incomplete remarks of the members, marked in the transcript of stenographic Rules of the Senate
notes by ellipses. The incomplete sentences are probably due to the stenographer's
own limitations or to the incoherence that sometimes characterize conversations. Rule XII:
William Safire noted some such lapses in recorded talks even by recent past
Presidents of the United States.
§ 26. In the event that the Senate does not agree with the House of
Representatives on the provision of any bill or joint
In any event, in the United States conference committees had been customarily held resolution, the differences shall be settled by a conference
in executive sessions with only the conferees and their staffs in attendance. 13 Only in committee of both Houses which shall meet within ten days after
November 1975 was a new rule adopted requiring open sessions. Even then a their composition.
majority of either chamber's conferees may vote in public to close the meetings. 14
The President shall designate the members of the conference
As to the possibility of an entirely new bill emerging out of a Conference Committee, committee in accordance with subparagraph (c), Section 3 of Rule
it has been explained: III.

Under congressional rules of procedure, conference committees are Each Conference Committee Report shall contain a detailed and
not expected to make any material change in the measure at issue, sufficiently explicit statement of the changes in or amendments to
either by deleting provisions to which both houses have already the subject measure, and shall be signed by the conferees.
agreed or by inserting new provisions. But this is a difficult
provision to enforce. Note the problem when one house amends a
proposal originating in either house by striking out everything The consideration of such report shall not be in order unless the
following the enacting clause and substituting provisions which report has been filed with the Secretary of the Senate and copies
make it an entirely new bill. The versions are now altogether thereof have been distributed to the Members.
different, permitting a conference committee to draft essentially a
new bill. . . . 15 (Emphasis added)

The result is a third version, which is considered an "amendment in the nature of a Rules of the House of Representatives
substitute," the only requirement for which being that the third version be germane to
the subject of the House and Senate bills. 16 Rule XIV:

Indeed, this Court recently held that it is within the power of a conference committee § 85. Conference Committee Reports. — In the event that the
to include in its report an entirely new provision that is not found either in the House House does not agree with the Senate on the amendments to any
bill or in the Senate bill. 17 If the committee can propose an amendment consisting of bill or joint resolution, the differences may be settled by conference
one or two provisions, there is no reason why it cannot propose several provisions, committees of both Chambers.
collectively considered as an "amendment in the nature of a substitute," so long as
such amendment is germane to the subject of the bills before the committee. After The consideration of conference committee reports shall always be
all, its report was not final but needed the approval of both houses of Congress to in order, except when the journal is being read, while the roll is
become valid as an act of the legislative department. The charge that in this case the being called or the House is dividing on any question. Each of the
Conference Committee acted as a third legislative chamber is thus without any pages of such reports shall be signed by the conferees. Each report
basis. 18
shall contain a detailed, sufficiently explicit statement of the for the enactment of laws. As far as these requirements are concerned, we are
changes in or amendments to the subject measure. satisfied that they have been faithfully observed in these cases.

The consideration of such report shall not be in order unless copies Nor is there any reason for requiring that the Committee's Report in these cases must
thereof are distributed to the Members: Provided, That in the last have undergone three readings in each of the two houses. If that be the case, there
fifteen days of each session period it shall be deemed sufficient would be no end to negotiation since each house may seek modifications of the
that three copies of the report, signed as above provided, are compromise bill. The nature of the bill, therefore, requires that it be acted upon by
deposited in the office of the Secretary General. each house on a "take it or leave it" basis, with the only alternative that if it is not
approved by both houses, another conference committee must be appointed. But then
(Emphasis added) again the result would still be a compromise measure that may not be wholly
satisfying to both houses.
To be sure, nothing in the Rules limits a conference committee to a consideration of
conflicting provisions. But Rule XLIV, § 112 of the Rules of the Senate is cited to the Art. VI, § 26(2) must, therefore, be construed as referring only to bills introduced for
effect that "If there is no Rule applicable to a specific case the precedents of the the first time in either house of Congress, not to the conference committee report. For
Legislative Department of the Philippines shall be resorted to, and as a supplement of if the purpose of requiring three readings is to give members of Congress time to
these, the Rules contained in Jefferson's Manual." The following is then quoted from study bills, it cannot be gainsaid that H. No. 11197 was passed in the House after
the Jefferson's Manual: three readings; that in the Senate it was considered on first reading and then referred
to a committee of that body; that although the Senate committee did not report out
The managers of a conference must confine themselves to the the House bill, it submitted a version (S. No. 1630) which it had prepared by "taking
differences committed to them. . . and may not include subjects not into consideration" the House bill; that for its part the Conference Committee
within disagreements, even though germane to a question in issue. consolidated the two bills and prepared a compromise version; that the Conference
Committee Report was thereafter approved by the House and the Senate, presumably
after appropriate study by their members. We cannot say that, as a matter of fact, the
Note that, according to Rule XLIX, § 112, in case there is no specific rule applicable, members of Congress were not fully informed of the provisions of the bill. The
resort must be to the legislative practice. The Jefferson's Manual is resorted to only allegation that the Conference Committee usurped the legislative power of Congress
as supplement. It is common place in Congress that conference committee reports is, in our view, without warrant in fact and in law.
include new matters which, though germane, have not been committed to the
committee. This practice was admitted by Senator Raul S. Roco, petitioner in G.R.
No. 115543, during the oral argument in these cases. Whatever, then, may be Fourth. Whatever doubts there may be as to the formal validity of Republic Act No.
provided in the Jefferson's Manual must be considered to have been modified by the 7716 must be resolved in its favor. Our cases 20 manifest firm adherence to the rule
legislative practice. If a change is desired in the practice it must be sought in that an enrolled copy of a bill is conclusive not only of its provisions but also of its
Congress since this question is not covered by any constitutional provision but is due enactment. Not even claims that a proposed constitutional amendment was
only an internal rule of each house. Thus, Art. VI, § 16(3) of the Constitution invalid because the requisite votes for its approval had not been obtained 21 or that
provides that "Each House may determine the rules of its proceedings. . . ." certain provisions of a statute had been "smuggled" in the printing of the bill 22 have
moved or persuaded us to look behind the proceedings of a coequal branch of the
government. There is no reason now to depart from this rule.
This observation applies to the other contention that the Rules of the two chambers
were likewise disregarded in the preparation of the Conference Committee Report
because the Report did not contain a "detailed and sufficiently explicit statement of No claim is here made that the "enrolled bill" rule is absolute. In fact in one
changes in, or amendments to, the subject measure." The Report used brackets and case 23 we "went behind" an enrolled bill and consulted the Journal to determine
capital letters to indicate the changes. This is a standard practice in bill-drafting. We whether certain provisions of a statute had been approved by the Senate in view of
cannot say that in using these marks and symbols the Committee violated the Rules the fact that the President of the Senate himself, who had signed the enrolled bill,
of the Senate and the House. Moreover, this Court is not the proper forum for the admitted a mistake and withdrew his signature, so that in effect there was no longer
enforcement of these internal Rules. To the contrary, as we have already ruled, an enrolled bill to consider.
"parliamentary rules are merely procedural and with their observance the courts have
no concern." 19 Our concern is with the procedural requirements of the Constitution But where allegations that the constitutional procedures for the passage of bills have
not been observed have no more basis than another allegation that the Conference
Committee "surreptitiously" inserted provisions into a bill which it had prepared, we ....
should decline the invitation to go behind the enrolled copy of the bill. To disregard
the "enrolled bill" rule in such cases would be to disregard the respect due the other (q) Transactions which are exempt under special laws, except those
two departments of our government. granted under Presidential Decree Nos. 66, 529, 972, 1491,
1590. . . .
Fifth. An additional attack on the formal validity of Republic Act No. 7716 is made
by the Philippine Airlines, Inc., petitioner in G.R. No. 11582, namely, that it violates The effect of the amendment is to remove the exemption granted to PAL, as far as
Art. VI, § 26(1) which provides that "Every bill passed by Congress shall embrace the VAT is concerned.
only one subject which shall be expressed in the title thereof." It is contended that
neither H. No. 11197 nor S. No. 1630 provided for removal of exemption of PAL The question is whether this amendment of § 103 of the NIRC is fairly embraced in
transactions from the payment of the VAT and that this was made only in the the title of Republic Act No. 7716, although no mention is made therein of P.D. No.
Conference Committee bill which became Republic Act No. 7716 without reflecting 1590 as among those which the statute amends. We think it is, since the title states
this fact in its title. that the purpose of the statute is to expand the VAT system, and one way of doing
this is to widen its base by withdrawing some of the exemptions granted before. To
The title of Republic Act No. 7716 is: insist that P.D. No. 1590 be mentioned in the title of the law, in addition to § 103 of
the NIRC, in which it is specifically referred to, would be to insist that the title of a
AN ACT RESTRUCTURING THE VALUE- ADDED TAX (VAT) bill should be a complete index of its content.
SYSTEM, WIDENING ITS TAX BASE AND ENHANCING ITS
ADMINISTRATION, AND FOR THESE PURPOSES The constitutional requirement that every bill passed by Congress shall embrace only
AMENDING AND REPEALING THE RELEVANT one subject which shall be expressed in its title is intended to prevent surprise upon
PROVISIONS OF THE NATIONAL INTERNAL REVENUE the members of Congress and to inform the people of pending legislation so that, if
CODE, AS AMENDED, AND FOR OTHER PURPOSES. they wish to, they can be heard regarding it. If, in the case at bar, petitioner did not
know before that its exemption had been withdrawn, it is not because of any defect in
Among the provisions of the NIRC amended is § 103, which originally read: the title but perhaps for the same reason other statutes, although published, pass
unnoticed until some event somehow calls attention to their existence. Indeed, the
§ 103. Exempt transactions. — The following shall be exempt title of Republic Act No. 7716 is not any more general than the title of PAL's own
from the value-added tax: franchise under P.D. No. 1590, and yet no mention is made of its tax exemption. The
title of P.D. No. 1590 is:
....
AN ACT GRANTING A NEW FRANCHISE TO PHILIPPINE
(q) Transactions which are exempt under special laws or AIRLINES, INC. TO ESTABLISH, OPERATE, AND MAINTAIN
international agreements to which the Philippines is a signatory. AIR-TRANSPORT SERVICES IN THE PHILIPPINES AND
Among the transactions exempted from the VAT were those of PAL BETWEEN THE PHILIPPINES AND OTHER COUNTRIES.
because it was exempted under its franchise (P.D. No. 1590) from
the payment of all "other taxes . . . now or in the near future," in The trend in our cases is to construe the constitutional requirement in such a manner
consideration of the payment by it either of the corporate income that courts do not unduly interfere with the enactment of necessary legislation and to
tax or a franchise tax of 2%. consider it sufficient if the title expresses the general subject of the statute and all its
provisions are germane to the general subject thus expressed. 24
As a result of its amendment by Republic Act No. 7716, § 103 of the NIRC now
provides: It is further contended that amendment of petitioner's franchise may only be made by
special law, in view of § 24 of P.D. No. 1590 which provides:
§ 103. Exempt transactions. — The following shall be exempt
from the value-added tax: This franchise, as amended, or any section or provision hereof may
only be modified, amended, or repealed expressly by a special law
or decree that shall specifically modify, amend, or repeal this § 103 of the NIRC contains a list of transactions exempted from VAT. Among the
franchise or any section or provision thereof. transactions previously granted exemption were:

This provision is evidently intended to prevent the amendment of the franchise by (f) Printing, publication, importation or sale of books and any
mere implication resulting from the enactment of a later inconsistent statute, in newspaper, magazine, review, or bulletin which appears at regular
consideration of the fact that a franchise is a contract which can be altered only by intervals with fixed prices for subscription and sale and which is
consent of the parties. Thus in Manila Railroad Co. v. devoted principally to the publication of advertisements.
Rafferty, 25 it was held that an Act of the U.S. Congress, which provided for the
payment of tax on certain goods and articles imported into the Philippines, did not Republic Act No. 7716 amended § 103 by deleting ¶ (f) with the result that print
amend the franchise of plaintiff, which exempted it from all taxes except those media became subject to the VAT with respect to all aspects of their operations.
mentioned in its franchise. It was held that a special law cannot be amended by a Later, however, based on a memorandum of the Secretary of Justice, respondent
general law. Secretary of Finance issued Revenue Regulations No. 11-94, dated June 27, 1994,
exempting the "circulation income of print media pursuant to § 4 Article III of the
In contrast, in the case at bar, Republic Act No. 7716 expressly amends PAL's 1987 Philippine Constitution guaranteeing against abridgment of freedom of the
franchise (P.D. No. 1590) by specifically excepting from the grant of exemptions press, among others." The exemption of "circulation income" has left income from
from the VAT PAL's exemption under P.D. No. 1590. This is within the power of advertisements still subject to the VAT.
Congress to do under Art. XII, § 11 of the Constitution, which provides that the grant
of a franchise for the operation of a public utility is subject to amendment, alteration It is unnecessary to pass upon the contention that the exemption granted is beyond
or repeal by Congress when the common good so requires. the authority of the Secretary of Finance to give, in view of PPI's contention that
even with the exemption of the circulation revenue of print media there is still an
II. SUBSTANTIVE ISSUES unconstitutional abridgment of press freedom because of the imposition of the VAT
on the gross receipts of newspapers from advertisements and on their acquisition of
A. Claims of Press Freedom, paper, ink and services for publication. Even on the assumption that no exemption
Freedom of Thought and has effectively been granted to print media transactions, we find no violation of press
Religious Freedom freedom in these cases.

The Philippine Press Institute (PPI), petitioner in G.R. No. 115544, is a nonprofit To be sure, we are not dealing here with a statute that on its face operates in the area
organization of newspaper publishers established for the improvement of journalism of press freedom. The PPI's claim is simply that, as applied to newspapers, the law
in the Philippines. On the other hand, petitioner in G.R. No. 115781, the Philippine abridges press freedom. Even with due recognition of its high estate and its
Bible Society (PBS), is a nonprofit organization engaged in the printing and importance in a democratic society, however, the press is not immune from general
distribution of bibles and other religious articles. Both petitioners claim violations of regulation by the State. It has been held:
their rights under § § 4 and 5 of the Bill of Rights as a result of the enactment of the
VAT Law. The publisher of a newspaper has no immunity from the
application of general laws. He has no special privilege to invade
The PPI questions the law insofar as it has withdrawn the exemption previously the rights and liberties of others. He must answer for libel. He may
granted to the press under § 103 (f) of the NIRC. Although the exemption was be punished for contempt of court. . . . Like others, he must pay
subsequently restored by administrative regulation with respect to the circulation equitable and nondiscriminatory taxes on his business. . . . 27
income of newspapers, the PPI presses its claim because of the possibility that the
exemption may still be removed by mere revocation of the regulation of the The PPI does not dispute this point, either.
Secretary of Finance. On the other hand, the PBS goes so far as to question the
Secretary's power to grant exemption for two reasons: (1) The Secretary of Finance What it contends is that by withdrawing the exemption previously granted to print
has no power to grant tax exemption because this is vested in Congress and requires media transactions involving printing, publication, importation or sale of
for its exercise the vote of a majority of all its members 26 and (2) the Secretary's duty newspapers, Republic Act No. 7716 has singled out the press for discriminatory
is to execute the law. treatment and that within the class of mass media the law discriminates against print
media by giving broadcast media favored treatment. We have carefully examined this
argument, but we are unable to find a differential treatment of the press by the law, further narrowed the coverage of the tax so that "only a handful of publishers pay
much less any censorial motivation for its enactment. If the press is now required to any tax at all and even fewer pay any significant amount of tax." 31 The
pay a value-added tax on its transactions, it is not because it is being singled out, discriminatory purpose was thus very clear.
much less targeted, for special treatment but only because of the removal of the
exemption previously granted to it by law. The withdrawal of exemption is all that is More recently, in Arkansas Writers' Project, Inc. v. Ragland, 32 it was held that a law
involved in these cases. Other transactions, likewise previously granted exemption, which taxed general interest magazines but not newspapers and religious,
have been delisted as part of the scheme to expand the base and the scope of the VAT professional, trade and sports journals was discriminatory because while the tax did
system. The law would perhaps be open to the charge of discriminatory treatment if not single out the press as a whole, it targeted a small group within the press. What is
the only privilege withdrawn had been that granted to the press. But that is not the more, by differentiating on the basis of contents (i.e., between general interest and
case. special interests such as religion or sports) the law became "entirely incompatible
with the First Amendment's guarantee of freedom of the press."
The situation in the case at bar is indeed a far cry from those cited by the PPI in
support of its claim that Republic Act No. 7716 subjects the press to discriminatory These cases come down to this: that unless justified, the differential treatment of the
taxation. In the cases cited, the discriminatory purpose was clear either from the press creates risks of suppression of expression. In contrast, in the cases at bar, the
background of the law or from its operation. For example, in Grosjean v. American statute applies to a wide range of goods and services. The argument that, by
Press Co., 28 the law imposed a license tax equivalent to 2% of the gross receipts imposing the VAT only on print media whose gross sales exceeds P480,000 but not
derived from advertisements only on newspapers which had a circulation of more more than P750,000, the law discriminates 33 is without merit since it has not been
than 20,000 copies per week. Because the tax was not based on the volume of shown that as a result the class subject to tax has been unreasonably narrowed. The
advertisement alone but was measured by the extent of its circulation as well, the law fact is that this limitation does not apply to the press along but to all sales. Nor is
applied only to the thirteen large newspapers in Louisiana, leaving untaxed four impermissible motive shown by the fact that print media and broadcast media are
papers with circulation of only slightly less than 20,000 copies a week and 120 treated differently. The press is taxed on its transactions involving printing and
weekly newspapers which were in serious competition with the thirteen newspapers publication, which are different from the transactions of broadcast media. There is
in question. It was well known that the thirteen newspapers had been critical of thus a reasonable basis for the classification.
Senator Huey Long, and the Long-dominated legislature of Louisiana respondent by
taxing what Long described as the "lying newspapers" by imposing on them "a tax The cases canvassed, it must be stressed, eschew any suggestion that "owners of
on lying." The effect of the tax was to curtail both their revenue and their circulation. newspapers are immune from any forms of ordinary taxation." The license tax in
As the U.S. Supreme Court noted, the tax was "a deliberate and calculated device in the Grosjean case was declared invalid because it was "one single in kind, with a
the guise of a tax to limit the circulation of information to which the public is entitled long history of hostile misuse against the freedom of the
in virtue of the constitutional guaranties." 29 The case is a classic illustration of the press." 34 On the other hand, Minneapolis Star acknowledged that "The First
warning that the power to tax is the power to destroy. Amendment does not prohibit all regulation of the press [and that] the States and the
Federal Government can subject newspapers to generally applicable economic
In the other case 30 invoked by the PPI, the press was also found to have been singled regulations without creating constitutional problems." 35
out because everything was exempt from the "use tax" on ink and paper, except the
press. Minnesota imposed a tax on the sales of goods in that state. To protect the What has been said above also disposes of the allegations of the PBS that the
sales tax, it enacted a complementary tax on the privilege of "using, storing or removal of the exemption of printing, publication or importation of books and
consuming in that state tangible personal property" by eliminating the residents' religious articles, as well as their printing and publication, likewise violates freedom
incentive to get goods from outside states where the sales tax might be lower. of thought and of conscience. For as the U.S. Supreme Court unanimously held
The Minnesota Star Tribune was exempted from both taxes from 1967 to 1971. In in Jimmy Swaggart Ministries v. Board of Equalization, 36 the Free Exercise of
1971, however, the state legislature amended the tax scheme by imposing the "use Religion Clause does not prohibit imposing a generally applicable sales and use tax
tax" on the cost of paper and ink used for publication. The law was held to have on the sale of religious materials by a religious organization.
singled out the press because (1) there was no reason for imposing the "use tax" since
the press was exempt from the sales tax and (2) the "use tax" was laid on an
"intermediate transaction rather than the ultimate retail sale." Minnesota had a heavy This brings us to the question whether the registration provision of the
burden of justifying the differential treatment and it failed to do so. In addition, the law, 37 although of general applicability, nonetheless is invalid when applied to the
U.S. Supreme Court found the law to be discriminatory because the legislature, by press because it lays a prior restraint on its essential freedom. The case of American
again amending the law so as to exempt the first $100,000 of paper and ink used, Bible Society v. City of Manila 38 is cited by both the PBS and the PPI in support of
their contention that the law imposes censorship. There, this Court held that an a momentum of respect; when property is imperiled it is the lawmakers' judgment
ordinance of the City of Manila, which imposed a license fee on those engaged in the that commands respect. This dual standard may not precisely reverse the
business of general merchandise, could not be applied to the appellant's sale of bibles presumption of constitutionality in civil liberties cases, but obviously it does set up a
and other religious literature. This Court relied on Murdock v. Pennsylvania, 39 in hierarchy of values within the due process clause." 41
which it was held that, as a license fee is fixed in amount and unrelated to the
receipts of the taxpayer, the license fee, when applied to a religious sect, was actually Indeed, the absence of threat of immediate harm makes the need for judicial
being imposed as a condition for the exercise of the sect's right under the intervention less evident and underscores the essential nature of petitioners' attack on
Constitution. For that reason, it was held, the license fee "restrains in advance those the law on the grounds of regressivity, denial of due process and equal protection and
constitutional liberties of press and religion and inevitably tends to suppress their impairment of contracts as a mere academic discussion of the merits of the law. For
exercise." 40 the fact is that there have even been no notices of assessments issued to petitioners
and no determinations at the administrative levels of their claims so as to illuminate
But, in this case, the fee in § 107, although a fixed amount (P1,000), is not imposed the actual operation of the law and enable us to reach sound judgment regarding so
for the exercise of a privilege but only for the purpose of defraying part of the cost of fundamental questions as those raised in these suits.
registration. The registration requirement is a central feature of the VAT system. It is
designed to provide a record of tax credits because any person who is subject to the Thus, the broad argument against the VAT is that it is regressive and that it violates
payment of the VAT pays an input tax, even as he collects an output tax on sales the requirement that "The rule of taxation shall be uniform and equitable [and]
made or services rendered. The registration fee is thus a mere administrative fee, one Congress shall evolve a progressive system of taxation." 42 Petitioners in G.R. No.
not imposed on the exercise of a privilege, much less a constitutional right. 115781 quote from a paper, entitled "VAT Policy Issues: Structure, Regressivity,
Inflation and Exports" by Alan A. Tait of the International Monetary Fund, that "VAT
For the foregoing reasons, we find the attack on Republic Act No. 7716 on the payment by low-income households will be a higher proportion of their incomes (and
ground that it offends the free speech, press and freedom of religion guarantees of the expenditures) than payments by higher-income households. That is, the VAT will be
Constitution to be without merit. For the same reasons, we find the claim of the regressive." Petitioners contend that as a result of the uniform 10% VAT, the tax on
Philippine Educational Publishers Association (PEPA) in G.R. No. 115931 that the consumption goods of those who are in the higher-income bracket, which before
increase in the price of books and other educational materials as a result of the VAT were taxed at a rate higher than 10%, has been reduced, while basic commodities,
would violate the constitutional mandate to the government to give priority to which before were taxed at rates ranging from 3% to 5%, are now taxed at a higher
education, science and technology (Art. II, § 17) to be untenable. rate.

Just as vigorously as it is asserted that the law is regressive, the opposite claim is
pressed by respondents that in fact it distributes the tax burden to as many goods and
B. Claims of Regressivity, services as possible particularly to those which are within the reach of higher-income
Denial of Due Process, Equal groups, even as the law exempts basic goods and services. It is thus equitable. The
Protection, and Impairment goods and properties subject to the VAT are those used or consumed by higher-
of Contracts income groups. These include real properties held primarily for sale to customers or
held for lease in the ordinary course of business, the right or privilege to use
There is basis for passing upon claims that on its face the statute violates the industrial, commercial or scientific equipment, hotels, restaurants and similar places,
guarantees of freedom of speech, press and religion. The possible "chilling effect" tourist buses, and the like. On the other hand, small business establishments, with
which it may have on the essential freedom of the mind and conscience and the need annual gross sales of less than P500,000, are exempted. This, according to
to assure that the channels of communication are open and operating importunately respondents, removes from the coverage of the law some 30,000 business
demand the exercise of this Court's power of review. establishments. On the other hand, an occasional paper 43 of the Center for Research
and Communication cities a NEDA study that the VAT has minimal impact on
inflation and income distribution and that while additional expenditure for the lowest
There is, however, no justification for passing upon the claims that the law also income class is only P301 or 1.49% a year, that for a family earning P500,000 a year
violates the rule that taxation must be progressive and that it denies petitioners' right or more is P8,340 or 2.2%.
to due process and that equal protection of the laws. The reason for this different
treatment has been cogently stated by an eminent authority on constitutional law
thus: "[W]hen freedom of the mind is imperiled by law, it is freedom that commands
Lacking empirical data on which to base any conclusion regarding these arguments, parties, but the reservation of essential attributes of sovereign power is also read into
any discussion whether the VAT is regressive in the sense that it will hit the "poor" contracts as a basic postulate of the legal order. The policy of protecting contracts
and middle-income group in society harder than it will the "rich," as the Cooperative against impairment presupposes the maintenance of a government which retains
Union of the Philippines (CUP) claims in G.R. No. 115873, is largely an academic adequate authority to secure the peace and good order of society. 46
exercise. On the other hand, the CUP's contention that Congress' withdrawal of
exemption of producers cooperatives, marketing cooperatives, and service In truth, the Contract Clause has never been thought as a limitation on the exercise of
cooperatives, while maintaining that granted to electric cooperatives, not only goes the State's power of taxation save only where a tax exemption has been granted for a
against the constitutional policy to promote cooperatives as instruments of social valid consideration. 47 Such is not the case of PAL in G.R. No. 115852, and we do not
justice (Art. XII, § 15) but also denies such cooperatives the equal protection of the understand it to make this claim. Rather, its position, as discussed above, is that the
law is actually a policy argument. The legislature is not required to adhere to a policy removal of its tax exemption cannot be made by a general, but only by a specific,
of "all or none" in choosing the subject of taxation. 44 law.

Nor is the contention of the Chamber of Real Estate and Builders Association The substantive issues raised in some of the cases are presented in abstract,
(CREBA), petitioner in G.R. 115754, that the VAT will reduce the mark up of its hypothetical form because of the lack of a concrete record. We accept that this Court
members by as much as 85% to 90% any more concrete. It is a mere allegation. On does not only adjudicate private cases; that public actions by "non-Hohfeldian" 48 or
the other hand, the claim of the Philippine Press Institute, petitioner in G.R. No. ideological plaintiffs are now cognizable provided they meet the standing
115544, that the VAT will drive some of its members out of circulation because their requirement of the Constitution; that under Art. VIII, § 1, ¶ 2 the Court has a "special
profits from advertisements will not be enough to pay for their tax liability, while function" of vindicating constitutional rights. Nonetheless the feeling cannot be
purporting to be based on the financial statements of the newspapers in question, still escaped that we do not have before us in these cases a fully developed factual record
falls short of the establishment of facts by evidence so necessary for adjudicating the that alone can impart to our adjudication the impact of actuality 49 to insure that
question whether the tax is oppressive and confiscatory. decision-making is informed and well grounded. Needless to say, we do not have
power to render advisory opinions or even jurisdiction over petitions for declaratory
Indeed, regressivity is not a negative standard for courts to enforce. What Congress is judgment. In effect we are being asked to do what the Conference Committee is
required by the Constitution to do is to "evolve a progressive system of taxation." precisely accused of having done in these cases — to sit as a third legislative
This is a directive to Congress, just like the directive to it to give priority to the chamber to review legislation.
enactment of laws for the enhancement of human dignity and the reduction of social,
economic and political inequalities (Art. XIII, § 1), or for the promotion of the right We are told, however, that the power of judicial review is not so much power as it is
to "quality education" (Art. XIV, § 1). These provisions are put in the Constitution as duty imposed on this Court by the Constitution and that we would be remiss in the
moral incentives to legislation, not as judicially enforceable rights. performance of that duty if we decline to look behind the barriers set by the principle
of separation of powers. Art. VIII, § 1, ¶ 2 is cited in support of this view:
At all events, our 1988 decision in Kapatiran 45 should have laid to rest the questions
now raised against the VAT. There similar arguments made against the original VAT Judicial power includes the duty of the courts of justice to settle
Law (Executive Order No. 273) were held to be hypothetical, with no more basis actual controversies involving rights which are legally demandable
than newspaper articles which this Court found to be "hearsay and [without] and enforceable, and to determine whether or not there has been a
evidentiary value." As Republic Act No. 7716 merely expands the base of the VAT grave abuse of discretion amounting to lack or excess of
system and its coverage as provided in the original VAT Law, further debate on the jurisdiction on the part of any branch or instrumentality of the
desirability and wisdom of the law should have shifted to Congress. Government.

Only slightly less abstract but nonetheless hypothetical is the contention of CREBA To view the judicial power of review as a duty is nothing new. Chief Justice Marshall
that the imposition of the VAT on the sales and leases of real estate by virtue of said so in 1803, to justify the assertion of this power in Marbury v. Madison:
contracts entered into prior to the effectivity of the law would violate the
constitutional provision that "No law impairing the obligation of contracts shall be It is emphatically the province and duty of the judicial department
passed." It is enough to say that the parties to a contract cannot, through the exercise to say what the law is. Those who apply the rule to particular cases
of prophetic discernment, fetter the exercise of the taxing power of the State. For not must of necessity expound and interpret that rule. If two laws
only are existing laws read into contracts in order to fix obligations as between
conflict with each other, the courts must decide on the operation of (4) That, in view of the absence of a factual foundation of record, claims that the law
each. 50 is regressive, oppressive and confiscatory and that it violates vested rights protected
under the Contract Clause are prematurely raised and do not justify the grant of
Justice Laurel echoed this justification in 1936 in Angara v. Electoral Commission: prospective relief by writ of prohibition.

And when the judiciary mediates to allocate constitutional WHEREFORE, the petitions in these cases are DISMISSED.
boundaries, it does not assert any superiority over the other
departments; it does not in reality nullify or invalidate an act of the G.R. No. L-19371 February 28, 1966
legislature, but only asserts the solemn and sacred obligation
assigned to it by the Constitution to determine conflicting claims of HOSPITAL DE SAN JUAN DE DIOS, INC., plaintiff-appellant,
authority under the Constitution and to establish for the parties in vs.
an actual controversy the rights which that instrument secures and PASAY CITY, PABLO CUNETA, R. N. ASCAÑO and G. C.
guarantees to them. 51 FUENTES, defendants-appellees.

This conception of the judicial power has been affirmed in several Teodoro Padilla for the plaintiff-appellant.
cases 52 of this Court following Angara. R. N. Ascaño and G. C. Fuentes for the defendants-appellees.

It does not add anything, therefore, to invoke this "duty" to justify this Court's DIZON, J.:
intervention in what is essentially a case that at best is not ripe for adjudication. That
duty must still be performed in the context of a concrete case or controversy, as Art. Appeal taken by the Hospital de San Juan de Dios, Inc. from the decision of the
VIII, § 5(2) clearly defines our jurisdiction in terms of "cases," and nothing but Court of First Instance of Rizal in Civil Case No. 1775-P dismissing its complaint
"cases." That the other departments of the government may have committed a grave against the City of Pasay - hereinafter referred to as the City - Pablo Cuneta, R. N.
abuse of discretion is not an independent ground for exercising our power. Disregard Ascano and Ceferino Fuentes, in their capacities as Mayor, City Engineer and City
of the essential limits imposed by the case and controversy requirement can in the Treasurer, respectively, of said city.
long run only result in undermining our authority as a court of law. For, as judges,
what we are called upon to render is judgment according to law, not according to
what may appear to be the opinion of the day. It is admitted that on July 24, 1954 and May 27, 1957, appellant paid, under protest,
to the City the amounts of P829.60 and P879.90, respectively, representing electrical
inspection fees allegedly due it from appellant under Section 5, Ordinance No. 7,
_______________________________ series of 1945, as amended by Ordinance No. 22, series of 1947 and further amended
by Ordinance No. 54, series of 1955, which reads as follows:
In the preceeding pages we have endeavored to discuss, within limits, the validity of
Republic Act No. 7716 in its formal and substantive aspects as this has been raised in That the City Electrician shall inspect all electric wires, poles, and other
the various cases before us. To sum up, we hold: apparatus whether electric crude oil, charcoal or gasoline installed or used
for generating, containing, conducting or measuring electricity or telephone
(1) That the procedural requirements of the Constitution have been complied with by service, issue to the owner or user thereof a statement of the result of such
Congress in the enactment of the statute; inspection. . . . However, residential houses with outlets not exceeding eight
(8) in number shall be exempted from the payment of the corresponding
(2) That judicial inquiry whether the formal requirements for the enactment of inspection fees. For the purpose of this ordinance, any accessoria,
statutes — beyond those prescribed by the Constitution — have been observed is irrespective of the number of doors or rooms it contains, is considered one
precluded by the principle of separation of powers; building. Churches and such other religious institutions and buildings
housing charitable organizations, are likewise subject to annual inspection
(3) That the law does not abridge freedom of speech, expression or the press, nor but exempted from the payment of inspection fees.
interfere with the free exercise of religion, nor deny to any of the parties the right to
an education; and
Although appellant claimed that, as a charitable institution, it was exempt from the Moreover, the question of whether or not appellant and other institutions similarly
payment of the inspection fees provided for in the above-quoted section, it found situated and operated are charitable institutions has been decided both here and in the
itself compelled to pay the amounts mentioned heretofore by reason of the refusal of United States. The American rule is summarized in 51 American Jurisprudence, p.
appellees Pablo Cuneta, as Mayor, and R. N. Ascaño, as City Engineer, to issue a 607, as follows:
building permit to make additional constructions applied for by appellant until after
the full payment of the electrical inspection fees assessed against it by appellee 636. Effect of Receipt of Pay from Patients.
Ascaño. As a result, appellant commenced the present action in the Court of First
Instance of Rizal (Civil Case No. 1775-P) to recover from appellees the above- The general rule that a charitable institution does not lose its charitable
mentioned amounts it had paid as electrical inspection fees as well as the sum of character and its consequent exemption from taxation merely because
P500.00 as attorney's fees and the costs of suit. recipients of its benefits who are able to pay are required to do so, where
funds derived in this manner are devoted to the charitable purposes of the
After due trial the court rendered the appealed judgment. institution, applies to hospitals. A hospital owned and conducted by a
charitable organization, devoted for the most part to the gratuitous care of
The issue determinative of the present appeal is whether or not appellant is a charity patients, is exempt from taxation as a building used for "purposes
charitable institution and, as such exempt, under the provisions of the last sentence of purely charitable", notwithstanding it receives and cares for pay patients,
Section 5 of the ordinance in question, from the payment of the inspection fees where any profit thus derived is applied to the purposes of the institution.
provided for therein. An institution established, maintained, and operated for the purpose of
taking care of the sick, without any profit or view to profit, but at a loss,
The trial court, while admitting that appellant was organized for charitable purposes, which is made up by benevolent contributions, the benefits of which are
held that it "is not actually being managed and operated as a charitable institution but open to the public generally, is a purely public charity within the meaning of
one for profit" and, as such, "is not entitled to the relief sought in the present action." a statute exempting the property of institutions of purely public charity from
This, We believe, is not correct. taxation; the fact that patients who are able to pay are charged for services
rendered, according to their ability, being of no importance upon the
It not being disputed that appellant was organized as a charitable institution, the question of the character of the institution.
presumption is that it is operating as such, the burden of proof being on appellees to
show that it is operating otherwise. The record does not show that they have On the other hand, in Jesus Sacred Heart College vs. Collector, etc., G.R. No. L-
satisfactorily discharged this burden.1äwphï1.ñët 6807, May 20, 1954, We overruled the contention of the Collector of Internal
Revenue to the effect that the fact that the appellant herein had a profit or net income
But the lower court, disregarding the presumption mentioned above, claims that was sufficient to show that it was an institution "for profit and gain" and therefore no
"plaintiff failed to prove that it is actually engaged in charitable work" and that "No longer exempt from income tax as follows:
evidence whatsoever was presented to show how it doles out charity, etc." This is
also erroneous. Aside from the appellant's Articles of Incorporation showing that it To hold that an educational institution is subject to income tax wherever it is
had no capital stock and that no part of its net income, if any, could inure to the so administered as to reasonably assure that it will not incur a deficit, is to
benefit of any private individual, there is Exhibit D, a ruling of June 20, 1957 of the nullify and defeat the aforementioned exemption. Indeed, the effect, in
Workmen's Compensation Commissioner and the Undersecretary of Labor to the general, of the interpretation advocated by appellant would be to deny the
effect that appellant is a charitable institution exempt from the scope of the exemption whenever there is a net income, contrary to the tenor of said
Workmen's Compensation Act; a written statement of appellant's cashier that the Section 27 (e) which positively exempts from taxation those corporations
latter maintains two free wards of sixty beds each; an admission by appellees to the which, otherwise, would be subject thereto, because of the existence of said
effect that, in addition to the free wards just mentioned, appellant also maintains six net income.
free beds in the Pediatrics Section (transcript of June 16, 1960, pp. 2-4).
Explaining our view that the making of profit does not destroy the tax exemption of a
It is not therefore correct to say that there is no evidence whatsoever showing how charitable, benevolent or educational institution, We said:
appellant doles out charity.
Needless to say, every responsible organization must be so run as to at least,
insure its existence, by operating within the limits of its own resources,
especially its regular income. In other words, it should always strive, case involved the interpretation of Republic Act No. 772, it is patent from our
whenever possible, to have a surplus. Upon the other hand, appellant's decision therein that said institution was not considered engaged in "business."
pretense, would limit the benefits of the exemption, under said Section 27
(e), to institutions which do not hope, or propose, to have such surplus. It is trite to say that a tax on the limited revenue of charitable institutions of
Under this view, the exemption would apply only to schools which are on this kind tends to hamper its operation, and accordingly, to discourage the
the verge of bankruptcy, for—unlike the United States, where a substantial establishment and maintenance thereof. In the absence of a clear legal
number of institutions of learning are dependent upon voluntary provision thereon, we must not so construe our laws as to lead to such
contributions and still enjoy economic stability, such as Harvard, the trust result. In other words, the second, third and fourth assignments of error are
fund of which has been steadily increasing with the years—there are, and untenable.
there have always been very few educational enterprises in the Philippines
which are supported by donations, and those organizations usually have a In San Juan de Dios Hospital (the same party appellant herein) vs. Metropolitan
very precarious existence. The final result of appellant's contention, if Water District, 54 Phil. 174, this Court considered said hospital as a charitable
adopted, would be to discourage the establishment of colleges in the institution in spite of the fact that it maintained paying beds. From the decision in
Philippines, which is precisely the opposite of the objective consistently said case, We quote the following:
sought by our laws.
A hospital (referring to the San Juan de Dios Hospital) is generally
In U.S.T. Hospital Employees Association vs. Sto. Tomas University Hospital, G.R. considered to be a charitable institution. It is good public policy to
No. L-6988 (May 24, 1952), it was argued that the fact that the aforesaid hospital encourage works of charity. What Carriedo did in his will was to make a
charged fees for 140 paying beds made it lose its character of a charitable institution. beneficient grant not to a hospital thought of as a building, but to a hospital
We likewise rejected this view because the paying beds aforesaid were maintained to thought of as an institution. The free water was for the good of the hospital
partly finance the expenses of the free wards maintained by the hospital. We express in this large sense. Should the hospital be enlarged or rebuilt, the water
the same view in Collector of Internal Revenue vs. St. Paul's Hospital in Iloilo, G.R. concession would continue just the same. But a hospital cannot function
No. L-12127 (May 25, 1959) where We said the following: without personnel. And such personnel must have a place to live, which is
the reason why a home devoted exclusively to the needs of the nurses was
In this connection, it should be noted that respondent therein is a founded. Free water for a nurses home as an adjunct to a hospital is as
corporation organized for "charitable, educational and religious purposes"; beneficial to the charitable purposes of the hospital as is free water for the
that no part of its net income inures to the benefit of any private individual; hospital proper.
that it is exempt from paying income tax; that it operates a hospital in which
MEDICAL assistance is given to destitute persons free of charge; that it Finally, in Manila Sanitarium and Hospital vs. Gabuco, G.R. No. L-14331, January
maintains a pharmacy department within the premises of said hospital, to 31, 1963, We held that the mere charging of medical and hospital fees from those
supply drugs and medicines only to charity and paying patients confined who could afford to pay, did not make the institution one established for profit or
therein; and that only the paying patients are required to pay the medicines gain.
supplied to them, for which they are charged the cost of the medicines, plus
an additional 10% thereof, to partly offset the cost of medicines supplied
free of charge to charity patients. Under these facts, we are of the opinion, Upon all the foregoing, the appealed decision is reversed, and another is hereby
and so hold, that the Hospital may not be regarded as engaged in "business" rendered ordering appellees to pay appellant the amount of P1,709.50, with interest
by reason of said sale of medicines to its paying patients. at the legal rate from the date of the filing of complaint in this case. With costs.

xxx xxx xxx

In line with the foregoing, in U.S.T. Hospital Employees Association vs. Santo Tomas G.R. No. 144104 June 29, 2004
University Hospital (G.R. No. L-6988, decided May 24, 1954), we held that the
U.S.T. Hospital was not established for profit-making purposes, despite the fact that LUNG CENTER OF THE PHILIPPINES, petitioner,
it had 140 paying beds, because the same were maintained only to "partly finance the vs.
expenses of the free wards", containing 203 beds for charity patients. Although said QUEZON CITY and CONSTANTINO P. ROSAS, in his capacity as City
Assessor of Quezon City, respondents.
DECISION charitable institution and, as such, is exempt from real property taxes. The QC-
LBAA rendered judgment dismissing the petition and holding the petitioner liable for
CALLEJO, SR., J.: real property taxes.6

This is a petition for review on certiorari under Rule 45 of the Rules of Court, as The QC-LBAA’s decision was, likewise, affirmed on appeal by the Central Board of
amended, of the Decision1 dated July 17, 2000 of the Court of Appeals in CA-G.R. Assessment Appeals of Quezon City (CBAA, for brevity)7 which ruled that the
SP No. 57014 which affirmed the decision of the Central Board of Assessment petitioner was not a charitable institution and that its real properties were not
Appeals holding that the lot owned by the petitioner and its hospital building actually, directly and exclusively used for charitable purposes; hence, it was not
constructed thereon are subject to assessment for purposes of real property tax. entitled to real property tax exemption under the constitution and the law. The
petitioner sought relief from the Court of Appeals, which rendered judgment
The Antecedents affirming the decision of the CBAA.8

The petitioner Lung Center of the Philippines is a non-stock and non-profit entity Undaunted, the petitioner filed its petition in this Court contending that:
established on January 16, 1981 by virtue of Presidential Decree No. 1823.2 It is the
registered owner of a parcel of land, particularly described as Lot No. RP-3-B-3A-1- A. THE COURT A QUO ERRED IN DECLARING PETITIONER AS
B-1, SWO-04-000495, located at Quezon Avenue corner Elliptical Road, Central NOT ENTITLED TO REALTY TAX EXEMPTIONS ON THE GROUND
District, Quezon City. The lot has an area of 121,463 square meters and is covered by THAT ITS LAND, BUILDING AND IMPROVEMENTS, SUBJECT OF
Transfer Certificate of Title (TCT) No. 261320 of the Registry of Deeds of Quezon ASSESSMENT, ARE NOT ACTUALLY, DIRECTLY AND
City. Erected in the middle of the aforesaid lot is a hospital known as the Lung EXCLUSIVELY DEVOTED FOR CHARITABLE PURPOSES.
Center of the Philippines. A big space at the ground floor is being leased to private
parties, for canteen and small store spaces, and to medical or professional B. WHILE PETITIONER IS NOT DECLARED AS REAL PROPERTY
practitioners who use the same as their private clinics for their patients whom they TAX EXEMPT UNDER ITS CHARTER, PD 1823, SAID EXEMPTION
charge for their professional services. Almost one-half of the entire area on the left MAY NEVERTHELESS BE EXTENDED UPON PROPER
side of the building along Quezon Avenue is vacant and idle, while a big portion on APPLICATION.
the right side, at the corner of Quezon Avenue and Elliptical Road, is being leased for
commercial purposes to a private enterprise known as the Elliptical Orchids and The petitioner avers that it is a charitable institution within the context of Section
Garden Center. 28(3), Article VI of the 1987 Constitution. It asserts that its character as a charitable
institution is not altered by the fact that it admits paying patients and renders medical
The petitioner accepts paying and non-paying patients. It also renders medical services to them, leases portions of the land to private parties, and rents out portions
services to out-patients, both paying and non-paying. Aside from its income from of the hospital to private medical practitioners from which it derives income to be
paying patients, the petitioner receives annual subsidies from the government. used for operational expenses. The petitioner points out that for the years 1995 to
1999, 100% of its out-patients were charity patients and of the hospital’s 282-bed
On June 7, 1993, both the land and the hospital building of the petitioner were capacity, 60% thereof, or 170 beds, is allotted to charity patients. It asserts that the
assessed for real property taxes in the amount of ₱4,554,860 by the City Assessor of fact that it receives subsidies from the government attests to its character as a
Quezon City.3 Accordingly, Tax Declaration Nos. C-021-01226 (16-2518) and C- charitable institution. It contends that the "exclusivity" required in the Constitution
021-01231 (15-2518-A) were issued for the land and the hospital building, does not necessarily mean "solely." Hence, even if a portion of its real estate is leased
respectively.4 On August 25, 1993, the petitioner filed a Claim for Exemption5 from out to private individuals from whom it derives income, it does not lose its character
real property taxes with the City Assessor, predicated on its claim that it is a as a charitable institution, and its exemption from the payment of real estate taxes on
charitable institution. The petitioner’s request was denied, and a petition was, its real property. The petitioner cited our ruling in Herrera v. QC-BAA9 to bolster its
thereafter, filed before the Local Board of Assessment Appeals of Quezon City (QC- pose. The petitioner further contends that even if P.D. No. 1823 does not exempt it
LBAA, for brevity) for the reversal of the resolution of the City Assessor. The from the payment of real estate taxes, it is not precluded from seeking tax exemption
petitioner alleged that under Section 28, paragraph 3 of the 1987 Constitution, the under the 1987 Constitution.
property is exempt from real property taxes. It averred that a minimum of 60% of its
hospital beds are exclusively used for charity patients and that the major thrust of its In their comment on the petition, the respondents aver that the petitioner is not a
hospital operation is to serve charity patients. The petitioner contends that it is a charitable entity. The petitioner’s real property is not exempt from the payment of
real estate taxes under P.D. No. 1823 and even under the 1987 Constitution because The petition is partially granted.
it failed to prove that it is a charitable institution and that the said property is actually,
directly and exclusively used for charitable purposes. The respondents noted that in a On the first issue, we hold that the petitioner is a charitable institution within the
newspaper report, it appears that graft charges were filed with the Sandiganbayan context of the 1973 and 1987 Constitutions. To determine whether an enterprise is a
against the director of the petitioner, its administrative officer, and Zenaida Rivera, charitable institution/entity or not, the elements which should be considered include
the proprietress of the Elliptical Orchids and Garden Center, for entering into a lease the statute creating the enterprise, its corporate purposes, its constitution and by-
contract over 7,663.13 square meters of the property in 1990 for only ₱20,000 a laws, the methods of administration, the nature of the actual work performed, the
month, when the monthly rental should be ₱357,000 a month as determined by the character of the services rendered, the indefiniteness of the beneficiaries, and the use
Commission on Audit; and that instead of complying with the directive of the COA and occupation of the properties.11
for the cancellation of the contract for being grossly prejudicial to the government,
the petitioner renewed the same on March 13, 1995 for a monthly rental of only In the legal sense, a charity may be fully defined as a gift, to be applied consistently
₱24,000. They assert that the petitioner uses the subsidies granted by the government with existing laws, for the benefit of an indefinite number of persons, either by
for charity patients and uses the rest of its income from the property for the benefit of bringing their minds and hearts under the influence of education or religion, by
paying patients, among other purposes. They aver that the petitioner failed to adduce assisting them to establish themselves in life or otherwise lessening the burden of
substantial evidence that 100% of its out-patients and 170 beds in the hospital are government.12 It may be applied to almost anything that tend to promote the well-
reserved for indigent patients. The respondents further assert, thus: doing and well-being of social man. It embraces the improvement and promotion of
the happiness of man.13 The word "charitable" is not restricted to relief of the poor or
13. That the claims/allegations of the Petitioner LCP do not speak well of its sick.14 The test of a charity and a charitable organization are in law the same. The test
record of service. That before a patient is admitted for treatment in the whether an enterprise is charitable or not is whether it exists to carry out a purpose
Center, first impression is that it is pay-patient and required to pay a certain reorganized in law as charitable or whether it is maintained for gain, profit, or private
amount as deposit. That even if a patient is living below the poverty line, he advantage.
is charged with high hospital bills. And, without these bills being first
settled, the poor patient cannot be allowed to leave the hospital or be Under P.D. No. 1823, the petitioner is a non-profit and non-stock corporation which,
discharged without first paying the hospital bills or issue a promissory note subject to the provisions of the decree, is to be administered by the Office of the
guaranteed and indorsed by an influential agency or person known only to President of the Philippines with the Ministry of Health and the Ministry of Human
the Center; that even the remains of deceased poor patients suffered the Settlements. It was organized for the welfare and benefit of the Filipino people
same fate. Moreover, before a patient is admitted for treatment as free or principally to help combat the high incidence of lung and pulmonary diseases in the
charity patient, one must undergo a series of interviews and must submit all Philippines. The raison d’etre for the creation of the petitioner is stated in the
the requirements needed by the Center, usually accompanied by decree, viz:
endorsement by an influential agency or person known only to the Center.
These facts were heard and admitted by the Petitioner LCP during the
hearings before the Honorable QC-BAA and Honorable CBAA. These are Whereas, for decades, respiratory diseases have been a priority concern,
the reasons of indigent patients, instead of seeking treatment with the having been the leading cause of illness and death in the Philippines,
Center, they prefer to be treated at the Quezon Institute. Can such practice comprising more than 45% of the total annual deaths from all causes, thus,
by the Center be called charitable?10 exacting a tremendous toll on human resources, which ailments are likely to
increase and degenerate into serious lung diseases on account of unabated
pollution, industrialization and unchecked cigarette smoking in the
The Issues country;lavvph!l.net

The issues for resolution are the following: (a) whether the petitioner is a charitable Whereas, the more common lung diseases are, to a great extent,
institution within the context of Presidential Decree No. 1823 and the 1973 and 1987 preventable, and curable with early and adequate medical care,
Constitutions and Section 234(b) of Republic Act No. 7160; and (b) whether the real immunization and through prompt and intensive prevention and health
properties of the petitioner are exempt from real property taxes. education programs;

The Court’s Ruling Whereas, there is an urgent need to consolidate and reinforce existing
programs, strategies and efforts at preventing, treating and rehabilitating
people affected by lung diseases, and to undertake research and training on 5. To encourage the training of physicians, nurses, health officers,
the cure and prevention of lung diseases, through a Lung Center which will social workers and medical and technical personnel in the practical
house and nurture the above and related activities and provide tertiary-level and scientific implementation of services to lung patients;
care for more difficult and problematical cases;
6. To assist universities and research institutions in their studies
Whereas, to achieve this purpose, the Government intends to provide about lung diseases, to encourage advanced training in matters of
material and financial support towards the establishment and maintenance the lung and related fields and to support educational programs of
of a Lung Center for the welfare and benefit of the Filipino people.15 value to general health;

The purposes for which the petitioner was created are spelled out in its Articles of 7. To encourage the formation of other organizations on the
Incorporation, thus: national, provincial and/or city and local levels; and to coordinate
their various efforts and activities for the purpose of achieving a
SECOND: That the purposes for which such corporation is formed are as more effective programmatic approach on the common problems
follows: relative to the objectives enumerated herein;

1. To construct, establish, equip, maintain, administer and conduct 8. To seek and obtain assistance in any form from both
an integrated medical institution which shall specialize in the international and local foundations and organizations; and to
treatment, care, rehabilitation and/or relief of lung and allied administer grants and funds that may be given to the organization;
diseases in line with the concern of the government to assist and
provide material and financial support in the establishment and 9. To extend, whenever possible and expedient, medical services to
maintenance of a lung center primarily to benefit the people of the the public and, in general, to promote and protect the health of the
Philippines and in pursuance of the policy of the State to secure the masses of our people, which has long been recognized as an
well-being of the people by providing them specialized health and economic asset and a social blessing;
medical services and by minimizing the incidence of lung diseases
in the country and elsewhere. 10. To help prevent, relieve and alleviate the lung or pulmonary
afflictions and maladies of the people in any and all walks of life,
2. To promote the noble undertaking of scientific research related including those who are poor and needy, all without regard to or
to the prevention of lung or pulmonary ailments and the care of discrimination, because of race, creed, color or political belief of
lung patients, including the holding of a series of relevant the persons helped; and to enable them to obtain treatment when
congresses, conventions, seminars and conferences; such disorders occur;

3. To stimulate and, whenever possible, underwrite scientific 11. To participate, as circumstances may warrant, in any activity
researches on the biological, demographic, social, economic, designed and carried on to promote the general health of the
eugenic and physiological aspects of lung or pulmonary diseases community;
and their control; and to collect and publish the findings of such
research for public consumption; 12. To acquire and/or borrow funds and to own all funds or
equipment, educational materials and supplies by purchase,
4. To facilitate the dissemination of ideas and public acceptance of donation, or otherwise and to dispose of and distribute the same in
information on lung consciousness or awareness, and the such manner, and, on such basis as the Center shall, from time to
development of fact-finding, information and reporting facilities time, deem proper and best, under the particular circumstances, to
for and in aid of the general purposes or objects aforesaid, serve its general and non-profit purposes and
especially in human lung requirements, general health and physical objectives;lavvphil.net
fitness, and other relevant or related fields;
13. To buy, purchase, acquire, own, lease, hold, sell, exchange, paying patients are also received. The fact of receiving money from some of
transfer and dispose of properties, whether real or personal, for the patients does not, we think, at all impair the character of the charity, so
purposes herein mentioned; and long as the money thus received is devoted altogether to the charitable
object which the institution is intended to further. 22
14. To do everything necessary, proper, advisable or convenient for
the accomplishment of any of the powers herein set forth and to do The money received by the petitioner becomes a part of the trust fund and must be
every other act and thing incidental thereto or connected devoted to public trust purposes and cannot be diverted to private profit or benefit. 23
therewith.16
Under P.D. No. 1823, the petitioner is entitled to receive donations. The petitioner
Hence, the medical services of the petitioner are to be rendered to the public in does not lose its character as a charitable institution simply because the gift or
general in any and all walks of life including those who are poor and the needy donation is in the form of subsidies granted by the government. As held by the State
without discrimination. After all, any person, the rich as well as the poor, may fall Supreme Court of Utah in Yorgason v. County Board of Equalization of Salt Lake
sick or be injured or wounded and become a subject of charity.17 County:24

As a general principle, a charitable institution does not lose its character as such and Second, the … government subsidy payments are provided to the project.
its exemption from taxes simply because it derives income from paying patients, Thus, those payments are like a gift or donation of any other kind except
whether out-patient, or confined in the hospital, or receives subsidies from the they come from the government. In both Intermountain Health Careand the
government, so long as the money received is devoted or used altogether to the present case, the crux is the presence or absence of material reciprocity. It is
charitable object which it is intended to achieve; and no money inures to the private entirely irrelevant to this analysis that the government, rather than a private
benefit of the persons managing or operating the institution.18 In Congregational benefactor, chose to make up the deficit resulting from the exchange
Sunday School, etc. v. Board of Review,19 the State Supreme Court of Illinois held, between St. Mark’s Tower and the tenants by making a contribution to the
thus: landlord, just as it would have been irrelevant in Intermountain Health
Care if the patients’ income supplements had come from private individuals
… [A]n institution does not lose its charitable character, and consequent rather than the government.
exemption from taxation, by reason of the fact that those recipients of its
benefits who are able to pay are required to do so, where no profit is made Therefore, the fact that subsidization of part of the cost of furnishing such
by the institution and the amounts so received are applied in furthering its housing is by the government rather than private charitable contributions
charitable purposes, and those benefits are refused to none on account of does not dictate the denial of a charitable exemption if the facts otherwise
inability to pay therefor. The fundamental ground upon which all support such an exemption, as they do here.25
exemptions in favor of charitable institutions are based is the benefit
conferred upon the public by them, and a consequent relief, to some extent, In this case, the petitioner adduced substantial evidence that it spent its income,
of the burden upon the state to care for and advance the interests of its including the subsidies from the government for 1991 and 1992 for its patients and
citizens.20 for the operation of the hospital. It even incurred a net loss in 1991 and 1992 from its
operations.
As aptly stated by the State Supreme Court of South Dakota in Lutheran Hospital
Association of South Dakota v. Baker:21 Even as we find that the petitioner is a charitable institution, we hold, anent the
second issue, that those portions of its real property that are leased to private entities
… [T]he fact that paying patients are taken, the profits derived from are not exempt from real property taxes as these are not actually, directly and
attendance upon these patients being exclusively devoted to the exclusively used for charitable purposes.
maintenance of the charity, seems rather to enhance the usefulness of the
institution to the poor; for it is a matter of common observation amongst The settled rule in this jurisdiction is that laws granting exemption from tax are
those who have gone about at all amongst the suffering classes, that the construed strictissimi juris against the taxpayer and liberally in favor of the taxing
deserving poor can with difficulty be persuaded to enter an asylum of any power. Taxation is the rule and exemption is the exception. The effect of an
kind confined to the reception of objects of charity; and that their honest exemption is equivalent to an appropriation. Hence, a claim for exemption from tax
pride is much less wounded by being placed in an institution in which
payments must be clearly shown and based on language in the law too plain to be ...
mistaken.26 As held in Salvation Army v. Hoehn:27
The rule of expressio unius est exclusio alterius and its variations are canons
An intention on the part of the legislature to grant an exemption from the of restrictive interpretation. They are based on the rules of logic and the
taxing power of the state will never be implied from language which will natural workings of the human mind. They are predicated upon one’s own
admit of any other reasonable construction. Such an intention must be voluntary act and not upon that of others. They proceed from the premise
expressed in clear and unmistakable terms, or must appear by necessary that the legislature would not have made specified enumeration in a statute
implication from the language used, for it is a well settled principle that, had the intention been not to restrict its meaning and confine its terms to
when a special privilege or exemption is claimed under a statute, charter or those expressly mentioned.30
act of incorporation, it is to be construed strictly against the property owner
and in favor of the public. This principle applies with peculiar force to a The exemption must not be so enlarged by construction since the reasonable
claim of exemption from taxation . …28 presumption is that the State has granted in express terms all it intended to grant at
all, and that unless the privilege is limited to the very terms of the statute the favor
Section 2 of Presidential Decree No. 1823, relied upon by the petitioner, specifically would be intended beyond what was meant.31
provides that the petitioner shall enjoy the tax exemptions and privileges:
Section 28(3), Article VI of the 1987 Philippine Constitution provides, thus:
SEC. 2. TAX EXEMPTIONS AND PRIVILEGES. Being a non-profit, non-
stock corporation organized primarily to help combat the high incidence of (3) Charitable institutions, churches and parsonages or convents appurtenant
lung and pulmonary diseases in the Philippines, all donations, contributions, thereto, mosques, non-profit cemeteries, and all lands, buildings, and
endowments and equipment and supplies to be imported by authorized improvements, actually, directly and exclusively used for religious,
entities or persons and by the Board of Trustees of the Lung Center of the charitable or educational purposes shall be exempt from taxation.32
Philippines, Inc., for the actual use and benefit of the Lung Center, shall be
exempt from income and gift taxes, the same further deductible in full for The tax exemption under this constitutional provision covers property taxes
the purpose of determining the maximum deductible amount under Section only.33 As Chief Justice Hilario G. Davide, Jr., then a member of the 1986
30, paragraph (h), of the National Internal Revenue Code, as amended. Constitutional Commission, explained: ". . . what is exempted is not the institution
itself . . .; those exempted from real estate taxes are lands, buildings and
The Lung Center of the Philippines shall be exempt from the payment of improvements actually, directly and exclusively used for religious, charitable or
taxes, charges and fees imposed by the Government or any political educational purposes."34
subdivision or instrumentality thereof with respect to equipment purchases
made by, or for the Lung Center.29 Consequently, the constitutional provision is implemented by Section 234(b) of
Republic Act No. 7160 (otherwise known as the Local Government Code of 1991) as
It is plain as day that under the decree, the petitioner does not enjoy any property tax follows:
exemption privileges for its real properties as well as the building constructed
thereon. If the intentions were otherwise, the same should have been among the SECTION 234. Exemptions from Real Property Tax. – The following are
enumeration of tax exempt privileges under Section 2: exempted from payment of the real property tax:

It is a settled rule of statutory construction that the express mention of one ...
person, thing, or consequence implies the exclusion of all others. The rule is
expressed in the familiar maxim, expressio unius est exclusio alterius.
(b) Charitable institutions, churches, parsonages or convents
appurtenant thereto, mosques, non-profit or religious cemeteries
The rule of expressio unius est exclusio alterius is formulated in a number and all lands, buildings, and improvements actually, directly,
of ways. One variation of the rule is the principle that what is expressed and exclusivelyused for religious, charitable or educational
puts an end to that which is implied. Expressium facit cessare tacitum. Thus, purposes.35
where a statute, by its terms, is expressly limited to certain matters, it may
not, by interpretation or construction, be extended to other matters.
We note that under the 1935 Constitution, "... all lands, buildings, and improvements The petitioner failed to discharge its burden to prove that the entirety of its real
used ‘exclusively’ for … charitable … purposes shall be exempt from property is actually, directly and exclusively used for charitable purposes. While
taxation."36 However, under the 1973 and the present Constitutions, for "lands, portions of the hospital are used for the treatment of patients and the dispensation of
buildings, and improvements" of the charitable institution to be considered exempt, medical services to them, whether paying or non-paying, other portions thereof are
the same should not only be "exclusively" used for charitable purposes; it is required being leased to private individuals for their clinics and a canteen. Further, a portion
that such property be used "actually" and "directly" for such purposes.37 of the land is being leased to a private individual for her business enterprise under
the business name "Elliptical Orchids and Garden Center." Indeed, the petitioner’s
In light of the foregoing substantial changes in the Constitution, the petitioner cannot evidence shows that it collected ₱1,136,483.45 as rentals in 1991 and ₱1,679,999.28
rely on our ruling in Herrera v. Quezon City Board of Assessment Appeals which was for 1992 from the said lessees.
promulgated on September 30, 1961 before the 1973 and 1987 Constitutions took
effect.38 As this Court held in Province of Abra v. Hernando:39 Accordingly, we hold that the portions of the land leased to private entities as well as
those parts of the hospital leased to private individuals are not exempt from such
… Under the 1935 Constitution: "Cemeteries, churches, and parsonages or taxes.45 On the other hand, the portions of the land occupied by the hospital and
convents appurtenant thereto, and all lands, buildings, and improvements portions of the hospital used for its patients, whether paying or non-paying, are
used exclusively for religious, charitable, or educational purposes shall be exempt from real property taxes.
exempt from taxation." The present Constitution added "charitable
institutions, mosques, and non-profit cemeteries" and required that for the IN LIGHT OF ALL THE FOREGOING, the petition is PARTIALLY
exemption of "lands, buildings, and improvements," they should not only be GRANTED. The respondent Quezon City Assessor is hereby DIRECTED to
"exclusively" but also "actually" and "directly" used for religious or determine, after due hearing, the precise portions of the land and the area thereof
charitable purposes. The Constitution is worded differently. The change which are leased to private persons, and to compute the real property taxes due
should not be ignored. It must be duly taken into consideration. Reliance on thereon as provided for by law.
past decisions would have sufficed were the words "actually" as well as
"directly" not added. There must be proof therefore of SO ORDERED.
the actual and direct use of the lands, buildings, and improvements for
religious or charitable purposes to be exempt from taxation. … G.R. No. 195909 September 26, 2012

Under the 1973 and 1987 Constitutions and Rep. Act No. 7160 in order to be entitled COMMISSIONER OF INTERNAL REVENUE, PETITIONER,
to the exemption, the petitioner is burdened to prove, by clear and unequivocal proof, vs.
that (a) it is a charitable institution; and (b) its real properties ST. LUKE'S MEDICAL CENTER, INC., RESPONDENT.
are ACTUALLY, DIRECTLY and EXCLUSIVELY used for charitable purposes.
"Exclusive" is defined as possessed and enjoyed to the exclusion of others; debarred
from participation or enjoyment; and "exclusively" is defined, "in a manner to x-----------------------x
exclude; as enjoying a privilege exclusively."40 If real property is used for one or
more commercial purposes, it is not exclusively used for the exempted purposes but G.R. No. 195960
is subject to taxation.41 The words "dominant use" or "principal use" cannot be
substituted for the words "used exclusively" without doing violence to the ST. LUKE'S MEDICAL CENTER, INC., PETITIONER,
Constitutions and the law.42 Solely is synonymous with exclusively.43 vs.
COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.
What is meant by actual, direct and exclusive use of the property for charitable
purposes is the direct and immediate and actual application of the property itself to DECISION
the purposes for which the charitable institution is organized. It is not the use of the
income from the real property that is determinative of whether the property is used CARPIO, J.:
for tax-exempt purposes.44
The Case
These are consolidated 1 petitions for review on certiorari under Rule 45 of the Rules On 14 January 2003, St. Luke's filed an administrative protest with the BIR against
of Court assailing the Decision of 19 November 2010 of the Court of Tax Appeals the deficiency tax assessments. The BIR did not act on the protest within the 180-day
(CTA) En Banc and its Resolution 2 of 1 March 2011 in CTA Case No. 6746. This period under Section 228 of the NIRC. Thus, St. Luke's appealed to the CTA.
Court resolves this case on a pure question of law, which involves the interpretation
of Section 27(B) vis-à-vis Section 30(E) and (G) of the National Internal Revenue The BIR argued before the CTA that Section 27(B) of the NIRC, which imposes a
Code of the Philippines (NIRC), on the income tax treatment of proprietary non- 10% preferential tax rate on the income of proprietary non-profit hospitals, should be
profit hospitals. applicable to St. Luke's. According to the BIR, Section 27(B), introduced in 1997, "is
a new provision intended to amend the exemption on non-profit hospitals that were
The Facts previously categorized as non-stock, non-profit corporations under Section 26 of the
1997 Tax Code x x x." 5 It is a specific provision which prevails over the general
St. Luke's Medical Center, Inc. (St. Luke's) is a hospital organized as a non-stock and exemption on income tax granted under Section 30(E) and (G) for non-stock, non-
non-profit corporation. Under its articles of incorporation, among its corporate profit charitable institutions and civic organizations promoting social welfare. 6
purposes are:
The BIR claimed that St. Luke's was actually operating for profit in 1998 because
(a) To establish, equip, operate and maintain a non-stock, non-profit only 13% of its revenues came from charitable purposes. Moreover, the hospital's
Christian, benevolent, charitable and scientific hospital which shall give board of trustees, officers and employees directly benefit from its profits and assets.
curative, rehabilitative and spiritual care to the sick, diseased and disabled St. Luke's had total revenues of ₱1,730,367,965 or approximately ₱1.73 billion from
persons; provided that purely medical and surgical services shall be patient services in 1998. 7
performed by duly licensed physicians and surgeons who may be freely and
individually contracted by patients; St. Luke's contended that the BIR should not consider its total revenues, because its
free services to patients was ₱218,187,498 or 65.20% of its 1998 operating income
(b) To provide a career of health science education and provide medical (i.e., total revenues less operating expenses) of ₱334,642,615. 8 St. Luke's also
services to the community through organized clinics in such specialties as claimed that its income does not inure to the benefit of any individual.
the facilities and resources of the corporation make possible;
St. Luke's maintained that it is a non-stock and non-profit institution for charitable
(c) To carry on educational activities related to the maintenance and and social welfare purposes under Section 30(E) and (G) of the NIRC. It argued that
promotion of health as well as provide facilities for scientific and medical the making of profit per se does not destroy its income tax exemption.
researches which, in the opinion of the Board of Trustees, may be justified
by the facilities, personnel, funds, or other requirements that are available; The petition of the BIR before this Court in G.R. No. 195909 reiterates its arguments
before the CTA that Section 27(B) applies to St. Luke's. The petition raises the sole
(d) To cooperate with organized medical societies, agencies of both issue of whether the enactment of Section 27(B) takes proprietary non-profit
government and private sector; establish rules and regulations consistent hospitals out of the income tax exemption under Section 30 of the NIRC and instead,
with the highest professional ethics; imposes a preferential rate of 10% on their taxable income. The BIR prays that St.
Luke's be ordered to pay ₱57,659,981.19 as deficiency income and expanded
xxxx3 withholding tax for 1998 with surcharges and interest for late payment.

On 16 December 2002, the Bureau of Internal Revenue (BIR) assessed St. Luke's The petition of St. Luke's in G.R. No. 195960 raises factual matters on the treatment
deficiency taxes amounting to ₱76,063,116.06 for 1998, comprised of deficiency and withholding of a part of its income, 9 as well as the payment of surcharge and
income tax, value-added tax, withholding tax on compensation and expanded delinquency interest. There is no ground for this Court to undertake such a factual
withholding tax. The BIR reduced the amount to ₱63,935,351.57 during trial in the review. Under the Constitution 10 and the Rules of Court, 11 this Court's review power
First Division of the CTA. 4 is generally limited to "cases in which only an error or question of law is
involved." 12 This Court cannot depart from this limitation if a party fails to invoke a
recognized exception.

The Ruling of the Court of Tax Appeals


The CTA En Banc Decision on 19 November 2010 affirmed in toto the CTA First which, otherwise, would be subject thereto, because of the existence of x x x net
Division Decision dated 23 February 2009 which held: income." 22 The NIRC of 1997 substantially reproduces the provision on charitable
institutions of the old NIRC. Thus, in rejecting the argument that tax exemption is
WHEREFORE, the Amended Petition for Review [by St. Luke's] is hereby lost whenever there is net income, the Court in Jesus Sacred Heart College declared:
PARTIALLY GRANTED. Accordingly, the 1998 deficiency VAT assessment issued "[E]very responsible organization must be run to at least insure its existence, by
by respondent against petitioner in the amount of ₱110,000.00 is hereby operating within the limits of its own resources, especially its regular income. In
CANCELLED and WITHDRAWN. However, petitioner is hereby ORDERED to other words, it should always strive, whenever possible, to have a surplus." 23
PAY deficiency income tax and deficiency expanded withholding tax for the taxable
year 1998 in the respective amounts of ₱5,496,963.54 and ₱778,406.84 or in the sum The CTA held that Section 27(B) of the present NIRC does not apply to St.
of ₱6,275,370.38, x x x. Luke's. 24 The CTA explained that to apply the 10% preferential rate, Section 27(B)
requires a hospital to be "non-profit." On the other hand, Congress specifically used
xxxx the word "non-stock" to qualify a charitable "corporation or association" in Section
30(E) of the NIRC. According to the CTA, this is unique in the present tax code,
In addition, petitioner is hereby ORDERED to PAY twenty percent (20%) indicating an intent to exempt this type of charitable organization from income tax.
delinquency interest on the total amount of ₱6,275,370.38 counted from October 15, Section 27(B) does not require that the hospital be "non-stock." The CTA stated, "it is
2003 until full payment thereof, pursuant to Section 249(C)(3) of the NIRC of 1997. clear that non-stock, non-profit hospitals operated exclusively for charitable purpose
are exempt from income tax on income received by them as such, applying the
provision of Section 30(E) of the NIRC of 1997, as amended." 25
SO ORDERED. 13
The Issue
The deficiency income tax of ₱5,496,963.54, ordered by the CTA En Banc to be
paid, arose from the failure of St. Luke's to prove that part of its income in 1998
(declared as "Other Income-Net") 14 came from charitable activities. The CTA The sole issue is whether St. Luke's is liable for deficiency income tax in 1998 under
cancelled the remainder of the ₱63,113,952.79 deficiency assessed by the BIR based Section 27(B) of the NIRC, which imposes a preferential tax rate of 10% on the
on the 10% tax rate under Section 27(B) of the NIRC, which the CTA En Banc held income of proprietary non-profit hospitals.
was not applicable to St. Luke's. 15
The Ruling of the Court
The CTA ruled that St. Luke's is a non-stock and non-profit charitable institution
covered by Section 30(E) and (G) of the NIRC. This ruling would exempt all income St. Luke's Petition in G.R. No. 195960
derived by St. Luke's from services to its patients, whether paying or non-paying.
The CTA reiterated its earlier decision in St. Luke's Medical Center, Inc. v. As a preliminary matter, this Court denies the petition of St. Luke's in G.R. No.
Commissioner of Internal Revenue, 16 which examined the primary purposes of St. 195960 because the petition raises factual issues. Under Section 1, Rule 45 of the
Luke's under its articles of incorporation and various documents 17 identifying St. Rules of Court, "[t]he petition shall raise only questions of law which must be
Luke's as a charitable institution. distinctly set forth." St. Luke's cites Martinez v. Court of Appeals 26 which permits
factual review "when the Court of Appeals [in this case, the CTA] manifestly
The CTA adopted the test in Hospital de San Juan de Dios, Inc. v. Pasay overlooked certain relevant facts not disputed by the parties and which, if properly
City, 18 which states that "a charitable institution does not lose its charitable character considered, would justify a different conclusion." 27
and its consequent exemption from taxation merely because recipients of its benefits
who are able to pay are required to do so, where funds derived in this manner are This Court does not see how the CTA overlooked relevant facts. St. Luke's itself
devoted to the charitable purposes of the institution x x x." 19 The generation of stated that the CTA "disregarded the testimony of [its] witness, Romeo B. Mary,
income from paying patients does not per se destroy the charitable nature of St. being allegedly self-serving, to show the nature of the 'Other Income-Net' x x
Luke's. x." 28 This is not a case of overlooking or failing to consider relevant evidence. The
CTA obviously considered the evidence and concluded that it is self-serving. The
Hospital de San Juan cited Jesus Sacred Heart College v. Collector of Internal CTA declared that it has "gone through the records of this case and found no other
Revenue, 20 which ruled that the old NIRC (Commonwealth Act No. 466, as evidence aside from the self-serving affidavit executed by [the] witnesses [of St.
amended) 21 "positively exempts from taxation those corporations or associations Luke's] x x x." 29
The deficiency tax on "Other Income-Net" stands. Thus, St. Luke's is liable to pay asserts that the legislative intent of introducing Section 27(B) was only to remove the
the 25% surcharge under Section 248(A)(3) of the NIRC. There is "[f]ailure to pay exemption for "proprietary non-profit" hospitals. 35 The relevant provisions of
the deficiency tax within the time prescribed for its payment in the notice of Section 30 state:
assessment[.]" 30 St. Luke's is also liable to pay 20% delinquency interest under
Section 249(C)(3) of the NIRC. 31 As explained by the CTA En Banc, the amount of SEC. 30. Exemptions from Tax on Corporations. - The following organizations shall
₱6,275,370.38 in the dispositive portion of the CTA First Division Decision includes not be taxed under this Title in respect to income received by them as such:
only deficiency interest under Section 249(A) and (B) of the NIRC and not
delinquency interest. 32 xxxx

The Main Issue (E) Nonstock corporation or association organized and operated exclusively for
religious, charitable, scientific, athletic, or cultural purposes, or for the rehabilitation
The issue raised by the BIR is a purely legal one. It involves the effect of the of veterans, no part of its net income or asset shall belong to or inure to the benefit of
introduction of Section 27(B) in the NIRC of 1997 vis-à-vis Section 30(E) and (G) any member, organizer, officer or any specific person;
on the income tax exemption of charitable and social welfare institutions. The 10%
income tax rate under Section 27(B) specifically pertains to proprietary educational xxxx
institutions and proprietary non-profit hospitals. The BIR argues that Congress
intended to remove the exemption that non-profit hospitals previously enjoyed under
Section 27(E) of the NIRC of 1977, which is now substantially reproduced in Section (G) Civic league or organization not organized for profit but operated exclusively for
30(E) of the NIRC of 1997. 33 Section 27(B) of the present NIRC provides: the promotion of social welfare;

SEC. 27. Rates of Income Tax on Domestic Corporations. - xxxx

xxxx Notwithstanding the provisions in the preceding paragraphs, the income of whatever
kind and character of the foregoing organizations from any of their properties, real or
personal, or from any of their activities conducted for profit regardless of the
(B) Proprietary Educational Institutions and Hospitals. - Proprietary educational disposition made of such income, shall be subject to tax imposed under this Code.
institutions and hospitals which are non-profit shall pay a tax of ten percent (10%) on (Emphasis supplied)
their taxable income except those covered by Subsection (D) hereof: Provided, That
if the gross income from unrelated trade, business or other activity exceeds fifty
percent (50%) of the total gross income derived by such educational institutions or The Court partly grants the petition of the BIR but on a different ground. We hold
hospitals from all sources, the tax prescribed in Subsection (A) hereof shall be that Section 27(B) of the NIRC does not remove the income tax exemption of
imposed on the entire taxable income. For purposes of this Subsection, the term proprietary non-profit hospitals under Section 30(E) and (G). Section 27(B) on one
'unrelated trade, business or other activity' means any trade, business or other hand, and Section 30(E) and (G) on the other hand, can be construed together
activity, the conduct of which is not substantially related to the exercise or without the removal of such tax exemption. The effect of the introduction of Section
performance by such educational institution or hospital of its primary purpose or 27(B) is to subject the taxable income of two specific institutions, namely,
function. A 'proprietary educational institution' is any private school maintained and proprietary non-profit educational institutions 36 and proprietary non-profit hospitals,
administered by private individuals or groups with an issued permit to operate from among the institutions covered by Section 30, to the 10% preferential rate under
the Department of Education, Culture and Sports (DECS), or the Commission on Section 27(B) instead of the ordinary 30% corporate rate under the last paragraph of
Higher Education (CHED), or the Technical Education and Skills Development Section 30 in relation to Section 27(A)(1).
Authority (TESDA), as the case may be, in accordance with existing laws and
regulations. (Emphasis supplied) Section 27(B) of the NIRC imposes a 10% preferential tax rate on the income of (1)
proprietary non-profit educational institutions and (2) proprietary non-profit
St. Luke's claims tax exemption under Section 30(E) and (G) of the NIRC. It hospitals. The only qualifications for hospitals are that they must be proprietary and
contends that it is a charitable institution and an organization promoting social non-profit. "Proprietary" means private, following the definition of a "proprietary
welfare. The arguments of St. Luke's focus on the wording of Section 30(E) educational institution" as "any private school maintained and administered by
exempting from income tax non-stock, non-profit charitable institutions. 34 St. Luke's private individuals or groups" with a government permit. "Non-profit" means no net
income or asset accrues to or benefits any member or specific person, with all the net The Court in Lung Center declared that the Lung Center of the Philippines is a
income or asset devoted to the institution's purposes and all its activities conducted charitable institution for the purpose of exemption from real property taxes. This
not for profit. ruling uses the same premise as Hospital de San Juan 45 and Jesus Sacred Heart
College 46 which says that receiving income from paying patients does not destroy the
"Non-profit" does not necessarily mean "charitable." In Collector of Internal charitable nature of a hospital.
Revenue v. Club Filipino Inc. de Cebu, 37this Court considered as non-profit a sports
club organized for recreation and entertainment of its stockholders and members. As a general principle, a charitable institution does not lose its character as such and
The club was primarily funded by membership fees and dues. If it had profits, they its exemption from taxes simply because it derives income from paying patients,
were used for overhead expenses and improving its golf course. 38 The club was non- whether out-patient, or confined in the hospital, or receives subsidies from the
profit because of its purpose and there was no evidence that it was engaged in a government, so long as the money received is devoted or used altogether to the
profit-making enterprise. 39 charitable object which it is intended to achieve; and no money inures to the private
benefit of the persons managing or operating the institution. 47
The sports club in Club Filipino Inc. de Cebu may be non-profit, but it was not
charitable. The Court defined "charity" in Lung Center of the Philippines v. Quezon For real property taxes, the incidental generation of income is permissible because
City 40 as "a gift, to be applied consistently with existing laws, for the benefit of an the test of exemption is the use of the property. The Constitution provides that
indefinite number of persons, either by bringing their minds and hearts under the "[c]haritable institutions, churches and personages or convents appurtenant thereto,
influence of education or religion, by assisting them to establish themselves in life or mosques, non-profit cemeteries, and all lands, buildings, and improvements, actually,
[by] otherwise lessening the burden of government." 41A non-profit club for the directly, and exclusively used for religious, charitable, or educational purposes shall
benefit of its members fails this test. An organization may be considered as non- be exempt from taxation." 48 The test of exemption is not strictly a requirement on the
profit if it does not distribute any part of its income to stockholders or members. intrinsic nature or character of the institution. The test requires that the institution use
However, despite its being a tax exempt institution, any income such institution earns the property in a certain way, i.e. for a charitable purpose. Thus, the Court held that
from activities conducted for profit is taxable, as expressly provided in the last the Lung Center of the Philippines did not lose its charitable character when it used a
paragraph of Section 30. portion of its lot for commercial purposes. The effect of failing to meet the use
requirement is simply to remove from the tax exemption that portion of the property
To be a charitable institution, however, an organization must meet the substantive not devoted to charity.
test of charity in Lung Center. The issue in Lung Center concerns exemption from
real property tax and not income tax. However, it provides for the test of charity in The Constitution exempts charitable institutions only from real property taxes. In the
our jurisdiction. Charity is essentially a gift to an indefinite number of persons which NIRC, Congress decided to extend the exemption to income taxes. However, the way
lessens the burden of government. In other words, charitable institutions provide for Congress crafted Section 30(E) of the NIRC is materially different from Section
free goods and services to the public which would otherwise fall on the shoulders of 28(3), Article VI of the Constitution. Section 30(E) of the NIRC defines the
government. Thus, as a matter of efficiency, the government forgoes taxes which corporation or association that is exempt from income tax. On the other hand,
should have been spent to address public needs, because certain private entities Section 28(3), Article VI of the Constitution does not define a charitable institution,
already assume a part of the burden. This is the rationale for the tax exemption of but requires that the institution "actually, directly and exclusively" use the property
charitable institutions. The loss of taxes by the government is compensated by its for a charitable purpose.
relief from doing public works which would have been funded by appropriations
from the Treasury. 42 Section 30(E) of the NIRC provides that a charitable institution must be:

Charitable institutions, however, are not ipso facto entitled to a tax exemption. The (1) A non-stock corporation or association;
requirements for a tax exemption are specified by the law granting it. The power of
Congress to tax implies the power to exempt from tax. Congress can create tax (2) Organized exclusively for charitable purposes;
exemptions, subject to the constitutional provision that "[n]o law granting any tax
exemption shall be passed without the concurrence of a majority of all the Members
of Congress." 43 The requirements for a tax exemption are strictly construed against (3) Operated exclusively for charitable purposes; and
the taxpayer 44 because an exemption restricts the collection of taxes necessary for the
existence of the government. (4) No part of its net income or asset shall belong to or inure to the benefit
of any member, organizer, officer or any specific person.
Thus, both the organization and operations of the charitable institution must be be] organized and operated exclusively for x x x charitable x x x purposes x x x." It
devoted "exclusively" for charitable purposes. The organization of the institution likewise qualifies the requirement in Section 30(G) that the civic organization must
refers to its corporate form, as shown by its articles of incorporation, by-laws and be "operated exclusively" for the promotion of social welfare.
other constitutive documents. Section 30(E) of the NIRC specifically requires that
the corporation or association be non-stock, which is defined by the Corporation Thus, even if the charitable institution must be "organized and operated exclusively"
Code as "one where no part of its income is distributable as dividends to its for charitable purposes, it is nevertheless allowed to engage in "activities conducted
members, trustees, or officers" 49 and that any profit "obtain[ed] as an incident to its for profit" without losing its tax exempt status for its not-for-profit activities. The
operations shall, whenever necessary or proper, be used for the furtherance of the only consequence is that the "income of whatever kind and character" of a charitable
purpose or purposes for which the corporation was organized." 50 However, under institution "from any of its activities conducted for profit, regardless of the
Lung Center, any profit by a charitable institution must not only be plowed back disposition made of such income, shall be subject to tax." Prior to the introduction of
"whenever necessary or proper," but must be "devoted or used altogether to the Section 27(B), the tax rate on such income from for-profit activities was the ordinary
charitable object which it is intended to achieve." 51 corporate rate under Section 27(A). With the introduction of Section 27(B), the tax
rate is now 10%.
The operations of the charitable institution generally refer to its regular activities.
Section 30(E) of the NIRC requires that these operations be exclusive to charity. In 1998, St. Luke's had total revenues of ₱1,730,367,965 from services to paying
There is also a specific requirement that "no part of [the] net income or asset shall patients. It cannot be disputed that a hospital which receives approximately ₱1.73
belong to or inure to the benefit of any member, organizer, officer or any specific billion from paying patients is not an institution "operated exclusively" for charitable
person." The use of lands, buildings and improvements of the institution is but a part purposes. Clearly, revenues from paying patients are income received from
of its operations. "activities conducted for profit." 52 Indeed, St. Luke's admits that it derived profits
from its paying patients. St. Luke's declared ₱1,730,367,965 as "Revenues from
There is no dispute that St. Luke's is organized as a non-stock and non-profit Services to Patients" in contrast to its "Free Services" expenditure of ₱218,187,498.
charitable institution. However, this does not automatically exempt St. Luke's from In its Comment in G.R. No. 195909, St. Luke's showed the following "calculation" to
paying taxes. This only refers to the organization of St. Luke's. Even if St. Luke's support its claim that 65.20% of its "income after expenses was allocated to free or
meets the test of charity, a charitable institution is not ipso facto tax exempt. To be charitable services" in 1998. 53
exempt from real property taxes, Section 28(3), Article VI of the Constitution
requires that a charitable institution use the property "actually, directly and
exclusively" for charitable purposes. To be exempt from income taxes, Section 30(E) REVENUES FROM SERVICES TO PATIENTS ₱1,730,367,965.00
of the NIRC requires that a charitable institution must be "organized and operated
exclusively" for charitable purposes. Likewise, to be exempt from income taxes,
Section 30(G) of the NIRC requires that the institution be "operated exclusively" for
social welfare. OPERATING EXPENSES

However, the last paragraph of Section 30 of the NIRC qualifies the words Professional care of patients ₱1,016,608,394.00
"organized and operated exclusively" by providing that:
Administrative 287,319,334.00
Notwithstanding the provisions in the preceding paragraphs, the income of whatever
kind and character of the foregoing organizations from any of their properties, real or Household and Property 91,797,622.00
personal, or from any of their activities conducted for profit regardless of the
disposition made of such income, shall be subject to tax imposed under this Code. ₱1,395,725,350.00
(Emphasis supplied)

In short, the last paragraph of Section 30 provides that if a tax exempt charitable
institution conducts "any" activity for profit, such activity is not tax exempt even as INCOME FROM OPERATIONS ₱334,642,615.00 100%
its not-for-profit activities remain tax exempt. This paragraph qualifies the
requirements in Section 30(E) that the "[n]on-stock corporation or association [must
of Conference for the Senate, which introduced the phrase "or from any activity
Free Services -218,187,498.00 -65.20% conducted for profit."

INCOME FROM OPERATIONS, Net of FREE ₱116,455,117.00 34.80% P. Cuando ha hablado de la Universidad de Santo Tomás que tiene un hospital, no
SERVICES cree Vd. que es una actividad esencial dicho hospital para el funcionamiento del
colegio de medicina de dicha universidad?

xxxx
OTHER INCOME 17,482,304.00
R. Si el hospital se limita a recibir enformos pobres, mi contestación seria afirmativa;
pero considerando que el hospital tiene cuartos de pago, y a los mismos
generalmente van enfermos de buena posición social económica, lo que se paga por
EXCESS OF REVENUES OVER EXPENSES ₱133,937,421.00 estos enfermos debe estar sujeto a 'income tax', y es una de las razones que hemos
tenido para insertar las palabras o frase 'or from any activity conducted for profit.' 57

The question was whether having a hospital is essential to an educational institution


In Lung Center, this Court declared: like the College of Medicine of the University of Santo Tomas. Senator Cuenco
answered that if the hospital has paid rooms generally occupied by people of good
economic standing, then it should be subject to income tax. He said that this was one
"[e]xclusive" is defined as possessed and enjoyed to the exclusion of others; debarred of the reasons Congress inserted the phrase "or any activity conducted for profit."
from participation or enjoyment; and "exclusively" is defined, "in a manner to
exclude; as enjoying a privilege exclusively." x x x The words "dominant use" or
"principal use" cannot be substituted for the words "used exclusively" without doing The question in Jesus Sacred Heart College involves an educational
violence to the Constitution and the law. Solely is synonymous with exclusively. 54 institution. 58 However, it is applicable to charitable institutions because Senator
Cuenco's response shows an intent to focus on the activities of charitable institutions.
Activities for profit should not escape the reach of taxation. Being a non-stock and
The Court cannot expand the meaning of the words "operated exclusively" without non-profit corporation does not, by this reason alone, completely exempt an
violating the NIRC. Services to paying patients are activities conducted for profit. institution from tax. An institution cannot use its corporate form to prevent its
They cannot be considered any other way. There is a "purpose to make profit over profitable activities from being taxed.
and above the cost" of services. 55 The ₱1.73 billion total revenues from paying
patients is not even incidental to St. Luke's charity expenditure of ₱218,187,498 for
non-paying patients. The Court finds that St. Luke's is a corporation that is not "operated exclusively" for
charitable or social welfare purposes insofar as its revenues from paying patients are
concerned. This ruling is based not only on a strict interpretation of a provision
St. Luke's claims that its charity expenditure of ₱218,187,498 is 65.20% of its granting tax exemption, but also on the clear and plain text of Section 30(E) and (G).
operating income in 1998. However, if a part of the remaining 34.80% of the Section 30(E) and (G) of the NIRC requires that an institution be "operated
operating income is reinvested in property, equipment or facilities used for services exclusively" for charitable or social welfare purposes to be completely exempt from
to paying and non-paying patients, then it cannot be said that the income is "devoted income tax. An institution under Section 30(E) or (G) does not lose its tax exemption
or used altogether to the charitable object which it is intended to achieve." 56 The if it earns income from its for-profit activities. Such income from for-profit activities,
income is plowed back to the corporation not entirely for charitable purposes, but for under the last paragraph of Section 30, is merely subject to income tax, previously at
profit as well. In any case, the last paragraph of Section 30 of the NIRC expressly the ordinary corporate rate but now at the preferential 10% rate pursuant to Section
qualifies that income from activities for profit is taxable "regardless of the 27(B).
disposition made of such income."
A tax exemption is effectively a social subsidy granted by the State because an
Jesus Sacred Heart College declared that there is no official legislative record exempt institution is spared from sharing in the expenses of government and yet
explaining the phrase "any activity conducted for profit." However, it quoted a benefits from them. Tax exemptions for charitable institutions should therefore be
deposition of Senator Mariano Jesus Cuenco, who was a member of the Committee limited to institutions beneficial to the public and those which improve social
welfare. A profit-making entity should not be allowed to exploit this subsidy to the Is the income derived from rentals of real property owned by the Young Men's
detriment of the government and other taxpayers.1âwphi1 Christian Association of the Philippines, Inc. (YMCA) — established as "a welfare,
educational and charitable non-profit corporation" — subject to income tax under the
St. Luke's fails to meet the requirements under Section 30(E) and (G) of the NIRC to National Internal Revenue Code (NIRC) and the Constitution?
be completely tax exempt from all its income. However, it remains a proprietary non-
profit hospital under Section 27(B) of the NIRC as long as it does not distribute any The Case
of its profits to its members and such profits are reinvested pursuant to its corporate
purposes. St. Luke's, as a proprietary non-profit hospital, is entitled to the preferential This is the main question raised before us in this petition for review
tax rate of 10% on its net income from its for-profit activities. on certiorari challenging two Resolutions issued by the Court of Appeals1 on
September 28, 19952 and February 29, 19963 in CA-GR SP No. 32007. Both
St. Luke's is therefore liable for deficiency income tax in 1998 under Section 27(B) Resolutions affirmed the Decision of the Court of Tax Appeals (CTA) allowing
of the NIRC. However, St. Luke's has good reasons to rely on the letter dated 6 June the YMCA to claim tax exemption on the latter's income from the lease of its
1990 by the BIR, which opined that St. Luke's is "a corporation for purely charitable real property.
and social welfare purposes"59 and thus exempt from income tax. 60 In Michael J.
Lhuillier, Inc. v. Commissioner of Internal Revenue, 61 the Court said that "good faith The Facts
and honest belief that one is not subject to tax on the basis of previous interpretation
of government agencies tasked to implement the tax law, are sufficient justification The facts are undisputed.4 Private Respondent YMCA is a non-stock, non-profit
to delete the imposition of surcharges and interest." 62 institution, which conducts various programs and activities that are beneficial to the
public, especially the young people, pursuant to its religious, educational and
WHEREFORE, the petition of the Commissioner of Internal Revenue in G.R. No. charitable objectives.
195909 is PARTLY GRANTED. The Decision of the Court of Tax Appeals En Banc
dated 19 November 2010 and its Resolution dated 1 March 2011 in CTA Case No. In 1980, private respondent earned, among others, an income of P676,829.80 from
6746 are MODIFIED. St. Luke's Medical Center, Inc. is ORDERED TO PAY the leasing out a portion of its premises to small shop owners, like restaurants and
deficiency income tax in 1998 based on the 10% preferential income tax rate under canteen operators, and P44,259.00 from parking fees collected from non-members.
Section 27(B) of the National Internal Revenue Code. However, it is not liable for On July 2, 1984, the commissioner of internal revenue (CIR) issued an assessment to
surcharges and interest on such deficiency income tax under Sections 248 and 249 of private respondent, in the total amount of P415,615.01 including surcharge and
the National Internal Revenue Code. All other parts of the Decision and Resolution interest, for deficiency income tax, deficiency expanded withholding taxes on rentals
of the Court of Tax Appeals are AFFIRMED. and professional fees and deficiency withholding tax on wages. Private respondent
formally protested the assessment and, as a supplement to its basic protest, filed a
The petition of St. Luke's Medical Center, Inc. in G.R. No. 195960 is DENIED for letter dated October 8, 1985. In reply, the CIR denied the claims of YMCA.
violating Section 1, Rule 45 of the Rules of Court.
Contesting the denial of its protest, the YMCA filed a petition for review at the Court
SO ORDERED. of Tax Appeals (CTA) on March 14, 1989. In due course, the CTA issued this ruling
in favor of the YMCA:
G.R. No. 124043 October 14, 1998
. . . [T]he leasing of [private respondent's] facilities to small shop
COMMISSIONER OF INTERNAL REVENUE, petitioner, owners, to restaurant and canteen operators and the operation of
vs. the parking lot are reasonably incidental to and reasonably
COURT OF APPEALS, COURT OF TAX APPEALS and YOUNG MEN'S necessary for the accomplishment of the objectives of the [private
CHRISTIAN ASSOCIATION OF THE PHILIPPINES, INC., respondents. respondents]. It appears from the testimonies of the witnesses for
the [private respondent] particularly Mr. James C. Delote, former
accountant of YMCA, that these facilities were leased to members
and that they have to service the needs of its members and their
PANGANIBAN, J.: guests. The rentals were minimal as for example, the barbershop
was only charged P300 per month. He also testified that there was
actually no lot devoted for parking space but the parking was done 1980 Deficiency Withholding Tax on Wages — P33,058.82
at the sides of the building. The parking was primarily for
members with stickers on the windshields of their cars and they plus 10% surcharge and 20% interest per annum from July 2, 1984
charged P.50 for non-members. The rentals and parking fees were until fully paid but not to exceed three (3) years pursuant to
just enough to cover the costs of operation and maintenance only. Section 51(e)(2) & (3) of the National Internal Revenue Code
The earning[s] from these rentals and parking charges including effective as of 1984. 5
those from lodging and other charges for the use of the recreational
facilities constitute [the] bulk of its income which [is] channeled to Dissatisfied with the CTA ruling, the CIR elevated the case to the Court of Appeals
support its many activities and attainment of its objectives. As (CA). In its Decision of February 16, 1994, the CA6 initially decided in favor of the
pointed out earlier, the membership dues are very insufficient to CIR and disposed of the appeal in the following manner:
support its program. We find it reasonably necessary therefore for
[private respondent] to make [the] most out [of] its existing
facilities to earn some income. It would have been different if Following the ruling in the afore-cited cases of Province of Abra
under the circumstances, [private respondent] will purchase a lot vs. Hernando and Abra Valley College Inc. vs. Aquino, the ruling
and convert it to a parking lot to cater to the needs of the general of the respondent Court of Tax Appeals that "the leasing of
public for a fee, or construct a building and lease it out to the petitioner's (herein respondent's) facilities to small shop owners, to
highest bidder or at the market rate for commercial purposes, or restaurant and canteen operators and the operation of the parking
should it invest its funds in the buy and sell of properties, real or lot are reasonably incidental to and reasonably necessary for the
personal. Under these circumstances, we could conclude that the accomplishment of the objectives of the petitioners, and the
activities are already profit oriented, not incidental and reasonably income derived therefrom are tax exempt, must be reversed.
necessary to the pursuit of the objectives of the association and
therefore, will fall under the last paragraph of Section 27 of the Tax WHEREFORE, the appealed decision is hereby REVERSED in so
Code and any income derived therefrom shall be taxable. far as it dismissed the assessment for:

Considering our findings that [private respondent] was not engaged 1980 Deficiency Income Tax P 353.15
in the business of operating or contracting [a] parking lot, we find
no legal basis also for the imposition of [a] deficiency fixed tax 1980 Deficiency Contractor's Tax P 3,129.23, &
and [a] contractor's tax in the amount[s] of P353.15 and P3,129.73,
respectively. 1980 Deficiency Income Tax P 372,578.20

xxx xxx xxx but the same is AFFIRMED in all other respect. 7

WHEREFORE, in view of all the foregoing, the following Aggrieved, the YMCA asked for reconsideration based on the following grounds:
assessments are hereby dismissed for lack of merit:
I
1980 Deficiency Fixed Tax — P353,15;
The findings of facts of the Public Respondent Court of Tax
1980 Deficiency Contractor's Tax — P3,129.23; Appeals being supported by substantial evidence [are] final and
conclusive.
1980 Deficiency Income Tax — P372,578.20.
II
While the following assessments are hereby sustained:
The conclusions of law of [p]ublic [r]espondent exempting
1980 Deficiency Expanded Withholding Tax — P1,798.93; [p]rivate [r]espondent from the income on rentals of small shops
and parking fees [are] in accord with the applicable law and In affirming the conclusion of Respondent Court of Tax Appeals
jurisprudence. 8 that the income of private respondent from rentals of small shops
and parking fees [is] exempt from taxation. 11
Finding merit in the Motion for Reconsideration filed by the YMCA, the CA
reversed itself and promulgated on September 28, 1995 its first assailed Resolution This Court's Ruling
which, in part, reads:
The petition is meritorious.
The Court cannot depart from the CTA's findings of fact, as they
are supported by evidence beyond what is considered as First Issue:
substantial. Factual Findings of the CTA

xxx xxx xxx Private respondent contends that the February 16, 1994 CA Decision reversed the
factual findings of the CTA. On the other hand, petitioner argues that the CA merely
The second ground raised is that the respondent CTA did not err in reversed the "ruling of the CTA that the leasing of private respondent's facilities to
saying that the rental from small shops and parking fees do not small shop owners, to restaurant and canteen operators and the operation of parking
result in the loss of the exemption. Not even the petitioner would lots are reasonably incidental to and reasonably necessary for the accomplishment of
hazard the suggestion that YMCA is designed for profit. the objectives of the private respondent and that the income derived therefrom are
Consequently, the little income from small shops and parking fees tax exempt." 12 Petitioner insists that what the appellate court reversed was the legal
help[s] to keep its head above the water, so to speak, and allow it to conclusion, not the factual finding, of the CTA. 13The commissioner has a point.
continue with its laudable work.
Indeed, it is a basic rule in taxation that the factual findings of the CTA, when
The Court, therefore, finds the second ground of the motion to be supported by substantial evidence, will be disturbed on appeal unless it is shown that
meritorious and in accord with law and jurisprudence. the said court committed gross error in the appreciation of facts. 14 In the present
case, this Court finds that the February 16, 1994 Decision of the CA did not deviate
WHEREFORE, the motion for reconsideration is GRANTED; the from this rule. The latter merely applied the law to the facts as found by the CTA and
respondent CTA's decision is AFFIRMED in toto.9 ruled on the issue raised by the CIR: "Whether or not the collection or earnings of
rental income from the lease of certain premises and income earned from parking
The internal revenue commissioner's own Motion for Reconsideration was denied by fees shall fall under the last paragraph of Section 27 of the National Internal Revenue
Respondent Court in its second assailed Resolution of February 29, 1996. Hence, this Code of 1977, as amended." 15
petition for review under Rule 45 of the Rules of Court. 10
Clearly, the CA did not alter any fact or evidence. It merely resolved the
The Issues aforementioned issue, as indeed it was expected to. That it did so in a manner
different from that of the CTA did not necessarily imply a reversal of factual
findings.
Before us, petitioner imputes to the Court of Appeals the following errors:
The distinction between a question of law and a question of fact is clear-cut. It has
I been held that "[t]here is a question of law in a given case when the doubt or
difference arises as to what the law is on a certain state of facts; there is a question of
In holding that it had departed from the findings of fact of fact when the doubt or difference arises as to the truth or falsehood of alleged
Respondent Court of Tax Appeals when it rendered its Decision facts." 16 In the present case, the CA did not doubt, much less change, the facts
dated February 16, 1994; and narrated by the CTA. It merely applied the law to the facts. That its interpretation or
conclusion is different from that of the CTA is not irregular or abnormal.
II
Second Issue:
Is the Rental Income of the YMCA Taxable?
We now come to the crucial issue: Is the rental income of the YMCA from its real In the instant case, the exemption claimed by the YMCA is expressly disallowed by
estate subject to tax? At the outset, we set forth the relevant provision of the NIRC: the very wording of the last paragraph of then Section 27 of the NIRC which
mandates that the income of exempt organizations (such as the YMCA) from any of
Sec. 27. Exemptions from tax on corporations. — The following their properties, real or personal, be subject to the tax imposed by the same Code.
organizations shall not be taxed under this Title in respect to Because the last paragraph of said section unequivocally subjects to tax the rent
income received by them as such — income of the YMCA from its real property, 20 the Court is duty-bound to abide
strictly by its literal meaning and to refrain from resorting to any convoluted attempt
xxx xxx xxx at construction.

(g) Civic league or organization not organized for profit but It is axiomatic that where the language of the law is clear and unambiguous, its
operated exclusively for the promotion of social welfare; express terms must be applied. 21 Parenthetically, a consideration of the question of
construction must not even begin, particularly when such question is on whether to
apply a strict construction or a liberal one on statutes that grant tax exemptions to
(h) Club organized and operated exclusively for pleasure, "religious, charitable and educational propert[ies] or institutions." 22
recreation, and other non-profitable purposes, no part of the net
income of which inures to the benefit of any private stockholder or
member; The last paragraph of Section 27, the YMCA argues, should be "subject to the
qualification that the income from the properties must arise from activities
'conducted for profit' before it may be considered taxable." 23This argument is
xxx xxx xxx erroneous. As previously stated, a reading of said paragraph ineludibly shows that the
income from any property of exempt organizations, as well as that arising from any
Notwithstanding the provisions in the preceding paragraphs, the activity it conducts for profit, is taxable. The phrase "any of their activities conducted
income of whatever kind and character of the foregoing for profit" does not qualify the word "properties." This makes from the property of
organizations from any of their properties, real or personal, or from the organization taxable, regardless of how that income is used — whether for profit
any of their activities conducted for profit, regardless of the or for lofty non-profit purposes.
disposition made of such income, shall be subject to the tax
imposed under this Code. (as amended by Pres. Decree No. 1457) Verba legis non est recedendum. Hence, Respondent Court of Appeals committed
reversible error when it allowed, on reconsideration, the tax exemption claimed by
Petitioner argues that while the income received by the organizations enumerated in YMCA on income it derived from renting out its real property, on the solitary but
Section 27 (now Section 26) of the NIRC is, as a rule, exempted from the payment of unconvincing ground that the said income is not collected for profit but is merely
tax "in respect to income received by them as such," the exemption does not apply to incidental to its operation. The law does not make a distinction. The rental income is
income derived ". . . from any of their properties, real or personal, or from any of taxable regardless of whence such income is derived and how it is used or disposed
their activities conducted for profit, regardless of the disposition made of such of. Where the law does not distinguish, neither should we.
income . . . ."
Constitutional Provisions
Petitioner adds that "rental income derived by a tax-exempt organization from the
lease of its properties, real or personal, [is] not, therefore, exempt from income On Taxation
taxation, even if such income [is] exclusively used for the accomplishment of its
objectives." 17 We agree with the commissioner.
Invoking not only the NIRC but also the fundamental law, private respondent
submits that Article VI, Section 28 of par. 3 of the 1987 Constitution, 24 exempts
Because taxes are the lifeblood of the nation, the Court has always applied the "charitable institutions" from the payment not only of property taxes but also of
doctrine of strict in interpretation in construing tax exemptions. 18 Furthermore, a income tax from any source. 25 In support of its novel theory, it compares the use of
claim of statutory exemption from taxation should be manifest. and unmistakable the words "charitable institutions," "actually" and "directly" in the 1973 and the 1987
from the language of the law on which it is based. Thus, the claimed exemption Constitutions, on the one hand; and in Article VI, Section 22, par. 3 of the 1935
"must expressly be granted in a statute stated in a language too clear to be Constitution, on the other hand. 26
mistaken." 19
Private respondent enunciates three points. First, the present provision is divisible seeks to be exempted from taxation is used actually, directly, and exclusively for
into two categories: (1) "[c]haritable institutions, churches and parsonages or educational purposes. However, the Court notes that not a scintilla of evidence was
convents appurtenant thereto, mosques and non-profit cemeteries," the incomes of submitted by private respondent to prove that it met the said requisites.
which are, from whatever source, all tax-exempt; 27 and (2) "[a]ll lands, buildings and
improvements actually and directly used for religious, charitable or educational Is the YMCA an educational institution within the purview of Article XIV, Section 4,
purposes," which are exempt only from property taxes. 28 Second, Lladoc v. par. 3 of the Constitution? We rule that it is not. The term "educational institution" or
Commissioner of Internal Revenue, 29which limited the exemption only to the "institution of learning" has acquired a well-known technical meaning, of which the
payment of property taxes, referred to the provision of the 1935 Constitution and not members of the Constitutional Commission are deemed cognizant. 38 Under the
to its counterparts in the 1973 and the 1987 Constitutions. 30 Third, the phrase Education Act of 1982, such term refers to schools. 39 The school system is
"actually, directly and exclusively used for religious, charitable or educational synonymous with formal education, 40 which "refers to the hierarchically structured
purposes" refers not only to "all lands, buildings and improvements," but also to the and chronologically graded learnings organized and provided by the formal school
above-quoted first category which includes charitable institutions like the private system and for which certification is required in order for the learner to progress
respondent. 31 through the grades or move to the higher levels." 41 The Court has examined the
"Amended Articles of Incorporation" and "By-Laws"43 of the YMCA, but found
The Court is not persuaded. The debates, interpellations and expressions of opinion nothing in them that even hints that it is a school or an educational institution. 44
of the framers of the Constitution reveal their intent which, in turn, may have guided
the people in ratifying the Charter. 32 Such intent must be effectuated. Furthermore, under the Education Act of 1982, even non-formal education is
understood to be school-based and "private auspices such as foundations and civic-
Accordingly, Justice Hilario G. Davide, Jr., a former constitutional commissioner, spirited organizations" are ruled out. 45 It is settled that the term "educational
who is now a member of this Court, stressed during the Concom debates that ". . . institution," when used in laws granting tax exemptions, refers to a ". . . school
what is exempted is not the institution itself . . .; those exempted from real estate seminary, college or educational establishment . . . ." 46 Therefore, the private
taxes are lands, buildings and improvements actually, directly and exclusively used respondent cannot be deemed one of the educational institutions covered by the
for religious, charitable or educational constitutional provision under consideration.
purposes." 33 Father Joaquin G. Bernas, an eminent authority on the Constitution and
also a member of the Concom, adhered to the same view that the exemption created . . . Words used in the Constitution are to be taken in their ordinary
by said provision pertained only to property taxes. 34 acceptation. While in its broadest and best sense education
embraces all forms and phases of instruction, improvement and
In his treatise on taxation, Mr. Justice Jose C. Vitug concurs, stating that "[t]he tax development of mind and body, and as well of religious and moral
exemption coversproperty taxes only." 35 Indeed, the income tax exemption claimed sentiments, yet in the common understanding and application it
by private respondent finds no basis in Article VI, Section 26, par. 3 of the means a place where systematic instruction in any or all of the
Constitution. useful branches of learning is given by methods common to
schools and institutions of learning. That we conceive to be the
Private respondent also invokes Article XIV, Section 4, par. 3 of the true intent and scope of the term [educational institutions,] as used
Character, 36 claiming that the YMCA "is a non-stock, non-profit educational in the
institution whose revenues and assets are used actually, directly and exclusively for Constitution. 47
educational purposes so it is exempt from taxes on its properties and income." 37 We
reiterate that private respondent is exempt from the payment of property tax, but not Moreover, without conceding that Private Respondent YMCA is an educational
income tax on the rentals from its property. The bare allegation alone that it is a non- institution, the Court also notes that the former did not submit proof of the
stock, non-profit educational institution is insufficient to justify its exemption from proportionate amount of the subject income that was actually, directly and
the payment of income tax. exclusively used for educational purposes. Article XIII, Section 5 of the YMCA by-
laws, which formed part of the evidence submitted, is patently insufficient, since the
As previously discussed, laws allowing tax exemption are construed strictissimi same merely signified that "[t]he net income derived from the rentals of the
juris. Hence, for the YMCA to be granted the exemption it claims under the commercial buildings shall be apportioned to the Federation and Member
aforecited provision, it must prove with substantial evidence that (1) it falls under the Associations as the National Board may decide." 48 In sum, we find no basis for
classification non-stock, non-profit educational institution; and (2) the income it
granting the YMCA exemption from income tax under the constitutional provision SO ORDERED.
invoked.

Cases Cited by Private


G.R. No. 117359 July 23, 1998
Respondent Inapplicable
DAVAO GULF LUMBER CORPORATION, petitioner,
The cases 49 relied on by private respondent do not support its cause. YMCA of
Manila v. Collector of Internal Revenue 50 and Abra Valley College, Inc. v. vs.
Aquino 51 are not applicable, because the controversy in both cases involved
exemption from the payment of property tax, not income tax. Hospital de San Juan COMMISSIONER OF INTERNAL REVENUE and COURT OF
de Dios, Inc. v. Pasay City 52 is not in point either, because it involves a claim for APPEALS, respondents.
exemption from the payment of regulatory fees, specifically electrical inspection
fees, imposed by an ordinance of Pasay City — an issue not at all related to that
involved in a claimed exemption from the payment of income taxes imposed on
property leases. In Jesus Sacred Heart College v. Com. of Internal Revenue, 53 the
party therein, which claimed an exemption from the payment of income tax, was an PANGANIBAN, J.:
educational institution which submitted substantial evidence that the income subject
of the controversy had been devoted or used solely for educational purposes. On the Because taxes are the lifeblood of the nation, statutes that allow exemptions are
other hand, the private respondent in the present case has not given any proof that it construed strictly against the grantee and liberally in favor of the government.
is an educational institution, or that part of its rent income is actually, directly and Otherwise stated, any exemption from the payment of a tax must be clearly stated in
exclusively used for educational purposes. the language of the law; it cannot be merely implied therefrom.

Epilogue Statement of the Case

In deliberating on this petition, the Court expresses its sympathy with private This principium is applied by the Court in resolving this petition for review under
respondent. It appreciates the nobility of its cause. However, the Court's power and Rule 45 of the Rules of Court, assailing the Decision 1 of Respondent Court of
function are limited merely to applying the law fairly and objectively. It cannot Appeals 2 in CA-GR SP No. 34581 dated September 26, 1994, which affirmed the
change the law or bend it to suit its sympathies and appreciations. Otherwise, it June 21, 1994 Decision 3 of the Court of Tax Appeals 4 in CTA Case No. 3574. The
would be overspilling its role and invading the realm of legislation. dispositive portion of the CTA Decision affirmed by Respondent Court reads:

We concede that private respondent deserves the help and the encouragement of the WHEREFORE, judgment is hereby rendered ordering the
government. It needs laws that can facilitate, and not frustrate, its humanitarian tasks. respondent to refund to the petitioner the amount of P2,923.15
But the Court regrets that, given its limited constitutional authority, it cannot rule on representing the partial refund of specific taxes paid on
the wisdom or propriety of legislation. That prerogative belongs to the political manufactured oils and fuels. 5
departments of government. Indeed, some of the members of the Court may even
believe in the wisdom and prudence of granting more tax exemptions to private The Antecedent Facts
respondent. But such belief, however well-meaning and sincere, cannot bestow upon
the Court the power to change or amend the law.
The facts are undisputed. 6 Petitioner is a licensed forest concessionaire possessing a
Timber License Agreement granted by the Ministry of Natural Resources (now
WHEREFORE, the petition is GRANTED. The Resolutions of the Court of Appeals Department of Environment and Natural Resources). From July 1, 1980 to January
dated September 28, 1995 and February 29, 1996 are hereby REVERSED and SET 31, 1982 petitioner purchased, from various oil companies, refined and manufactured
ASIDE. The Decision of the Court of Appeals dated February 16, 1995 is mineral oils as well as motor and diesel fuels, which it used exclusively for the
REINSTATED, insofar as it ruled that the income derived by petitioner from rentals exploitation and operation of its forest concession. Said oil companies paid the
of its real property is subject to income tax. No pronouncement as to costs.
specific taxes imposed, under Sections 153 and 156 7 of the 1977 National Internal January 1, 1980 to June 30, 1980 and from February 1, 1982 to June 30, 1982. In
Revenue Code (NIRC), on the sale of said products. Being included in the purchase regard to the other purchases, the CTA granted the claim, but it computed the refund
price of the oil products, the specific taxes paid by the oil companies were eventually based on rates deemed paid under RA 1435, and not on the higher rates actualhy paid
passed on to the user, the petitioner in this case. by petitioner under the NIRC.

On December 13, 1982, petitioner filed before Respondent Commissioner of Internal Insisting that the basis for computing the refund should be the increased rates
Revenue (CIR) a claim for refund in the amount of P120,825.11, representing 25% prescribed by Sections 153 and 156 of the NIRC, petitioner elevated the matter to the
of the specific taxes actually paid on the above-mentioned fuels and oils that were Court of Appeals. As noted earlier, the Court of Appeals affirmed the CTA Decision.
used by petitioner in its operations as forest concessionaire. The claim was based Hence, this petition for review. 9
on Insular Lumber Co. vs. Court of Tax Appeals 8 and Section 5 of RA 1435 which
reads: Public Respondent's Ruling

Sec. 5. The proceeds of the additional tax on manufactured oils In its petition before the Court of Appeals, petitioner raised the following arguments:
shall accrue to the road and bridge funds of the political
subdivision for whose benefit the tax is I. The respondent Court of Tax Appeals failed to apply the
collected: Provided, however, That whenever any oils mentioned Supreme Court's Decision in Insular Lumber Co. v. Court of Tax
above are used by miners or forest concessionaires in their Appeals which granted the claim for partial refund of specific taxes
operations, twenty-five per centum of the specific tax paid thereon paid by the claimant, without qualification or limitation.
shall be refunded by the Collector of Internal Revenue upon
submission of proof of actual use of oils and under similar
conditions enumerated in subparagraphs one and two of section II. The respondent Court of Tax Appeals ignored the increase in
one hereof, amending section one hundred forty-two of the Internal rates imposed by succeeding amendatory laws,under which the
Revenue Code: Provided,further, That no new road shall be petitioner paid the specific taxes on manufactured and diesel fuels.
constructed unless the routes or location thereof shall have been
approved by the Commissioner of Public Highways after a III. In its decision, the respondent Court of Tax Appeals ruled
determination that such road can be made part of an integral and contrary to established tenets of law when it lent itself to
articulated route in the Philippine Highway System, as required in interpreting Section 5 of R.A. 1435, when the construction of said
section twenty-six of the Philippine Highway Act of 1953. law is not necessary.

It is an unquestioned fact that petitioner complied with the procedure for refund, IV. Sections 1 and 2 of R.A. 1435 are not the operative provisions
including the submission of proof of the actual use of the aforementioned oils in its to be applied but rather, Sections 153 and 156 of the National
forest concession as required by the above-quoted law. Petitioner, in support of its Internal Revenue Code, as amended.
claim for refund, submitted to the CIR the affidavits of its general manager, the
president of the Philippine Wood Products Association, and three disinterested V. To rule that the basis for computation of the refunded taxes
persons, all attesting that the said manufactured diesel and fuel oils were actually should be Sections 1 and 2 of R.A. 1435 rather than Section 153
used in the exploitation and operation of its forest concession. and 156 of the National Internal Revenue Code is unfair,
erroneous, arbitrary, inequitable and oppressive. 10
On January 20, 1983, petitioner filed at the CTA a petition for review docketed as
CTA Case No. 3574. On June 21, 1994, the CTA rendered its decision finding The Court of Appeals held that the claim for refund should indeed be computed on
petitioner entitled to a partial refund of specific taxes the latter had paid in the the basis of the amounts deemed paid under Sections 1 and 2 of RA 1435. In so
reduced amount of P2,923.15. The CTA ruled that the claim on purchases of ruling, it cited our pronouncement in Commissioner of Internal Revenue v. Rio Tuba
lubricating oil (from July 1, 1980 to January 19, 1981) and on manufactured oils Nickel Mining Corporation 11 and subsequent Resolution dated June 15, 1992
other than lubricating oils (from July 1, 1980 to January 4, 1981) had prescribed. clarifying the said Decision. Respondent Court further ruled that the claims for
Disallowed on the ground that they were not included in the original claim filed refund which prescribed and those which were not filed at the administrative level
before the CIR were the claims for refund on purchases of manufactured oils from must be excluded.
The Issue Against the Grantee

In its Memorandum, petitioner raises one critical issue: Petitioner submits that it is entitled to the refund of 25 percent of the specific taxes it
had actually paid for the petroleum products used in its operations. In other words, it
Whether or not petitioner is entitled under Republic Act No. 1435 claims a refund based on the increased rates under Sections 153 and 156 of the
to the refund of 25% of the amount of specific taxes it actually paid NIRC. 15 Petitioner argues that the statutory grant of the refund privilege, specifically
on various refined and manufactured mineral oils and other oil the phrase "twenty-five per centum of the specific tax paid thereon shall be refunded
products taxed under Sec. 153 and Sec. 156 of the 1977 (Sec. 142 by the Collector of Internal Revenue," is "clear and unambiguous" enough to require
and Sec. 145 of the 1939) National Internal Revenue Code. 12 construction or qualification thereof. 16 In addition, it cites our pronouncement
in Insular Lumber vs. Court of Tax Appeals: 17
In the main, the question before us pertains only to the computation of the tax refund.
Petitioner argues that the refund should be based on the increased rates of specific . . . Sec. 5 [of RA 1435] makes reference to subparagraphs 1 and 2
taxes which it actually paid, as prescribed in Sections 153 and 156 of the NIRC. of Section 1 only for the purpose of prescribing the procedure for
Public respondent, on the other hand, contends that it should be based on specific refund. This express reference cannot be expanded in scope to
taxes deemed paid under Sections 1 and 2 of RA 1435. include the limitation of the period of refund. If the limitation of
the period of refund of specific taxes paid on oils used in aviation
The Court's Ruling and agriculture is intended to cover similar taxes paid on oil used
by miners and forest concessionaires, there would have been no
need of dealing with oil used by miners and forest concessions
The petition is not meritorious. separately and Section 5 would very well have been included in
Section 1 of Republic Act No. 1435, notwithstanding the different
Petitioner Entitled to Refund rate of exemption.

Under Sec. 5 of RA 1435 Petitioner then reasons that "the express mention of Section 1 of RA 1435 in Section
5 cannot be expanded to include a limitation on the tax rates to be applied . . .
At the outset, it must be stressed that petitioner is entitled to a partial refund under [otherwise,] Section 5 should very well have been included in Section 1 . . . ." 18
Section 5 of RA 1435, which was enacted to provide means for increasing the
Highway Special Fund. The Court is nor persuaded. The relevant statutory provisions do not clearly support
petitioner's claim for refund. RA 1435 provides:
The rationale for this grant of partial refund of specific taxes paid on purchases of
manufactured diesel and fuel oils rests on the character of the Highway Special Fund. Sec. 1 Section one hundred and forty-two of the National Internal
The specific taxes collected on gasoline and fuel accrue to the Fund, which is to be Revenue Code, as amended, is further amended to read as follows:
used for the construction and maintenance of the highway system. But because the
gasoline and fuel purchased by mining and lumber concessionaires are used within Sec. 142. Specific tax on manufactured oils and other fuels. — On
their own compounds and roads, and their vehicles seldom use the national refined and manufactured mineral oils and motor fuels, there shall
highways, they do not directly benefit from the Fund and its use. Hence, the tax be collected the following taxes:
refund gives the mining and the logging companies a measure of relief in light of
their peculiar situation. 13 When the Highway Special Fund was abolished in 1985,
the reason for the refund likewise ceased to exist. 14 Since petitioner purchased the (a) Kerosene or petroleum, per liter of volume capacity, two and
subject manufactured diesel and fuel oils from July 1, 1980 to January 31, 1982 and one-half centavos;
submitted the required proof that these were actually used in operating its forest
concession, it is entitled to claim the refund under Section 5 of RA 1435. (b) Lubricating oils, per liter of volume capacity, seven centavos;

Tax Refund Strictly Constrtued (c) Naptha, gasoline, and all other similar products of distillation,
per liter of volume capacity, eight centavos; and
(d) On denatured alcohol to be used for motive power, per liter of Sec. 5. The proceeds of the additional tax on manufactured oils
volume capacity, one centavo: Provided, That if the denatured shall accrue to the road and bridge funds of the political
alcohol is mixed with gasoline, the specific tax on which has subdivision for whose benefit the tax is
already been paid, only the alcohol content shall be subject to the collected: Provided, however, That whenever any oils mentioned
tax herein prescribed. For the purpose of this subsection, the above are used by miners or forest concessionaires in their
removal of denatured alcohol of not less than one hundred eighty operations, twenty-five per centum of the specific tax paid thereon
degrees proof (ninety per centum absolute alcohol) shall be shall be refunded by the Collector of Internal Revenue upon
deemed to have been removed for motive power, unless shown to submission of proof of actual use of oils and under similar
the contrary. conditions enumerated in subparagraphs one and two of section
one hereof, amending section one hundred forty-two of the Internal
Whenever any of the oils mentioned above are, during the five Revenue Code: Provided,further, That no new road shall be
years from June eighteen, nineteen hundred and fifty two, used in constructed unless the route or location thereof shall have been
agriculture and aviation, fifty per centum of the specific tax paid approved by the Commissioner of Public Highways after a
thereon shall be refunded by the Collector of Internal Revenue determination that such road can be made part of an integral and
upon the submission of the following: articulated route in the Philippine Highway System, as required in
section twenty-six of the Philippine Highway Act of 1953.
(1) A sworn affidavit of the producer and two disinterested persons
proving that the said oils were actually used in agriculture, or in Subsequently the 1977 NIRC, PD 1672 and EO 672 amended the first two
lieu thereof. provisions, renumbering them and prescribing higher rates. Accordingly, petitioner
paid specific taxes on petroleum products purchased from July 1, 1980 to January 31,
(2) Should the producer belong to any producers' association or 1982 under the following statutory provisions.
federation, duly registered with the Securities and Exchange
Commission, the affidavit of the president of the association or From February 8, 1980 to March 20, 1981, Sections 153 and 156 provided as
federation, attesting to the fact that the oils were actually used in follows:
agriculture.
Sec. 153. Specific tax on manufactured oils and other fuels. — On
(3) In the case of aviation oils, a sworn certificate satisfactory to refined and manufactured mineral oils and motor fuels, there shall
the Collector proving that the said oils were actually used in be collected the following taxes which shall attach to the articles
aviation: Provided, That no such refunds shall be granted in respect hereunder enumerated as soon as they are in existence as such:
to the oils used in aviation by citizens and corporations of foreign
countries which do not grant equivalent refunds or exemptions in (a) Kerosene, per liter of volume capacity, seven centavos;
respect to similar oils used in aviation by citizens and corporations
of the Philippines. (b) Lubricating oils, per liter of volume capacity, eighty centavos;

Sec. 2 Section one hundred and forty-five of the National Internal (c) Naphtha, gasoline and all other similar products of distillation,
Revenue Code, as amended, is further amended to read as follows: per liter of volume capacity, ninety-one centavos: Provided, That
on premium and aviation gasoline, the tax shall be one peso per
Sec. 145. Specific Tax on Diesel fuel oil. — On fuel oil, liter of volume capacity;
commercially known as diesel fuel oil, and on all similar fuel oils,
having more or less the same generating power, there shall be (d) On denatured alcohol to be used for motive power, per liter of
collected, per metric ton, one peso. volume capacity, one centavo: Provided, That unless otherwise
provided for by special laws, if the denatured alcohol is mixed with
xxx xxx xxx gasoline, the specific tax on which has already been paid, only the
alcohol content shall be subject to the tax herein prescribed. For
the purposes of this subsection, the removal of denatured alcohol
of not less than one hundred eighty degrees proof (ninety per and ten centavos and one peso, respectively, per liter of volume
centum absolute alcohol) shall be deemed to have been removed capacity;
for motive power, unless shown to the contrary;
(d) On denatured alcohol to be used for motive power, per liter of
(e) Processed gas, per liter of volume capacity, three centavos; volume capacity, one centavo; Provided, That unless otherwise
provided for by special laws, if the denatured alcohol is mixed with
(f) Thinners and solvents, per liter of volume capacity, fifty-seven gasoline, the specific tax on which has already been paid, only the
centavos; alcohol content shall be subject to the tax herein prescribed. For
the purpose of this subsection, the removal of denatured alcohol of
(g) Liquefied petroleum gas, per kilogram, fourteen not less than one hundred eighty degrees proof (ninety per
centavos: Provided, That liquefied petroleum gas used for motive centumabsolute alcohol) shall be deemed to have been removed for
power shall be taxed at the equivalent rate as the specific tax on motive power, unless shown to the contrary;
diesel fuel oil;
(e) Processed gas, per liter of volume capacity, three centavos;
(h) Asphalts, per kilogram, eight centavos;
(f) Thinners and solvents, per liter of volume capacity, sixty-one
(i) Greases, waxes and petrolatum, per kilogram, fifty centavos; centavos;

(j) Aviation turbo jet fuel, per liter of volume capacity, fifty-five (g) Liquefied petroleum gas, per kilogram, twenty-one
centavos. (As amended by Sec. 1, P.D. No. 1672.) centavos: Provided, That, liquified petroleum gas used for motive
power shall be taxed at the equivalent rate as the specific tax on
diesel fuel oil;
xxx xxx xxx
(h) Asphalts, per kilogram, twelve centavos;
Sec. 156. Specific tax on diesel fuel oil. — On fuel oil,
commercially known as diesel fuel oil, and on all similar fuel oils,
having more or less the same generating power, per liter of volume (i) Greases, waxes and petrolatum, per kilogram, fifty centavos;
capacity, seventeen and one-half centavos, which tax shall attach to
this fuel oil as soon as it is in existence as such. (j) Aviation turbo-jet fuel, per liter of volume capacity, sixty-four
centavos.
Then on March 21, 1981, these provisions were amended by EO 672 to read:
xxx xxx xxx
Sec. 153. Specific tax on manufactured oils and other fuels. — On
refined and manufactured mineral oils and motor fuels, there shall Sec. 156. Specific tax on diesel fuel oil. — On fuel oil,
be collected the following taxes which shall attach to the articles commercially known as diesel fuel oil, and all similar fuel oils,
hereunder enumerated as soon as they are in existence as such: having more or less the same generating power, per liter of volume
capacity, twenty-five and one-half centavos, which tax shall attach
(a) Kerosene, per liter of volume capacity, nine centavos; to this fuel oil as soon as it is in existence as such.

(b) Lubricating oils, per liter of volume capacity, eighty centavos; A tax cannot be imposed unless it is supported by the clear and express language of a
statute; 19 on the other hand, once the tax is unquestionably imposed, "[a] claim of
exemption from tax payments must be clearly shown and based on language in the
(c) Naphtha, gasoline and all other similar products of distillation, law too plain to be mistaken." 20 Since the partial refund authorized under Section 5,
per liter of volume capacity, one peso and six centavos: Provided, RA 1435, is in the nature of a tax exemption, 21 it must be
That on premium and aviation gasoline, the tax shall be one peso construed strictissimiJuris against the grantee. Hence, petitioner's claim of refund on
the basis of the specific taxes it actually paid must expressly be granted in a statute for the refund shall be the amounts deemed paid under Sections 1
stated in a language too clear to be mistaken. and 2 of R.A. No. 1435.

We have carefully scrutinized RA 1435 and the subsequent pertinent statutes and ACCORDINGLY, the decision in G.R. Nos. 83583-84 is hereby
found no expression of a legislative will authorizing a refund based on the higher MODIFIED. The private respondent's CLAIM for REFUND is
rates claimed by petitioner. The mere fact that the privilege of refund was included in GRANTED, computed on the basis of the amounts deemed paid
Section 5, and not in Section 1, is insufficient to support petitioner's claim. When the under Sections 1 and 2 of R.A. No. 1435, without interest. 24
law itself does not explicitly provide that a refund under RA 1435 may be based on
higher rates which were nonexistent at the time of its enactment, this Coure cannot We rule, therefore, that since Atlas's claims for refund cover
presume otherwise. A legislative lacuna cannot be filled by judicial fiat. 22 specific taxes paid before 1985, it should be granted the refund
based on the rates specified by Sections 1 and 2 of R.A. No.
The issue is not really novel. In Commissioner of Internal Revenue vs. Court of 1435 and not on the increased rates under Sections 153 and 156
Appeals and Atlas Consolidated Mining and Development of the Tax Code of 1977, provided the claims are not yet barred
Corporation 23 (the second Atlas case), the CIR contended that the refund should be by prescription. (Emphasis supplied.)
based on Sections 1 and 2 of RA 1435, not Sections 153 and 156 of the NIRC of
1977. In categorically ruling that Private Respondent Atlas Consolidated Mining and Insular Lumber Co. and First Atlas Case
Development Corporation was entitled to a refund based on Sections 1 and 2 of RA
1435, the Court, through Mr. Justice Hilario G. Davide, Jr., reiterated our Not Inconsistent With Rio Tuba
pronouncement in Commissioner of Internal Revenue vs. Rio Tuba Nickel and
Mining Corporation:
and Second Atlas Case
Our Resolution of 25 March 1992 modifying our 30 September
1991 Decision in the Rio Tubacase sets forth the controlling Petitioner argues that the applicable jurisprudence in this case should
doctrine. In that Resolution, we stated: be Commissioner of Internal Revenue vs. Atlas Consolidated and Mining Corp. (the
first Atlas case), an unsigned resolution, and Insular Lumber Co. vs. Court of Tax
Appeals, an en banc decision. 25 Petitioner also asks the Court to take a "second look"
Since the private respondent's claim for refund covers specific at Rio Tuba and the second Atlas case, both decided by Divisions, in view
taxes paid from 1980 to July 1983 then we find that the private of Insular which was decided en banc. Petitioner posits that "[I]n view of the
respondent is entitled to a refund. It should be made clear, similarity of the situation of herein petitioner with Insular Lumber Company
however, that Rio Tuba is not entitled to the whole amount it (claimant in Insular Lumber) and Rio Tuba Nickel Mining Corporation (claimant
claims as refund. in Rio Tuba), a dilemma has been created as to whether or not Insular Lumber, which
has been decided by the Honorable Court en banc, or Rio Tuba, which was decided
The specific taxes on oils which Rio Tuba paid for the aforesaid only [by] the Third Division of the Honorable Court, should
period were no longer based on the rates specified by Sections 1 apply." 26
and 2 of R.A. No. 1435 but on the increased rates mandated under
Sections 153 and 156 of the National Internal Revenue Code of We find no conflict between these two pairs of cases. Neither Insular Lumber Co.
1977. We note however, that the latter law does not specifically nor the first Atlas case ruled on the issue of whether the refund privilege under
provide for a refund to these mining and lumber companies of Section 5 should be computed based on the specific tax deemed paid under Sections
specific taxes paid on manufactured and diesel fuel oils. 1 and 2 of RA 1435, regardless of what was actually paid under the increased
rates. Rio Tuba and the second Atlas case did.
In Insular Lumber Co. v. Court of Tax Appeals, (104 SCRA 710
[1981]), the Court held that the authorized partial refund under Insular Lumber Co. decided a claim for refund on specific tax paid on petroleum
Section 5 of R.A. No. 1435 partakes of the nature of a tax products purchased in the year 1963, when the increased rates under the NIRC of
exemption and therefore cannot be allowed unless granted in the 1977 were nor yet in effect. Thus, the issue now before us did not exist at the time,
most explicit and categorical language. Since the grant of refund since the applicable rates were still those prescribed under Sections 1 and 2 of RA
privileges must be strictly construed against the taxpayer, the basis 1435.
On the other hand, the issue raised in the first Atlas case was whether the claimant
was entitled to the refund under Section 5, notwithstanding its failure to pay any
additional tax under a municipal or city ordinance. Although Atlas purchased
petroleum products in the years, 1976 to 1978 when the rates had already been
changed, the Court did not decide or make any pronouncement on the issue in that
case.

Clearly, it is impossible for these two decisions to clash with our pronouncement
in Rio Tuba and second Atlas case, in which we ruled that the refund granted be
computed on the basis of the amounts deemed paid under Sections 1 and 2 of RA
1435. In this light, we find no basis for petitioner's invocation of the constitutional
proscription that "no doctrine or principle of law laid down by the Court in a decision
rendered en banc or in division may be modified or reversed except by the Court
sitting en banc. 27

Finally, petitioner asserts that "equity and justice demand that the computation of the
tax refunds be based on actual amounts paid under Sections 153 and 156 of the
NIRC." 28 We disagree. According to an eminent authority on taxation, "there is no
tax exemption solely on the, ground of equity." 29

WHEREFORE, the petition is hereby DENIED and the assailed Decision of the
Court of Appeals is AFFIRMED.

SO ORDERED.